FORT SASKATCHEWAN - An agreement with two firms to refine bitumen collected as provincial royalties could serve as a template for future projects that aim to ensure at least 60 per cent of the oilsands output creates jobs and value-added products in Alberta, Energy Minister Ron Liepert said Wednesday.

“I’m optimistic as we move forward it will bring other opportunities down the road,” he said.

While there has been criticism that the province is dabbling in the free market through its Bitumen Royalty In Kind (BRIK) program, Liepert defended the move and challenged the perception of market intervention.

“This is the Crown’s share. All we are doing is entering into an agreement to have it refined locally rather than somewhere else,” he said.

Ian MacGregor, chairman of North West Upgrading, said every major oil company upgrades and refines its bitumen production, either in Alberta or the U.S.

“There is only one producer who is not, and by 2025 the largest one will be the province. Alberta is making the same decision that every other producer is making,” he said.

“It is a good idea to get more money for your products.”

Under BRIK, the province said it would make available 75,000 barrels per day of bitumen, with 37,500 bpd going to Phase 1 of the North West plant, and the balance going to Phase 2 if the first proves to be economic.

The province could have a total of 400,000 bpd of BRIK bitumen available by 2030 as oilsands plants pay off construction costs and start to contribute the standard 25-per-cent royalty.

CIBC analyst Andrew Potter said in a note that an initial look at the project, based on an estimated construction cost of $5 billion and capacity of 50,000 barrels per day, suggests metrics of $100,000 per flowing barrel — “an expensive price tag, in our view.”

He said more detail is expected to be known when Canadian Natural releases fourth-quarter earnings in a few weeks.

Bob Dunbar, president of oilsands consultant Strategy West Inc., agreed the North West upgrader looks costly, but its unique technology and products make comparisons difficult.

“It’s a very expensive upgrader, but part of the reason for that is it goes a little beyond conventional upgrading,” he said.

Upgraders at oilsands miners Syncrude and Suncor Energy make synthetic crude, he noted, which must be further refined to make consumer-ready products.

“The primary product from North West is a low-sulphur diesel, so it’s a refined product. ... It’s possible that the margin is sufficient to justify the upgrader.”

He added the uniqueness of the technology also adds an element of risk to the project.

Under the 30-year deal between the province and North West/CNRL, the equity partners will be able to recoup their investment, pay operating costs and achieve a return on capital through tolls similar to those paid by pipeline users.

As the 75-per-cent supplier of bitumen, the province will pay three-quarters of the costs and receive three-quarters of the benefits, officials said.

“This is a great opportunity for Canadian Natural to be part of a project that not only supports the Alberta government’s efforts to create value by keeping refining in the province, but also supports our marketing strategy to ensure conversion capacity for our products and create shareholder value,” said Canadian Natural president Steve Laut said in a news release.

Diesel fuel will comprise nearly half of the facility’s output, initially about 5.7 million litres per day, with the remainder to include other high-demand products such as diluents, naphtha and natural gas liquids.

The project will be the only one in the world to combine gasification technology with CO2 management, North West said.

The facility will capture 1.2 million tonnes of CO2 per phase, which will be sold to Enhance Energy Inc.’s Alberta Carbon Trunk Line for use in enhanced oil recovery.

Enhance president Susan Cole said her project will start with CO2 from the Agrium fertilizer plant and then add the North West gas by mid-2014. And she hopes other suppliers will tap in.

“We’d certainly like Keephills 3,” she said, referring to the new coal-fired Capital Power/TransAlta plant that is part of the Project Pioneer’s carbon capture plan.

She noted her firm’s pipeline’s route travels east of Elk Island Park, but then swings westward, with an eye to the potential CO2 sources in the Wabamun area’s power plants.

Mike Hudema of Greenpeace Canada said the upgrader will cause more industrial pollution in the area, adding that carbon capture and storage is a “risky, expensive technology” that creates more problems than solutions.

With files from the Calgary Herald

dcooper@edmontonjournal.com