Oil Sands changing the face of Canada

For decades people from the have-not parts of Canada have found themselves “going down the road” to work in Alberta’s oil patch. Now they find themselves going up the highway, drawn north to Fort McMurray and beyond, as the whole of the oil sands explodes in expansion and new construction, as outlined in our reports below. These include updates from Syncrude, Suncor, UTS/Teck Cominco, Canadian Natural Resources and Albian Sands–just a sampling of the oil sands mines activity.

The notion of people moving west is not just a gut feeling, but is one of the findings in a major benchmark report released in late March by Canada West. State of the West 2008 reports that interprovincial migration has been a source of population growth for western Canada as a whole. From 1972 and 2007, the region attracted 629,000 more people than it lost, while the rest of Canada combined suffered a net loss.

According to the report, the economic strength within Canada has shifted westward, with the West leading the nation in economic growth in recent years. The unemployment rate is significantly lower in the West than elsewhere in Canada. While more than 80% of job gains have been in service industries, the West remains a resource-based economy. In Alberta, the main driving factor is the oil sands industry.

State of the West 2008 is part of the Canada West Foundation’s The NEXT West Project, with core funding provided by Western Economic Diversification Canada and the Kahanoff Foundation. You can find the whole report at www.cwf.caunder “Publications”.

Syncrude Canada completed its last major expansion in 2006, but not without certain challenges. The project ran two years longer than planned, and at $8.55 billion it cost twice the original estimate.

Stage 3 officially began operation in August 2006, after a final three-month delay due to problems with the flue gas desulphurizer. It was the source of a strong ammonia odour, but that has been corrected. The unit is now operating efficiently, scrubbing sulphur emission from the new coker and producing a slurry of ammonium nitrate that is turned into fertilizer.

Along with expanded capacity came the opportunity to improve product quality. Modification to the steam generation unit of the new hydrogen plant, due to be completed by the end of 2007,will allow the production of Syncrude Sweet Premium (SSP) crude rather than Syncrude Sweet Blend (SSB) crude. SSP is a value-added light, sweet crude oil that will be both sold in Canada and exported.

Work is underway on expanding the mining operations at both the MILDRED LAKE and AURORA MINES. Like other oil sands projects, the amount of money involved is huge. Syncrude placed a $230-million order for 20 Caterpillar 797B, 345-t haul trucks in January 2007, to be delivered by Finning Canada in 2009. Syncrude also awarded a $100-million engineering contract to AMEC just this February. The contract covers relocating and improving processing facilities as well as applying new technologies.

Some of those new technologies are expected to come from the engineers at Imperial Oil, as Syncrude signed a management agreement with Imperial in 2006. The 10-year deal gives Syncrude access to new tools and resources with which to improve operational reliability. It also covers improved energy use, better procurement efficiencies and strengthened business controls. Employees of Imperial and Exxon/Mobile will be seconded to Syncrude to implement the new systems.

The Stage 3 expansion brought capacity up to 350,000 bbl/day. Now the company has embarked on a major debottlenecking program that will add another 30,000 to 50,000 bbl/day by about 2012.

Syncrude is planning for the next growth spurt–the Stage 4 expansion–that will add 100,000 bbl/day. Construction is 10 years away, but when complete the next expansion will bring total capacity up to 500,000 bbl/day in 2020.

The Syncrude leases have an historically established resource of 9.0 billion bbl, which will provide 50 more years of operation at the 500,000 bbl/day rate. The leases have the potential for hosting even more resources, and that would expand the life of the operation or allow yet another expansion.

Since startup in 1978, the Syncrude joint venture has produced over 1.8 billion barrels of oil. The partners include Canadian Oil Sands Ltd. (36.74%), Imperial Oil (25% and the only remaining original partner in the project), Petro-Canada (12%), Conoco-Philips (9.03%), Nexen Oil Sands Partnership (7.23%), Murphy Oil (5%) and Mocal Energy (5%).

Suncor growth to cost $20 billion

There seems to be no upper limit to spending in Alberta’s oil sands, but Suncor Energy’s announcement that it will spend $20.6 billion on expansion reaches a new high. The move will add 200,000 bbl/day to the project north of Fort McMurray, Alta. Production capacity is expected to reach 550,000 bbl/day in 2012.

The expansion is part of the VOYAGEUR growth strategy that was initiated in 2001. Production in 2007 was 260,000 bbl/day, and that number is expected to rise to 350,000 bbl/day in 2008. The expansion to 550,000 bbl/day involves four more stages of in situ bitumen production and the construction of a third upgrader, plus related infrastructure and utilities.

