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oil and gas

Alberta upgrades or refines about 60 per cent of its oil, but that figure is falling.Brett Gundlock/ Boreal Collectiv/The Globe and Mail

A group of Alberta municipal politicians and energy companies is urging that more oil and gas be processed in the province, reviving a long-simmering debate on how best to leverage the Alberta boom.

The launch of the campaign, dubbed Alberta Plus, on Tuesday included the release of a report by Ronald Schlenker, a senior instructor in economics at the University of Calgary. His report argues that upgrading and refining more of Alberta's petroleum products before exporting them – known as a "value-added" approach – could create 18,000 new jobs and boost the provincial gross domestic product by billions of dollars.

The case for value-added processing in Alberta is complicated, however. The province has high wages and a skilled labour shortage, with some economists arguing it is better to simply focus on extraction and export. Large value-added projects also risk driving up inflation, which the report did not factor in. In an interview, the author said he believes the inflationary effect would be negligible.

But inflation could increase costs for other energy producers and cut into royalties paid to the provincial government. And some major facilities require government assistance to get off the ground.

Still, the proponents who commissioned the consultant's report say Alberta needs to rethink its priorities, and they hope their campaign will spark a grassroots discussion.

"We don't want to lose the baby with the bathwater," said Linda Osinchuk, mayor of Strathcona County, who has pushed for more value-added projects as chair of the so-called Industrial Heartland group, representing a series of major facilities northeast of Edmonton. "We're here to support the development of industry and products here, and to reassure investors it's a great place to come."

The argument isn't just about bitumen. Williams Energy Canada, for example, is building a $900-million plant that will convert low-cost propane, produced in the oil sands, to plastics. The company is among those backing the Alberta Plus campaign.

But the debate has focused largely on upgrading bitumen to crude oil. Alberta upgrades or refines about 60 per cent of its oil, but that figure is falling, according to the province. One project, the BA Energy Inc. upgrader, is partly built but stalled because the owner's land assets near Fort McMurray have been frozen by the province, meaning they cannot be used or leveraged to raise capital.

Such red tape blocks value-add projects, said Opposition Leader Danielle Smith, head of the Wildrose Party. "I think most Albertans agree we should try to see as much upgrading and refining in the province as is economically feasible," she said.

The New Democratic Party has long called for more value-added processing. "We want to make sure the jobs and the investment takes place here," Leader Brian Mason said, adding that former premier Peter Lougheed supported upgrading and refining within Alberta.

Provincial Energy Minister Ken Hughes pointed to some of the companies backing the Alberta Plus campaign as examples that the province's regulatory climate already encourages construction of upgraders and refineries. Williams, for example, didn't need government help, he said. "If other companies have suggestions to make, I'm all ears," Mr. Hughes said.

The issue of value add might not make sense for Alberta, said Stephen Gordon, an economics professor at Quebec's Laval University. He said the economics of refineries have always been "dodgy," leaving capital investments a risky bet.

"Anybody can import oil and anybody can export gasoline. That's a pretty competitive market," he said. "… But if we don't have any kind of inherent advantage, what's the point?"