Montana businesses will feel economic impact from Alberta oil-sands industry
By ED KEMMICK
Of The Gazette Staff
Financial ripples from the multibillion-dollar oil-sands industry in the Canadian province of Alberta are already being felt in Montana, but few businesses will benefit from the development as directly as Berry Y&V Fabricators in Billings.
The company is busy moving into the old Holland Loader plant, at 2450 S. 32nd St. W., and hopes to do a majority of its fabricating work for companies operating in the oil-sand fields of northern Alberta, said James McCord, business unit manager.
The plant was purchased early this year by two large companies - Berry Y&V Industrial Contracting of Calgary, Alberta, and Bay Limited of Houston. This summer, Berry Y&V Fabricators signed a contract with Canadian Natural Resources Limited, whose multibillion-dollar Horizon Oil Sands Project will soon make CNRL only the fourth company operating an open-pit mine in the oil-sands industry.
The project got a boost in August, when it was toured by two of the richest men in the world, Warren Buffett and Bill Gates.
Berry Y&V's contract calls for the Billings company to build piping and modular equipment that can be fabricated here in Lego-like pieces, shipped to Alberta and assembled in the field. Processing plants in Canada upgrade the dense oil sands to the point where the crude oil is thin enough to go into pipelines for transport to refineries.
Canadian Natural has leases from the province of Alberta on 115,000 acres of land bearing an estimated 16 billion barrels of bitumen, with approximately 6 to 8 billion barrels recoverable with existing mining technologies.
McCord said the fabrication plant is awaiting the shipment and installation of some equipment, including overhead cranes, and will probably go into operation early in 2009. Berry Y&V Fabricators hopes to have as many as 400 employees - 90 percent of them skilled workers such as welders and ironworkers - by 2010.
The company is working on other contracts related to the oil-sands industry, McCord said, and also plans to support the refining and petrochemical industry in Billings and elsewhere in Montana.
Effects on refineries
All three refineries in the Billings area will also have a finger in the oil-sands pie. Pat Kimmet, manager of the CHS refinery in Laurel, said 90 percent of the crude oil entering the Laurel refinery is already heavy crude, with high sulfur and asphalt content, from conventional wells.
Part of refinery's feedstock is "western Canadian select," or WCS, a blend of various crude oils including some processed from the oil sands of northern Alberta.
As the supply of oil from conventional fields declines, Kimmet said, western Canadian select "is really the future of our refinery here in Laurel." Oil derived from the sands, he said, "is a huge reserve."
In anticipation of handling heavier crude oil, the CHS refinery completed a $400 million upgrade this spring that will squeeze more gasoline and diesel out of each barrel of crude. CHS has its own crude pipeline from the Canadian border to its refinery in Laurel.
Kimmet said the supply of crude from Canada is particularly welcome nowadays, when people are "concerned about the stability of other oil-producing regions of the world."
"We are just very fortunate to have it available to us from a stable country, from a country that's friendly and close to us," he said.
And even though the refinery is using heavier, dirtier feedstock, Kimmet said, upgrades over the years have cut down substantially on sulfur dioxide emissions from the plant. In the early 1990s, when emissions were at their highest levels, he said, the CHS refinery emitted about 9,000 tons of sulfur dioxide a year. That number is now down to 400 to 500 tons a year, he said.
"We've been very progressive in dealing with the environmental issues," Kimmet said. "We have the equipment in place to deal with this kind of crude."
The ConocoPhillips refinery in Billings also plans upgrades that will make it possible to handle some Canadian crude. Charlie Rowton, a company spokesman in Houston, said construction of new crude and vacuum units, which has not begun, is scheduled for completion in 2011.
The new units will be used to perform the initial separation of the crude oil into various products, which would then be further refined in other units at the plant. When the new units are in place, the capacity of the Billings refinery will go from 58,000 barrels of oil a day to 70,000 barrels.
Rowton said it is difficult to say what impact oil-sands developments will have on the Montana economy.
However, he said in an e-mail, "Having access to more secure Canadian crude oil and upgrading our U.S. refineries ... will help maintain the economic vitality of all our refineries, including the one at Billings."
The ExxonMobil refinery in Billings was designed to handle heavy crude and has been processing oil from the oil-sands industry in Alberta for many years, according to spokeswoman Pam Malek.
Malek said ExxonMobil, which processes 55,000 to 60,000 barrels of oil a day at its Billings refinery, isn't planning upgrades related to the oil sands.
Making a case for oil sands
Billings petroleum geologist Bob Fisher also makes the argument that the United States would be wise to rely on a friendly country like Canada for more of its imported oil. Canada is one of our closest allies, is the leading exporter of oil to the United States and is the only major oil-producing country, besides the United States, that allows Western countries to freely explore and develop its oil resources, he said.
Fisher, with Augustus Energy Partners, wrote a guest editorial in The Gazette in late June, calling on Congress to repeal legislation that prohibits the U.S. government from using gasoline and other oil products refined from oil sands. The U.S. Air Force has also asked Congress to rescind the ban.
Fisher, a former president of the Montana Petroleum Association, said he wrote the guest editorial only because of his interest in the oil industry. He said Augustus Energy Partners, a startup company focused on buying and developing oil and gas properties, mostly in Colorado, has no connection with oil-sands development.
"That's a capital-intensive proposition, to say the least," he said. "That's for the big boys."
Fisher said he is against the congressional ban for many reasons, not least because it is nearly impossible to trace fuels back to their source when so many different crude oils are blended before being shipped to American refineries.
Regional oil producers may feel another effect of Canadian developments, he said, because there might be a lack of skilled workers, which could dampen oil exploration and development. It is also possible that Montana businesses will be able to cash in on helping build Canadian infrastructure.
"Hopefully, some of the manufacturing they need will come from this side of the line," he said.
Pipeline planned
And with all that oil being pulled out of the ground in Alberta, a lot is destined to flow through Montana. The biggest pipeline announced yet is an expansion of the Keystone Pipeline system owned by TransCanada and ConocoPhillips. Construction of the underground pipeline is expected to begin in 2010, and the investment in the 300-mile leg of it that will cross Montana is expected to top $1 billion.
Gov. Brian Schweitzer said in July that the project will create a sizable number of high-paying construction jobs and will generate $57.6 million a year in property taxes in Montana, including up to $14 million each in Fallon, McCone and Valley counties.
Although the TransCanada pipeline won't bring oil to Montana refineries, Dave Galt, executive director of the Montana Petroleum Association, said that as the pipeline network "gets more diversified, that will help Montana producers and the rest of the country."
The most important aspect of the oil sands, Galt said, is that a close ally of the United States possesses such an abundant supply of a vital commodity.
"Montana and the whole country will benefit from having that kind of oil source," he said.
Contact Ed Kemmick at ekemmick@billingsgazette.com or 657-1293.
