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History of the petroleum industry in Canada (oil sands and heavy oil)
Encyclopedia
Canada's oil sands and heavy oil resources are among the world's great petroleum deposits. They include the vast oil sands of northern Alberta, and the heavy oil
reservoirs that surround the small city of Lloydminster
, which sits on the border between Alberta
and Saskatchewan
. The extent of these resources is well known, but better technologies to produce oil
from them are still being developed.
Because of the cost of developing these resources
(they tend to be capital intensive), they tend to come on stream later in the cycle of petroleum resource development in a given producing region. This is because oil companies tend to extract the light, high-value oils
first. The more difficult-to-extract resources are developed later, generally during periods of high commodity
prices, such as the extended period of higher prices which began in the early 1970s.
As has often been the case, the oil sands were different. The resources were so huge that experimentation began at about the same time as drilling for conventional petroleum in western Canada
. Although the promise of the oil sands deposits has been clear for more than a century, oil production from the Suncor and Syncrude
oil sands plants did not become profit
able until well after the 1979 oil crisis. Despite comparatively high oil prices in world markets, for political reasons
government kept prices for oil from these technological pioneers at artificially low levels until well into the 1980s.
In recent years, oil sands and heavy oil development have been so successful that these resources now account for more than half of Canada's crude oil production.
”) of northern Alberta. To appreciate these resources, it is important to understand a simple concept from chemistry
and physics
: the "gravity" of crude oil and natural gas liquids.
Gravity
refers to the weight spectrum of hydrocarbon
s, which increases with the ratio of hydrogen
to carbon
in a chemical compound
's molecule
. Methane
- the simplest form of natural gas
- has four hydrogen atoms for every carbon atom. It has light gravity, and takes the form of a gas
at normal temperatures and pressures. The next heavier hydrocarbon, ethane
, has the chemical formula
C2H6 and is a slightly denser gas. Gases, of course, have no gravity at atmospheric temperatures and pressures.
Organic compound
s combining carbon and oxygen are many in number. Those with more carbon atoms per hydrogen atom are heavier and denser. Most hydrocarbons are liquid
under standard conditions, with greater viscosity
associated with greater gravity.
Heavy oil and bitumen, which have far more carbon than hydrogen, are heavy, black, sticky and either slow-pouring or so close to being solid that they will not pour at all unless heated. Although the dividing line is fuzzy, the term heavy oil refers to slow-pouring heavy hydrocarbon mixtures. Bitumen refers to mixtures with the consistency of cold molasses that pour at room temperatures with agonizing slowness. Oils with high viscosity and heavy gravity do not float on water, but sink.
In the oil sands, this thick, black gunk is mixed with sand and many chemical impurities such as sulfur
; these must be separated from the bitumen for the oil to be useful. This can be done by surface mining
and processing and by underground in situ techniques.
It is difficult to grasp the immensity of Canada's oil sands and heavy oil resource
. Fields in northern Alberta include four major deposits which underlie almost 70,000 square kilometres of land. The volume of bitumen in those sands dwarfs the light oil reserves of the entire Middle East. One of those deposits, the Athabasca oil sands
, is the world's largest known crude oil resource.
Indian Wa-Pa-Sun brought a sample of oil sand to Henry Kelsey
of the Hudson's Bay Company
. When fur trader Peter Pond
travelled down the Clearwater River
to Athabasca in 1778, he saw the deposits and wrote of "springs of bitumen that flow along the ground." A decade later, Alexander Mackenzie
saw Chipewyan
Indians using oil from the oil sands to caulk their canoes. Despite the fascination of the early explorers, however, the existence of the sands did not excite commercial interests for more than a century.
In 1875, John Macoun
of the Geological Survey also noted the presence of the oil sands. Later reports by Dr. Robert Bell
and later by D.G. McConnell, also of the Geological Survey, led to drilling some test holes. In 1893, Parliament voted $7,000 for drilling. This first commercial effort to exploit the oil sands probably hoped to find free oil at the base of the sands, as drillers had in the gum beds of southern Ontario a few decades earlier. Although the Survey's three wells failed to find oil, the second was noteworthy for quite another reason.
Drilled at a site called Pelican Portage, the well blew out at 235 metres after encountering a high-pressure gas zone. According to drilling contractor A.W. Fraser,
Fraser's crew unsuccessfully tried to kill the well by casing it, then abandoned the well for that year. They returned in 1898 to finish the job, but again they failed. In the end, they simply left the well blowing wild. Natural gas flowed from the well at a rate of some 250,000 cubic metres per day until 1918. In that year a crew led by geologist S.E. Slipper and C.W. Dingman finally shut in the well.
These wells helped establish that the bitumen resource in the area was huge. There was now clear recognition of the commercial potential of the oil sands, and a long period of exploration and experimentation followed. The point of this research was to find a method of getting oil out of the oil sands at a reasonable price.
Alfred Von Hamerstein, who claimed to be a German count, was one of the colourful early players in the oil sands. He had been en route to the Klondike
, but stayed and turned his interest from gold to the oil sands. In 1906 he drilled at the mouth of the Horse River, but struck salt instead of oil. He continued working in the area, however.
In 1907 Von Hamerstein made a celebrated presentation to a Senate
committee investigating the potential of the oil sands.History has not been kind to the count, however. He is now generally thought to have been a bit of a dreamer, a lot of a con.
and elsewhere in Alberta.
Although private contractors also mined oil sand as a paving material, the proposition was not economic. Fort McMurray
(the village closest to the near-surface deposits) was small and far from market, and transportation costs were high.
) to develop a hot water process to separate the oil from the sands. In 1930, the Fort McMurray plant actually used the process to produce three car loads of oil.
