Alberta in talks with firms to fund oilsands projects
The Alberta government has been negotiating with major oilsands players Suncor Energy Inc., Husky Energy Inc. and MEG Energy Corp. since late last year to fund heavy oil upgrading technology that could help alleviate pressure on existing pipelines, according to documents seen by the Financial Post. Alberta Energy Minister Marg McCuaig-Boyd authorized the province’s energy department and Alberta Petroleum Marketing Commission in November to negotiate with six companies “as soon as possible” to support partial upgrading projects that would lighten the province’s heaviest oil grades, according to the documents. “We’ve always had short-, mediumand long-term plans to deal with the oil price differential and our need to have more takeaway capacity,” said Mike McKinnon, spokesperson for McCuaig-Boyd, noting that partial upgrading investments were part of a longer-term strategy.
“We have shortlisted six projects and it would be up to companies if they want to disclose,” McKinnon said, declining to comment on specific proposals.
The government has been criticized by the opposition United Conservative Party for announcing major financial commitments for partial upgraders and petrochemical projects ahead of a provincial election. “Why, just before the election, are they signing all of these contracts?” UCP energy critic Prasad Panda said. McKinnon said the partial upgrading program has been in the works for a long time, and the government is not rushing through the process despite the documents referencing the need for expedience. “As with all company negotiations, it takes time to conduct the necessary due diligence,” he said. “We are committed to making sure all negotiations are conducted in a professional way that defends the interests of Albertans at all times.”
In February 2018, the province announced it would provide up to $1 billion in funding, comprised of $200 million in grants and $800 million in loan guarantees, to encourage new partial upgrading projects in the province.
The first tranche of that funding was announced in January 2019 when the government signed a letter of intent with privately held Value Creation Inc. to provide a $440-million loan guarantee for a $2-billion facility to partially upgrade 77,500 barrels of diluted bitumen per day. Calgary-based Value Creation was one of the firms on the short list seen by the Post.
The others are Suncor, Husky, MEG, Fractal Systems Inc. and Greenfire Oil and Gas Ltd. The province has yet to announce agreements with any of those companies, but the Post has learned negotiations are ongoing.
“We have been in discussions with the government about possible funding for the project but at this stage we’re unable to provide further details,” Husky spokesperson Mel Duvall said in an email. The company is currently running a 500-bpd pilot of its “hydrogen-donor diluent reduction” technology at its Sunrise oilsands project along with joint-venture partner BP Plc.
Duvall said the company was “exploring the potential of taking the next step.”
The province is keen to encourage companies with commercial-ready technology to get around the issue of new export pipelines that’s leaving a glut of oil in storage. Partial upgrading is considered a key technology to ensure the continued growth of the oilsands as it dilutes the viscosity of bitumen — which has the consistency of peanut butter — to the point where it could flow through a pipeline without the need for blending agents. “There’s a lot of space being occupied by diluent,” said Dinara Millington, Canadian Energy Research Institute vice-president of research.
Currently, oil companies in Alberta blend their bitumen with 30-per-cent diluent to make diluted bitumen, more commonly called dilbit. In addition to the cost of buying the blending agents, companies are frustrated that those same blending agents clog up precious space on limited export pipelines.
“Partial upgrading has the potential to generate higher value bitumen products and reduce or eliminate diluent requirements for transportation,” Suncor spokesperson Paul Newmarch said in an email.
He said the company is “evaluating a range of partial upgrading technologies” but did not confirm if the company is currently in negotiations with the Alberta government for funding.
The government documents indicate that three of the shortlisted technologies — by Husky, Value Creation and Fractal Systems — are “commercial ready,” while the technologies proposed by Suncor, MEG and privately held Greenfire require more testing. Fractal chief commercial officer Richard Masson declined to discuss talks with the province citing confidentiality agreements but said his company’s process has been pilot-tested at a Cenovus Energy Inc.’s oilsands project.