Is This $10 Billion Project the Key to Unlocking Canada’s Oil Riches?

A new refinery in British Columbia could ease environmental concerns over shipping oil abroad.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Although Canada has the world’s third-largest oil reserves, it’s having trouble getting that oil out. Not only are the oil sands expensive to extract, but getting the oil out of Alberta and to customers is proving to be an even more difficult venture.

Pipeline projects like TransCanada’s (TSX: TRP)(NYSE: TRP) Keystone XL project, Enbridge’s (TSX: ENB)(NYSE: ENB) Northern Gateway, and Kinder Morgan Energy Partners’ (NYSE: KMP) Trans Mountain are all facing opposition. However, that opposition could begin to fade away if a proposed $10 billion refinery is built in British Columbia.

Laundry list of concerns

Environmentalists have long been opposed to the development of the oil sands. The oil there has a larger carbon footprint than conventional oil, and its physical footprint is also rather large when it’s mined. Then, of course, diluted bitumen is tougher to clean up than traditional oil when spilled. It’s reasons like these that are fueling opposition to pipeline projects that will take the oil from Alberta to customers in the U.S. and Asia.

The projects from Enbridge and Kinder Morgan Energy Partners in particular have the added environmental issue that the oil would be shipped by boat through sensitive coastal waters before heading to Asia. The concern here is that an oil spill would have a devastating effect on the livelihood of those living along the coast, and it is one that the recently formed company Pacific Future Energy would like to address.

How it helps

The company is proposing to build a $10 billion oil sands refinery in British Columbia. It would be the world’s greenest refinery, as it would use advanced European refining technology. It would take the bitumen and turn it into gasoline, diesel, kerosene, and other products that would cause less harm to the environment if spilled. The company could then export these refined products to Asia instead of the oil, which would yield higher revenue than just shipping the oil.

This project is among a number of refinery projects that are on the drawing board for western Canada so it’s not a sure thing at this point. In addition, the $10 billion price tag is just for the first phase of development to build the initial capacity of 200,000 barrels per day. Each additional phase would cost another $6 billion for 200,000 barrels per day of capacity, with the plan to eventually process one million barrels per day. However, this project and others like it are being proposed with the hope that refining the oil first would ease some of the environmental concerns that many have with shipping bitumen overseas.

By reducing the opposition to pipeline projects it also would help to remove the lid on the price of oil in western Canada, which is forcing producers to ship it by rail. Because rail is a more expensive option, it’s slowing down the growth of oil sands production. In fact, these high costs recently put the brakes on one major oil sands mining project as the partners on that project just didn’t see enough takeaway capacity coming online to bring the price of oil up to the point where the project could earn a compelling return.

The only way Canada will be able to unlock the full value of its oil sands is to be able to more freely move that oil from Alberta to customers around the world. While rail is helping in the short term, it’s a much more expensive, and potentially riskier, method of transportation.

The bottom line is that refineries like the one proposed by Pacific Future Energy could very well be the key to unlocking Canada’s oil riches. These projects could help end the opposition to pipeline projects from Enbridge and Kinder Morgan that have been holding back the free flow of oil.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo doesn’t own shares of any of the companies mentioned in this article.

More on Investing

Profit dial turned up to maximum
Dividend Stocks

1 Undervalued Canadian Dividend Stock to Buy for TFSA Passive Income and Total Returns

This cheap Canadian energy stock provides an attractive dividend yield for TFSA passive income and a shot at some big…

Read more »

money cash dividends
Dividend Stocks

Want Passive Income? 1 TSX Stock for $8/Day in Dividends

If you need cash right away, then this TSX stock can make you passive income from a stable dividend that…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

Canadian dividend stocks make for great long-term buy-and-hold investments.

Read more »

value for money
Dividend Stocks

3 Incredibly Cheap Dividend Stocks to Buy for Dependable Passive Income

Now is an excellent time to load up on Canadian dividend stocks. Here are top picks that are all trading…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Simple TSX Stocks to Buy With $25 Right Now

Canadians with capital of as low as $25 can purchase three simple stocks right now and earn recurring passive income…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

2 No-Brainer U.S. Stocks for Investors in August

Here are two undervalued U.S. stocks to diversify your investment portfolio. They both pay safe and growing dividends!

Read more »

TIMER SAYING TIME FOR ACTION
Tech Stocks

Got $300? 2 Simple TSX Stocks to Buy Right Now

Investing whatever little sum you have saved up as soon as possible is one of the best ways to keep…

Read more »

money cash dividends
Stocks for Beginners

Grow Your $2,000 and Get $160 Income, Too: Buy 2 TSX Stocks Now

What if a stock can give both dividends and growth? You can have your cake and eat it too with…

Read more »