Oil sands poised for gusher

Study projects 5 million barrels per day by 2030, 20% of continent’s demand

Gary Park

Petroleum News Calgary correspondent

Certain that North America’s dependence on crude oil will extend to at least 2050, the Alberta Chamber of Resources sees a future for the province’s oil sands that will stagger even the most starry-eyed optimists.

By 2030, the chamber estimates the oil sands could be producing 5 million barrels per day, or 20 percent of the continent’s demand, assuming that technological advances can unlock more than the current 175 billion barrels of oil thought to be recoverable with known methods.

“Technology development and adoption has rapidly reduced supply costs and increased the economic viability of oil sands development with world crude prices at sustained levels at or above US$20 per barrel,” the chamber said in the draft of an Oil Sands Technology Roadmap, released for comment in December.

Just doubling output to 2 million bpd in the 2010-2012 period dangles the prospect of 32,000 new jobs, while achieving the 5 million bpd level would require spending of C$30 billion for each increase of 1 million bpd.

In turn, an additional 1 million bpd would pump C$15 billion into Canada gross domestic production, which currently stands at C$1 trillion. An additional 3 million bpd would inject a further C$45 billion, with an overall boost to GDP of 4-5 percent.

Each direct oil sands job is forecast to generate three additional jobs in a wide range of support fields.

The chamber is made up of 170 members, drawn from corporations, government agencies and educational institutions.

The document says the oil sands “will increasingly be seen as a versatile energy source, expanding from the two-product industry today.

“Achieving the level of development envisaged during the decline in conventional oil and gas reserves will also see an expanded role, with multiple marketable productions.”

Conserving natural gas important

“The oil sands industry does not want to contribute to a ‘bidding war’ for this clean energy source, nor threaten supply to the petrochemical industry.

“Oil sands byproducts will maintain feedstock supply security and offer future growth opportunities in petrochemicals.”

In a general conclusion, the chamber says oil sands development “is a project of enormous potential benefit, not just in Alberta but also across (Canada). Furthermore, exports of products that are upgraded to the maximum possible extent in Canada, provides an unparalleled opportunity for wealth and job creation and infrastructure development.

“With the right technology, the oil sands will provide a sustainable bridge between non-renewable fossil fuels and cleaner energy options for the future.”

Numerous challenges to expanding oil sands production

COST STRUCTURE

Newer technology that is currently being tested should continue a “positive trend” to lower the oil sands cost structure and help withstand “any cyclical changes or a future downturn in crude prices.”

But, in only the last 20 years, the costs of mining and upgrading have plunged from C$40 a barrel to about C$17, while the in-situ recovery of deeply buried bitumen deposits has been trimmed from about C$22 per barrel to C$13.

EXPANDED MARKETS

Although oil sands production will offset the overall North American decline in conventional light volumes and the expected increased demand for refined petroleum products, there will be the need to extend traditional U.S. markets for extra Canadian output.

A start has been made in that direction with the introduction of Synbit — a blend of synthetic crude and bitumen — which has the ability to compete against medium sour crude oils and grow in volume from essentially zero to several hundred thousand bpd by 2010.

The next biggest opportunity is to open up transportation routes to the U.S. Gulf Coast and resolve the issue of competition with foreign crude sources.

Relatively new markets such as California and Pacific Rim countries might also take up to 1 million bpd.

UPGRADING AND FUELS OF THE FUTURE

The document says that upgrading “not only provides an opportunity to increase the value of finished products but also an opportunity to respond to changing downstream refining pressures to produce cleaner burning fuels.”

But weighed against the benefits and future potential capabilities of upgrading are the risks and unknown costs “going into the future,” which means Canada “will need to realize sufficient economies of scale to make such an investment attractive.”

PIPELINE INFRASTRUCTURE

Currently, up to 80 percent of heavy oil and bitumen blends produced in Canada are shipped to the United States through existing pipelines, but a transportation constraint looms by 2007 at the latest.

However, the pipeline industry is already immersed on discussions with oil sands producers to plan the right “mix” of future capacity, including the need to transport ultra-low sulfur products without major reprocessing.

KICKING THE NATURAL GAS DEPENDENCY

The heavy reliance on natural gas for upgrading is reflected in the current consumption of 1,000 cubic feet of gas for every barrel recovered from in-situ projects, while upgraders consume as much as 700 cubic feet per barrel of synthetic crude for energy and hydrogen.

Based on current rates, gas usage would rise from 10 percent of Western Canada sedimentary basin, coalbed methane and Mackenzie Delta supply by 2012 to an “unthinkable” 50 percent by 2030, assuming oil sands output of 5 million bpd.

“Such a demand level, combined with competition from other markets in the face of dwindling reserves, will help drive price increase,” the chamber warns.

“The ‘business-as-usual’ case is clearly unsustainable and uneconomical.

“The solution is energy and hydrogen self-sufficiency, either through use of residues, or external energy alternatives, such as coal or nuclear energy.”

ENVIRONMENT

The Kyoto Protocol is just one of many challenges as social and regulatory pressures build on the oil sands sector to reduce its overall environmental footprint.

The chamber concedes that the cumulative effect of oil sands development and operations is “relatively unknown,” which puts pressure on the industry to invest in developing and applying the right technologies to improve on the existing environmental record.

That includes strategies or technologies to reduce greenhouse gas emissions such as carbon dioxide, sulfur dioxide, nitrogen oxides, hydrogen sulfide, carbon monoxide and methane.

As well, the industry is urged to continue striving for minimum water use at a time of dwindling water supplies and rapidly growing industries and population in Alberta.