JPT

 

Vol. 58 No. 9

September 2006

Moving From Fringe to Mainstream

Diane Langley, JPT Features Editor

Just below the 60th parallel and well above the 40th parallel there is a place where bird watchers, First Nation peoples, and “Big Oil” mingle. What would otherwise be considered unlikely is relative in this land where sand dunes exist in tandem with wetlands and a boreal forest, and cold snaps bring temperatures to −40°F. The Canadian landscape just south of the Northwest Territory is a nature artist’s study in the unlikely.

It is here, in the northern city of Fort McMurray, that oil companies—small and large, state-owned and independent—are strategically flocking into a fast-changing energy landscape. In the 1990s, when oil was trading at U.S. $12/bbl, it was unlikely that Canada would witness such a rapid step-up in heavy-oil and oil-sands development. Now conventional oil is on its way to being displaced by synthetic crudes built by 19 separate heavy-oil streams currently being marketed out of western Canada (Fig. 1). Oil sands now account for 39% of Canada’s total oil production at approximately 1 million BOPD. By 2020, production could grow to 4 million BOPD.


Fig. 1—Four steam generators at the Petro-Canada MacKay River facility,
where bitumen is being extracted using steam-injection technology.

No Longer a Footnote

Alberta’s oil-sands deposits contain one-third of all known oil reserves in the world, according to the Oil Sands Discovery Center, and are one of the few remaining developments still open to private investment (Fig. 2). The most northerly dune complex in the world exists in Canada; the dunes can reach 35 m in height. Beneath these dunes lies a small percentage of Canada’s heavy oil. The largest percentage of heavy-oil reserves lies beneath muskeg, either close enough to the surface to be mined economically by removing the overburden or deeply buried but recoverable by steam-injection methods.


Fig. 2—Western Canadian crude-oil production
(Source: Paper 2004-017 presented at the 5th Canadian Intl. Petroleum
Conference in Calgary, Alberta, Canada, 8–10 June, 2004.)

The reserves found in three Alberta deposits—Athabasca (40 000 km2), Cold Lake (22 000 km2), and Peace River (8 000 km2)—contain resources that could supply Canada’s energy needs for more than 475 years, or total world needs for up to 15 years. With improvements in technology and commercial viability, the production potential of all the oil-sand deposits could be as high as 2.5 trillion bbl of bitumen.

The Athabasca deposit, twice the size of Lake Ontario, is estimated at a minimum of 1.6 trillion bbl of bitumen in place. Extraction is not an easy process from the technological perspective, and the environmental perspective is also particularly challenging. The Athabasca oil sands are located in wetland and boreal forest ecosystems, and they are extraordinarily diverse biologically. The forest is home to more than 300 plant species, of which 42 are rare, and 10 are not found anywhere else. The boreal forest is also home to 30 species of wood warblers.

The Alberta government calculates that, at today’s prices using current technology, approximately 175 billion bbl of crude bitumen is economically recoverable from the three Alberta oil-sands areas. Approximately 315 billion bbl is ultimately recoverable with technological advances.

Oil-laden sand may provide a bridge between the hydrocarbon era and future energy forms, so much so that oil-sands production is expected to quickly double during this second growth wave. By 2015, oil-sands production is expected to triple, which will make Canada the fifth-largest producer in the world.

Not only is the economics of such an endeavor now recognized and viable, but a new method of calculating unconventional oil reserves has been adopted. Recovery costs of extracting crude from oil sands are U.S. $15–$20/bbl, depending on method and difficulty of extraction, while the cost of recovering conventional crude from wells is generally less than U.S. $2/bbl, with exploration costs in addition to that. Because there is little geological risk, the only remaining uncertainty is that of oil prices. When the first mine was opened in 1967, development was inhibited by declining world oil prices. The 1973 oil crisis relit investor interest, and then it subsided again. Economic risk declined in 2004, when oil prices began a steady rise. It would still take a marked drop in world oil prices to slow the oil-sands juggernaut.

New Global Gas Tank

WCS, CLB, and SSB are some fresh symbols now seen crossing the Canadian border as a result of the effort to standardize heavy-crude streams. The list includes:

  • Bow River (BR), Lloydminster Blend (LLB), and Western Canadian Select (WCS), all conventional heavy sour crude oils that originate at Hardisty.
  • Cold Lake Blend (CLB), a bitumen blended heavy-sour-crude-oil originating at Hardisty.
  • Midale, a medium sour crude oil on Enbridge Pipeline originating at Cromer.
  • Syncrude Sweet Blend (SSB), a light sweet crude upgraded from bitumen and originating at Edmonton.

The process of extracting bitumen from oil sands is capital-intensive and costly because bitumen is stubbornly difficult to produce and ship; higher in impurities like sulfur, metals, and acid; and tricky to refine. Neither is creating bitumen/synthetic crude blends a small task (Fig. 3).


