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Proposed eastward pipelines would not have kept Dartmouth refinery open

The Imperial Oil refinery in Dartmouth. Photo by Andrew Vaughan/ The Canadian Press.

Imperial Oil – which is controlled by Texas-based Exxon Mobil Corp. – has decided to close its refinery in Dartmouth, Nova Scotia and convert it into a distribution terminal to supply the Atlantic Canadian market.

1. The reason?

It mostly had to do with profitability. The Guardian reports, “Gilles Courtemanche, vice-president of refining with Imperial, said the company decided to close the refinery because it couldn’t find a buyer or see any realistic prospect of long-term profitability. He also described the factory as lacking the ability to process the heavier portions of crude oil into diesel and gasoline, and too small to compete against massive producers in Asia and elsewhere. …He said the refinery finds itself at the edge of an ocean where up to two million barrels of gasoline are available at competitive rates each day. Meanwhile, refineries are being built in India that are capable of producing 1.2 million barrels daily, while the Dartmouth factory produces about 88,000 barrels, he said.”

The Globe and Mail adds, “The refining sector in the Atlantic basin – eastern North America, Western Europe and the Caribbean – has been battered in recent years by overcapacity and the high price of imported crude. In recent years, Royal Dutch Shell PLC closed its Montreal refinery after failing to find a buyer and Irving Oil Ltd. cancelled plans for a massive expansion of its Saint John, N.B., plant. Refineries have also been shuttered in the U.S., the Caribbean and Europe.”

2. Would the proposed eastward pipelines have kept this refinery open?

Not likely. “Other refineries in Eastern Canada – two in Quebec (owned by Suncor Energy and Valero Energy Corp.) and the largest at Saint John (owned by Irving Oil) – are hoping to increase their access to western crude by way of two proposed pipeline projects: Enbridge Inc.’s reversal of its Line 9 from Ontario to Montreal, and TransCanada Corp.’s plan to convert a natural gas line to oil to serve Quebec and possibly New Brunswick. Todd Crawford, a senior economist at the Conference Board of Canada, said the fast-growing supply of lower-cost North American oil should help the competitiveness of those refineries, although it’s doubtful the new pipelines could have saved the Dartmouth plant.”

And notably, “Mr. Courtemanche said the western crude will fetch world prices once it reaches the Atlantic Ocean, so there would be no benefit for a coastal refinery.”

“The closing of the Dartmouth refinery was widely expected, said Rob Smith, senior manager at PFC Energy, a Washington-based consulting firm. He said Exxon can easily cover any Atlantic Canadian supply commitments from its North American or European refineries or from other suppliers in the Atlantic basin.”

3. Could fracking operations in the US have kept the refinery open?

Maybe, but that would hardly be desirable. Chronicle-Herald business columnist Roger Taylor notes, “A well-respected oil industry journal, Oil Price Information Service, published a story Thursday suggesting the Dartmouth operation could be used to refine the ’super-light, super-sweet crude’ coming from U.S. shale oil fields. Tom Kloza, the service’s chief oil analyst, writes that within the next couple of years, Canada will become a popular destination for tankers from the U.S. Gulf of Mexico as more light, sweet crude oil is produced from shale formations like the Eagle Ford field in southern Texas.”

4. Could US renewable fuel laws have kept the Dartmouth refinery open?

Maybe, but again problematic. Taylor adds, “U.S. refiners are particularly eager to sell to the Canadian market because of strict renewable fuel targets on all transportation fuels sold in the States, Kloza says. A renewable identification number is assigned to each batch produced and sold in the U.S., and Kloza says they ‘can temper profits’ for refiners.”

Taylor also says, “The U.S. has strict rules preventing the export of crude, but Canada is exempt due to the North American Free Trade Agreement. Section 27 of the U.S. Merchant Marine Act of 1920 is another reason the Canadian refining option looks attractive. Section 27, better known as the Jones Act, requires that all goods transported by water between U.S. ports be carried in vessels constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and permanent residents. The law means Texas crude can be transported on foreign-flagged vessels to Canada at much less cost than a U.S. tanker taking the same crude to a U.S. port. Some suggest the daily cost is four times greater than using an international vessel.”

5. The impact on jobs?

The Guardian notes, “The company said Wednesday it expects 80 of the 200 workers — ranging from engineers to mechanics — to either retire or stay at the terminal, while 120 others will be offered jobs at Imperial refineries and oil sands operations in Ontario and the West or at ExxonMobil’s operations off Nova Scotia’s coast.”

The Globe and Mail adds, “The refinery closing affects 200 Imperial employees and 200 contractors. Among the employees, 40 per cent are either eligible for retirement or will be offered jobs in the distribution terminal site. …Many of the remaining staff will be offered employment in such Alberta oil sands operations as the new Kearl project and the well-established Cold Lake venture. Some will also have opportunities to work at refineries in Alberta and Ontario as well as offshore projects such as the Sable gas platform off the Nova Scotia Coast.”

In terms of jobs in Atlantic Canada, it should also be noted that the Toronto Star editorial board has commented that the booming oil and gas sector in Alberta has contributed mightily to the high Canadian dollar and that has hurt jobs in other parts of the country. And NDP Leader Thomas Mulcair cited Ontario, Quebec and New Brunswick as some of the places affected by the high dollar. He noted, “We’ve hollowed out the manufacturing sector. In six years since the Conservatives have arrived, we’ve lost 500,000 good-paying manufacturing jobs.”

The Council of Canadians is considering all of these issues for an upcoming report on an energy security strategy for Atlantic Canada. More on that soon.

Photo: The Imperial Oil refinery in Dartmouth. Photo by Andrew Vaughan/ The Canadian Press.