Abasand: At about that time two American promoters, Max Ball and B.O. Jones from Denver, entered the oil sands scene. They reportedly had a secret recovery method known as the McClay process, and they claimed substantial financial backing. They negotiated leases with the federal and Alberta governments and also bought the McMurray plant of the Alberta Research Council. In 1935, Abasand Oils Limited, Ball's American-backed operating company, started construction of a new plant west of Waterways.
Under the agreement with the government, the plant was to be in operation by September 1, 1936. But forest fires and failure of equipment suppliers to meet delivery dates delayed completion. The agreement called for mining 45,000 tonne
s of sands in 1937 and 90,000 tonnes each year after 1938. The 1,555-hectare
lease carried a rental of $2.47 per hectare per year. There was to be royalties
of $0.063 per cubic metre on production for the first five years, and $0.31 per cubic metre thereafter.
Mining at the Abasand plant began May 19, 1941. By the end of September, 18,475 tonnes of oil sand had produced 2,690 cubic metres of oil, but in November fire destroyed the plant. Rebuilt on a larger scale, it was fully operational in June 1942.
In 1943, the federal government decided to aid oil sands development, and took over the Abasand plant. The federal researchers concluded that the hot water process was uneconomic because of the extensive heat loss and proposed a “cold” water process. But work at the plant came to an end with a disastrous fire in 1945. In July 1943, International Bitumen Company reorganized as Oil Sands Limited.
Bitumount: Between 1930 and 1955, the International Bitumen Company Limited under R.C. Fitzsimmons and later Lloyd Champion operated a small-scale plant at Bitumount
. When the Alberta government became disenchanted with federal efforts in the oil sands and decided to build its own experimental plant at Bitumount, the province engaged Oil Sands Limited to construct the plant.
The company agreed to buy the plant within a period of ten years for the original investment of $250,000. The cost of the plant was $750,000, however. A legal claim against Oil Sands Limited resulted in the province taking possession of the plant and property at Bitumount. The plant consisted of a separation unit, a dehydrating unit and a refinery. The plant conducted successful tests using the Clark hot water process in 1948/49 then closed, partly because the recent Leduc discoveries had lessened interest in the oil sands.
per day as by-products. Because at that time the industry was having difficulties marketing its oil, the provincial government established a policy that would limit oil sands production. According to this policy, synthetic oil from the oil sands could supplement conventional oil sales, but could not displace it. Oil from the plant could not exceed 5 per cent of total volumes in markets already supplied by conventional Alberta oil.
Financial difficulties delayed construction of the GCOS plant until a new investor - Sun Oil Company's Canadian subsidiary, today known as Suncor - was found. The capacity of the proposed plant increased to 7,500 cubic metres per day and the cost escalated from $122 to $190 million. The larger plant received approval in 1964 and went into commercial production in September 1967. The final cost: $250 million.
During the opening ceremonies for the plant, Sun Oil Company chairman J. Howard Pew
(then 85 years old) made remarks which still ring true:
The Suncor plant was a landmark in oil sands development. It pioneered technology for bitumen extraction and upgrading, and it was the world's first large-scale commercial plant. In the early years it was not particularly profitable, but the plant was nonetheless able to cover operating expenses from the sale of its own production. And in 1979, when federal policy permitted the company to charge world price for its oil, the plant finally became a money-making asset to Suncor. The plant found solutions to the problems of extracting a commercial grade of oil from the sands - problems that had been the concern of financier
s, chemist
s, petroleum engineers, metallurgists, mining engineers, geologist
s, physicist
s and many other scientist
s and pseudo-scientists for many decades.
Cities Service later reapplied for a much larger plant, and the proposal received approval in late 1969. The Syncrude
plant which resulted went on production exactly two centuries after Peter Pond's first sighting of the oil sands, in 1978. But before the plant shipped its first barrel of oil, the project went through many trials.
The reason for the long gap between approval and completion was an alarming escalation of costs that beset all major North American projects in the 1970s. High inflation
multiplied budgets for practically every aspect of the Syncrude project.
Reviewing project costs in late 1973, the Syncrude consortium found that costs had more than doubled, from $1 billion to $2.3 billion. In December 1974, Atlantic Richfield (whose American parent needed cash to develop its Prudhoe Bay interests) withdrew its 30 per cent participation in the project. A few days later, the three remaining partners informed the Alberta government that the maximum risk they were willing to take on the project was $1 billion. They would need to find another $1 billion of risk capital if the project were to go on. The alternative - shutting down the project - would have cost the four partners (Including Atlantic Richfield) an estimated $250 million.
By this time the world was in the thralls of an energy crisis. Beginning in 1973, the members of the Organization of Petroleum Exporting Countries had taken advantage of tight world oil supplies to rapidly and regularly increase prices. Policy-makers in the oil consuming countries therefore considered it a matter of national urgency to develop stable, secure energy supplies. Because the resource was so large and development was clearly possible, the oil sands looked like Canada's best bet. As a result, the prospect that the Syncrude project would collapse was a matter of both political and economic concern.
An executive group representing the remaining partners invited the other governments of Canada to participate as commercial partners in the project. The province also reviewed the cost estimate given by the oil companies. When it found that the consortium's cost estimates were not out of line, the governments of Canada, Alberta and Ontario
participated in a historic meeting in Winnipeg in February, 1975. That meeting salvaged the project.
The federal government
took a 15 per cent interest, Alberta 10 per cent and Ontario five per cent. The private partners - Cities Service Canada, Gulf Oil Canada and Imperial Oil - agreed to retain their $1.4 billion interest in the project, but gave Alberta the option to convert a $200 million loan to Gulf and Cities Service into ownership interests. Alberta also took full ownership in the no-risk pipeline and electrical utility which the plant needed.
