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Value Creation Inc. – Applications to Amend the Heartland Upgrader Project Approvals (AER Decision 2018 ABAER 003)

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Bitumen Processing Plant – Amendment Application – Application Approved


In this decision, the AER considered Value Creation Inc.’s (“VCI”) application under the Oil Sands Conservation Act (“OSCA”) and the Environmental Protection and Enhancement Act (“EPEA”) to amend its existing AER approvals for the Heartland Upgrader Project, a three-phase oil sands processing plant (i.e., bitumen upgrader) (the “Project”). The Project would be located 15 kilometres (km) northeast of Fort Saskatchewan, Alberta.

For the reasons summarized below, the AER approved VCI’s amendment applications, subject to conditions, based on finding that the proposed amendments would support the efficient, safe, orderly and environmentally responsible development of Alberta’s energy resources.

Background

The Project was initiated by BA Energy Inc. (“BA”) in 2004. The Project applications were approved by the Alberta Energy and Utilities Board (EUB; predecessor to the AER) and Alberta Environment in 2005.

Following the amalgamation of BA with VCI, in March 2015, the AER approved the transfer of the original approvals from BA to VCI.

In June 2016, VCI applied under the OSCA and the EPEA to amend the Project. Those are the applications that are the subject of this decision.

Amendment Application

VCI’s proposed amendments included the following:

(a)     changing the Project design to produce ultralow sulphur diesel, hydrotreated naphtha, and premium synthetic crude oil;

(b)     removing one of the three phases of the Project and adding a Clean Oil Refining unit to each of the remaining two phases;

(c)     reducing the Project’s processing capacity from 41,400 cubic metres per stream day (m3/sd; 260,400 barrels per stream day (bbl/sd)) to 29,948 m3/sd (188,373 bbl/sd) of diluted bitumen; and

(d)     changing the name of the Project from the Heartland Upgrader Project to the Heartland Processing Plant.

Legislative Scheme

The AER set out the following legal framework applicable to its decision on the amendment application:

  • The AER’s mandate is to provide for the efficient, safe, orderly, and environmentally responsible development of energy resources in Alberta (section 2(1) of the Responsible Energy Development Act (“REDA”)).

  • The REDA General Regulation lists the following factors that the panel must consider:

    • the social and economic effects of the energy resource activity;

    • the effects of the energy resource activity on the environment; and

    • the impacts on a landowner as a result of the use of the land on which the energy resource activity is or will be located.

  • The decision must be consistent with the purpose and provisions of the OSCA as set out in section 3, which includes the following:

    • to ensure orderly, efficient and economic development in the public interest of the oil sands resources of Alberta; and

    • to ensure the observance, in the public interest, of safe and efficient practices in the exploration for and the recovery, storing, processing and transporting of oil sands, discard, crude bitumen, derivatives of crude bitumen and oil sands products.

  • The decision must be consistent with EPEA requirements, which include ensuring that an amended project meets Alberta Ambient Air Quality Objectives and Guidelines (“AAAQO”). Project sulphur recovery must meet Interim Directive ID 2001-03: Sulphur Recovery Guidelines for the Province of Alberta (EUB 2001) (“Interim Directive ID 2001-03”), and nitrogen dioxide emissions must meet requirements set out in the federal Multi-Sector Air Pollutants Regulations (SOR/2016-151).

  • The decision must be consistent with requirements of AER Directive 023: Guidelines Respecting  an Application for a Commercial Crude Bitumen Recovery and Upgrading Project (“Directive 023”) and Directive 038: Noise Control (“Directive 038”).

Potential Environmental Effects

The AER addressed potential environmental impacts from the Project on air quality, nitrogen emissions, sulphur emissions and groundwater. The threshold levels for nitrogen dioxide and sulphur dioxide are set in the AAAQO.

The AER found that:

(a)     VCI committing to achieve compliance with the newly enacted federal Multi-Sector Air Pollutants Regulations would adequately control emissions of nitrogen dioxide;

(b)     VCI’s proposed sulphur recovery measures, together with the condition imposed by the AER on recovery levels, would adequately address impacts of sulphur production; and

(c)     the applications would not adversely affect water resources, and local and regional surface and groundwater would be adequately protected since the applications proposed no changes to water use or treatment.

With respect to nitrogen dioxide, the AER found that:

(a)     burning natural gas in the Project’s boilers and heaters would produce nitrogen dioxide, which is the contaminant of most concern in the region under the Capital Region Framework, as it can cause negative respiratory impacts and affect vegetation cover;

(b)     the proposed amendments would result in less nitrogen dioxide emitted than would have been emitted for the Project as approved in 2015; and

(c)     air quality modelling indicated nitrogen dioxide levels below air quality objectives and a small decrease in the regional nitrogen dioxide levels (a 0.3 percent decrease).

With respect to sulphur, the AER found that changes to the refining process would increase the amount of sulphur removed from the raw bitumen (therefore increasing sulphur dioxide emissions).

