Current and Planned Projects

Merry Christmas!

Mr. Ted Morton was sworn in on the 14th as the minister of sustainable development. I know Ted personally and commend Premier Stelmach with the appointment. Ted has the real long-term vision which I believe is necessary for his position. I wish him the best with his new position and hope that the sands can be developed such that Alberta, Canada and the world will become a better place.

http://www.srd.gov.ab.ca/

I threw together the list of projects and organized them to reflect the current stage of the project. A project which is under construction is much more likely to happen than a project which has been announced and thus as you go higher in the bar, the more uncertainty there is that the project will actually be undertaken as planned.






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The major take away for me is the growth of In-Situ production relative to Mining. This does make sense since In-Situ (getting at the bitumen which is usually 75m + underground) is where well over 90% of the reserves are located. Another take away is the potential for upgrading projects in the near term since approved+construction+operating projects will leave us with a larger difference between bitumen capacity and bitumen production (the difference going from about 220 000 b/d to more than 540 000 b/d). Given the shortage of dilutant, this may be a signal for more announced upgrading projects to get it going (or cynically, for some announced In-Situ and Mining projects to hold off…)!

I also promised to give a picture of the current, operating, upgrading capacity and players and so here you are:










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There are several places where you can get project names and planned startup dates, I used strategy west’s data which can be found at:

http://www.strategywest.com/downloads/StratWest_OSProjects.pdf

Have an excellent time with your families this holiday season!

Blog site switch (you are at the right site)

I just switched my oil sands blog from http://alberta-tar-sands.blogspot.com to http://alberta-oil-sands.blogspot.com

I will keep the previous address if you want to see when different posts were written.

To upgrade or not to upgrade ? - that is the question

Alberta Bitumen is recovered in two major ways – steam injection and surface mining. The mined “tar sands” must undergo some “extraction” processes (chemical additives, agitation, gravity separation and heat addition) which results in something quasi-similar to the output of the steam injection wells. This output product is the “bitumen” and all the capital costs etc of the “In-Situ” and “Mining” projects represent the costs to go from tar sands to bitumen product. I dealt with those costs in my previous post.

The bitumen product is lower quality than the lowest heavy crude oil. It is carbon-heavy and very viscous (hence difficult and costly to transport). There are two primary ways that the bitumen is sent to refineries – it can be upgraded to a higher quality crude oil via an “upgrading” process (cracking, hydro-treatment, etc) or it can be mixed with lighter crudes to dilute it to a point where its viscosity is low enough to transport to heavy refineries.

To upgrade or not to upgrade – that is the question at the table for many of the tar sands’ stakeholders. Upgrading is capital-intensive and hence risky but at the same time can bring huge economic benefits if the conditions are right.

I am correspondence with some of the major players and I asked one executive what the major factors are that influence his company’s development strategy with respect to upgrading in Alberta. Here is his answer:

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1. Transportation costs - bitumen is much more expensive to transport than SCO due to its high viscosity. Diluents must be added which costs are frequently not recovered in the value of the blend. In many cases there will need to be new pipelines constructed requiring long term shipping contracts (balance sheet issue) and again SCO transportation will be much less expensive than bitumen blends.

2. Regulatory - CO2 rules are a good example of a factor which could influence our site location. Currently however we believe that Total's internal cost on CO2 emissions which we apply to project economics are more stringent than Canada's indicative CO2 offset costs so I'm not sure how much of a direct driver that may have on our sight location decision. Historically the US has been a very difficult location to get a greenfield license so Canadian producers look for existing players to expand their refinery sites (eg EnCana/Conoco JV). Licensing in Canada is typically a provincial matter (the federal permits are minor although it recently started to classify CO2 as a pollutant which could be an entry point to a permit hearing) - the Alberta EnergyUtiltiesBoard and Alberta Environment are the lead agencies for approving such developments and they have to date never denied an application nor applied any onerous license conditions - the process is fairly rigorous with respect to technical review but once through the data review (primarily the environmental impact assessment) the application will be approved.

3. Tax/ Development Policy: The 2005 US energy bill contained major tax incentives for US refiners to invest in facilities to process alternative crudes such as bitumen but these may be repealed in the new congress. The Alberta government is considering some tax incentives to encourage a certain amount of value-add in the province through their HUTF taskforce but likely nothing will be known until the new premier is elected next month. Some of the candidates seem to advocate that some upgrading will be mandatory (similar to Orinoco projects in Venezuela although historically Alberta is completely laissez-faire. There is also some discussion by political types that the regulatory approval should somehow establish a queue so that only so much construction is occurring at the same time but that would be a major departure from recent practice.

4. Labor availability - the Alberta economy is overheated due to the pace of development in the high crude price environment. The forecast remains very strong with several mega projects underway in every year for the next

5. Alberta has a limited number of skilled tradesmen (eg welders, electricians, etc) who are typically unionized and whom resist attempts to import supplementary people form outside. This has led to some very high local cost factors related to rates/efficiencies of the trades (the Fort McMurray location factor is at least 1.5 that of the USGC). Any party considering an upgrader outside Alberta would be watching the projections of other activity/labor availability as a key signal to consider when reviewing project cost estimates.

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Items 2-5 are basically wholly political in nature! I believe that upgrading is most economical from both a global and provincial perspective if done in Alberta. Alberta and its provincial government are generally pro-market and have traditionally worked at fostering favorable conditions for oil sands development. Major political risks lie at the Federal level where inefficient carbon-policy, energy taxes and other governmental policies are seriously considered. Unwise interference would quickly sabotage the upgrading environment and would drive the companies south for their upgrading needs.

This entry is long enough so next time I will lay out the current upgrading situation (how much is upgraded and diluted).

Who is mining the Alberta Oil Sands ?

There is a ton of talk about the future of the oil sands. There isn't as much hype about what is happening now. Here is a quick setup.

Total bitumen production capacity today: 1.1 million barrels / day

Bitumen capacity is not the same as crude oil production - it needs to first be upgraded. However, it is roughly in the same ballpark. So that you can calibrate this number at least a little, US imports of crude oil are around 10 million barrels / day.

Total bitumen production can be further broken down into In-situ and Surface mining operations:

In-situ (mostly SAGD): 0.42 million barrels / day
Surface Mining: 0.68 million barrels / day

The major current operators:














The above graph does not include upgrading capacity which will be the subject of the next blog.

Introduction

I am a researcher of unconventional oil working in MIT's Joint Program for the Science and Policy of Global Change. My job here is basically to implement more realistic treatment of heavy oil into MIT's famous EPPA climate model. I am also an Albertan with strong ties and hopes for my home and wish to promote effective use of the sands for the benefit of Alberta and the world.

If you are unfamiliar with the Tar sands, I would start here:

http://en.wikipedia.org/wiki/Alberta_tar_sands

To get a better idea of the technologies involved, try this:

http://en.wikipedia.org/wiki/Tar_Sands

After reading those you should have a basic idea of what is going on up in frigid Athabasca. Now if you want to invest more time in learning, (say about 3-4 hours worth) you can read this quite comprensive report:

http://www.neb.gc.ca/energy/EnergyReports/EMAOilSandsOpportunitiesChallenges2015_2006/EMAOilSandsOpportunities2015Canada2006_e.pdf

If you have now finished those readings or already know those things and want to find out more, stay tuned!