The plant went into operation in the summer of 1978 and produced 5 Moilbbl of oil within a year. World oil prices leaped skyward in 1979-80 and remained high for the first half of the 1980s. This helped Syncrude become successful financially as well as technically. Syncrude now meets about 14 per cent of Canada's oil requirements, mostly in the form of synthetic oil
. The plant has produced nearly 2 Goilbbl of this oil.
, located 75 kilometres north of Fort McMurray. Known as the Athabasca Oil Sands Project, the entire complex consists of Muskeg River, Shell's Scotford Upgrader
located near Fort Saskatchewan, Alberta
, and supporting facilities.
Four years later, by which time Shell Canada had been wholly acquired by its parent, Royal Dutch Shell
, the company applied to build a massive oil sands upgrading complex at the site of its Edmonton refinery. The project, which could cost as much as $27-billion, would be built in four 100000 oilbbl/d stages. Like its existing upgrader, Shell's new facility would process bitumen from the Athabasca Oil Sands Project, as well as bitumen from steam-driven in situ oil sands projects.
In situ
means "in place," and refers to recovery techniques which apply heat or solvent
s to oil reservoirs beneath the earth. There are several varieties of in situ technique, but the ones that work best in the oil sands use heat.
The first in situ experiment in Alberta took place in 1910, when a Pittsburgh-based outfit, the Barber Asphalt and Paving Company, drilled a bore hole into the bitumen and pumped in steam to liquefy the oil. The experiment failed. In the early 1920s, other in situ experiments also took place, but none were commercially successful.
Jacob Owen Absher: In the mid-1920s, a remarkable and persistent experimenter named Jacob Owen Absher incorporated the Bituminous Sand Extraction Company. In 1926, Absher received a Canadian patent
for his in situ experiments, and he carried on numerous experiments over the following five years - efforts that drew the interest of oil sands pioneers Sidney Ells and Karl Clark. Absher not only used steam to melt the bitumen, but also tried igniting fires within his wells. In the end, however, he was unable to produce oil from the oil sands. His activities ended as the Great Depression
raged.
While Absher has been largely forgotten as a pioneer in the oil sands business, others have realized his dream of using heat to release oil from the sands. Today, some commercial projects pipe high-pressure steam into the oil sands reservoir. Other projects actually ignite the oil underground, then pump air below the surface to keep combustion going. These techniques effectively melt the oil, which pumps then bring to the surface.
Thermonuclear thinking: The most dramatic proposal for in situ production from deep oil sand deposits came from Richfield Oil Company. In 1959 Richfield suggested an experimental plan to release liquid hydrocarbons from the sand through the expedient of an underground nuclear explosion
. The company proposed detonating a 9-kiloton explosive device below the oil sands at a site 100 kilometres south of Fort McMurray. Thermonuclear heat would create a large underground cavern and simultaneously liquefy the oil. The cavern could serve as a collection point for the now-fluid oil, enabling the company to produce it.
This idea came remarkably close to reality. The project received federal approval in Canada, and the United States Atomic Energy Commission
agreed to provide the device. But before the experiment could take place, public pressure for an international ban on nuclear testing had mounted. The provincial government withheld approval and thus killed the plan.
In situ bitumen production: Many companies experimented with thermal techniques
to produce heavy oil from the oilsands, especially in the Cold Lake
oilsands deposit, in the 1970s and 1980s. Bearing such field-hand monikers as "steam flood", "fire flood" and "huff and puff" techniques, these extraction methods - like the Barber Asphalt and Paving Company's 1910 experiment - essentially apply heat to the underground reservoir. This melts the oil - that is, decreases its viscosity - so it can be pumped to the surface. An increasingly successful system now in use is steam assisted gravity drainage
(SAGD).
SAGD was initially tested at the Underground Test Facility (UTF
), ah experimental bitumen mining project funded by AOSTRA and officially opened on June 29th, 1987. The magnitude of the UTF is hard to imagine. Sinking the shafts was done with a drill bit almost four metres in diameter, weighing 230 tonnes. The two shafts below the oil sand reservoirs were 223 metres deep and neither one deviated from the vertical by more than 25 mm. As a safety measure, AOSTRA constructed two parallel tunnels through the limestone
under the oil sand reservoir. More than a kilometre in length, each tunnel was five metres wide by four metres high.
From the tunnels the researchers drilled wells up into the reservoir to conduct two sets of tests. The Phase A pilot involved three well pairs 70 metres in length, each with 40-50 metres of exposure to the McMurray formation. Phase B involved another three well pairs, 70 metres apart, each with 500 to 550 metres of direct contact with the oil sand reservoir. The results were excellent, and the petroleum industry soon began producing bitumen through SAGD well pairs drilled and operated from the surface.
The largest single plant in Canada to use in situ production is Imperial Oil
's Cold Lake
oil sand plant. This plant uses a technique called cyclic steam injection
. Using this method, the company pumps high-pressure steam into a section of the underground reservoir for a week or so, then pumps the liquid oil out for as long as several months. Imperial also uses steam-assisted gravity drainage. In its SAGD production system, Imperial drills two horizontal wells, one five metres above the other. Steam injected through the upper well reduces the viscosity
of the oil, which is recovered through the lower borehole. This plant produces more than 150000 barrels (23,848.1 m³) of bitumen per day.
The first Asian-owned company involved in the oil sands was JACOS
, which in 1978 began participating in experiments at a pilot project in the Athabasca area. Like Imperial at Cold Lake, from 1984 to 1994 JACOS and its partners also experimented with a cyclic steam stimulation pilot project on the Hangingstone Lease. Since then the company has developed SAGD production on that lease. It is also constructing a demonstration plant using solvent
-based in situ bitumen extraction.
is a sister resource to bitumen. It is lighter than bitumen and its reservoirs are much smaller than the great oil sands deposits. Like the oil sands, only a small percentage of Canada's large heavy oil resource is producible.
