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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2009

Vol. 14, No. 20 Week of May 17, 2009

‘Greening’ oil sands costly, but possible

Report from Canadian Energy Research Institute says most likely outcome requirement by U.S., Canada for carbon capture, storage

Gary Park

For Petroleum News

Shedding the “dirty oil” label for a “green bitumen” uniform will be costly for the Alberta oil sands business, but likely not an option as the United States and Canadian governments move towards low carbon fuel standards, the Canadian Energy Research Institute says in a new report.

Because the U.S. is currently the only export market for Canadian crude, in whatever form, the producing sector should, like it or not, expect to be pushed down the path to carbon capture and storage.

But CERI’s research director David McColl said it would be too soon for the Alberta government to raise the price of carbon above its current levy of C$15 per metric ton until the U.S. and Canada reach an agreement on environmental policy and the Canadian government sets its own targets this year for large carbon emitters.

He said “going green is a challenge that can be met,” even if the industry realizes that it will cost more to emit greenhouse gas emissions than to adopt the carbon capture and storage solution.

Rise in prices needed

At the same time, McColl said it will need a sharp rise in crude prices to cover those costs and government backing for carbon capture and storage technology if compliance costs in Alberta rise to C$65 per metric ton from C$15 per metric ton.

The “plausible scenario” used by CERI estimates West Texas Intermediate crude oil prices would have to regain a level of about C$100 per barrel for oil sands facilities to “withstand higher emissions compliance costs.”

However, if the inflationary cycle that hit oil sands construction in the 2005-08 period became the norm moving forward, benchmark crude would have to be close to US$110 per barrel “for new oil sands projects to go green.”

Assuming future oil prices are in that range, CERI said “there will be an incentive for ongoing oil sands development” through the deployment of nuclear power and gasification along with CCS that “could see project emissions dramatically decrease once new technologies are adopted.”

The institute, jointly funded by governments, the University of Calgary and private companies, said there is currently no silver bullet solution, although a “host of potential measures are being considered to produce a green barrel.”

Nuclear power a possibility

It said large nuclear power plants could be harnessed for mining operations to produce hot water, steam and electricity and for in-situ facilities.

By 2030, CERI projects Alberta could have four large nuclear plants in operation and about two dozen smaller nuclear energy facilities such as those developed by Japan’s Toshiba.

Always a source of controversy in Alberta, because of safety and security issues, nuclear power was identified in March by an Alberta government panel as a safe energy alternative.

Panel Chairman Harvie Andre, a former federal cabinet minister, said the debate over whether Alberta should open its doors to nuclear power plants has been influenced by the economic downturn that may reduce the demand for electricity over the shorter term.

Energy Minister Mel Knight said that whatever policy his government develops will “reflect Albertans’ opinions” and answer their questions and concerns.

Andre said the report offers a “firm foundation for what will be a reasonable debate.”

Gasification an option

Gasification technology also offers an option for utilizing coal and petroleum coke to produce heat and steam and is getting a full-scale commercial workout at the recently started Long Lake oil sands project, a joint venture of Nexen and OPTI Canada.

CERI estimates CCS would be the cheapest route, adding US$2.25 to produce a barrel of bitumen; would need oil prices of US$85 per barrel to be economic; and would also have the greatest impact on emissions levels.

McColl said it would require industry and government cooperation to invest “very aggressively” in a new pipeline network.

Widespread implementation would take about 20 years and the complexities of making such a move may persuade oil sands developers to pursue other new technologies.

Gasification would add US$13.50 a barrel and would need oil prices of US$95 per barrel to be economic, while nuclear power would add US$19 per barrel to operating costs and need oil prices of US$105 to be economic when using smaller nuclear plants and add US$10 per barrel if large nuclear plants were involved.

CERI said a 100,000-barrel-per-day upgrader sourcing mined bitumen now emits 65 kilograms of GHGs per barrel of synthetic crude. That could drop to 15 kilograms using a combination of gasification and CCS and to zero with nuclear power.

A 30,000 bpd in-situ project could cut emissions to 22 kilograms per barrel from 83 kilograms by using gasification and CCS and to zero with nuclear power.






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