Getting full value from oil sands resource

Alberta government takes lead role with industry in exploring economics and market potential of refinery-petrochemical complex

Gary Park

Petroleum News Canadian Contributing Writer

The Alberta government is spearheading a joint research effort with 16 industry companies to probe the economics of building North America’s first new refinery since the early 1980s. The undertaking is spurred by the rapidly growing need to process oil sands production and moves by U.S. legislators to both remove environmental obstacles to new refineries and consider locations outside the hurricane-prone Gulf of Mexico.

For more than two years, the Alberta government and industry have been compiling technical reports on the merits of upgrading and refining oil sands and heavy oil production and adding value by producing feedstock for domestically-based petrochemical operations.

Earlier studies have focused on the possibility of building a plant to handle 200,000-300,000 barrels per day at a cost of C$5 billion-$7 billion.

Those efforts have expanded to a more detailed study costing C$360,000 — with C$200,000 coming from the government — and including companies such as oil sands producers Petro-Canada, EnCana and Canadian Natural Resources, pipeline companies Enbridge and TransCanada, Alberta-based utility TransAlta, Nova Chemicals and fertilizer manufacturer Agrium.

Findings by mid-2006

Energy Minister Greg Melchin said Oct. 13 the objective is to work with industry on building a case for embarking on such a complex in Alberta.

He said the participants have been trying to grasp the economics of doing more refining in Alberta in a sector that has experienced two decades of excess capacity, fluctuating prices and shaky profits, driving oil producers away from investing in refineries.

But Melchin noted that Alberta’s oil sands output is expected to triple to 3 million bpd by 2010 and could grow again to 5 million bpd before 2030.

He told reporters that “someone” will have to move on the refinery front and Alberta has “some advantages” because of its proximity to the source.

Melchin is also a strong advocate of capturing value in Alberta from the province’s resources.

Alberta won’t invest

So far no companies have indicated they are ready individually or as a consortium to make the investment.

Spokesman for EnCana and Canadian Natural say their companies are more interested at this stage in the study results and getting answers to questions such as whether it is possible to add value to oil sands resources in Alberta, whether a shortage of refining capacity is hindering investment in northern Alberta and whether the integration of upgrader, refinery and petrochemical plant makes economic sense.

Oil sands producers are already immersed in exploring options such as the need for upgraders to process bitumen and heavy oil into synthetic crude, finding new refinery outlets for raw bitumen and the prospects of converting existing refineries to handle oil sands production.

The Alberta Economic Development Department says on its Web site there is an industry view that upgrading bitumen byproducts could offer cost-competitive feedstock to the Alberta petrochemical industry.

That could be a crucial advantage in coming years as Western Canada’s tightening raw gas supply spills over to the enhanced oil recovery and petrochemical sectors, according to a recently-released National Energy Board study.

The board said “future ethane supply is a concern” for Alberta petrochemical companies given that gas volumes from the Western Canada Sedimentary basin are “not expected to grow.”

The current phase of the study is also delving into the production of synthetic natural gas to lower the investment needed for a refinery-petrochemical complex and increase operating profits.