The move toward more production from in situ sources reduces the environmental impact of recovering bitumen. In situ recovery disturbs only about 15% of the land compared with truck-and-shovel mining. And in situ methods make it possible to recycle more than 90% of the necessary process water.

A look at the remaining 15.0 billion bbl of recoverable bitumen resources on Suncor’s leases also highlights the importance of in situ technology. Only 6.0 billion bbl are recoverable by mining. The other 9.0 billion bbl are deeper below surface and can only be recovered using in situ methods. The company expects to continue recovering bitumen from oil sands for the next 70 years or more.

Suncor was the world’s first oil sands miner, commissioning its original facilities in 1967. But that does not mean the company is stuck in the past. Over the last five years it has reduced water use per barrel of oil by nearly 50%, and the current expansion has earmarked $225 million to further improve water management. Greenhouse gas levels have been cut 50% compared with 1990 levels. Expansion will bump up the absolute amount of greenhouse gases emitted, but Suncor promises to continue investigating new technologies that will lead to long-term reductions. Air quality has improved with the investment of $800 million to cut the emissions of sulphur dioxide, nitrous oxide and foul odours. The company is also investigating integrated land management practices with neighbouring producers, in an attempt to reduce the cumulative effect of oil sands development.

Key to Suncor’s Voyageur plans is to increase in situ production from the FIREBAG PROJECT. Two steam-assisted gravity drainage (SAGD) stages have already been established, and there will be four more by 2012. Each stage will produce approximately 68,000 bbl/day. Total cost of the four new stages is expected to be $9.0 billion.

The construction of a third upgrader has a higher price tag–$11.6 billion. It is designed to produce 200,000 bbl/day of crude oil by treating 245,000 bbl of bitumen from in situ sources. Preliminary engineering is nearly complete, and construction has begun. The upgrader should be ready for commissioning in the third quarter of 2011.

Suncor has not forgotten its roots in oil sands mining. Plans were announced in July 2007 for the development of the VOYAGEUR SOUTH OPEN PIT. This mine will use mobile oil preparation facilities rather than conventional trucks and shovels. The p
roject will provide flexibility of feed for the new upgrader. Construction could start in 2009 or 2010,with production beginning in 2012 or 2013. A preliminary estimate has put the capital costs at $4.4 billion. This pit would supply 120,000 bbl/day of bitumen for 40 years.

Suncor calls itself “First in Oil Sands”, and there is no reason to doubt that claim. The company that first mined the oil sands is now leading the way in new technologies that will improve the industry’s environmental care in the use of the land, air and water.

Two new oil sands mine projects

In late March, UTS Energy Corp. of Calgary and its joint venture partner, Teck Cominco Ltd. of Vancouver, announced a proposed development plan for two new oil sands projects that, combined, will produce between 150,000 and 210,000 bbl/day of de-asphalted bitumen, starting as early as 2014.

The first phase of the new FRONTIER MINE AND EXTRACTION PROJECT has estimated production

capacity of between 100,000 and 160,000 bbl/day for 40 to 60 years, possibly followed by an additional phase. It lies 10-20 km northwest of the FORT HILLS PROJECT 20% UTS, 20% Teck Cominco and 60% Petro-Canada), bordered to the south and east by Shell Canada’s proposed Pierre River project.

Environmental baseline studies are being conducted, and a bulk sampling program is underway to provide material for extraction and froth treatment pilot testing. Nine geotechnical auger holes have been drilled. An extensive infill drilling program is planned on Lease 610 for winter 2008-09.

The new EQUINOX PROJECT (formerly Lease 14) is a single-phase development with an estimated production capacity of 50,000 bbl/day of de-asphalted bitumen over a 20-year life. The project is directly across from the Fort Hills project and 10 km south of the Frontier project, about 90 km north of Fort McMurray, Alta. It could proceed either as a stand-alone mine with dedicated bitumen production and extraction facilities, or as one where bitumen froth is treated at either the Frontier plant or another neighbouring project.

The terms of reference for Equinox’s environmental impact assessment (EIA) are expected to be complete in the second half of 2008, followed by completion of the design basis, pilot test program and EIA in the first quarter of 2009. The company expects to submit a regulatory application for the Equinox project in the first quarter of 2009.

Options for upgrading bitumen from Frontier and Equinox include expanding the partnership’s STURGEON UPGRADER, merchant upgrading or a dedicated upgrader via a downstream partner. The proposed development plan document is accessible at www.teckcominco.comunder “Operations/ Energy”.

CNRL’s production on Horizon

With oil prices topping $100 per barrel, the people at Canadian Natural Resources Ltd. (CNRL) must be pleased to be nearing completion of the HORIZON OIL SANDS PROJECT, 70 km north of Fort McMurray, Alta.