Often called conventional heavy oil, this low-density oil can be recovered by conventional drilling techniques or by waterflood, a technique of injecting water into the reservoir to increase pressure, thus forcing the oil toward the well bore. When these techniques work, heavy oil is like the more commercially attractive lighter grades of oil. But heavy oil can also be quite viscous. It can need some form of heat or solvent and pressure before it can flow into a well bore to be produced. When heavy oil requires these techniques to go into production, it is known as non-conventional heavy oil.
The first heavy oil discoveries came with the pursuit of conventional light and medium crude oil. Because much of western Canada's heavy oil is in pools close to the surface, early explorers using older rigs discovered many of those pools before they came upon the deeper light oil reservoirs.
One of the first finds was in the Ribstone area near Wainwright, Alberta
in 1914. The province's first significant production of heavy oil came from the Wainwright field in 1926. Producers drew almost 6000 barrels (953.9 m³) of heavy oil from the field in that year. A small-scale local refinery distilled the heavy goo into usable products.
Elsewhere in Alberta, petroleum explorers made other heavy oil finds as they pursued the elusive successor to the Turner Valley oil field. They developed production from many of these fields, but only in small volumes. The recovery techniques of the day combined with the low price of oil and the nature and size of the finds meant that most of the oil remained undeveloped.
. While the first discovery occurred in 1938, serious development did not begin until Husky Oil moved into the area after the second world war.
Husky Oil
was born during the Depression through the efforts of Glenn Nielson, an Alberta farmer driven to bankruptcy when the bank called a loan on his farm. Nielson had moved to Cody, Wyoming
, by the time he founded Husky as a refining operation. He turned his attention back to Canada after the second world war, and decided to set up a refinery at Lloydminster. Steel was scarce, so Husky dismantled a small Wyoming refinery constructed during the war to provide bunker fuel to the American Navy. It loaded the pieces onto 40 gondola cars and shipped them north by railway.
The company began reassembling the 400 cubic metre per day facility in 1946, and the refinery went on production the following year. Strategically located between the Canadian Pacific and Canadian National railroad tracks in Lloydminster, the refinery soon began to get contracts for locomotive bunker fuel. The company also found a strong market for asphalt for road building.
Husky's move into the area spurred drilling and production. Within two years of Husky's arrival, there were oversupplies of heavy oil and shortages of storage space. Producers solved the problem by storing the oil in earthen pits holding up to 16,000 cubic metres each. For a while Husky bought the oil by weight rather than volume since it was clogged with earth, tumbleweed and jackrabbits. The company had to strain and remeasure the stuff before it could begin refining.
Husky began producing heavy oil from local fields in 1946, and by the 1960s was easily the biggest regional producer. In 1963 the company undertook another in a series of expansions to the refinery. To take advantage of expanding markets for Canadian oil, it also began a program to deliver heavy oil to national and export markets.
The key to the $35 million project was the construction of a reversible pipeline which could move the viscous heavy oil into the marketplace. The 116-kilometre "yo-yo" pipeline - the first in the world - brought condensate from the Interprovincial Pipe Line station at Hardisty, Alberta
. The company began mixing this very light hydrocarbon with heavy oil, enabling it to flow more easily. The company then pumped the blend through its pipeline (hence the nickname "yo-yo") back to Hardisty. From there the Interprovincial took it eastward to market.
These developments made heavy oil for the first time more than a marginal resource. Within five years, area production had increased fivefold to nearly 2,000 cubic metres per day. By the early 1990s, production from the heavy oil belt was some 40,000 cubic metres per day, and Husky was still one of Canada's biggest heavy oil producers.
This is called 'upgrading,' the key components of which include 1) removal of water, sand, physical waste and lighter products; 2) catalytic purification (hydrodemetallization, hydrodesulfurization and
hydrodenitrogenation; and 3) hydrogenation though carbon rejection or catalytic hydrocracking.
Since carbon rejection is generally inefficient and wasteful, catalytic hydrocracking is preferred in most cases.
Catalytic purification and hydrocracking are together known as hydroprocessing. The big challenge in hydroprocessing is to deal with the impurities found in heavy crude, as they poison the catalysts over time. Many efforts have been made to deal with this to ensure high activity and long life of a catalyst. Catalyst materials and pore size distributions need to be optimized to deal with these challenges.
Figuratively speaking, technological improvements
and new infrastructure
cause heavy oil reservoirs to grow. Enhanced recovery techniques
are urging a higher percentage of the reservoirs' oil to the surface. Research
and development
are creating technologies which have increased the amount producers can extract. Small improvements in technology applied to such a huge resource
could mean enormous additions to Canada's recoverable crude oil reserves.
Few Canadian refineries can process more than small amounts of heavy oil, so production has traditionally gone to United States asphalt plants. This changed in the 1980s, however, with the announcement that construction would begin on two heavy oil upgraders. Like the plants at Syncrude, Suncor and Shell's Scotford facility near Edmonton, these refinery
-like operations turn heavy oil and bitumen into lighter and lower-sulfur, more desirable crude.
In the late 1970s, a group of heavy oil producers (Gulf, Husky, Shell, PetroCanada and SaskOil) proposed the Plains Upgrader. This facility would have cost $1.2 billion and upgraded 50000 barrels (7,949.4 m³) of oil per day. Gradually, however, consortium members pulled out of the project as they concluded that the high cost of upgrading would make the project uneconomic. In the end, only PetroCanada and Saskoil - both Crown corporations - remained.
