Alberta oil sands projects accelerate despite soft prices, cost overruns

The pace of oil sands development in northern Alberta is quickening, despite soft oil prices and substantial cost overruns on projects under way. More than 63 projects costing more than $51 billion (Can.) have been announced in the past 5 years.

By Jim Stott
OGJ Online Correspondent

CALGARY, Dec. 17 -- The pace of oil sands development in northern Alberta is quickening, despite soft oil prices and substantial cost overruns on projects under way.

More than 63 projects costing more than $51 billion (Can.) have been announced in the past 5 years. Companies have spent $11 billion on developments. Regulators have approved an additional $14 billion in work.

The oil sands provide about a third of Canada's oil production. That is expected to increase to more than 50% by 2010.

A new project was added to the list this month when Petro-Canada said it plans an $800 million in situ oil sands recovery operation and will apply to regulators for a $5 billion refinery upgrade to process heavy oil.

Meanwhile, Shell Canada Ltd. and partners are proceeding with the largest current project, the $5.2 billion Muskeg River oil sands mine, pipeline, and refinery upgrader project. It is now a third over the original cost estimate of $3.5 billion. Shell has a 60% interest and partners Chevron Texaco Corp. and Western Oil Sands LP each hold 20%. The project is more than two-thirds complete. Muskeg River is due to produce 155,000 b/d when it is completed late in 2002.

The project includes an oil sands mining operation, a power plant, and pipelines 300 miles to and from the mine in the Fort McMurray region to an upgrader at Shell's 96,550-b/d Scotford refinery near Edmonton. A 24-in. line will move bitumen south to the refinery, and a 12-in. line will return diluent to the mine.

Neil Camarta, Shell's senior vice-president for oil sands, said the cost overrun is largely due to heavy demand for workers created by a number of large projects under development at the same time. Camarta said demand for workers, which had previously peaked at 10,000 to 12,000, rose to 16,000. He noted that Suncor Inc. is close to completing its Millennium mine expansion program.

He said, "We're in it [oil sands] for the long haul. We know it is going to be there for 30 years, and there is the potential to expand up to 530,000 b/d. The timing of expansions will depend a lot on our view of the oil price, but we're plowing ahead on this one."

Shell has about 9 billion bbl of reserves in the area. When Muskeg River is operational, other reserves would be used to expand it to 225,000 b/d.

Shell would then consider a new mining operation, Jackpine, with a production target of 200,000 b/d and the potential of a 100,000 b/d expansion.

Camarta said Muskeg River will include new bitumen processing technology developed by Shell at a 500 b/d pilot project.

"Instead of coking bitumen into light oil, we add hydrogen to it. It's a completely different kind of process for the oil sands, and it produces what I call light beer bitumen. When the oil is separated from the sand it also contains clay and very heavy molecules, which really slow down the upgrader. This process gets all the dirt out."

Other projects
Meanwhile, there is increasing interest in projects using Steam-Assisted Gravity Drainage (SAGD) technology to recover bitumen and heavy oil.

SAGD is used when the overburden is too deep to recover bitumen by conventional mining technology of the type used by the original oil sands operators, Syncrude Canada Ltd. and Suncor Inc., at their mines.

Petro-Canada filed plans earlier this month with regulators for an $800 million oil sands operation and a $5 billion project to convert an Edmonton refinery to process heavy oil. The Meadow Creek SAGD operation south of Fort McMurray would produce 80,000 b/d by 2007 (OGJ Online, Dec. 4, 2001).

The company is also working on its MacKay River in situ project to produce 30,000 b/d of heavy oil in late 2002. It is one of the first large-scale SAGD operations, with a production target of 150,000 b/d.

Several other large SAGD projects are planned or under development.

Alberta Energy Co. is expanding a 2,000 b/d pilot project at Foster Creek with initial production of 20,000 b/d and eventual expansion to 100,000 b/d.

PanCanadian Petroleum Ltd. is expanding an operation at Christina Lake, 106 miles south of Fort McMurray, from 10,000 b/d with two planned expansions of 30,000 b/d each.

Japan Canada Oil Sands, which operates a 3,000 b/d SAGD pilot project 30 miles south of Fort McMurray, plans to begin construction of a commercial operation in 2004 with production of up to 50,000 b/d by 2006.

Nexen Inc. and Opti Canada plan a 3,000 b/d heavy oil recovery and upgrading project beginning in 2002 in the Fort McMurray area. Financial details were not disclosed for the project, which would lead to a 35,000 b/d commercial operation.

The province has approved Suncor Inc.'s $1 billion Firebag development with anticipated production of 35,000 b/d by 2005 and 140,000 b/d by the end of the decade. Suncor is near completion of a $3.25 billion Millennium expansion at its conventional oil sands mine that will double production to 225,000 b/d by yearend. The original cost estimate was $2.2 billion (OGJ Online, Dec. 12, 2001).

The company announced the Voyageur project in November. It would increase Suncor oil sands production to 500,000-550,000 b/d in 2010 to 2012. Voyageur would expand production from existing leases (OGJ Online Nov. 14, 2001).

The Syncrude Canada Ltd. consortium, the largest oil sands operator, is expanding production from its mining operation 40% to 368,000 b/d by 2005.

Other companies with SAGD projects include Canadian Natural Resources, Conoco Inc. (formerly Gulf), Koch Industries Ltd., and Imperial Oil Ltd.

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