The Alberta government is backing a proposal by North West Upgrading and its part owner, Canadian Natural Resources Ltd., to build a new bitumen upgrading refinery in the province's Industrial Heartland, northeast of Edmonton.

The 150,000 barrel-per-day refinery will be built in three stages and include integrated carbon capture and storage technology to cut CO2 emissions, the province said in a Tuesday release.

Construction of the upgrader's first 70,000 barrel-per-day phase is expected to begin in 2011 and could be ready for use by 2013.

The initial phase is expected to cost more than $4 billion and the entire project could total as much as $18 billion.

Canadian Natural, a major oilsands producer with its Horizon project in northern Alberta, acquired a 50 per cent stake in North West in January for an undisclosed price.

Bitumen, a tar-like substance mined in the oilsands, is first upgraded into synthetic crude oil, which can then be piped to refineries for processing into gasoline, lubricants or other petroleum products.

Some 75,000 barrels of bitumen per day from the refinery would go toward Alberta's bitumen royalty-in-kind program, which is meant to boost that sector in the province.

"This project has significant potential for Alberta to support the provincial energy strategy goals of increased value-added production and clean energy production," said Alberta Energy Minister Ron Liepert.

"It's not a done deal but I am committed to pursuing an agreement that's in the best interests of Albertans."

Negotiations are set to begin "in earnest" on June 1, with the expectation that they'll wrap up some time toward the end of the year, said Real Cusson, Canadian Natural's senior vice-president of marketing.

Canadian Natural has long wanted to see growth in North America's capacity to process thick, impure oilsands bitumen, into easier-to-refine synthetic crude oil, Cusson said.

"It is a very strong strategic fit for [Canadian Natural] and the fact that the government is involved and has this as one of their priorities is just good news," Cusson said.

"It's good news for Alberta. It's good news for us to be associated with the government."

Alberta is entitled to take its royalty share of bitumen production in-kind, as it currently does for conventional oil production. It can then sell the oil in the market.

The proposed new refinery is an important step in Alberta's plan to create more jobs in the processing sector of the oilpatch, the government said.

Because of the huge costs of building upgrading refineries, many oil companies ship bitumen or heavy oil south via pipeline to American refineries, where it is processed into gasoline, jet fuel and other products.