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European Business Correspondent Eric Reguly (Fred Lum/The Globe and Mail)
European Business Correspondent Eric Reguly (Fred Lum/The Globe and Mail)

Eric Reguly

Alberta has failed on the economic diversification front Add to ...

This is part of Fort McMoney, an interactive documentary game that lets you decide the future of the Alberta oil sands, and shape the city at its centre. Joining the fray – and sharing their views along the way – are Globe columnist Margaret Wente and business reporter Eric Reguly. Read the introductory columns written by Mr. Reguly and Ms. Wente.

This week they debate the question: Should Canada refine our own oil? Read Ms. Wente’s view.

Alberta’s oil sands industry always struck me as remarkably unambitous, which is absolutely the wrong thing to tell Albertans. Their view is that they’ve created a production marvel from virtually nothing. Anyone can suck conventional oil out of the ground; it took real technological talent to turn oily guck trapped in an ocean of sand into a product that could be squirted into a pipeline.

All true, but Alberta failed on the economic diversification front. Just think what China, South Korea or India would have done with such a vast resource. The oil sands would be ringed with upgraders, refineries and factories that would make everything from diesel fuel to plastics. The idea of adding value to the oil sands output has gone pretty much nowhere in Alberta. About half the output is upgraded in Alberta, a proportion that’s falling fast as production soars.

In effect, the oil sands are a pump and dump scheme – pump into a pipeline and export it to the United States. That strategy would be reinforced if the transborder Keystone XL pipeline is built.

Alberta argues that the new-refinery numbers do not add up. Profit margins are better when existing refineries (largely American) are modified to upgrade heavy oils and turn them into a broad range of value-added products. The argument is flawed. Alberta is, in fact, building upgraders, though not enough of them. As the technology improves, as oil prices remain high and as the Canadian dollar falls, the risks of building upgraders and refineries are falling. Time to run the numbers again. Exporting raw oil is exporting skilled jobs and income. That’s the opposite of ambitious.

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Follow on Twitter: @ereguly

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