Grasping Alberta oil sands nettles

Industry, researchers turn more attention to cutting carbon dioxide emissions, use of natural gas for resource development

By Gary Park

For Petroleum News

Two of the bugbears to the continued growth of Alberta’s oil sands — carbon dioxide emissions and heavy natural gas consumption — have been getting a lively airing this year.

The head of the Alberta government’s research arm issued a blunt warning that expansion could be slowed unless the industry voluntarily finds a way to cut greenhouse gas emissions.

Separately, there is an industry-led push to find less wasteful ways than burning natural gas to convert the sticky bitumen of northern Alberta into synthetic crude.

These concerns coincide with a new study by independent consulting firm Purvin & Gertz that the economics surrounding the oil sands are strong enough to support continued growth, although the authors say that expansion is unlikely to match the C$100 billion worth of projects currently on the table.

Alberta Research Council President John McDougal said the environmental challenges could be as much of an obstacle to the sector as the higher-profile labor shortages.

“Unless we deal with (the output of CO2) environmental pressures will accumulate and gather that will at best slow the pace of development and at worst stop it,” he told a conference of investors.

“It’s an issue that will have to be addressed.”

Companies can address CO2 emissions

“Rhetoric in some political circles (prior to the Jan. 23 federal election) suggested declaring CO2 as a toxic substance as a way to deal with Kyoto (commitments),” McDougall said. “That’s shallow thinking.”

Regardless, he said the output of CO2 is already high as the industry embarks on a possible C$100 billion of capital investment in the oil sands.

He said surface mining operations spew about 40 kilograms (88 pounds) of CO2 per barrel of bitumen produced; thermal projects, exploiting more deeply buried bitumen, yield 65-80 kilograms of CO2 per barrel of oil; and upgraders produce 75-90 kilograms per barrel of bitumen processed into synthetic crude.

Without measures to convert CO2 into a useable product or technological advances that lower the energy intensity going into oil sands production, the oil sands sector could pump 145 metric tons of CO2 annually into the atmosphere, more than the entire province of Alberta produced in 1990.

“And that’s likely an underestimate,” McDougall said.

Council working on technologies

One solution is the capture and transport of CO2 by pipeline to conventional oil producers who use the gas to replenish reservoir pressures in aging oil fields and enhance oil recovery before sequestering the CO2 underground.

Karen Madro, who is managing plans by Shell Canada to hike output from its Peace River project from 10,000 barrels per day to 100,000 bpd, said her company views the need to ensure that oil sands development is environmentally acceptable as “absolutely critical.”

Measures being adopted should lower greenhouse gas emissions at Peace River by 50 percent or more, while efforts are under way to lower CO2 waste at Shell’s existing Athabasca project, where output is expected to grow from 155,000 bpd to 500,000 bpd.

To advance CO2 capture and storage, the Alberta government has signaled it is ready to establish a C$1.5 billion pipeline network in the province, but is currently wrestling with ways to share costs among industry and the Canadian and Alberta governments.

Otherwise, the cost would exceed any profit made from selling CO2 to companies that might use the gas in enhanced oil recovery projects, said Rick Hyndman, climate change policy advisor for the Canadian Association of Petroleum producers.

But companies are enthusiastic about the idea as one way to avoid a C$15 per metric ton CO2 charge that could be imposed under Kyoto.

Mondher Benhassine, a senior advisor at Natural Resources Canada, said sequestering CO2 could lead to a “rebirth of conventional oil in Canada as well as provide some greenhouse gas mitigation and address the climate change issue.”

Other hopes are pinned on projects such as the Heartland Upgrader under construction near Edmonton which plans to deploy improved, simplified technology to lower emissions by two-thirds and the Whitesands project by Petrobank Energy and Resources, which will come on stream in May with a pilot project that involves pumping air underground to fuel a fire that will burn heavier oil particles, thinning the remaining oil by underground combustion.

Also being tested are ways to inject solvents into the bitumen reservoir, helping to thin the deposits and force them to the surface.

It’s all part of the strides being made to ensure that the oil sands can offset the decline of conventional gas supplies and take advantage of the otherwise low-risk bitumen source, said Larry Boisvert, a petroleum engineering instructor at the Northern Alberta Institute of Technology.

Oil price an important factor

“But if you think it could drop to $30-$35, or even to $40, then you are going to have second thoughts about proceeding with an investment,” he said.

Like many experts, Dunbar said it is not realistic to believe that all of the announced projects will proceed.

However, the 450-page Purvin & Gertz study said new projects could triple the supply of bitumen and synthetic crude beyond 3 million bpd within 10 years and are not likely to be restrained by reserves or access to markets.

The authors concluded that upgrading economics, based on light/heavy crude price differentials, should not deter the expansion of new capacity, although price volatility is unlikely to ease.

Study advisor Tim Wise said the development of new markets is essential to reduce the wide price differential between light and heavy crude, giving added weight to the push to add China, Japan, South Korea and California to the traditional outlets in the U.S. Midwest.

Study director Steven Kelley said producers should also be working to diversify their crude types to improve integration between producers and refiners.

Gasification moves front-and-center

Gary Park

Until now the vast open-pit mining operations of Suncor Energy, Syncrude Canada and Shell Canada have underpinned oil sands production.

But 70-80 percent of Alberta’s 174 billion barrels of recoverable bitumen is too deeply buried for strip mining and can only be accessed through thermal recovery techniques that involve pumping gas-generated steam to melt the bitumen and force it to the surface.

That has made gas the single largest operating cost for producers.

No one in the oil sands needs any reminding that natural gas could be entering a crisis phase.

Wilf Gobert, vice-chairman of investment dealer Peters & Co., told business leaders in January that Canadian gas production stopped growing in 2003 and, despite projections of 16,000 gas wells in 2006, “it’s questionable whether that level of activity is going to increase total production.”

Finding alternatives to gas consumption “will not only become economically attractive, but operationally necessary,” said FirstEnergy analyst Mark Friesen.

One of those alternatives is gasification — or making synthetic gas from coal or coke.

“Gasification opportunities in Western Canada are about the replacement of natural gas,” Duke du Plessis, senior advisor to the Alberta Energy Research Institute, told a clean coal symposium in Calgary in late January.

“Gasification of coal and petroleum coke can replace gas as a future source of hydrogen.”

Alberta has the feedstocks — petroleum coke and oil residues — that can be “hydrogen-generators, so we can wean the oil sands industry from its insatiable appetite for natural gas,” du Plessis said.

Efforts to reduce their dependency are being led by three major operators — the Nexen/OPTI Canada partnership which is constructing the C$3.5 billion Long Lake operation, Suncor Energy, which is planning commercial gasification operations, and Canadian Natural Resources, which has announced plans to include gasification units in future expansions of its massive Horizon project.

In addition, gasification technology is being actively pursued on an international scale, with companies like Pratt & Whitney designing single-stage gasifiers, while German researchers have designed an “energy gasifier” that has been successful in gasifying low-rank coals.

The Long Lake partners, who are converting so-called “bottom of the barrel” bitumen into synthetic gas, believe the process will allow them to cut oil sands production costs by C$9 per barrel. Their confidence is based on a two-year pilot project.