Fig. 3—Emerging oil-sands crude types. Because refinery demands now call for particular grades of crude, new crude types are appearing on the petroleum market. They are being created by blending synthetic oil with varying amounts of bitumen and bitumen blended with condensate. (Source: Canadian Assn. of Petroleum Producers, Cambridge Energy Research Inst. Oil Conference, May 2005.)

Pay Dirt

Bitumen is neither coal nor tar, although it resembles black, sticky tar. It is actually heavy, thick oil characterized by high viscosity and a high carbon/hydrogen ratio (gravity of approximately 8°API). Bitumen content in Canadian deposits varies from 1 to 18%. It takes, on average, 2 tonnes of mined oil sand to produce 1 bbl of synthetic crude.

Oil-sands deposits can be either shallow or deep. Deposits located near the surface (40–60 m deep sitting on top of flat limestone rock) are mined with open-pit techniques that use 100-ton shovels and 400-ton dump trucks. The step-up in producing mineable resources has led to multibillion-dollar expansions of existing projects, plus proposals for additional mining projects.

The deposits that are too deep to be mined economically are slated for in-situ development (Fig. 4) by use of a range of technologies that includes

  • Hot- and cold-water extraction, cyclic steam stimulation (CSS).
  • Fireflood.
  • Steam-assisted gravity drainage (SAGD).
  • Cold production.
  • Vapor extraction.
  • Toe-to-heel air injection.


Fig. 4—Historical production of oil sands.

To date, steam injection has been the favored method; SAGD has proved to be a major breakthrough for Canada because it is more economical than CSS, allows high production rates, and recovers up to 60% of oil in place.
Types of heavy crude (gravity below 22.3°API) include

  • Dilbit, bitumen diluted with naphtha (uses 25–30% diluent).
  • Synbit, bitumen diluted with synthetic crude oil (uses 40% synthetic crude). Production of Synbit, only recently introduced as a blend, will likely increase from essentially zero to several hundred thousand B/D by 2010 because it is comparable to medium sour crudes.
  • Partially upgraded.
  • Upgraded light.
  • A heavy, sour feed for processing elsewhere.

Trailblazers

Definitely not newcomers to the oil sands are Petro-Canada and Syncrude. Petro-Canada’s reach in the oil-sands category is extensive from two perspectives: historically and as a leader in in-situ development. Petro-Canada has been a key partner in such offshore megaprojects as Hibernia and Terra Nova. Petro-Canada holds a 12% interest in the Syncrude mining operation, is a 55% owner and operator of the planned Fort Hills oil-sands mining and upgrading project, and is Canada’s second largest downstream company, with refineries in Edmonton, Alberta, and Montréal, Québec. The Edmonton refinery is being converted to process oil-sands feedstock exclusively. The company’s combined in-situ development leases contain an estimated 5 billion bbl of bitumen resources.

MacKay River, located 60 km northwest of Fort McMurray, is the site of Petro-Canada’s first commercial SAGD project (MacKay River 1). Production here is expected to reach a plateau of 30,000 BOPD, with another in-situ development (MacKay River 2) to come on stream with another 30,000 BOPD around decade’s end. Next door is Petro-Canada’s Dover lease with 100 million bbl of recoverable bitumen. The company has additional oil-sands leases at Meadow Creek, Lewis, and Chard, each with a potential to produce 40,000 BOPD. Company assets also now include Fort Hills leases through a limited-partnership agreement; these leases contain more than 2.8 billion bbl of recoverable bitumen.

The SAGD process in use at MacKay River is responsible for opening up more than 100 billion bbl of bitumen to development. The process, which uses horizontal-well pairs and thermal steam injection, softens the viscous bitumen and enables it to flow out of the reservoir. A pair of wells is drilled approximately 5 m apart, and steam is injected into the reservoir through the upper well. The steam flows through the permeable zone, condensing and giving up heat to the oil-sands, allowing the bitumen to flow into the lower well.

At MacKay River, 25 well pairs drilled from two central pads are being used. Each well pair is drilled more than 100 m vertically before extending horizontally approximately 750 m into the reservoir. A third well pad being drilled at MacKay River will come on stream later this year. In addition to being Petro-Canada’s first foray into commercial SAGD production, MacKay River is also a valuable “testing ground” for new technologies and production methods. One pilot project there is testing steam-injection efficiency into oil-sands buried in less-permeable formations; if successful, it could open up new reserves to commercially viable production.

In-situ technologies like SAGD minimize environmental impact by allowing underground bitumen recovery. Once the well pads reach the end of their operating life, the pads are reclaimed with original topsoil kept specifically for this purpose. Also, more than 90% of water used to generate steam at MacKay River is recycled.

“A typical well pad produces bitumen for about 5 to 7 years,” said Petro-Canada spokesman Chris Dawson. “When production ends, it’s fully reclaimed at the same time the next well pad starts producing. By moving along in lockstep like that, SAGD has a significantly reduced footprint. The lifespan of a project like MacKay River is more than 30 years, but at any one time, the disturbed landscape is essentially the same as it was in year one.”

