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Week of October 31, 2010
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US puts ‘security’ first

Secretary Clinton says Canada ‘dirty oil’ vital part of ‘very hard balancing act’

Gary Park

For Petroleum News

The United States government seems to be tilting toward energy security over worries about importing “dirty oil” as President Barack Obama faces an early decision on whether to award a presidential permit for TransCanada’s planned Keystone XL pipeline to deliver 500,000 barrels per day of oil sands crude from Alberta to Gulf Coast refineries.

Coming on the heels of remarks by Republican Sen. Lindsey Graham that he will do everything possible to ensure the U.S. does not impede the flow of oil sands production to the Lower 48, Secretary of State Hillary Clinton delivered the strongest endorsement yet from the highest levels of the Obama administration for the Keystone XL project.

Speaking in San Francisco on Oct. 1, in a speech that attracted little initial interest, Clinton said the administration is “inclined” to sign off on the pipeline once the final analysis is submitted to her department.

While imports from the oil sands might constitute “dirty oil,” the flow from Canada is a vital part of a “very hard balancing act” between energy security and the pursuit of new clean energy technologies, Clinton said.

“Energy security requires that I look at all of the factors that we have to consider while we try to expedite as much as we can America’s move toward clean, renewable energy,” she said.

A spokeswoman for Clinton said that once a final environmental impact statement is published federal agencies will have 90 days to comment on the presidential permit.

First quarter construction target

TransCanada is targeting late in the first quarter of 2011 to start construction on Keystone XL — an extension of the operating Keystone line from Alberta to refineries in Illinois and ultimately Cushing, Okla. — which is designed to double capacity of the $12 billion system to 1.1 million bpd.

The in-service date is scheduled for 2013, with shipping contracts already signed with ConocoPhillips, Suncor Energy and Royal Dutch Shell.

The company has argued from the outset, while faced with a public outcry against Keystone XL, that the pipeline offers a vital link for U.S. refineries to a reliable source of onshore North American crude, along with billions of dollars in economic stimulus and tax revenues for states and communities along the Keystone route.

TransCanada Vice President Robert Jones is confident the U.S. government recognizes the twin benefits of energy security and economic development that Keystone will provide, regardless of BP’s Gulf of Mexico blowout and Enbridge’s pipeline rupture in Michigan.

However, the Republican and Democratic senators from Nebraska (Mike Johanns and Ben Nelson) have written to Clinton, expressing concern that she has reached a premature conclusion before seeing the analysis of Keystone’s impact on Nebraska’s environmentally sensitive Sand Hills region and Ogallala Aquifer.


TransCanada rival Enbridge has also notched a legal victory over environmental opponents, with the District Court of Minnesota dismissing claims that an environmental review of the 1,000-mile Alberta Clipper bitumen pipeline failed to address impacts of the project.

Enbridge, which started carrying oil on the 450,000 bpd line from Alberta to Superior, Wis., earlier in October, welcomed the ruling, but declined to further inflame matters by suggesting the court did a better job than it could of outlining the complexity of the issues.

The Minnesota suit alleged Alberta Clipper would promote development of the oil sands, increase the use of carbon-intense petroleum products and add to greenhouse gas emissions.

The court, noting that the pipeline volumes represent only 3 percent of the crude oil processed in the United States, said market forces rather than a specific pipeline would shape development of bitumen resources.

Current developments

While not directly tied with either Keystone or Alberta Clipper, a number of oil sands operators are speedily moving ahead with projects, apparently certain they will not get sidelined by environmental and public opposition.

In the latest flurry of developments:

*Norway’s Statoil expects to pump the first oil from its Leismer project, targeting an initial 10,000 bpd, followed by 20,000 bpd and, eventually, 200,000 bpd in 2020, although regulatory permits cover only 10,000 bpd at this stage. Output is expected to be marketed as a heavy crude blend in Canada and the U.S.

*Southern Pacific Resource, which has combined reserves and contingent resources of 670 million barrels, received Alberta government approval for its C$430 million STP-McKay project, designed to achieve peak output of 12,000 bpd in 2012, with an estimated lifespan of 30 years.

Southern Pacific, which currently relies for cash flow on its 4,200 bpd STP-Senlac heavy crude operation in Saskatchewan, is on the verge of a regulatory application for two more oil sands projects of 12,000 bpd each.

Since acquiring Senlac a year ago for C$90 million, the company gained access to steam-assisted gravity drainage technology, which pumps high-pressure steam to bitumen deposits, forcing the melted bitumen to the surface through a parallel pipeline.

Southern Pacific Chief Executive Officer Byron Lutes said his company is too small to use untried technology, but has found SAGD “works very well.”

He also said the thermal recovery expertise will unlock the value of 2.1 billion barrels of discovered resource in northwestern Alberta, acquired in September’s takeover of North Peace Energy, confident that delineation drilling has established a resource that will support a 10,000 bpd commercial facility.

Laricina to expand

*Privately owned Laricina also got an Alberta green light to expand its Germain pilot project to a 5,000 bpd operation — 3,200 bpd more than originally planned — using solvents and steam to extract bitumen.

It expects to start production early in 2011 and bring commercial production onstream in the second half of 2012, growing in phases over 10 years to 180,000 bpd.

Laricina, which has been weighing an initial public offering over the past year, has raised about C$450 million over five years, largely through a C$250 million investment from the Canada Pension Plan Investment Board for a 17.1 percent ownership stake.

Korean Investment Corp., a sovereign wealth fund, added another C$50 million earlier this year, with most of the proceeds earmarked for Germain.

Laricina President Glen Schmidt said his company is “getting the right marriage of long-term capital looking for opportunities in energy investments. (The Koreans) have a long-term view on the value and the development of the business.”

Laricina aims to be the first to use horizontal drilling, SAGD and solvents in Alberta’s untapped carbonate formations, where it holds more than 3.9 billion gross barrels of potential resources.

It plans staged carbonate development in phases of 20,000-60,000 bpd, reaching ultimate gross production of 270,000 bpd over a reserve life of 25 years.

The use of solvents, which are being tested by oil sands majors Imperial Oil and Cenovus Energy, includes an injection of propane vapor to heat bitumen reservoirs, or adding small amounts of butane to reduce steam requirements.

*The Alberta Energy Resources Conservation Board gave BlackPearl Resources the green light for its 600 bpd Blackrod thermal project and approval for the first phase of its polymer flood Moody development.

BlackPearl President John Festival said in a release said his company’s goal is produce more than 50,000 bpd from the properties.

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