Authorization of APMC borrowing could be about B.C. pipeline: former CEO

Richard Masson, former Alberta Petroleum Marketing Commission CEO, discusses the government authorizing APMC to borrow up to $900 million.

The Alberta government has authorized the Alberta Petroleum Marketing Commission (APMC) to borrow up to $900 million for “hydrocarbon marketing activities” during the set up of a bitumen royalty-in-kind (BRIK) program. Richard Masson, an executive fellow with the University of Calgary School of Public Policy, and former APMC CEO, discusses the move with Alberta Primetime’s Michael Higgins.

This interview has been edited for length and clarity.

Michael Higgins: What would warrant the Alberta Petroleum Marketing Commission needing to borrow up to $900 million?

Richard Masson: I was involved in the bitumen royalty-in-kind initiative over a decade ago, and at that time, we looked at how complex it was going to be and decided it didn’t make a lot of sense. The reason for doing that was because they wanted to support the development of… the Sturgeon Refinery. They recognized that what that required was a 30-year take-or-pay tolling agreement so that that agreement could underpin borrowing by the partnership to get it built. And they didn’t need to actually take the bitumen royalties in kind to do that; they could just buy diluted bitumen on the market, bring it to the refinery, have it processed, pay the toll, make diesel and send the profit or loss back to the government.

So that’s been working that way for years and there’s really, in my mind, not a good reason to implement bitumen royalty-in-kind in the sense of a different way to acquire bitumen to market. Because APMC is quite capable of buying bitumen in the market, putting it on a pipeline if they want, and selling it someplace else. They could do that right now with no issue.

So then you look at the order in council, and what it says is they could borrow this $900 million for hydrocarbon marketing activities, and those include providing loans, loan guarantees, doing joint ventures or setting up subsidiary corporations. That doesn’t really sound like an overdraft at all. And so it seems to me that this is really more likely about backstopping a proponent for a northwest B.C. pipeline.

MH: How necessary is that to lock in private sector proponents at this stage? How does that play into the memorandum of understanding that has already been signed with the federal government?

RM: The memorandum of understanding (MOU) requires essentially (that) Alberta would be the proponent in the early stage of this, which I think most people thought meant, right now they put $14 million toward a super high-level feasibility study. But everybody, I think, is anticipating that a private sector proponent would step up to carry it the rest of the way, because certainly, Alberta … is not a pipeline company. It doesn’t know how to do that, so they need some private sector proponent to step up.

But likely what’s happened is the private sector proponents have just looked at the level of risk and said, “We’re not going to put our money into it, and the only way that we would do it is if somebody is prepared to backstop us with a loan guarantee or loans or something like that.”

The MOU requires that the pipeline be privately financed, not government money. So this could be in a gray zone, but it’s certainly, I don’t think, what people were expecting or hoping for when the MOU was signed.

MH: What degree of risk could that then put taxpayers in? Because essentially this debt would be taxpayer dollars, would it not, if the government goes ahead and backstops a privately driven pipeline?

RM: Absolutely, in the older days, we didn’t have pipeline companies asking for backstopping. They just put their own money in, took the risk because they were confident they’d be able to deliver a pipeline that the producers would back with long-term tolling agreements.

But since Energy East and Keystone XL and Northern Gateway, it’s very, very risky. In fact, Enbridge said they lost $600 million on the feasibility part of the Northern Gateway project.

That’s the kind of effort it takes to build a pipeline. And so that’s all going to have to happen again in order for a northwest B.C. pipeline, or any B.C. pipeline, to get built, and it’s likely that $900-million figure would be mostly required to backstop all the effort it would take.

MH: What degree of benefit do you see a BRIK program ultimately bringing to Albertans? At the end of the day, does that program make sense?

RM: All the companies who produce from the oil sands market their barrels and they get the market price. They do their best to maximize their revenue, negotiating with marketing companies, negotiating with refiners, and then once they get that sale done, Alberta gets its share of the market price oil in cash. So effectively, we have 15 or 20 companies marketing the Alberta royalty barrels with long-established relationships and teams who know what they’re doing.

So it’s hard to quantify any benefit of Alberta setting up a new team at Alberta Petroleum Marketing Commission with no tanks or no pipeline agreements in place to try to do better than that. And that’s where it gets pretty tricky. Like, what’s the point of this if it’s just to try and make a profit on marketing? It’s hard to see how that would work.

If it’s to try to say we need to be able to send oil to some place like India on a long-term basis, well, that’s a very specific deal, not a general program. And even if that was something you wanted to do, you could probably work with a private sector proponent to get that done without APMC taking it over. So it’s really unclear why the government is going down this path at this time, and certainly it was hard for us at the time 10 years ago to see a benefit.