CALGARY, April 17, 2015 /CNW/ - North West Redwater Partnership would like to correct certain comments and economic figures as reported in the article titled "The North West Sturgeon Upgrader: Good Money After Bad?" from The School of Public Policy, Volume 7, Issue 3 dated April 2015 (the "Paper").
There are a number of errors in the understanding of the project and value of the products that it makes. Together, these errors in the analysis have the effect of overstating the total processing fees per barrel being estimated by more than 50%.
- The paper determined the costs per barrel by reference to 50,000 barrels per day of raw bitumen. This is not appropriate because the feedstock the refinery will process is diluted bitumen in the quantity of approximately 78,000 barrels per day. By using the wrong feedstock and quantity the processing fee is over stated by over 55%.
- The future tolling costs as reported by the Alberta Petroleum and Marketing Commission. ("APMC") are based upon certain estimates, including a provision for future inflation. Therefore the Paper is comparing future inflated costs to current market day refining costs.
Adjusting for these items, the real cost of the Toll in today's dollars is less than $35 per barrel of diluted bitumen processed rather than the $63 per barrel of bitumen reported in the Paper.
The Toll is designed to repay all debt and equity within the first 30 years of its operation (less than 50% of its potential service life). The APMC and Canadian Natural Resources Limited, as toll payers ("Toll Payers"), have an evergreen option to continue utilizing the refinery for the remainder of its service life at the current operating costs plus a performance incentive margin earned by the North West Redwater Partnership. The operating cost per barrel in today's dollars is approximately $15 per barrel, resulting in forecast positive margins for the APMC in the future. This was not considered in the Paper.
Furthermore, this Toll should be taken in the context of the value to the feedstock providers. The Refinery will upgrade bitumen beyond the level of upgraders in Fort McMurray and make a variety of products including diesel, naphtha, Vacuum Gas Oil and diluent rather than synthetic crude oil. This production slate is significantly more valuable than synthetic crude oil.
As an example, diesel prices are still very robust even in the current economic environment, with the Edmonton Area whole sale "rack discounted" price remaining at $50/bbl above Western Canadian Select or about $36/bbl above West Texas Intermediate. At these levels the Refinery will generate profits for the Toll Payers and their stakeholders.
SOURCE North West Redwater Partnership
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