Bitumen royalty-in-kind Request for Expression of Interest Process

On August 15, 2008 Alberta Energy and Alberta Finance and Enterprise issued a Request for Expressions of Interest (REOI) soliciting interest in using Bitumen Royalty-in-Kind (BRIK). The expressions of interest were not legally binding and were not a pre-requisite for participation in any future Request for Proposals (RFP). In 2009 an RFP was issued.

Submissions were received from both domestic and international companies; most importantly firms expressed interest in:

  • Projects to process royalty bitumen to add value within the province (e.g. upgraders, refiners, petrochemicals);
  • Projects that requested a secure supply of royalty bitumen for a certain period of time to support or accelerate construction of export pipelines to the west coast;
  • Projects to assist in marketing and administration of BRIK.

Government staff reviewed the submissions and found:

  • There is interest from industry in using the Province’s BRIK volumes.
  • A number of international companies not currently operating in Alberta are potentially interested in upgrading, refining, gasification or chemical production.
  • The Province’s value-added processing and potential revenue gains from sharing in differential gain objectives have the potential to be achieved through a BRIK policy.

Summary Results

Processing
Some of the bitumen processing descriptions were relatively detailed and included volume requirements, products planned, capital cost estimates, timelines and participation models. One of the submissions was for production of gasoline and diesel in the first phase of the project. Another had diesel, synthetic crude oil or SCO and diluent produced in the first phase. another submission started with an SCO upgrader with a clearly defined path to a world scale integrated upgrading, refining and petrochemical complex. A common theme among these submissions was that processing capacity would be allocated to the crown for processing crown bitumen through tolling agreements, which shifts a significant portion of the risks of the project to the government. Other processing proposals were relatively conventional, but much less specific in terms of timing, volumes and participation models.

Pipelines
Submission suggested an opportunity for the crown to participate in an open season to utilize a reversed line in Eastern Canada to access the East Coast of Canada, the US East Coast, the US Gulf Coast and Europe. Other submissions offered access to a pipeline and marketing assistance in US Gulf Coast and East Coast markets. One of the submissions is a request for the province to contract unspecified BRIK volumes for long term capacity on a west coast pipeline. One submission asks that a certain volume of the government’s bitumen royalty be committed for a period not longer than 5 years to a west coast pipeline. Finally, one submission proposes to fast track a “west coast” solution through committing volumes to an Asian market and also building an upgrader targeted at Asian markets.

New Technologies
Some of the bitumen processing submissions proposed either new technology or unspecified technology in combinations which are not commercially proven at this time. While technology development is an important consideration, these proposals carried a higher element of risk. One proposal was to process only upgrading byproducts, and must necessarily be combined with upgrading by others to produce these byproducts.

Marketing
Marketing submissions were quite different in their approach and in the services offered. One submission offered to provide trading and central clearing platform services as a trading mechanism. A different submission offered pipelines and marketing services to US Gulf Coast markets as supplement and interim measures to building an Alberta Upgrader. On a similar vein, another submission offered pipeline and marketing assistance to address Asian markets, also in conjunction with an Alberta based upgrader. The fourth submission was a full complement of trading services for both physical bitumen and bitumen contracts.

Management Services
The submission offering management services proposed to provide professional services relating to evaluation of the responses to the REOI, to evaluation of responses to a subsequent Request for Proposals (RFP), BRIK allocation, disposition and commercial activities. The submission claimed expertise in Program and Project Management, Opportunity Visualization, Economic Analysis and Evaluation, Technical and Environmental Analysis, and Implementation functions.