Devine’s Upgraders, Part 6

Were the Lloydminster and Regina upgraders enormous money losers, or huge successes? The conclusion.

By Brian Zinchuk

This is Part 6 of a 6-part series on the two heavy oil upgraders built in Saskatchewan is based on the book So Much More We Can Be: Saskatchewan’s Paradigm Shift and the Final Chapter on the Devine Government 1982-1991, by Edward Willett, Gerard Lucyshyn and Joseph Ralko. It was published this in 2021 by the Frontier Centre for Public Policy.

The authors of So Much More We Can Be conclude their chapter on the two upgraders by saying, “In the end, both projects were enormous money-losers for the province. When the Bi-Provincial Upgrader was sold in 1999, the net loss to the province stood at $330 million. Taking both capital and accumulated operating losses into account. When NewGrade sold in 2007, the net loss stood at $735 million.

The billions of dollars Husky, now Cenovus, and the province have made as a result of the Lloydminster Upgrader have far outshone the money lost in its early years. This is how it appeared in 2008. Photo by Brian Zinchuk

“That made the total loss on the two projects $1.065 billion, nearly the cost of another mega project. Offsetting this, while difficult to quantify, was the effect of stimulating increased production of heavy oil and the increased use of natural gas supply to both projects.”

With healthy respect to the authors, I must heartily disagree with their conclusion. Yes, the total loss was $1 billion. But less than a decade later, the royalties on heavy oil alone, made up over a billion dollars over the course of two years. And it kept on coming. And coming.

For all the political strife over cost overruns of the two projects as they were built, and their initial struggles, the added provincial royalties in the 21st century made up for that in spades. And the further investment in northwest Saskatchewan’s heavy oil patch has far outstripped the money spent on the Bi-Provincial Upgrader, even when you adjust for inflation.

That, unequivocally, proves the investment in the upgraders was sound, and visionary. It just took a while to get there.

And in the meantime, tens of thousands of people have fed their families and paid their bills as a direct result of those upgraders. I was one of them. Literally hundreds of thousands of Saskatchewan people have had their health care, or schools, or roads paid for directly from the royalties from the development of heavy oil.

Would heavy oil have been developed without the upgraders? Perhaps, but nowhere near the extent that they were, and are, to this day. Would Husky have spent up to $350 million each on their 10,000 barrel per day Lloyd thermal projects without the Lloydminster Upgrader? Doubtful.

Oil, and in particular, heavy oil, has been absolutely decisive in Saskatchewan’s transition from being a perennial “have-not” to a “have” province. And despite some tough times since oil prices crashed in 2014, we haven’t looked back. We no longer define ourselves as a lesser sibling of confederation.

And oil will be decisive again. The rebound from the COVID-19 pandemic and the war in Ukraine have led to oil in the US$90-120 range and back down to US$82. But what may be lost is that Western Canadian Select, closely related in price to Lloydminster Blend, was trading in the US$90 range. That’s pretty much unheard of, although that has since fallen to the still very significant US$60 range. Improved potash prices and oil brought Saskatchewan out of deficit this year, with heavy oil being a key part of that. After being staggered for seven years by the punches of the oil downturn, the Saskatchewan economy in short order is finding its footing again.

If I might extrapolate a bit further, it seems more than a coincidence that the dust settling on the upgraders, the rise of the oil economy in Saskatchewan, our departure from being a have-not, and the transition to a much more conservative province all happened around the same time. Since 2007, the year the Saskatchewan Party was elected under Brad Wall, this province’s population has grown by a fifth, to just under 1.2 million people. The once-natural ruling party, the socialist New Democratic Party, has been dramatically diminished. The NDP haven’t sent a member of parliament to Ottawa from Saskatchewan in many years. It’s next to impossible for an NDP MLA to get elected in rural Saskatchewan. In the 2020s, Saskatchewan is no longer considered a left-leaning province, but a right-leaning one.

That shift was one where Saskatchewan’s self esteem was buoyed by newfound economic prowess. When you pay your own bills, as a have province, you strut a little taller, and you tend to lean a little further to the right. Led by Wall, and carried on by Scott Moe, could it be attributed to the economic strength granted, in no small part, by the two heavy oil upgraders?

Maybe there is another chapter on the Devine government, after all.

Brian Zinchuk is editor and owner of PipelineOnline.ca and occasional contributor to the Frontier Centre for Public Policy. He can be reached at brian.zinchuk@pipelineonline.ca.