National Post (National Edition)
Innovators dig in to revive the oilsands
LOW-COST SHALE DRIVES NEED FOR TECHNOLOGY
CALGARY/HOUSTON • In the boreal forests and on the remote prairies of Alberta, a handful of firms are running pilot projects they hope will end a two-decade drought in innovation and stem the exodus of top global energy firms from Canada’s oilsands.
They are searching for a breakthrough that will cut the cost of pumping the tarlike oil from the country’s vast underground bitumen reservoirs and better compete with the booming shale industry in the U.S.
If they fail, a bigger chunk of the world’s third-largest oil reserves will stay in the ground. Canada’s oilsands have become one of the biggest victims of the oil price crash that began in 2014, when Saudi Arabia flooded the market with cheap crude to drive out high-cost competitors.
This year alone, oil majors have sold over US$22.5 billion of assets in Canada’s energy industry, and been lured south to invest in the higher returns of U.S. shale.
Joseph Kuhach is among the entrepreneurs in Canada hoping to turn the tide. He runs a small Calgary-based firm, Nsolv, that is testing the use of solvents to liquefy the bitumen buried in the sands and make it flow as oil.
Kuhach says using solvents can cut 20 to 40 per cent from the cost of producing the oil. The technique currently used is to use steam to heat the sands underground to extract the oil.
It’s a hard sell, he said, to Canadian producers reluctant to invest in a multimillion-dollar technology that is unproven on a commercial scale. “The comment I hear so often when I am talking to companies is, ‘We want to be the very first in line to be second,’” said Kuhach. “It’s easier to go after incremental improvements that they can back away from with no great cost and no great risk.”
Nsolv is winding down a three-year pilot project with
Suncor Energy in northern Alberta. Suncor is evaluating the results, the firm’s spokeswoman Erin Rees said. Imperial Oil Ltd., controlled by Exxon Mobil is also developing solvent technology and has had an ongoing $100-million pilot project since 2013, the firm said.
The development of the technique using steam two decades ago made Canada’s sands the new frontier, and majors were among the firms that flocked to buy in.
Since then, innovation has stalled. That failure, energyindustry entrepreneurs and venture capitalists told Reuters, is rooted in a risk-averse culture that has left oilsands years behind U.S. shale.
The exodus of firms such as Royal Dutch Shell and Statoil ASA has made innovation tougher because there are fewer potential customers who might adopt new technology, said Joe Gasca, chair of Fractal Systems Inc. His firm processes bitumen into higher-quality crude at the wellhead. Fractal is running a 1,000 barrel-per-day (bpd) test plant in Alberta for Cenovus Energy, which has yet to make a decision on whether to proceed.
The shale sector moved fast to survive the oil price crash. In 2014, oil from most shale fields cost more to produce than the average US$60 a barrel needed for a new Canadian oilsands project to make money. Now, some shale patches can make a profit at US$15 a barrel.
It takes months of pumping steam into underground reservoirs before bitumen starts to flow from the oilsands. That makes engineers reluctant to experiment with the delicate balance of heat and pressure.
Shale, by contrast, provides comparatively fertile ground for innovation. The initial investment is a fraction of the cost of an oilsands project. Relatively easy access encourages competition as the many firms involved look for an edge. Wells can be drilled quickly. The stakes are lower and the scale is smaller if experiments fail.
Drilling longer wells and being better able to pinpoint where in those wells to fracture the rock, among other techniques, have supercharged U.S. shale output in the past two years.
Canadian producers have fewer projects to experiment with and are unwilling to risk their massive upfront investments, said Steve Fisher, CEO of Calgary-based startup Veerum. “Shale is like going on a date, the oilsands is like getting married,” he said. “The risk for capital is high in the oilsands, you have massive assets that need to complete on time and operate for 40 years to make money.”
Vancouver-based Chrysalix Venture Capital has become more cautious since the oil majors pulled out, chief executive Wal van Lierop said, but is investing in technologies that may prove valuable to the sector.
“I am really hoping we can get breakthrough technologies, but I don’t see them yet,” he said. “Mediocracy will not help. It will be go big or go home.”