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Outside the box

Pipeline projects may be stalled, but that hasn't stopped other proposals from coming forward – including some that were once dismissed as unworkable, reports Brent Jang

David Black unscrews the lid, looks inside the glass jar and turns it upside down to prove the tar-like bitumen won't spill out.

The newspaper publisher, seated at a wooden desk at his Victoria waterfront house, smiles at the outcome. No leakage, no mess inside his home office.

Mr. Black's science demonstration is meant to support his contention that bitumen from Alberta can be safely transported by rail to a refinery planned for British Columbia's north coast.

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"The industry, Alberta and Canada need a way to get that Albertan oil to the Pacific," he said in an interview last week as logs crackled in his fireplace. "British Columbians just abhor the thought of having pipelines that would carry heavy oil to tankers in the ocean. But I don't think we ought to abandon oil. I feel that we've got to find a solution."

The rail-to-refinery plan backed by Mr. Black's Kitimat Clean Ltd. is one of three proposals that are seeking to overcome widespread B.C. opposition to oil exports.

The ventures are backed by big names in business and politics: The Aquilini family (owner of the Vancouver Canucks) is involved in a second project, while a third proposal includes former federal cabinet minister Stockwell Day. The project Mr. Day is involved in includes two former national chiefs of the Assembly of First Nations, Shawn Atleo and Ovide Mercredi.

In the summer of 2012, when Mr. Black announced his idea of building an export refinery, there was much industry scoffing at his notion of converting bitumen into refined products such as diesel, gasoline and jet fuel.

The conventional wisdom back then, when he first showed off his party trick with the glass jar, was that pipelines would rescue new oil production from being landlocked in Alberta.

But since then, pipeline projects have been caught in a seemingly never-ending series of environmental reviews and face mounting opposition. Given the pipeline gridlock, some energy executives and financiers are reassessing what had been initially dismissed as far-fetched schemes from fringe B.C. proponents.

Newspaper publisher David Black holds a jar of raw bitumen as he speaks about his refinery proposal during a news conference in August 2012.

Newspaper publisher David Black holds a jar of raw bitumen as he speaks about his refinery proposal during a news conference in August 2012.

DARRYL DYCK/THE CANADIAN PRESS

The three outside-the-box ideas from B.C. are still left standing while Enbridge Inc.'s Northern Gateway pipeline plan has been effectively sidelined. Enbridge invested nearly $500-million on the controversial project to export Alberta bitumen from Kitimat in northwestern British Columbia. The other two unconventional projects are being promoted by Pacific Future Energy Corp. and Eagle Spirit Energy Holding Ltd.

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Major pipeline proposals are primarily geared toward exporting tarry bitumen, which is diluted with condensate to make the commodity flow. The industry's fear is that millions of barrels will be trapped every year in Alberta unless there is greater access to the United States (Keystone XL) or new markets in Asia (Trans Mountain expansion and Northern Gateway) or Europe (Energy East).

Diluted bitumen would have been exported from Kitimat if Northern Gateway hadn't sputtered to a standstill, opposed widely by First Nations and environmentalists. Northern Gateway officials say they remain committed to the "essential infrastructure."

The sales pitch from the refinery proposals boils down to this: Shipping diluted bitumen would be disastrous for the West Coast in the case of a spill because much of the commodity would sink and ruin the shoreline and marine life. Given those risks, the thinking goes, the superior option is to refine the bitumen before it's exported so that if the gasoline or diesel in ocean-bound tankers spills, it would float on the water and quickly evaporate.

Sending oil by pipeline across long distances is more cost-effective than rail deliveries, but the election of Prime Minister Justin Trudeau's Liberals last October triggered greater environmental scrutiny for pipeline projects, notably for Trans Mountain and Energy East.

Pacific Future Energy (whose supporters include Mr. Day) and Mr. Black's Kitimat Clean are calling for transporting bitumen by rail in a form similar to cold peanut butter that wouldn't be prone to explode. The idea is to heat bitumen enough to flow into rail tank cars and, once cooled, then have locomotives haul long trains to the West Coast. At the refinery site, the bitumen would be reheated so that it flows again. The rival refining projects are both eyeing a sprawling industrial site between Terrace and Kitimat.

"Rail is a viable option but it is the more expensive option," cautions Nick Schultz, vice-president of pipelines at the Canadian Association of Petroleum Producers.

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Aquilini Investment Group-backed Eagle Spirit has not yet confirmed its plans. Eagle Spirit officials envisage upgrading bitumen either in northern Alberta or northeastern B.C., before sending the synthetic light crude through a pipeline for export from Grassy Point, located north of Prince Rupert.

After Eagle Spirit's planned upgrader transforms bitumen into synthetic light crude, that product would be sold to refineries in Asia.