The private sector
partners pulled out of the Plains Upgrader because upgrading heavy oil at that time was a risky financial proposition. To be economic, these projects rely on substantial differences in pricing ("differentials") between light
and heavy oil
. Heavy oil is worth less than light oil; the question is, How much less? Unless upgraded oil fetched considerably more per barrel than the less attractive heavy oil, the upgrader would not make money on processing the stuff.
While the Plains partnership collapsed, the idea survived.
. This would eliminate duplication in facilities and infrastructure by taking advantage of existing land, processing units, storage and pipeline facilities, technical and operating staff and management.
The Co-op refinery was a product of the Co-operative movement, which began in Britain in the mid-19th century. Frequently expanded and modernized, the Co-op plant (first constructed in 1935) was a small but modern refinery
when talk about a refinery/upgrader complex began in the early 1980s. Both the federal and Saskatchewan governments had forbidden their Crown corporations to participate in the project, yet both took part themselves. The province had a particular interest, since an upgrader would increase the market for heavy oil from Saskatchewan's fields. This would give the provincial oil industry an important boost. The federal government
saw the project as an opportunity to move the nation one small step towards the stated goal of crude oil self-sufficiency. For its part, the Co-op wanted an assured supply of crude oil for its refinery.
Accordingly, Saskatchewan took a 20 per cent equity position and guaranteed loans equal to 45 per cent of the project. In exchange, it became a 50 per cent partner in the combined operation with Consumers' Co-op, which committed its existing refinery (valued at $500 million) to the project. The federal government guaranteed loans equal to 35 per cent of the project. Repayment on the principal of the loans would not begin until late 1992.
On stream in 1988, the Consumers' Co-op refinery/upgrader complex was a 50000 oilbbl/d facility. The $700 million upgrader provided upgraded oil as refinery feedstock.
began to prepare for the upgrader by building a new 25000 oilbbl/d refinery
next to the old plant. This facility - which processed heavy oil into asphalt
and simultaneously provided light oils
for refining into high-end products like gasoline
- was completed in 1983.
After a series of false starts, in 1988 Husky and its three partners announced a firm agreement to construct the Bi-Provincial Upgrader - today better known as the Husky Upgrader. Located just east of Lloydminster
, this $1.6 billion upgrader received most of its funding from government. Originally budgeted at $1.2 billion, the federal, Alberta
and Saskatchewan
governments owned 31.67 per cent, 24.16 per cent and 17.5 per cent each. The balance belonged to Husky, which has since acquired the entire facility.
Under the terms of the original agreement, Husky would receive 50 per cent of the plant's net revenue plus a 10 per cent return on investment until Husky recovered that investment. The balance of plant profit would go proportionally to Husky's partners. A wrinkle in this arrangement occurred as the project neared completion, however, when Saskatchewan's newly-installed NDP
government refused to pay its share of $190 million in cost overruns. The other players eventually agreed to pay Saskatchewan's share, but would withhold returns to that province until they had recovered Saskatchewan's arrears.
The upgrader went on stream in mid-1992, but required debottlenecking before it could reach design capacity of 46000 oilbbl/d. The plant upgrades Lloydminster-area heavy oil and Cold Lake
bitumen, making still more of those resources available for central Canadian
and American
markets.
Heavy oil differentials explain the large cost discrepancies between the Husky Upgrader ($1.6 billion for 46000 oilbbl/d capacity) and the Co-op upgrader ($600 million for 50000 oilbbl/d.) The Husky facility was designed to process heavier grades of oil than the Co-op upgrader, and its output was more desirable. This critical difference meant Husky would pay less for its feedstock and receive more for its output
than the Co-op plant. From the beginning, forecasts about these differentials were vital factors in economic calculations for the two projects, each of which has since undergone major expansions.
One cubic metre of natural gas = 35.49 cubic feet.
One kilopascal = 1% of atmospheric pressure (near sea level).
Canada's oil measure, the cubic metre, is unique in the world. It is metric in the sense that it uses metres, but it is based on volume so that Canadian units can be easily converted into barrels. In the rest of the metric world, the standard for measuring oil is the metric tonne. The advantage of the latter measure is that it reflects oil quality. In general, lower grade oils are heavier.
Heavy crude oil
Heavy crude oil or extra heavy crude oil is any type of crude oil which does not flow easily. It is referred to as "heavy" because its density or specific gravity is higher than that of light crude oil. Heavy crude oil has been defined as any liquid petroleum with an API gravity less than 20°.Extra...
reservoirs that surround the small city of Lloydminster
Lloydminster
Lloydminster is a Canadian city which has the unusual geographic distinction of straddling the provincial border between Alberta and Saskatchewan...
, which sits on the border between Alberta
Alberta
Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...
and Saskatchewan
Saskatchewan
Saskatchewan is a prairie province in Canada, which has an area of . Saskatchewan is bordered on the west by Alberta, on the north by the Northwest Territories, on the east by Manitoba, and on the south by the U.S. states of Montana and North Dakota....
. The extent of these resources is well known, but better technologies to produce oil
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
from them are still being developed.
Because of the cost of developing these resources
Natural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
(they tend to be capital intensive), they tend to come on stream later in the cycle of petroleum resource development in a given producing region. This is because oil companies tend to extract the light, high-value oils
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
first. The more difficult-to-extract resources are developed later, generally during periods of high commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
prices, such as the extended period of higher prices which began in the early 1970s.
As has often been the case, the oil sands were different. The resources were so huge that experimentation began at about the same time as drilling for conventional petroleum in western Canada
Western Canada
Western Canada, also referred to as the Western provinces and commonly as the West, is a region of Canada that includes the four provinces west of the province of Ontario.- Provinces :...
