Suncor seeks gas supplies for oil sands project

April 11, 2005
To combat rising costs and possible future shortages of natural gas for its oil sands operation, Suncor Energy Inc.

To combat rising costs and possible future shortages of natural gas for its oil sands operation, Suncor Energy Inc., Calgary, is producing its own gas and experimenting with a process to gasify petroleum coke.

“Petroleum coke is a byproduct of the upgrading process, and with gasification technology, it can be turned into synthetic gas that can provide us with both fuel for energy and for electricity, as well as providing us hydrogen to sweeten our sour crudes,” Suncor spokesman Brad Bellows told OGJ. This is existing technology that “is fairly widely used, but not in the oil and gas business,” he said.

“It’s similar technology to clean coal technologies. It’s got some real upside. However, one of the issues that we have to deal with is that while the gasifier frees up a lot of hydrogen, it also frees up carbon dioxide. So we need to find ways, as part of this technology, to capture and sequester CO2,” Bellows said.

As for the potential savings of generating synthetic gas from petroleum coke, Bellows said, “We don’t have firm numbers yet; this is a first step. But with gas prices where they are today, this would be economic. Absent some major [conventional natural gas] discoveries and absent any change that LNG might bring into the market, we think it’s reasonable to expect that gas prices are going to remain at a level where this coke gasification makes sense.”

Natural gas ‘hedge’

Suncor produces 200 MMcfd of conventional natural gas “to provide a financial hedge against the cost of natural gas that we need to purchase to run our oil sands refining operations,” Bellows said. The company also buys 130 MMcfd of gas.

“We want to be sure we’re always producing more than that, so regardless what the price is, we’re hedged.”

The company expects its natural gas demand to grow as its oil sands operations grow. “Whereas expanding oil sands production is all about investing in technology,” said Bellows, “on the natural gas side, it’s hard to have that certainty.” With Canadian gas production apparently in decline, increasing conventional gas production is more of a challenge for Suncor.

The company has built itself into an integrated oil and gas firm on an oil sands foundation of “fairly staggering size.” Suncor boasts that it “started the oil sands industry” in 1967.

“We kicked it off,” Bellows said. “At the time, the initial capital cost for setting up the oil sands plant was $250 million (Can.). That was the biggest private sector investment in Canadian history at the time.”

Since then, he said, the project “has gone from being a great experiment to a fairly proven industry with Suncor, Syncrude, and now Shell getting into it and other companies starting to come to play in our sandbox.”

Bellows said, “We’ve tripled our oil sands production since becoming publicly traded in 1992. We’re down a little bit right now for maintenance, but we’ve got production capacity of 225,000 b/d and we’ll be going to 260,000 by the end of the year.”

In March, Suncor filed an application for an expansion “that will ultimately see us hitting production of 550,000 b/d in 2012.” It calls for a peak construction workforce of 4,000, “which is somewhere just shy of 10% of the population of the whole town” of nearby Fort McMurray, Alta.

Advantages over shale

Oil sands development has an advantage over oil shale in that the separation of oil “is a physical process,” Bellows said. “It’s really just heavy oil mixed with some sand and water and a little bit of clay silt, whereas with oil shale, the hydrocarbons are locked into the shale at a molecular level. That creates a different set of challenges.” He said standard oil sands extraction is “not a lot different than a laundry machine.”

Suncor’s resource base is estimated at 11 billion bbl of oil on the basis of obtaining 0.8 bbl of oil from each barrel of bitumen through the upgrading process. However, Bellows said, “That’s a mining resources figure.” Proved reserves are actually 1.5 billion bbl, he said. “We’ve got somewhere in the neighborhood of a 50-year production horizon.”

He said, “We’re not constrained by resource availability, but we could be constrained by labor availability and infrastructure. We have a need for skilled workers in a relatively remote location.”

Unlike in the US, the Alberta and Canadian governments have acted more as partners with industry in developing the country’s vast oil sands resource, “in seeing the potential of the industry and trying to set up fiscal regimes that recognized it’s not like the conventional oil and gas industry, that it’s extremely capital-intensive,” said Bellows.

“Our plan is certainly not to rely on high [oil] prices,” he said. “We haven’t relied on high prices in quite a while. When our board of directors approved our last expansion that took us from a capacity of 110,000 b/d up to current capacity of 225,000 b/d, oil prices were just in the low teens back in 1998.”

For long-term planning, Bellows said, “We don’t pick an oil price, but we are looking for a planning parameter to have a minimum 15% return on capital employed” at $28/bbl (US) for West Texas Intermediate.

Next week: the potential and challenges of oil from shale.