Start up is scheduled for the third quarter this year at a rate of 110,000 bbl/day of synthetic crude oil. And this is only the beginning. Canadian Natural has plans to expand the project in phases to 232,000 bbl/day by 2011, and eventually to 500,000 bbl/day.

The company committed as much as $8.7 billion to the first phase of the Horizon project. The original development estimate of $6.8 billion had risen to $7.5 billion by October 2007. Part of the problem has been an unusually cold winter in northern Alberta that is pushing costs up at all projects in the area. Canadian Natural said the extreme cold added $1.0 billion to the Horizon costs.

Horizon will be a conventional open pit truck-and-shovel mining operation plus on-site bitumen extraction and upgrading facilities.

Canadian Natural chose an Hitachi EX8000 hydraulic shovel and a fleet of 320-t Hitachi EH5000 haul trucks, supplied by Wajax. Each truck can be filled in four passes. The shovel and its 40-m3 bucket were commissioned in April 2006. A second EX8000 and additional trucks were ordered later in the year.

North American Construction Group was awarded the 10-year contract to remove 400 million m3 of overburden.

The production equipment fleet ordered by Canadian Natural includes 23 Caterpillar 797B trucks that are to be delivered this year. The Canadian company Finning, which is the world’s largest Cat dealer, is supplying the vehicles.

Three P&H 4100C BOSS electric rope shovels will place the bitumen-laden sand into the trucks. The first shovel should be ready to go by the middle of this year. Commissioning and servicing will be performed by P&H MnePro Services.

The Horizon leases contain an estimated 16 billion bbl of bitumen in place; 6 to 8 billion bbl of that amount are recoverable with existing technologies. However, only 3.5 billion bbl are included in proven and probable reserves. The project has an estimated life of 40 years.

By the end of 2007 the Horizon oil sands project was over 90% complete. The construction workforce had peaked at 6,500, making it one of the largest construction projects in the world. The permanent workforce is expected to number 2,400 people.

Canadian Natural grew out of an ambitious little company with nine employees producing 14,000 bbl/day of oil in 1989.When it gave the nod to the Horizon project in February 2005, it had grown to 2,500 employees and a production of over 575,000 bbl/day of oil equivalent. These are big numbers that are only going to get bigger as Horizon is commissioned and expanded.

Albian Sands increasing production from Lease 13

Almost every oil sands project in the Athabasca is talking about expansion, and Albian Sands is no exception. Albian Sands Energy was created by the Athabasca Oil Sands Project (AOSP), which is a joint venture of Shell Canada (60%), Chevron Canada (20%) and Marathon Oil Sands (20%; it purchased West Oil Sands’ interest).

Albian Sands operates the truck and shovel MUSKEG RIVER MINE on Lease 13, about 75 km north of Fort McMurray, Alta., and the SCOTFORD UPGRADER north of Fort Saskatchewan, Alta. The upgrader produces synthetic crude oil, much of which is refined at Shell’s adjacent Scotford refinery. The mine and upgrader have a capacity of 155,000 bbl/day of bitumen, and currently supply almost 10% of Canada’s oil needs.

Lease 13 contains more than 5 billion bbl of minable bitumen close to the surface with a high oil concentration, making it ideally suited to mining. The current Muskeg River mine is designed to recover 1.6 billion bbl of that resource. As well, there are plans to expand the Muskeg River mine and Scotford upgrader, and to build the JACKPINE and PIERRE RIVER MINES, which together will develop most of Lease 13.

The $7.3-billion AOSP expansion 1 is underway, adding 100,000 bbl/day capacity by 2010 (to 255,000 bbl/day capacity). This includes developing the Jackpine mine and extraction facilities, expanding the froth treatment facilities at the existing Muskeg River mine, expanding the Scotford upgrader, and developing common infrastructure such as power transmission lines, roads, camps and site pipelines to support future expansions.

Shell has applied for approval to construct and operate a Scotford Upgrader 2 adjacent to its existing Scotford facilities, in four stages. Scotford 2 could ultimately process up to 400,000 bbl/day of oil sands bitumen from the mines as well as Shell’s in situ oil sands projects into a range of synthetic crude oil products.

AOSP has also applied to expand the Jackpine mine to 300,000 bbl/day capacity, and to build a 200,000-bbl/day mine at the Pierre River mining area. The expansion includes mining and bitumen processing extended to the west side of the Athabasca River, initially on Leases 9 and 17 and progressing to Leases 309, 310, 351 an
d 352 as well as possible lease exchange areas acquired from other companies. The bitumen produced could be transported via pipeline from the Athabasca area to Fort Saskatchewan and/or to Canadian or potentially U. S. markets.

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