VCI’s proposed sulphur recovery level of 98.7 percent would comply with AER requirements under Interim Directive 2001-3. However, the AER noted its concern about air quality predictions that the amendments would increase regional sulphur dioxide emission by 5.3 percent. This would result in sulphur dioxide emissions in excess of the regional limits in an area already facing concerns about cumulative effects on air quality.

The AER noted that it required other refineries in the region to achieve higher sulphur recovery levels than required by Interim Directive 2001-03 and that VCI confirmed that it would meet the 99.3 percent recovery level if required by the AER. The AER, therefore, imposed the following condition:

VCI shall use a design sulphur recovery criteria of 99.3 per cent and meet a minimum sulphur recovery of 99.0 per cent on a calendar quarter-year basis for all phases of this project.

Potential Economic Effects

The AER found that the amendments would contribute positively to the economies of Alberta and Strathcona County, based on the following:

(a)     the Project’s capital cost would increase by $1 billion, to a total of $3 billion;

(b)     about 70 percent of capital expenditures would be within Alberta, 75 percent of which would be in the project region; and

(c)     given the current pipeline constraints for Alberta resources, the Project amendments would potentially produce more refined products, diversify resource marketing and help with the continued development of Alberta’s oil sands resources.

Potential Social Effects

The AER found that VCI’s workforce, accommodation, traffic and transportation plans for the applications were reasonable and would minimize the risk of adverse social impacts.

Impacts on Landowners

Section 15 of the REDA directs the panel to consider, among other things, “… any factor prescribed by the regulations, including the interest of the landowners.” In this case, the AER considered how amending an existing approved project affected the interests of Mr. and Mrs. Percy (the “Percys”).

The AER reiterated that the scope of the hearing was limited to the impacts of the amendment application and that this decision focused on the impacts of the proposed amendments to the existing approvals. Specifically, with respect to landowner impacts, the AER addressed:

  • emergency planning and response;

  • traffic impacts; and

  • impacts on the Percys’ property.

 Emergency Planning and Response

The AER found that AER Directive 071: Emergency Preparedness and Response Requirements for the Petroleum Industry (“Directive 071”) did not apply to upgrader projects. The AER accepted VCI’s voluntary commitment to use Directive 071 for guidance when preparing its site-specific emergency response plan (“SSERP”).

The AER found that VCI’s commitment to developing an SSERP compliant with Directive 071, to be submitted to the AER for approval before construction and updated before operations, would adequately address the Percys’ safety and evacuation concerns.

The Percys expressed concern about their safety and about the Project’s emergency response, including the following:

  • the Percys’ options in an emergency were very limited;

  • the Percys had few neighbours left to help evacuate their livestock; and

  • railway and road crossings could be blocked in an emergency.

The AER found that the Percys did not present evidence that directly linked their safety concerns to the changes proposed by the amendment applications. Rather, in the AER’s view, the Percys’ concerns related more broadly to the Project’s construction and operation. The AER noted that the Percys appeared to have a northern route that would lead them out of the Project area in the event of an emergency at the VCI project site.

Based on the above, the AER imposed the following condition of approval:

VCI shall provide a site specific emergency response plan (SSERP) to the AER and the Percys that has been deemed technically complete in accordance with Directive 071: Emergency Preparedness and Response Requirements for the Petroleum Industry prior to construction. VCI shall also update the SSERP and submit it to the AER for approval and to the Percys for information prior to commencement of operations. The SSERP shall use a modified Emergency Planning Zone that includes the Percys’ residence and property.

Impacts on Property Value

Section 15 of the REDA and section 3 of the REDA General Regulation require that the AER consider the impacts on a landowner as a result of the use of the land on which the energy resource activity is or will be located.

The AER found that:

(a)     there was inadequate evidence that the current amendment applications directly caused the Percys’ property to devalue and to change from rural residential to industrial;

(b)     the steady industrialization of Alberta’s Industrial Heartland since 2001 had affected the value of the Percys’ residence and property; and

(c)     any loss in value arising from the Percys property’s highest and best use changing from rural residential to industrial is a result of longstanding and cumulative factors, not a result of the amendment applications.

Public Interest

Regarding the public interest, the AER considered the balance between the effects on landowners and the broader interests of Albertans in the responsible development of provincial hydrocarbon resources.

The AER found that the amendments to the currently approved project were in the public interest. The applications, together with the approval conditions, reflected orderly and efficient development by balancing the potential effects on area residents with broader public benefits.

The AER found that:

(a)     the Project was consistent with broad Government of Alberta policy direction;

(b)     the Project would provide significant provincial revenues and employment; and

(c)     the Project would contribute to enhancing the value of Alberta’s oil sands resources and will contribute to debottlenecking pipeline transportation capacity.

Conclusion

Considering the anticipated effects of the proposed amendments on the environment, economics, social factors and area landowners, the AER determined that implementation of the proposed amendments, with the conditions imposed by the AER, were consistent with responsible development of Alberta’s oil sands resources and would mitigate any direct impacts of the proposed amendments.

The AER, therefore, approved VCI’s amendment applications, subject to the conditions noted above.

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