Water conservation is also a part of Petro-Canada’s environmental policy. Last year, its Edmonton refinery operations began using membrane-treated wastewater from the City of Edmonton’s Gold Bar treatment plant rather than drawing fresh water from the neighboring North Saskatchewan River. The treated wastewater will be used in the production of hydrogen and steam, which in turn will help make new low-sulfur diesel fuels. In 2008, the water will help process alternative feedstocks, such as bitumen and bitumen-derived crude oil. Petro-Canada is considering a similar recycling scheme at the Edmonton-area upgrader—an integral part of the Fort Hills project that will process bitumen from the Fort McMurray area mine into light sweet synthetic crude oil for shipment to Canadian and U.S. markets.

Convergence

Headquarters for Syncrude (another trailblazer in the oil sands) in Fort McMurray is a meeting place. Four rivers (the Athabasca, Clearwater, Horse, and Hangingstone rivers) converge here, as do communities. The moccasins worn by such tribes as the Cree and Chipewyan (who had long been tapping the sticky resource to waterproof their canoes) have been joined by work boots. But the land is being returned to a productive state after mining as a result of extensive land-reclamation projects.

Approximately 40 km north of Fort McMurray, Syncrude and the Fort McKay First Nation are in partnership to manage a wood bison herd (Fig. 5). More than 300 native wood bison have returned to graze in created habitats on the land reclaimed from mining and tailings operations.


Fig. 5—Syncrude’s wood bison gateway. (Image courtesy of Syncrude Canada Ltd.)

Syncrude says it is delivering on its promise to leave behind an area of forests, parkland, wetlands, and lakes. As witnessed by projects like the Matcheetawin (a Cree word meaning “beginning place”) discovery trail and the Sagow Pematosowin (Cree for “living in peaceful coexistence with the land”) trail, the vision is to leave behind an area of forests, parkland, wetlands, and lakes to support a new generation of economic and recreational uses. In 2005, reclamation expenditures were Cdn. $15 million.

A total of 44 First Nations in three treaty areas are found in Alberta, and these First Nation descendants are still involved with the oil sands. Syncrude is the country’s largest industrial employer of aboriginal people; in 2005, the company spent Cdn. $135 million with local aboriginal companies and contractors.

Syncrude began producing oil in northeast Alberta in 1978. Among the top 100 R&D spenders in Canada, the company has one of the biggest mine operations in the world and the world’s largest oil-sands crude-oil production facility. It also operates the Aurora and North mines. Unlike Petro-Canada which has a number of in-situ projects and prospects, Syncrude is focused entirely on surface mining shallow oil-sands deposits and extracting/upgrading bitumen to produce synthetic crude oil (Fig. 6). With a total asset value of approximately Cdn. $12 billion, the Syncrude project boasts one of the largest and most complex industrial facilities in Canada.


Fig. 6—Inside a flotation cell at Aurora
extraction facility. (Image courtesy of
Syncrude Canada Ltd.)

The company focuses its resources on increasing the competitiveness of SSB and bringing a premium version to market, while most research is focused on mining, extraction, and continuous improvement in environmental performance. Some examples of innovation at Syncrude expected to minimize environmental impact include a tailings oil-recovery unit to increase the amount of bitumen recovered in the extraction process and a naphtha recovery unit, both of which result in improved energy efficiency.

“The oil-sands industry is built on a foundation of innovation, and R&D will continue to play an important role as we move into the future,” said Syncrude spokesperson Alain Moore.

Following its “Syncrude 21” strategy, the company will increase capacity through stages of expansion. The recently completed Stage 3 expansion cost Cdn. $8.4 billion and increased the production capacity to 350,000 BOPD. Stages 1 and 2 (estimated at Cdn. $8.4 billion) were completed in 2001 at a cost of Cdn. $1 billion; the just-initiated Stage 3 expansion was estimated at Cdn. $3 billion.

An Idea Whose Time Has Come

Petro-Canada and Syncrude are certainly not alone in their task to develop this resource efficiently and economically in an environmentally sound manner. Canadian players include Suncor, Imperial Oil, Canadian Oil Sands Ltd., EnCana, Orion, and Husky; international players include Shell, Total, ExxonMobil, and ConocoPhillips. Total Canadian production is projected to increase from the current 2.5 million B/D to reach 4.9 million B/D by 2020. Collaboration between industry, government, and First Nations will prove vital to accomplishing the task.

Petro-Canada Chairman of the Board Brian MacNeill summed up the situation in a recent address, in which he referred to the familiar sight of geese flying home. The “V” formation enables them to travel incredibly long distances over short periods, progressing farther in a group than if they were to journey alone. Onlookers at Fort McMurray glance up now and again to see, in addition to the aurora borealis, a flock of energy industry players flying over the unlikely river of Athabasca sand, each bird creating an uplift for the one that follows.