InterviewFeedstock worries rise on Sinopec/Canada oil sands deal

16 April 2010 16:43  [Source: ICIS news]

Sinopec bought oil sands stakeBy Stefan Baumgarten

TORONTO (ICIS news)--Sinopec’s $4.6bn (€3.4bn) deal this week to buy a stake in Canadian oil sands firm Syncrude has triggered concerns about the influence the Chinese state-owned energy and petrochemicals major may gain over Canadian oil resources, including chemical feedstocks, an executive of a trade group said on Friday.

Sinopec, Canadian politicians and commentators said, could gain a veto over where the upgrading of oil sands and bitumen takes place – a particular concern of Canada's chemicals industry, which is looking to olefins-rich off-gases generated in upgrading oil sands as an important feedstock source for domestic chemical production.

Sinopec’s plan to acquire ConocoPhillips’ stake in Syncrude came shortly after PetroChina earlier this year sealed a deal to buy a stake in another Canadian oil sands project.

At the same time, Canadian energy firm Enbridge has put forward plans for a pipeline from the oil sands industry in Alberta province to the coast of British Columbia province – paving the way for Canadian oil exports to China and elsewhere in Asia.

Canadian chemical producers have repeatedly underlined the importance of the oil sands industry for chemicals, and the trade group Chemistry Industry Association of Canada (CIAC) was quick to note the Sinopec deal and the debate it triggered on its website.

David Podruzny, CIAC vice president of business and economics, told ICIS that Canada’s chemical industry was concerned about where oil sands upgrading took place – regardless of the Sinopec deal, which may in the end have only limited implications.

“We have a concern, to the extent that the economics in Canada favour exporting bitumen”, instead of upgrading and processing it in Alberta, he said.

Reduced upgrading in Alberta, would, in turn, result in reduced opportunities for value-added chemical production from oil sands in Canada, Podruzny said.

However, decisions on where the upgrading of Canadian oils sands takes place – in Canada, the US or even in China – were determined by energy economics, and not by the chemical industry, he said.

At this time - with only a narrow price range between processed synthetic crude oil and bitumen – energy economics favoured upgrading in the US, while upgraders in Alberta were not being built or postponed.

“Putting a coker on a [US] refinery is cheaper than building a new upgrader in Alberta”, and as a result new pipelines from Canada to the US would be filled with bitumen to be upgraded at US refineries - rather than with synthetic crude oil processed in Canada.

While the economics for upgrading oil sands in Alberta could be improved, for example through tax and other fiscal measures, the chemical industry itself could not induce those changes, he said.

“Government could do certain things to encourage where upgrading takes place,” Podruzny said.

As an example, he pointed to US tax rules on accelerated capital cost allowances for investments to modify a refinery to handle heavy oil.

“That encourages American refineries to add a coker to their facilities”, inducing them to import oil sands and bitumen from Canada for processing in the US, he said. 

Similarly, China’s government policies favoured upgrading raw materials and resources within that country. China had, for example, placed restrictions on exporting resources and raw materials, he added.

In Canada, however, the energy industry operated on a free market basis.

This applied not just to decisions on where oil sands upgrading takes place, but also, for example, to natural gas and the extraction of natural gas liquids (NGLs) - the key feedstock for Alberta’s petrochemicals industry, Podruzny said.

If energy economics made it more attractive for energy firms to export Canadian gas without first extracting the NGLs, those were lost as a feedstock opportunity for chemicals production in Canada, he said.

($1 = €0.74)

For more on Sinopec and other producers visit ICIS company intelligence
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By: Stefan Baumgarten
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