Detroit new oilsands destination in $6.5B takeover

Detroit new oilsands destination in $6.5B takeover

MONTON — Detroit surfaced as a new destination for oilsands bitumen from Fort McMurray — and jobs building and running processing plants — in a $6.5-billion takeover announced today.

EDMONTON — Detroit surfaced as a new destination for oilsands bitumen from Fort McMurray — and jobs building and running processing plants — in a $6.5-billion takeover announced today.

Houston-based Marathon Oil Corp. called supplies of Alberta’s crudest and lowest-priced oil for its refineries in the United States “a key attribute” of its purchase of Western Oil Sands Inc.

Engineering studies are underway into renovating a Detroit plant to use the molasses-like “sour” heavy crude laced with sulphur that is the initial oilsands product, Marathon said.

“Capital costs to refine an incremental 80,000 barrels per day of heavy sour crude at the Detroit refinery will be less than half the investment needed to build an equivalent capacity upgrader in Alberta,” the Texas company said in announcing the takeover.

More options to use bitumen are available elsewhere in Marathon’s seven refineries in Michigan, Minnesota, Texas, Ohio, Illinois, Kentucky and Louisiana, added company communications officer Lee Warren.

The 120-year-old Texas giant, with 27,000 employees and roots in the industry pioneer era of the Rockefellers’ Standard Oil Trust, also has 15,840 kilometres of pipelines reaching from the Gulf of Mexico to the Canadian border.

Pure bitumen fetches about half the price of top-quality conventional liquid oil ready to be refined into fuels and lubricants. When thinned with “diluent” such as liquid byproducts of natural gas, bitumen blends sell for about two-thirds the value of benchmark oil grades.

Scooping up Western’s 20-per-cent share in the Athabasca Oil Sands Project will provide Detroit with 80,000 barrels of raw bitumen per day by 2020 under current expansion plans for the vast open-pit mining complex north of Fort McMurray, Marathon predicted.

Athabasca’s current output of 155,000 barrels daily is all turned into refinery-ready light oil at the Scotford upgrader near Fort Saskatchewan. All of Athabasca’s next 100,000 barrels per day from a current mine expansion project are also dedicated to a Scotford addition now entering construction.

But starting as early as 2009, the Athabasca partners — Shell Canada with 60 per cent, and Western and Chevron Canada with 20 per cent each — have agreed to go their own way on bitumen upgrading.

A five-phase Fort McMurray growth program calls for bitumen production from the group’s 1,200 square kilometres of oilsands leases to rise to more than 650,000 barrels a day over the next 13 years.

Alberta Energy acknowledged exporting Athabasca bitumen to Detroit contradicts the Stelmach government’s pledge to increase value-added resource processing in the province. But no moves were made to interfere with the Marathon-Western deal.

“We can do better,” said Jason Chance, an aide to Energy Minister Mel Knight. “The premier has said that. The energy minister has said that.”

The province is developing an energy strategy that includes obtaining the greatest possible value for Alberta resources, Chance said. He cited incentives for making biofuels and the ethane raw material of petrochemical plants as examples of the evolving approach.

Announced oilsands upgrader projects will increase volumes of bitumen production and the share of total output processed in Alberta, Chance predicted.

Marathon’s move to obtain bitumen for U.S. plants by taking over Western came a day after Shell filed construction applications to process all its Athabasca bitumen at four new Scotford plants to be built over the next 15 to 20 years for up to $27 billion.

Marathon’s initiative is the fourth transaction in increasing bitumen exports. EnCana Corp., Husky Energy and Connacher Oil and Gas also have ventures with production in Alberta and processing in the U.S.

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