The Industrial and Commercial Bank of China has agreed to become an investor and financial advisor for plans by newspaper magnate David Black to build a massive new $25-billion refinery on the British Columbia coast.
On Thursday, Mr. Black said a memorandum of understanding has been signed between the refinery project, called Kitimat Clean Ltd., and the Chinese bank, which has agreed to “cooperate in the financing of the proposed Kitimat refinery and associated pipelines and other elements.”
In other words, ICBC will act as an investment banker to organize a syndicate of lenders, and may lend its own money to a project that has been met with deep skepticism in the Canadian energy industry. “They have their own money to invest,” Mr. Black said in an interview from Beijing, although few details – including potential dollar figures – were settled in the early-stage agreement.
“We didn’t get into specifics like that,” he said.
Kitimat Clean and ICBC will work “toward a comprehensive agreement to finance” the refinery, said Liu Yanping and Huang Jifa, the bank’s deputy head of corporate banking and deputy head of investment banking, in a joint statement.
Mr. Black has no experience in building a refinery and many energy experts think the idea is crazy, given that the enormous challenges of building and operating a refinery have meant no new refinery has been built in North America in decades.
But Mr. Black said ICBC has been willing to make a preliminary commitment because “the common sense is obvious here.” He acknowledged that he has received “the odd look” from bankers when he, a newspaperman, pitches an oil refinery. But, he argued, “the only odd thing about all of this is why the Calgary oil patch is so reluctant to engage. This is a really good investment opportunity. There’s a lot of money to be made.”
Mr. Black has been working with Oppenheimer Investments Group, a Swiss firm whose secretive nature has raised questions in British Columbia. In March, Richard Cooke, Oppenheimer's senior managing director for the Americas and Africa, said initial deals are in place to cover the entire cost of the refinery. "We have arranged and we have the funding committed to do this whole project," he said at the time.
The deal with ICBC, China’s largest bank, appears to fall well short of that mark. Mr. Black’s plans received a setback when Oppenheimer co-founder Samuel Grossmann suddenly died a week after the March announcement.
“We lost time and we lost a good man who was very smart, had a lot of moxie, a lot of drive and would have helped out on all of the negotiations a lot,” Mr. Black said.
He acknowledged the ICBC agreement is just one small step and “there’s about a million to go.” Mr. Black’s lack of refining expertise has often been cited as one of many reasons the Kitimat plan won’t work. Mr. Black said he is “functioning somewhat like a board chairman who doesn't necessarily have deep industry experience but has broad business skills. The difference is I am relying on consultants rather than line executives and other board members.”
Mr. Black has argued that a 550,000 barrel-per-day refinery in Kitimat would solve some of the immense controversy confronting Enbridge Inc. with its Northern Gateway project. Where some have decried Gateway, a raw crude export project, for the few benefits it would provide B.C., the refinery would create some 3,000 permanent jobs. Mr. Black has also argued that the shipment of refined goods imposes less risk on the B.C. marine environment, since products like gasoline and diesel are more likely to evaporate in case of a tanker accident, whereas diluted bitumen from the oil sands is prone to sinking, spill experts have said.
That diluted bitumen would, however, still need to be piped to the coast. Nikki Skuce, who has campaigned against the Gateway project, argued that a refinery does not change the risks to the northern B.C. landscape or to northern Alberta, where the crude would flow from the oil sands.
Mr. Black said he soon hopes to begin conversations with first nations about “their concerns and the opportunities for them in all this.” He must also face down numerous commercial issues, including the need to find Asian gasoline and diesel buyers.
Perhaps more importantly, he must also convince companies to sell him Alberta crude. The oilpatch has sought West Coast exports because it wants to access the higher international price of oil. Selling to a refinery inside Canada is unlikely to achieve that goal. Mr. Black, however, is skeptical West Coast exports will happen through a project like Gateway. “The way to get the pipeline approved is to build a refinery,” he said.
He declined to say how much he has personally invested in a project whose preliminary engineering designs have been completed. Chinese firms are likely to take some ownership position, he said, although control would remain in Canadian hands.
China is critical to the refinery plan. If it can be built, virtually all of the refinery’s products will go to Asian markets – and much of it will be built overseas as well. Kitimat’s location at the head of Douglas Channel means “we can build a 300-foot high distillation tower, put it one in one piece on a ship” and sail it to B.C. for installation, Mr. Black said.