Why Vancouver desperately needs a new oil refinery
Once upon a time, Vancouver was home to 4 refineries. But early in the 1990s, Canada's largest oil companies decided to expand their Edmonton operations and pipeline final product to BC's Lower Mainland.
Fast forward 25 years. The population growth of BC and Alberta has outpaced much of North America's, leaving a shortage of refined product in southern BC. And the problem is only getting worse. Neighbouring Alberta now produces oodles of crude, desperately seeking a friendly buyer in close proximity.
Two groups have come forward with plans to build oil refineries in Kitimat, but these projects are up against some serious headwinds. Politics aside, we think Vancouver is the best place in Canada to build a new refinery. And here's why:
Believe it or not, Vancouver was once a major refining hub. Imperial Oil's IOCO refinery was built in the Vancouver suburb of Port Moody in 1914. Shell’s original Shellburn Refinery was constructed in North Burnaby in 1932 and expanded in 1945. Petro-Canada built an oil refinery in neighbouring Port Coquitlam in 1957.
Construction of Kinder Morgan's Trans Mountain Pipeline (TMPL) in 1953 changed the dynamics of the refining market in Western Canada. Trans Mountain is the only pipeline in North America that carries both refined product and crude oil in batches. Refineries along the TMPL route were obliterated. The Royalite Refinery in Kamloops shutdown in 1983 after almost 30 years of operations. Shell, Petro-Canada and Imperial decided it would be better to expand their Edmonton refineries closer to the oil sands and converted their Vancouver facilities into storage and distribution terminals, employing far fewer people.
There are now almost 2.5 million people living in BC's Lower Mainland, representing 60% of the province's population. But only one small refinery remains in the area - a 55,000 bbl/day facility on the edge of Burnaby Mountain operated by Chevron. The Chevron refinery only supplies 30% of the area's gasoline needs. In the past, Edmonton was able to satisfy the balance. But pipeline constraints and a growing population in Alberta and BC result in periodic shortfalls. And that shortfall is made up by importing gasoline from Washington State refineries located just across the BC/US border.
Vancouver's YVR International Airport is the second-busiest in Canada. The number of long-haul flights to Asia grows every day, and with it grows the need for jet fuel. The Chevron plant only supplies 40% of the airport's jet fuel requirements, forcing them to truck in 1,000 loads of fuel per month from BP's Cherry Point Refinery in Washington State. Every additional flight to Asia adds another 800 truckloads per year. The airport's growth is becoming unsustainable under current circumstances. Even a minor supply disruption of jet fuel would threaten their existing operations.
But YVR Airport isn't waiting for Canadian refineries to make more jet fuel. The city is building a marine terminal on the South Arm of the Fraser River. The plan is to import jet fuel from Washington State by tanker and run a 13 km underground pipeline through the city of Richmond to the YVR airport.
Interestingly, the plan has received no opposition from local mayors, politicians and environmental groups. Importing foreign oil rarely receives the negative press and backlash that comes from any attempt to export Canadian oil to foreign markets.
West coast refining margins are some of the best in the world, none better than those located in Washington State, just a stone's throw from BC's Lower Mainland. The northwestern corner of Washington State is home to 5 refineries with a combined capacity of over 630,000 bbl/day. These refineries have a major competitive advantage - they can source discounted heavy oil from the oil sands (via the Trans Mountain Pipeline) and discounted light oil from the Bakkens (delivered by rail). The state produces premium low-sulphur gasoline and diesel shipped out to lucrative markets such Oregon, California, Hawaii, Asia and yes, even Vancouver. Washington State exports a whopping 14% of its final products to BC's Lower Mainland.
The state isn't relenting in its quest to become an energy superpower, despite little reserves of its own. Washington State refineries have already booked extra capacity on the soon-to-be expanded Trans Mountain Pipeline, potentially increasing their Canadian oil supply to over 200,000 bbl/day. Additional crude-by-rail capacity coming online in the next few years will enable the state to bring in over 700,000 bbl/day of cheap light oil from the Bakkens, allowing them to back off from more expensive Alaskan crude, whose production has been in decline over the years.
Vancouver is ideally located for almost any industry, including oil refineries. Should the Trans Mountain line be expanded, it will have access to as much as 800,000 bbl/day of crude from Western Canada. It is also well connected by rail to bring in lighter oil from North Dakota if so desired. And the Port of Metro Vancouver is the largest in Canada, making it an ideal location for refineries to bring in equipment or feedstock from anywhere in the world.