. Although the promise of the oil sands deposits has been clear for more than a century, oil production from the Suncor and Syncrude
Syncrude
Syncrude Canada Ltd. is the world's largest producer of synthetic crude oil from oil sands and the largest single source producer in Canada. It is located just outside Fort McMurray in the Athabasca Oil Sands, and has a nameplate capacity of of oil, equivalent to about 13% of Canada's consumption...
oil sands plants did not become profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
able until well after the 1979 oil crisis. Despite comparatively high oil prices in world markets, for political reasons
National Energy Program
The National Energy Program was an energy policy of the Government of Canada. It was created under the Liberal government of Prime Minister Pierre Trudeau by Minister of Energy Marc Lalonde in 1980, and administered by the Department of Energy, Mines and Resources.-Description:The NEP was...
government kept prices for oil from these technological pioneers at artificially low levels until well into the 1980s.
In recent years, oil sands and heavy oil development have been so successful that these resources now account for more than half of Canada's crude oil production.
A matter of gravity
Much of Canada’s petroleum effort has focused on producing oil from the oil sands (sometimes called “tar sandsTar sands
Bituminous sands, colloquially known as oil sands or tar sands, are a type of unconventional petroleum deposit. The sands contain naturally occurring mixtures of sand, clay, water, and a dense and extremely viscous form of petroleum technically referred to as bitumen...
”) of northern Alberta. To appreciate these resources, it is important to understand a simple concept from chemistry
Chemistry
Chemistry is the science of matter, especially its chemical reactions, but also its composition, structure and properties. Chemistry is concerned with atoms and their interactions with other atoms, and particularly with the properties of chemical bonds....
and physics
Physics
Physics is a natural science that involves the study of matter and its motion through spacetime, along with related concepts such as energy and force. More broadly, it is the general analysis of nature, conducted in order to understand how the universe behaves.Physics is one of the oldest academic...
: the "gravity" of crude oil and natural gas liquids.
Gravity
Gravity (chemistry)
In chemistry, gravity is the density of a fluid, particularly a fuel. It is expressed in degrees, with lower numbers indicating heavier liquids and higher numbers indicating lighter liquids. See specific gravity and API gravity....
refers to the weight spectrum of hydrocarbon
Hydrocarbon
In organic chemistry, a hydrocarbon is an organic compound consisting entirely of hydrogen and carbon. Hydrocarbons from which one hydrogen atom has been removed are functional groups, called hydrocarbyls....
s, which increases with the ratio of hydrogen
Hydrogen
Hydrogen is the chemical element with atomic number 1. It is represented by the symbol H. With an average atomic weight of , hydrogen is the lightest and most abundant chemical element, constituting roughly 75% of the Universe's chemical elemental mass. Stars in the main sequence are mainly...
to carbon
Carbon
Carbon is the chemical element with symbol C and atomic number 6. As a member of group 14 on the periodic table, it is nonmetallic and tetravalent—making four electrons available to form covalent chemical bonds...
in a chemical compound
Chemical compound
A chemical compound is a pure chemical substance consisting of two or more different chemical elements that can be separated into simpler substances by chemical reactions. Chemical compounds have a unique and defined chemical structure; they consist of a fixed ratio of atoms that are held together...
's molecule
Molecule
A molecule is an electrically neutral group of at least two atoms held together by covalent chemical bonds. Molecules are distinguished from ions by their electrical charge...
. Methane
Methane
Methane is a chemical compound with the chemical formula . It is the simplest alkane, the principal component of natural gas, and probably the most abundant organic compound on earth. The relative abundance of methane makes it an attractive fuel...
- the simplest form of natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
- has four hydrogen atoms for every carbon atom. It has light gravity, and takes the form of a gas
Gas
Gas is one of the three classical states of matter . Near absolute zero, a substance exists as a solid. As heat is added to this substance it melts into a liquid at its melting point , boils into a gas at its boiling point, and if heated high enough would enter a plasma state in which the electrons...
at normal temperatures and pressures. The next heavier hydrocarbon, ethane
Ethane
Ethane is a chemical compound with chemical formula C2H6. It is the only two-carbon alkane that is an aliphatic hydrocarbon. At standard temperature and pressure, ethane is a colorless, odorless gas....
, has the chemical formula
Chemical formula
A chemical formula or molecular formula is a way of expressing information about the atoms that constitute a particular chemical compound....
C2H6 and is a slightly denser gas. Gases, of course, have no gravity at atmospheric temperatures and pressures.
Organic compound
Organic compound
An organic compound is any member of a large class of gaseous, liquid, or solid chemical compounds whose molecules contain carbon. For historical reasons discussed below, a few types of carbon-containing compounds such as carbides, carbonates, simple oxides of carbon, and cyanides, as well as the...
s combining carbon and oxygen are many in number. Those with more carbon atoms per hydrogen atom are heavier and denser. Most hydrocarbons are liquid
Liquid
Liquid is one of the three classical states of matter . Like a gas, a liquid is able to flow and take the shape of a container. Some liquids resist compression, while others can be compressed. Unlike a gas, a liquid does not disperse to fill every space of a container, and maintains a fairly...
under standard conditions, with greater viscosity
Viscosity
Viscosity is a measure of the resistance of a fluid which is being deformed by either shear or tensile stress. In everyday terms , viscosity is "thickness" or "internal friction". Thus, water is "thin", having a lower viscosity, while honey is "thick", having a higher viscosity...
associated with greater gravity.
Heavy oil and bitumen, which have far more carbon than hydrogen, are heavy, black, sticky and either slow-pouring or so close to being solid that they will not pour at all unless heated. Although the dividing line is fuzzy, the term heavy oil refers to slow-pouring heavy hydrocarbon mixtures. Bitumen refers to mixtures with the consistency of cold molasses that pour at room temperatures with agonizing slowness. Oils with high viscosity and heavy gravity do not float on water, but sink.
