The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
Newspaper baron David Black didn’t make his millions being a pessimist. When people told him his business was dying, he went into the market even deeper. Most of his gambles paid off.
This is why Mr. Black does not sound defeated in the face of the rush of cynicism and doubt that has greeted his out-of-the-blue plan to build a $13-billion oil refinery on the West Coast of B.C. He concedes that he’d also be skeptical of a newspaper executive’s bid to plunge into the oil game with virtually no financial backing.
I sympathize with Mr. Black. British Columbia is a difficult place to try and be a visionary, especially if it involves actually having to build something. People don’t want trees cut down, gas extracted from the ground, dams or pipelines constructed. And yet these same anti-development advocates have no problem hopping into their gas guzzlers to drive home after their protests are over.
For that reason alone I’d love to see Mr. Black’s idea succeed. Unfortunately, his dream is likely to be crushed under the twin weights of politics and economics.
Thirteen billion is a lot of money to raise, especially with profit margins as thin as those that exist in the oil refining game. There is a reason there hasn’t been a new refinery built in Canada since the early 1980s and that the total number of operations has shrunk by more than 20 since that time. It’s been cheaper to increase capacity through additions to existing plants than build new ones.
The price of crude is the biggest cost a refinery faces. Right now, with that price well below peak levels, many refineries are making out like bandits. But few expect that to last. Beyond that, many believe that oil demand has peaked, leaving the industry with massive overcapacity. That glut, according to The Economist, has caused some high-profile refinery casualties, especially in Europe and the U.S.
There are more than 60 refineries sitting idle on the Gulf Coast alone.
Sure Asia may be an exception in terms of surging energy demand, but countries like China are building massive refineries of their own to upgrade oil. It is far cheaper than paying for refined oil from elsewhere, which is why the Chinese are not likely to embrace Mr. Black’s scheme.
For the rest of this column, please go to the Globe and Mail website: http://www.theglobeandmail.com/commentary/david-black-may-have-to-refine-his-plans/article4494065/