Eagle Spirit president Calvin Helin, a member of the Lax Kw'alaams First Nation, questions whether the two crude-by-rail plans will ever secure support from aboriginal groups. The beauty with Eagle Spirit's plan is that there would be higher demand in Asia for synthetic light crude than for gasoline or diesel from Canada, he said.

Mr. Helin, who is guiding Eagle Spirit with a range of First Nations leaders, said his project's top priority is securing aboriginal consent. "There's no point in spending millions of dollars if you don't have a social licence," he said.

Kitimat Clean and Pacific Future Energy argue that their refining projects will have the latest in technological innovations to keep carbon emissions to a minimum. Besides Mr. Day, Pacific Future Energy's supporters include communications strategist Mark Marissen and the two prominent aboriginal leaders, Mr. Atleo and Mr. Mercredi.

B.C. Premier Christy Clark has recused herself from discussing any specific refinery venture in cabinet meetings because Mr. Marissen, her former husband, is Pacific Future Energy's chief strategy officer.

"All kinds of people have all kinds of ideas, and they will go ahead if the economics work and if the markets are there. That really is the proof in the pudding," said Bill Simpkins of the Canadian Fuels Association, which represents the refining sector.

Mr. Black, Mr. Helin and Pacific Future Energy executive chairman Samer Salameh are finding that some energy players in Alberta are taking them more seriously than before. "Some producers say B.C. is closed for business," Mr. Salameh said. "But if you do things the right way, First Nations are open for business."

Mr. Black, 69, has honed his proposal over the past four years, dropping the original plans for a pipeline in favour of moving crude by rail.

The chairman and founder of Black Press Group Ltd. concedes that it has been a tough sell. At the outset, he had to persuade his two sons and two daughters that he hadn't gone crazy in deviating from the business of running Black Press. The Black family owns more than 80 per cent of the media company, while Torstar Corp. holds nearly 20 per cent.

"I have quarterly meetings with my kids. They're like directors' meetings, only they're family meetings," he said, recounting the gathering in which he unveiled his vision. "They're all at home and I say 'by the way, gang, I'm doing something else in my spare time here when I'm not working on Black Press.' I was really chuffed, really pumped about building a major refinery which would solve a lot of issues for Canada. We chatted for a while and finally one of them said: 'Dad, don't do this.' And they all chimed in: 'Don't do this. Don't get involved with big oil and big government. All you're going to do is wreck our family name.' So we debated it all weekend long."

Mr. Black managed to persuade his adult children to support him after explaining that his project would have the lowest carbon emissions of any refinery in the world, plus economic spinoffs for not only B.C. and Alberta, but for Canada as a whole.

He wants to leave an energy legacy, although he recognizes it will require a sea change in the industry's current thinking that vastly favours exporting new supplies of bitumen over refining or upgrading in Canada.

"We need a better way to get that oil to market," Mr. Black said. "Refining would put a lot more money in the jeans of producers, which means more money in Calgary's hands and Alberta's hands."

Refining at home

Low oil prices are good for refinery plans because the raw material that needs to be processed is much cheaper than before, says Samer Salameh, Pacific Future Energy Corp.'s executive chairman.

"The companies doing the best in the petroleum space now are refiners at low oil prices," says Mr. Salameh, a co-founder and investor in Pacific Future Energy.

But North America's refining industry has proven to be a tough business over the past 40 years as dozens of plants closed. Industry players have chosen to expand existing refineries or make them more efficient instead of building costly new ones.

NW Refining Inc.'s joint venture with Canadian Natural Resources Ltd. near Redwater, Alta., focuses on diesel for domestic use and is slated to open by the end of 2017. It is set to become the first new refinery to launch in Canada since 1984. NW Refining, wholly owned by North West Upgrading Inc., has been criticized for being a boondoggle. The project in Sturgeon County receives subsidies from the Alberta government.

Alberta Premier Rachel Notley, B.C. Premier Christy Clark and their counterparts pledged last July to support "value-added processing" as part of their 40-page national energy strategy. Ms. Notley in particular has expressed her enthusiasm for refining Alberta bitumen in Canada to generate economic spinoffs.

The common theme of Pacific Future Energy and two other B.C.-based export proposals – Kitimat Clean and Eagle Spirit Energy – is to convert bitumen into a petroleum product that is less environmentally risky to export.

Their hope is that the federal government will take a narrow interpretation when considering a proposed ban on oil tankers on B.C.'s north coast.

Prime Minister Justin Trudeau said last November that federal cabinet ministers will take steps to "formalize the moratorium." The details have yet to be ironed out, but the three B.C. export projects are counting on Ottawa to take a favourable view of bitumen that first undergoes refining or upgrading in Canada.

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