In the oil sands, this thick, black gunk is mixed with sand and many chemical impurities such as sulfur
Sulfur
Sulfur or sulphur is the chemical element with atomic number 16. In the periodic table it is represented by the symbol S. It is an abundant, multivalent non-metal. Under normal conditions, sulfur atoms form cyclic octatomic molecules with chemical formula S8. Elemental sulfur is a bright yellow...
; these must be separated from the bitumen for the oil to be useful. This can be done by surface mining
Surface mining
Surface mining , is a type of mining in which soil and rock overlying the mineral deposit are removed...
and processing and by underground in situ techniques.
Oil reserves
The total estimated amount of oil in an oil reservoir, including both producible and non-producible oil, is called oil in place. However, because of reservoir characteristics and limitations in petroleum extraction technologies, only a fraction of this oil can be brought to the surface, and it is...
. Fields in northern Alberta include four major deposits which underlie almost 70,000 square kilometres of land. The volume of bitumen in those sands dwarfs the light oil reserves of the entire Middle East. One of those deposits, the Athabasca oil sands
Athabasca Oil Sands
The Athabasca oil sands are large deposits of bitumen, or extremely heavy crude oil, located in northeastern Alberta, Canada - roughly centred on the boomtown of Fort McMurray...
, is the world's largest known crude oil resource.
First explorers
The first recorded mention of Canada's bitumen deposits goes back to June 12, 1719. According to an entry in the York Factory journal, on that day CreeCree
The Cree are one of the largest groups of First Nations / Native Americans in North America, with 200,000 members living in Canada. In Canada, the major proportion of Cree live north and west of Lake Superior, in Ontario, Manitoba, Saskatchewan, Alberta and the Northwest Territories, although...
Indian Wa-Pa-Sun brought a sample of oil sand to Henry Kelsey
Henry Kelsey
Henry Kelsey , aka the Boy Kelsey, was an English fur trader, explorer, and sailor who played an important role in establishing the Hudson's Bay Company. Kelsey was born and married in East Greenwich, south-east of central London...
of the Hudson's Bay Company
Hudson's Bay Company
The Hudson's Bay Company , abbreviated HBC, or "The Bay" is the oldest commercial corporation in North America and one of the oldest in the world. A fur trading business for much of its existence, today Hudson's Bay Company owns and operates retail stores throughout Canada...
. When fur trader Peter Pond
Peter Pond
Peter Pond was born in Milford, Connecticut. He was a soldier with a Connecticut regiment, a fur trader, a founding member of the North West Company, an explorer and a cartographer.-Biography:...
travelled down the Clearwater River
Clearwater River (Saskatchewan)
Clearwater River is the name of a river in the Canadian provinces of Saskatchewan and Alberta.-Course:The Clearwater River totals 295 kilometres in length and rises in northwestern Saskatchewan in the northern forest region of the Precambrian Shield. From its headwaters at Broach Lake it flows...
to Athabasca in 1778, he saw the deposits and wrote of "springs of bitumen that flow along the ground." A decade later, Alexander Mackenzie
Alexander Mackenzie
Alexander Mackenzie, PC , a building contractor and newspaper editor, was the second Prime Minister of Canada from November 7, 1873 to October 8, 1878.-Biography:...
saw Chipewyan
Chipewyan
The Chipewyan are a Dene Aboriginal people in Canada, whose ancestors were the Taltheilei...
Indians using oil from the oil sands to caulk their canoes. Despite the fascination of the early explorers, however, the existence of the sands did not excite commercial interests for more than a century.
In 1875, John Macoun
John Macoun
John Macoun was an Irish-born Canadian naturalist.- Early life :Macoun was born in Magheralin, County Down, Ireland in 1831, the third child of James Macoun and Anne Jane Nevin. In 1850 the worsening economic situation in Ireland led his family to emigrate to Canada, where he settled in Seymour...
of the Geological Survey also noted the presence of the oil sands. Later reports by Dr. Robert Bell
Robert Bell (geologist)
Robert Bell FRSC MD was a Canadian geologist, professor and civil servant. He is considered Canada’s greatest exploring scientist, having named over 3,000 geographical features.-Personal life:...
and later by D.G. McConnell, also of the Geological Survey, led to drilling some test holes. In 1893, Parliament voted $7,000 for drilling. This first commercial effort to exploit the oil sands probably hoped to find free oil at the base of the sands, as drillers had in the gum beds of southern Ontario a few decades earlier. Although the Survey's three wells failed to find oil, the second was noteworthy for quite another reason.
Drilled at a site called Pelican Portage, the well blew out at 235 metres after encountering a high-pressure gas zone. According to drilling contractor A.W. Fraser,
Fraser's crew unsuccessfully tried to kill the well by casing it, then abandoned the well for that year. They returned in 1898 to finish the job, but again they failed. In the end, they simply left the well blowing wild. Natural gas flowed from the well at a rate of some 250,000 cubic metres per day until 1918. In that year a crew led by geologist S.E. Slipper and C.W. Dingman finally shut in the well.
These wells helped establish that the bitumen resource in the area was huge. There was now clear recognition of the commercial potential of the oil sands, and a long period of exploration and experimentation followed. The point of this research was to find a method of getting oil out of the oil sands at a reasonable price.
Alfred Von Hamerstein, who claimed to be a German count, was one of the colourful early players in the oil sands. He had been en route to the Klondike
Klondike, Yukon
The Klondike is a region of the Yukon in northwest Canada, east of the Alaska border. It lies around the Klondike River, a small river that enters the Yukon from the east at Dawson....
