Should Governments Fund Mega Projects?

Sincere apologies for posting a news story with a political angle in November that is NOT from the USA.

This article doesn’t surprise me, but it does make me think (again) about governments that promote certain industries. There’s nothing new about this, everyone does it, around the world. The question on my mind is more like:

Does funding and intervention in a primary industry such as this simply deepen a regional dependency on a narrow class of industry?

I could suggest other examples, such as the chemical industry in Saskatchewan, which has a similar economic relationship with the provincial government, there.

In either case, it seems like doubling-down on a single prospect. I’ve always thought prosperity can be more widely spread, and less volatile, when supported by a wide variety of industries. Are the prospects so bad that attempting to diversify is pointless?

My perspective after having worked at a number of heavy oil plants:
If I have some details wrong, I am open to be corrected.
First, A quick overview of the processes.
Bitumen is mined, either by strip mining or by SAGD in situ mining.
The bitumen is separated from the sand.
The bitumen is upgraded to synthetic crude oil.
Open pit mining uses heavy haulers to move 400 Tons per load to the separation plant.

In situ injects steam to heat the bitumen and pump it out of perforated horizontal casings.
Some sand comes with the bitumen but not nearly as much as surface mining.
Sand separation is fairly straight forward and produces bitumen or tar.

Then comes the upgrader. This is the process of breaking the chemical hydro-carbon chains into lighter fractions to yield synthetic crude oil.
The big money is in the upgrader.
An upgrader costs a lot to build.
It takes a lot of manpower to run.
An upgrader may support a large co-generation operation which is an additional bonus to the economy.
The jobs and direct and indirect benefit to the economy of an upgrader is much greater than the benefits of a mine alone.
Suncor was building a large upgrader when the economy and oil markets took a downturn about 10 years ago.
Everyone else tightened their belts but the Alberta Government wanted to keep the money rolling.
They found a way to do that.
They started to issue permits for the export of raw bitument.
A number of companies jumped in and built bitumen extraction facilities.
The bitumen was diluted and pumped out of province.
The exporters built the upgraders in Texas and the major benefits of the process now were realized by the US rather than by the Province of Alberta.
The export of raw bitumen shifted the economies of tar sands oil and was one of the factors in the decision by Suncor to abandon their partly constructed upgrader.
I suspect that the Government has now realized that they have sold their future and the future of our grandchildren and following generations for a short term gain.
Conoco Phillips built Surmont 2, the largest project that they had ever built at about $3 billions.
It doesn’t take many people to run a row a gas fired steam boilers.
By contrast, Suncor, at about the same time, cancelled their Voyageur upgrader project at about $11 Billions or more with the inevitable cost over-runs.
Now the government wants back in the game.
It will cost.
If they spend the money buying out those permits to export raw bitumen, the multi-national oil companies will probably build new upgraders with their own money.
But, I understand that much of the bitumen that is upgraded in Texas is not sold into the US market but sold off-shore.
To get into those markets, Alberta will have to ship synthetic crude through another jurisdiction.
The closest tide-water is in British Columbia.
That opens up another can of worms.
Any one from anywhere near Alberta knows those implications.
As lengthy as this has been, it is very much a simplification of the situation.


Are capital intensive megaprojects a way distribute income to everyone? I doubt it.

I have no political objections to socialism like this, but there probably is a good reason investors are not funding this stuff. If the government are not experts at petrochemicals, there are all sorts of critical things they do not know.

Wow, this is a really good question. I do not think that a government trying to promote economic development to improve the lives of its citizens is in any way socialist, and I am a true believer in capitalism. I think I will leave my comments at that. Books can be written on this subject both for and against.

Whilst I’m not sure that the intent of the Alberta Government is security of fuel supply, it does raise some interesting related questions. Here in Australia there is some concern as to the level of fuel security, and processing and storage facilities in country.
There are only 2 refineries here in Australia, and there are significant commercial issues with keeping them running. The government has offered funding in order to allow private entities to keep them running, but still at the risk that the private entities may decide they’re not economical to run.

There is the consideration that private companies would have no interest in running a facility that loses them money, nor would they want to spend capital on what is likely to eventually be a stranded asset. Same goes for 3rd party financing and investment.
There is also the consideration that the fuel storage and capacity is required now, and will be for such time until a reliance on the facilities and fuel can be reduced.
Should the Government be involved in funding a loss making facility in the interests of guaranteeing fuel security? If not the government, then who should incur the loss to allow for such things?

Thanks everyone!
I don’t pretend to understand all the dimensions, either. You have all brought up a bunch of related considerations, on many sides, worth thinking about.

Fuel supply for Alberta (and Canada as a whole) has been a growing concern as the major petrochemical players have reduced their presence (Shell), consolidated into fewer larger corporations (Husky), and in some cases abandoned Alberta or Canada entirely (Encana/Ovintiv). Many reasons for all that, and the history is just history. I’m really more concerned with “what to do about it now”.

There are a variety of mega-projects in this area being proposed or started. Apart from this example, there are also a variety of pipelines with substantial support from governments, ranging from expedited approvals to outright ownership. How these governments got to these points is also a complicated matter of history. The fact is that they’re deeply invested already.

Things like this petro-chemical industry fund promise to develop a part of the economy that (I think) we still depend upon. This is the overall prosperity argument. For as long as the local economy is defined by energy export, the industry needs to be fostered. Diversification within the petro industry has obstacles. A bit extra cash may help. I am less certain how much is enough, and whether a focus on the one past success is better than spreading the same effort to some of the runners-up, in addition to the past-successes. Wouldn’t it be a long-term gain to have various independent industries in each region?

I’m also thinking of the huge number of skilled professionals and trades that are unable to work within their field right now. We have petro engineers laying out roads, geo PhD’s doing traffic studies for Singapore over Zoom, drilling crews ploughing snow. The crappy statistics that our government collects tells us that a large percentage of the people who lost jobs over the past 4 years have found other work. Hummm… I challenge the statisticians to show that these people are doing work suitable to them, for equivalent pay, benefits, and prospects, compared to what they did before.

I business classes that I have taken, it seems that running at a small loss is better than taking a big loss.
And just maybe that is the position the government is taking.
After all, many unemployed people don’t vote in the same way as many employed people.
Besides how much unemployment monies would the government be spending if they did not invest in this business?

One point that is often missed is government agencies should look at their ROI on expenditures. Not just the total ROI “to society.” If a project doesn’t result in enough increased revenue to completely offset the project cost, the result is some combination of increased taxes, reduction of services, or government debt.

The other problem I have with the OP’s scenario is governments should be working to diversify their economies, not doubling down on one sector.

I did a little more looking into the Alberta Governments proposal.
As I understand the offer they want to encourage a plant to manufacture plastic pellets.
I suspect that may be the long term future of petro-chemicals.
I recently saw some news that General Motors has dropped their opposition to some of California’s environmental laws.
It looks as if GM is going into electrics in a big way.
And, by the way, the Government may not be offering that much for a new plant anyway.