Newspaper baron David Black didn't make his millions being a pessimist. When people told him his business was dying, he went into the market even deeper. Most of his gambles paid off.
This is why Mr. Black does not sound defeated in the face of the rush of cynicism and doubt that has greeted his out-of-the-blue plan to build a $13-billion oil refinery on the West Coast of B.C. He concedes that he'd also be skeptical of a newspaper executive's bid to plunge into the oil game with virtually no financial backing.
I sympathize with Mr. Black. British Columbia is a difficult place to try and be a visionary, especially if it involves actually having to build something. People don't want trees cut down, gas extracted from the ground, dams or pipelines constructed. And yet these same anti-development advocates have no problem hopping into their gas guzzlers to drive home after their protests are over.
For that reason alone I'd love to see Mr. Black's idea succeed. Unfortunately, his dream is likely to be crushed under the twin weights of politics and economics.
Thirteen billion is a lot of money to raise, especially with profit margins as thin as those that exist in the oil refining game. There is a reason there hasn't been a new refinery built in Canada since the early 1980s and that the total number of operations has shrunk by more than 20 since that time. It's been cheaper to increase capacity through additions to existing plants than build new ones.
The price of crude is the biggest cost a refinery faces. Right now, with that price well below peak levels, many refineries are making out like bandits. But few expect that to last. Beyond that, many believe that oil demand has peaked, leaving the industry with massive overcapacity. That glut, according to The Economist, has caused some high-profile refinery casualties, especially in Europe and the U.S.
There are more than 60 refineries sitting idle on the Gulf Coast alone.
Sure Asia may be an exception in terms of surging energy demand, but countries like China are building massive refineries of their own to upgrade oil. It is far cheaper than paying for refined oil from elsewhere, which is why the Chinese are not likely to embrace Mr. Black's scheme.
Additionally, it is more profitable for Canadian energy companies to export crude, rather than refined oil, which is another reason why it will be exceedingly difficult for Mr. Black to rustle up the kind of deep-pocketed investors it would take to pull this deal off.
In a Conference Board of Canada report last year on the state of Canada's oil refining sector, economist Todd Crawford noted that labour productivity in this area has been in serious decline in recent years.
"Our findings suggest that even if development and production of oil resources continue to grow strongly in Canada, the future economic benefits, job creation and profits from oil refining and processing are much less assured," he wrote.
Beyond the questionable economics of Mr. Black's plan lie the politics.
As mentioned, B.C.'s environmental crusaders and native activists are not going to abandon their fight against the Northern Gateway project. The crude that Mr. Black wants to refine on the B.C. coast, still needs to traverse countless streams and pristine valleys by way of pipeline before it gets there. And that remains a non-starter for many in the province.
And then there are the concerns being expressed about the huge amount of greenhouse gases a refinery the size Mr. Black envisions would emit; more ammunition for the environmentalists.
The B.C. NDP, meantime, has already announced that the refinery proposal does not change its opposition to Northern Gateway. If the New Democrats form government in B.C. next spring, as every poll suggests will likely happen, then any further discussion of Mr. Black's plan becomes moot.
Mr. Black needs to be applauded for trying to imagine a solution to obstacles blocking the way to the export of Canadian oil to rich Asian markets. But his novel idea is likely more pipe dream than anything else.