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Alberta value-added goal gets boost Canadian Natural Resources comes to rescue of stalled bitumen upgrader, positioning joint venture for share of royalties in kind Gary Park For Petroleum News
Canadian Natural Resources, an emerging oil sands force, and privately held North West Upgrading have teamed up in one of the most surprising of all turnarounds in Alberta oil sands projects over recent weeks.
They have submitted a 50-50 joint-venture proposal to the Alberta government to build and operate a bitumen upgrading plant near Edmonton, tossing a lifeline to a scheme that was caught in a quagmire.
The partnership gives a sharp boost to North West’s hopes of obtaining some of the initial 75,000 barrels per day of bitumen the government plans to collect under its royalty-in-kind program as part of its drive to keep more of the value-added end of oil sands development in the province. (Imperial Oil is also seeking a share of the royalty-in-kind bitumen, along with several other firms who have not been identified.)
North West is applying for 37,500 bpd of the government’s feedstock, with an additional 12,500 bpd coming from Canadian Natural, which is just ramping up first-stage production at its Horizon mining operation.
The North West proponents believe that when liquids are added to raw bitumen, the feedstock will equal 77,000 bpd and, because of the plant efficiencies, the output will also be 77,000 bpd.
Could be onstream in 2013 Although there is more detailed engineering to complete, construction on the plant could start this fall and the upgrader could come onstream in 2013, said North West Chairman Ian MacGregor.
He would not be drawn into answering questions on what will happen if the upgrader does not receive government bitumen, but said he is confident the joint venture will “provide the best proposal the government is going to get.”
However, North West is due to receive a “minor” financial allocation from Alberta’s C$2 billion carbon capture and storage program because the upgrader is being designed to produce pure carbon dioxide to be carried south by pipeline for use in enhanced oil recovery projects.
Under the deal, Canadian Natural will buy 50 percent of North West’s assets for an undisclosed amount.
Although neither partner would disclose the current cost estimates for the upgrader, it has previously carried a price tag of C$4.2 billion.
The companies said the upgrader will produce a finished product, not just synthetic crude, which is then refined into transportation fuels. In other words, the resulting fuel will have the same carbon footprint as diesel made from light crude, which MacGregor said “is a green solution for bitumen. This is going to change the way the world looks at the oil sands.”
MacGregor said the diesel from the facility will go mostly into the Canadian market, but some could be exported if the demand surfaced.
Single conversion to diesel Because the upgrader will produce diesel with no residual oil, it will be the first plant to use a single conversion from bitumen to diesel.
MacGregor said the partners are aiming to “set a new world standard for environmental performance,” with North West offering its expertise in refining heavy oil with technology that reduces the volumes of carbon dioxide.
He said the “relatively modest-scale refinery” should eliminate carbon dioxide emissions equivalent to taking 300,000 cars off the road.
Canadian Natural President Steve Laut said the plan extends his company’s three-pronged heavy-oil marketing strategy by increasing its conversion capacity.
“We are also supporting the Alberta government’s efforts to build upgrading and refining capacity in Alberta, creating additional employment and wealth opportunities,” he said.
Chris Feltin, an analyst with Macquarie Research, said the joint venture is a chance for Canadian Natural to benefit from the work done by North West and “maybe stay ahead of the curve with some expected cap-and-trade and CO2 taxes that might be implemented. This will give them a bit of a head start to figure out ways to mitigate CO2 emissions.”
Proposals being reviewed North West is just one of “several” proposals for upgrading and refining projects in the Industrial Heartland region north of Edmonton that are before the government, Assistant Deputy Energy Minister Mike Ekelund told a stakeholders’ meeting Jan. 29.
He said a detailed review is now under way and a decision on who will receive a share of the bitumen is expected by May.
Newly appointed Energy Minister Ron Liepert praised the Industrial Heartland organization for leading the way in advancing Alberta’s effort to do more than simply ship its bitumen out of the province, despite objections from the City of Edmonton which had demanded a share of additional tax revenues generated from industrial growth in its surrounding areas.
But that rift was ended Jan. 29, when Edmonton Mayor Stephen Mandel praised the Industrial Heartland group for doing an “amazing job” in the process of signing the city on as the association’s fifth municipal member.
Neil Shelley, executive director of the Industrial Heartland association, said the surge in bitumen prices over the past 12 months from $27 a barrel to $63 today has triggered corporate decisions to spend C$16.7 billion on oil sands projects, adding 719,000 barrels per day of production.
“But note that these are all extraction projects and the other half of the value comes from upgrading and refining,” he said. “So we have a lot of work to do,” which the bitumen royalty-in-kind program should assist.
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