There's no pipeline to Kitimat. The Liberal government's impending oil tanker moratorium on the northern coast of BC will effectively kill Enbridge's Northern Gateway project. A refinery located in Kitimat would have a single supply line - heavy crude shipped in by rail from Alberta. Any problem with the rail line or a supply disruption from the oil sands would effectively shutdown the refinery since it would be unable to import foreign oil. Building a refinery in such a location would be a huge risk.
The Trans Mountain pipeline currently exports about 80,000 bbl/day by tanker through Vancouver's Westridge Marine Terminal. Shipments are split almost evenly between California and China. An expansion of the Trans Mountain pipeline could bring that number to 600,000 bbl/day. A crude oil tanker ban in the Lower Mainland could never happen.
Kitimat is a small remote town in northern BC. Multi-billion dollar projects such as refineries or LNG terminals will quickly translate into housing shortages and long line-ups at the local Tim Horton's.
In contrast, Vancouver has a large pool of employees, eager for good-paying jobs. There's no shortage of workers, including managers, engineers, tradespeople and maintenance staff. No camps, no per diems, no chartered flights, no LOAs required. And that translates into lower operating costs and far less risk of cost inflation for the project and neighbouring communities.
The ridiculous cost of housing and lack of affordability in Vancouver is a poorly kept secret.
But housing is also expensive in cities like London, New York, San Francisco and even Seattle. However, those cities have a distinct advantage - a strong economy, a highly-skilled labour force and an abundance of good paying jobs. Vancouver doesn't have a major industry. No banking sector, no auto assembly plants, no aerospace and very few large head offices.
Although Vancouver has the labour force and intellectual capital, governments have shunned traditional industries such as mining, energy or manufacturing in favour of low paying jobs in tourism and the film industry. Vancouver's "green" mayor paints a romantic picture of a city filled with organic juice bars, yoga studios and people riding their bicycles to the local farmer's market. But these are low-skill jobs that don't come close to covering the cost of living.
The city desperately needs value-added work, more than anywhere else in Canada. Lack of good paying employers is the real driver of Vancouver's un-affordability. Vancouverites would much prefer to stay close to home and raise their families, and not be forced to move out to Calgary or Toronto just to cover the mortgage payments.
It's not surprising all levels of government in BC, including Chevron's unionized employees, have come out against the Trans Mountain Expansion. After all, the original Trans Mountain line pretty much wiped out BC's oil refining sector.
The new line will be designed to carry heavier crude from the oil sands, something the Burnaby Refinery isn't well equipped to handle. Oil companies could far more readily add capacity in Washington State or Edmonton and shutdown the Burnaby plant for good. But there's no reason why Vancouver can't grow their refining sector. The old Petro-Canada, Imperial and Shell sites still exist, tank farms still in service. Perhaps it's time to consider building a modern, state-of-the-art, environmentally friendly refinery, taking advantage of abundant hydroelectric power on the west coast.
Once again, Canada gets left behind in the race to supply oil and final products to new markets. All levels of government have become obsessed with being perceived as world leaders in the fight against climate change, even if it costs this country thousands of jobs and billions in tax revenues. Since it's unlikely Vancouverites will give up their BMW's anytime soon, maybe it's time we start envisioning a Canada where oil refineries and organic juice bars can function side-by-side.
Prior to the 1990s, there were 4 oil refineries operating in the Vancouver area.
Construction of the Trans Mountain Pipeline in 1953 enabled oil companies to import refined products from Edmonton, resulting in the shutdown of the Shell, Imperial and Petro-Canada refineries in the early 1990s.
Metro Vancouver is one of the fastest growing areas in North America. An influx of wealthily foreigners has dramatically increased the number of daily flights to Asia and luxury gas-guzzlers on the road, forcing the city to import a large amount of jet fuel, gasoline and diesel from Washington State.
Chevron's Burnaby Refinery is the only facility that remains in the Metro Vancouver area. The plant has a meagre 55,000 bbl/day capacity, able to supply only 30% of the area's fuel requirements.
In contrast, Washington State refineries just across the BC/US border have a combined refining capacity of 630,000 bbl/day.
Due to a lack of refining capacity in places like California, Oregon, Hawaii and Vancouver, refining margins on the West Coast of North America are some of the highest in the world.
Instead of exporting Alberta crude to Washington State and importing expensive fuels back into Vancouver, governments and the oil industry should consider adding refining capacity to BC's Lower Mainland. Although there is discussion of building refineries in Kitimat, Vancouver already has the infrastructure and labour force already in place. Most of all, the city desperately needs better quality, higher paying jobs. That would be a small step in addressing the cost of living in the Lower Mainland.