Why will exports of Alberta’s crudest product, bitumen, grow despite provincial efforts to snare maximum revenue, investment, jobs and taxes by luring new plants for turning tar to black gold into the budding upgrader alley northeast of Edmonton?

Cliff Cook, senior vice-president of supply distribution and planning at Houston-based Marathon Oil Co., answered in blunt figures at a summer oil sands investment forum held in Calgary by TD Securities Inc.

The best place to squeeze value out of bitumen is obvious for a firm equipped to make choices – and it’s nowhere near northern Alberta, he reported. Marathon has plenty of choices to make as a 120-year-old Texas giant with 27,000 employees, seven refineries and 15,840 kilometers of pipelines.

Profit margins multiply nearly 13-fold when an established refinery in the mid-western United States is modified, turning the rough initial output of oil sands mining into useful products, instead of building a separate new upgrader in Canada, Cook estimated.

Suppose top-grade liquid oil flowing from conventional wells is US$60 a barrel, his calculations said. (His cautious price projection remained typical this summer among industry long-range planners. Few let themselves be swayed by the bets of enthusiastic traders in paper barrels who pumped commodity-futures contracts up to $145.)

Then, after industry-standard discounts of nearly 50 per cent for low quality, bitumen costs $30.29 a barrel for both the U.S. and Alberta plants.

The cost of delivering the molasses-like stuff from Alberta, including “diluent” or thinner needed to make it flow in pipelines, and running it through the American plant is $58.58 per barrel.

For a separate Edmonton-area bitumen upgrader thousands of kilometers closer to its raw material source, shipping and operating expenses are 25 per cent lower at $43.90.

But the American plant is a complete refinery, pumping out retail fuels and lubricants. The value of the end products extracted from the barrel of bitumen is $94.60.

The Alberta upgrader only performs an intermediate stage in the manufacturing process by making a clean, light synthetic crude oil that fetches $63.44 or a six per cent premium over slightly lower quality conventional production.

The American refinery’s operating profit margin on a barrel of bitumen is $21.74. The comparable figure for the Alberta upgrader is $19.54.

The critical bottom line in Cook’s financial picture is the profit margin after further subtracting a “capital charge” or the expense per barrel of production to install an upgrader as the intermediate processing facility needed to convert bitumen into light oil ready for refining into consumer products.

At the American plant, where the system is a bit cheaper as an add-on, the charge is $18 a barrel. In Alberta, where the upgrader is built from scratch, the figure is $19.25 a barrel.

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