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Alberta group seeks offshore partners for upgrader

Upgrader Alley in Alberta.

A consortium of the majority of Alberta's first nations, along with a group of private investors, is turning to China and India to secure partners for a proposed upgrader after the provincial government declined to sign on as its anchor customer.

The Alberta First Nations Energy Centre (AFNEC), which was chaired by former Syncrude Inc. chief executive officer Eric Newell, wants to build a $6.6-billion upgrading and refining facility near Edmonton. AFNEC believes it needs a secure supply of bitumen for the project to raise the $200-million necessary for further engineering.

It was negotiating with the province, hoping Alberta would send bitumen its way as part of the government's bitumen royalty-in-kind (BRIK) program.

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Alberta wants to process two-thirds of the province's bitumen inside its borders, rather than shipping it to countries such as China and the United States where it can be processed into more valuable products like diesel and gasoline. New upgraders are needed to meet this goal as the oil sands expand. Such a deal would also align AFNEC's interests with the province and the energy industry, a move that could help ease tension as the environmental debate over the oil sands intensifies.

AFNEC's owners had a "conditional commitment agreement" for Alberta to provide 93,000 barrels of bitumen per day to the upgrader, but government backed out earlier this month, according to Ken Horn, president of Teedrum Inc., the investor group partnered with AFNEC.

However, Bart Johnson, a spokesman for Alberta Energy, said negotiations never reached that stage and the project was not very advanced.

Alberta signed a BRIK agreement with North West Upgrading Inc. last February under Ed Stelmach's government, which weighed on the government's AFNEC decision.

"When we got into office and looked hard at the economics ... we were not convinced that the risk-benefit ratio was appropriate, particularly because we are committed to a significant upgrader project," Alberta Energy Minister Ted Morton told reporters Friday. "Our immediate objective is to ensure the success of North West, to see how that goes and then move on from there rather than jump into a second upgrader deal right away."

With Alberta sidelined, AFNEC is turning to Asia.

The group's liaison is in Beijing this week, Mr. Horn said. "[He is]... seeing what their interest is in coming along for the investment without the BRIK barrels."

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One of China's state-owned energy company, Sinopec, has shown interest, as has China National Technical Import and Export Corp., Mr. Horn said.

Engineers India Ltd. spent between $20-million and $25-million studying the project, and its investment could be turned into equity, he said.

Alberta signed on with North West because it believed the project was viable, and North West already had regulatory approval, secured land for the facility, found a major partner in Canadian Natural Resource Ltd., and spent $300-million studying the project, Mr. Johnson said. AFNEC's proposal lacked North West's advantages, he said.

With files from Dawn Walton

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