FIRM MAY HOLD PARTIAL-UPGRADING KEY
For better or worse, it’s a rich resource that will drive Alberta’s economy for years to come. But bitumen is a pain in the arse, in many ways.
The gooey stuff, which at cool temperatures has the consistency of peanut butter, is so thick it can’t be sent down a pipeline like regular light crude oil.
To make it flow, it must be diluted with something like natural gas condensate, which is as costly as U.S. light crude, and eats up about a third of a pipeline’s valuable capacity.
Then the condensate — or diluent, as it’s commonly known — has to be shipped back on another pipeline for reuse. Expensive? You bet.
If Western Canada Select ( WCS) — Alberta’s benchmark grade, comprised of a mix of bitumen and heavy crude — fetched the same price as West Texas Intermediate ( WTI), the main U.S. grade of light oil, it wouldn’t be quite so bad.
But it doesn’t. Since WCS is largely landlocked, it sells at a fat discount to WTI. Currently, that’s roughly $15 (Cdn) a barrel. And since WTI now trades below US$44 a barrel, or less than half its 2014 high, that’s a double whammy.
Another hitch: bitumen contains unwanted stuff like sulphur, nitrogen and heavy metals. By removing them through a hightemperature process called coking, bitumen is transformed into synthetic crude oil, which has the same value as WTI.
That requires an upgrader, which generates emissions. Plus upgraders cost megabucks to build. When oil was worth $120 a barrel, they made sense, but not anymore. Which brings us to a thing called partial upgrading, which is far less costly.
Partial upgrading doesn’t turn bitumen into synthetic crude. But it does turn it into a type of heavy oil that can be shipped in pipelines and transported on oil tankers, just like other grades of heavy crude that ply the world’s oceans every day.
Oilsands critics — notably those in British Columbia — have whipped up opposition to pipelines over fears that a tanker spill of bitumen on the West Coast would be unusually tough to clean up, since studies show bitumen sinks, unlike regular crude.
That’s a valid concern. Now that the Alberta and B.C. governments are again in active talks over Enbridge’s long-stalled Northern Gateway pipeline to Kitimat, B.C., the bitumen spill risk will have to be addressed, one way or another. Ditto for Kinder Morgan’s proposed TransMountain pipeline expansion to Burnaby.
Partial upgrading could provide the answer. About half of the 2.3 million barrels a day ( b/d) of bitumen now produced in the oilsands is upgraded. The rest is transported as diluted bitumen, or dilbit. But what if these new pipelines transported partially upgraded bitumen instead?
Although the provincial government is keen to accelerate the commercialization of partial upgrading technologies — several of which are under development, notably MEG Energy’s Hi- Q process — no one has proven out a commercially viable solution, yet.
“We heard from our Royalty Review Advisory Panel that the partial upgrading of bitumen offers unique opportunities for Alberta’s resources,” said Alberta Energy Minister Margaret McCuaig-Boyd, who emailed a response to my query Friday.
“Partial upgrading will be one of the ideas considered by the Energy Diversification Advisory Committee, a committee our government has committed to establish this year. They will be tasked with advising our government on additional steps we can take to build a more diversified and resilient energy economy.”
MEG plans to spend $125 million (Cdn) to build a 1,500 b/d pilot project at its Stonefell terminal near Fort Saskatchewan to test Hi- Q.
Meanwhile, a low-profile, Schenectady, N.Y.-based startup company, which has formed a strategic partnership with a so-far unnamed Calgary-based oil producer, claims it has found the key to partial upgrading.
Auterra Inc. says its patented FlexUP process is a “game-changing” low-cost, low-energy upgrading process that uses chemical catalysts to remove sulphur, nitrogen and metals from bitumen while slashing emissions and eliminating diluent.
“This is arguably the first major technological advancement in the industry in over 30 years,” said Kyle Litz, Auterra’s chief technology officer, in a written statement. “We are now working to a goal of being able to deliver pipeline ready bitumen with less than one per cent sulphur.”
Auterra CEO Eric Burnett, who has already built and sold two previous technology startup companies, says the company hopes to soon move from the lab to a field test of the technology to prove that it works. It aims to build a consortium of oilpatch companies to support the project and advance it to a commercial stage.
“If you think about all the headaches that bitumen has, we address the majority of them,” he says.
“We increase the API gravity (a measure of how heavy or light the oil is versus water); we improve the viscosity (fluidity); we reduce the metals and nitrogen content; we have a configuration of the process that eliminates the acidity problem; and we do all of this in a pretty energy-efficient fashion. So we’re kind of excited,” he says.
“We’re in the process now of building a consortium of producers to help accelerate this. We are finishing up the engineering work right now, we will do some quick pilot-testing in our facility, and then it is out to field test it with a demo unit.”
There is no guarantee yet that Auterra’s process will work in the real world, of course. Others, including the defunct Ivanhoe Energy — whose own HTL (heavy-to-light) partial upgrading technology was recently acquired by London-based FluidOil Ltd. — failed to reach their goal.
But Burnett believes Auterra has hit a home run and it will eventually transform the oilsands, adding billions to Alberta’s coffers.
“We view the opportunity for using this technology in Canada as being upwards of a couple million barrels of oil a day,” he says. “So if you start thinking about what’s it going to take to put that upgraded oil in a pipeline it’s going to be a pretty big operation.”