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Ed Stelmach speaks to the Rotary Club in Edmonton in January, 2011.JOHN ULAN/The Canadian Press

Alberta should process more of its oil-sands bitumen within its borders to ease pipeline bottlenecks, former premier Ed Stelmach says.

Facing a shortage of pipeline capacity and increasing opposition from environmental groups that oppose the oil sector with "religious fervour," Alberta is better off exporting refined products, rather than raw bitumen, that are less vulnerable to protest, he said.

"I believe it is in our interest as Albertans and Canadians to aggressively pursue every opportunity in value-added, to add value to our resources here in the province of Alberta," Mr. Stelmach, who left office in 2011, said in a speech to the Canadian Club's Edmonton chapter Wednesday. Doing so, he said, would "move some of our bitumen up the value chain."

Bitumen can be exported raw, though sold at a lower price, or upgraded and refined before export. Alberta currently does both, but more and more is sent out raw.

Meanwhile, the "differential" between global benchmark oil prices and the price paid for Alberta's bitumen has widened. An upgrader, Mr. Stelmach says, would provide employment but also undercut environmentalists' arguments by giving Alberta refined oil to sell at a higher price, Mr. Stelmach argued.

"It is [creating] jobs, but it's reducing that differential, because it's costing us a fortune right now in the province," he said.

His successor, Alison Redford, has shown little interest in pursuing upgrader projects, instead pushing for new pipelines, but Mr. Stelmach remains optimistic. "Oh, I think you'll find that the position will be changing, because it's a different climate," he said.

Energy Minister Ken Hughes said Alberta is best served by exporting both raw bitumen and upgraded, refined petroleum products. "It's a balance … that diversity of markets actually hedges us against changes in the commodity market," he said in an interview.

As premier, Mr. Stelmach struck a deal for a new upgrader in Redwater, Alta. Construction is expected to begin this year. But upgraders or refineries require major investment from the private sector to move forward, Mr. Hughes said.

"You have to have private-sector players who are prepared to step up and actually take on some of the risk of an upgrader or a refinery. We appear not to [have that now]," other than in Redwater, he said.

New refineries or upgraders risk overheating Alberta's economy, the minister argued, but could be built in other provinces. "I would make the case that adding value anywhere in Canada is not just good for Canada, it's good for Alberta," he said.

But Mr. Stelmach, who served as premier from 2006 to 2011, struck a less conciliatory tone, saying Alberta needs to remind the rest of Canada about its economic clout. "Alberta is a tremendous contributor to all provinces in equalization. We are paying for lunch," he said.

On Wednesday, Mr. Stelmach said he expects Alberta's oil sands bitumen production to exceed expectations, and for the province to continue to face a pipeline capacity shortage. The province will instead look to ship its oil sands bitumen by rail, while repurposing pipelines that are already built, he said.