UPDATE 1-New Canadian oil refinery to be profitable: backer

Thu Aug 23, 2012 4:15am IST

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By Scott Haggett

CALGARY, Alberta Aug 22 (Reuters) - The press baron backing a proposed C$13 billion ($13.1 billion)refinery on Canada's west coast to process crude oil shipped on Enbridge Inc's Northern Gateway pipeline said on Wednesday he's confident the project will be economic.

David Black, whose Black Press Ltd runs 150 newspapers in Canada and the United States, last week said he wants to build what would be Canada's largest refinery at Kitimat, British Columbia, near the planned terminus of Enbridge's planned 525,000 barrel-per-day Northern Gateway line.

Black, who has spent a year studying the potential of a refinery capable of processing 550,000 barrels of crude per day, said he sees the facility as a way to lower the environmental risks of shipping heavy crudes from Canada's oil sands by tanker and to provide jobs in the province's north.

Black, whose company Clean Kitimat Ltd is looking to complete environmental studies at the facility site over the next two years, said he is certain the refinery will be profitable.

"Is it economic? Yes it is," Black said in an interview. "The budget is pretty solid I think. I employed two different consultants and they came up with basically the same numbers and I ran them by one of the big oil companies and they confirmed the numbers."

Black's plan is the latest twist in the Northern Gateway saga, which has pitted governments against each other, riled many aboriginal communities in British Columbia and dominated headlines in Canada. Under current plans, tankers would take diluted bitumen from an oil port at Kitimat and ship it to California and across the Pacific.

While Black will pay the costs of the environmental studies, he is looking for investors willing to fund construction of the massive refinery. While no company has yet stepped forward to back the proposal, he expects there will be more interest as his plans move forward.

"I want to prove to them I can get the permits and that will remove a lot of the question marks around this," Black said. "And the second thing I want to do is more work on the offshore marketing of the refined fuels ... and talk to the oil patch about getting contracts with them. Once I've done that then the whole thing is financeable."

Most of the fuel produced at the site is expected to go to Asian markets.

The plant would produce 240,000 barrels a day of diesel, 100,000 of gasoline and 50,000 of kerosene or aviation fuel, from 550,000 bpd of diluted oil sands bitumen. The diluent, an ultra light oil, would be stripped from the bitumen and shipped back to Alberta.

Construction would start in 2014 and take six years.

Black also said he does not expect construction costs to exceed his C$13 billion forecasts. He plans to have most of the facilities modules built in Asia then shipped to Kitimat for assembly at the site.

"The consultants built in quite a contingency (to the cost estimate)," he said. "The price will go up or down depending on the current price of steel, but the whole approach here is to tender as much of the construction as we can offshore, to low wage areas that are technically competent."

Enbridge has not commented on the proposal other than to say it remains committed to the regulatory process for reviewing Northern Gateway, which would move oil sands heavy crude over a 1,177-km (731-mile) route.

If built, the refinery would be larger than Irving Oil Ltd's 300,000 bpd refinery in Saint John, New Brunswick, now Canada biggest, and one of the largest anywhere.

"It's a big refinery," Black said. "We are talking about revenues in the order of C$22 billion a year. It would be one of the 10 biggest in the world." ($1 = $0.99 Canadian)

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