STOP: Stop Tar Sands Operations Permanently

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Big Oil Worries Are High

Posted by mhudema on July 16, 2008

Technology, markets to drive rise in Canadian oil sands production
Steven Poruban
Senior Editor
CALGARY, July 16 — Production of Canadian oil sands bitumen will continue to rise in the coming decades but not without advances in processing technologies and the adoption by producers of varied strategies to market the resulting heavy crude blends.
These were some of the issues raised by speakers July 15 during the opening session of the second annual Oil Sands & Heavy Oil Technologies Conference & Exhibition in Calgary. The inaugural 2-day conference, held in July 2007, also in Calgary, drew more than 880 oil sands executives and senior personnel and more than 50 exhibitors.
Tensions were palpable at the opening session regarding one topic in particular—yet to be discussed fully by conference delegates—likely to serve as this year’s 900-lb gorilla sitting in the middle of industry’s living room: growing concerns in Canada about “finicky talk in the US about the type of oil it allows to cross its borders.
This hot-button topic has its impetus in a resolution adopted last month by the US Conference of Mayors modeled on a section in last year’s Energy Independence and Security Act that raised alarm about potential environmental drawbacks of oil sands. The resolution calls for bans on purchases for use in city vehicles of any fuel with life-cycle emissions of greenhouse gases deemed excessive (OGJ, July 7, 2008, p. 21). Canadian oil sands producers’ concerns hinge largely on such a resolution gaining serious political steam during an already strongly polarized presidential election in the US.
Oil vs. ‘dirty oil’
In a presentation that compared and contrasted conventional oil and oil sands and other heavy oil resources, Jim Hyne of Hyjay Research & Development stressed the need for different operational infrastructure for the two types of oil.
Hyne said the increased complexity of steps needed to extract and process the oil sands sets the resource too far apart from conventional resources to fit old protocols. Differences included the number of steps, the amount of manpower, and the large amounts of capital required to extract and process the resource. Also, transporting the finished products is more complex for oil sands, and the environmental and social impact of its development is far greater than conventional resources, Hyne noted.
Regarding the changes and advancements needed to continue to process oil sands and heavy oil, Hyne said, “There are too many people in the business we are in who are still thinking ‘inside the box.'” According to Hyne, there are vast new and different protocols that can be implemented that better meet the needs of responsible, profitable, and sustainable energy production from the oil sands.
Hyne pointed out that the features of the new and different operational infrastructure for oil sands include the amounts and toxicity of their emissions, getting the resource to the surface and moving it once there, how and where to upgrade the resource, the certainty of the reserves, and fighting the image of “dirty oil.”
Markets meet technology
Thomas Wise, vice-president of engineering consulting firm Purvin & Gertz, an engineering consulting firm with offices in Calgary, discussed the evolving oil sands and synthetic crude oil markets. He said that oil sands production growth is expected to offset declines in conventional oil production, although recent project delays have reduced original production forecasts.
Wise said bitumen blends coming from Canada have been over-supplied in US Midwest markets, which have resulted in price discounts. New refinery coking projects should improve the balance, Wise noted.
Wise noted that the supply of light, sweet synthetic crude oil (SCO), without bottoms, continues to rise, but that the demand is limited to a minority of refineries without coking or asphalt production. Therefore, SCO price discounting can be expected. Also, more hydrocracking is needed at refineries, and technology to reduce vacuum gas oil and leave some low-sulfur resid could enhance the marketability of SCO.
Wise said environmental issues will continue to impact the oil sands markets, adding that because greenhouse gas issues are so politically charged, clear government policies are needed. It is lack of this clarity that has delayed a number of upgrading projects, he said.
The value of oil sands
Robert Fryklund, vice-president of global exploration and production critical analysis for IHS, discussed the oil sands from the perspective of business developers. More than 1 trillion bbl of oil has already been produced from the oil sands, Fryklund said, and more than 1.7 trillion bbl of resources remain to be developed.
Sources for oil sands exist outside Canada as well, he said, noting projects in Iraq, Colombia, and Peru.
Fryklund noted that the oil sands landscape continues to change, even from a year ago. New entrants into the oil sands development projects include foreign companies such as Norway’s StatoilHydro and other Canadian domestic groups. Missing from the mix still are certain European majors, US operators such as Hess Corp., Anadarko Petroleum Corp., and Apache Corp. Also, Petrobras, Petronas, and Pertamina are all yet to enter.
Leasing activity has been on the rise, as has the number of merger and acquisition transactions, Fryklund noted. Capital cost creep, however, has started to wear away at the number of players in the oil sands. With projects costing an average of $10 billion due to come on line in the next 5 years, it is not so uncommon nowadays to discuss projects with a final price tag as high as $20 billion.
Fryklund still expects growth in oil sands development, although this growth will flatten out. He expects further consolidation within industry as well as a new wave of technology and innovation.
Contact Steven Poruban at stevenp@pennwell.com.
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