, but stayed and turned his interest from gold to the oil sands. In 1906 he drilled at the mouth of the Horse River, but struck salt instead of oil. He continued working in the area, however.
In 1907 Von Hamerstein made a celebrated presentation to a Senate
Canadian Senate
The Senate of Canada is a component of the Parliament of Canada, along with the House of Commons, and the monarch . The Senate consists of 105 members appointed by the governor general on the advice of the prime minister...
committee investigating the potential of the oil sands.History has not been kind to the count, however. He is now generally thought to have been a bit of a dreamer, a lot of a con.
Surface extraction
In 1913, Dr. S.C. Ells, an engineer with the federal department of mines, began investigating the economic possibilities of the oils sands. It was then that the idea of using the sands as road paving material was born. In 1915, Dr. Ells laid three road surfaces on sections of 82nd Street in Edmonton. Materials used included bitulithic, bituminous concrete and sheet asphalt mixtures. A report, ten years later, by a city engineer stated that the surface remained in excellent condition. McMurray asphalt also saw use on the grounds of the Alberta Legislature, on the highway in Jasper ParkJasper National Park
Jasper National Park is the largest national park in the Canadian Rockies, spanning 10,878 km² . It is located in the province of Alberta, north of Banff National Park and west of the City of Edmonton. The park includes the glaciers of the Columbia Icefield, hot springs, lakes, waterfalls and...
and elsewhere in Alberta.
Although private contractors also mined oil sand as a paving material, the proposition was not economic. Fort McMurray
Fort McMurray, Alberta
Fort McMurray is an urban service area in the Regional Municipality of Wood Buffalo in Alberta, Canada. It was previously incorporated as a city on September 1, 1980. It became an urban service area when it amalgamated with Improvement District No. 143 on April 1, 1995 to create the Municipality...
(the village closest to the near-surface deposits) was small and far from market, and transportation costs were high.
Pioneers
Researchers began to look for ways to extract the bitumen from the sand. The Alberta Research Council set up two pilot plants in Edmonton and a third at the Clearwater River. These plants were part of a successful project (led by the Research Council’s Dr. Karl A. ClarkKarl Clark (chemist)
Karl Clark was a chemist and oil sand researcher. He is best known for perfecting a process that uses hot water to separate oil from tar sands....
) to develop a hot water process to separate the oil from the sands. In 1930, the Fort McMurray plant actually used the process to produce three car loads of oil.
Abasand: At about that time two American promoters, Max Ball and B.O. Jones from Denver, entered the oil sands scene. They reportedly had a secret recovery method known as the McClay process, and they claimed substantial financial backing. They negotiated leases with the federal and Alberta governments and also bought the McMurray plant of the Alberta Research Council. In 1935, Abasand Oils Limited, Ball's American-backed operating company, started construction of a new plant west of Waterways.
Under the agreement with the government, the plant was to be in operation by September 1, 1936. But forest fires and failure of equipment suppliers to meet delivery dates delayed completion. The agreement called for mining 45,000 tonne
Tonne
The tonne, known as the metric ton in the US , often put pleonastically as "metric tonne" to avoid confusion with ton, is a metric system unit of mass equal to 1000 kilograms. The tonne is not an International System of Units unit, but is accepted for use with the SI...
s of sands in 1937 and 90,000 tonnes each year after 1938. The 1,555-hectare
Hectare
The hectare is a metric unit of area defined as 10,000 square metres , and primarily used in the measurement of land. In 1795, when the metric system was introduced, the are was defined as being 100 square metres and the hectare was thus 100 ares or 1/100 km2...
lease carried a rental of $2.47 per hectare per year. There was to be royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
of $0.063 per cubic metre on production for the first five years, and $0.31 per cubic metre thereafter.
Mining at the Abasand plant began May 19, 1941. By the end of September, 18,475 tonnes of oil sand had produced 2,690 cubic metres of oil, but in November fire destroyed the plant. Rebuilt on a larger scale, it was fully operational in June 1942.
In 1943, the federal government decided to aid oil sands development, and took over the Abasand plant. The federal researchers concluded that the hot water process was uneconomic because of the extensive heat loss and proposed a “cold” water process. But work at the plant came to an end with a disastrous fire in 1945. In July 1943, International Bitumen Company reorganized as Oil Sands Limited.
Bitumount: Between 1930 and 1955, the International Bitumen Company Limited under R.C. Fitzsimmons and later Lloyd Champion operated a small-scale plant at Bitumount
Bitumount
Efforts to develop Canada's oil sands go back more than one hundred years. The Bitumount plant in northern Alberta represented an important milestone in the development of these resources...
. When the Alberta government became disenchanted with federal efforts in the oil sands and decided to build its own experimental plant at Bitumount, the province engaged Oil Sands Limited to construct the plant.
The company agreed to buy the plant within a period of ten years for the original investment of $250,000. The cost of the plant was $750,000, however. A legal claim against Oil Sands Limited resulted in the province taking possession of the plant and property at Bitumount. The plant consisted of a separation unit, a dehydrating unit and a refinery. The plant conducted successful tests using the Clark hot water process in 1948/49 then closed, partly because the recent Leduc discoveries had lessened interest in the oil sands.
Great Canadian Oil Sands
In 1962, Great Canadian Oil Sands Limited (GCOS) received approval from the Alberta government to build and operate a 10,000 cubic metre per day plant near Fort McMurray. The plant was to produce 240 tonnes of sulfur and 900 tonnes of cokePetroleum coke
Petroleum coke is a carbonaceous solid derived from oil refinery coker units or other cracking processes. Other coke has traditionally been derived from coal....
per day as by-products. Because at that time the industry was having difficulties marketing its oil, the provincial government established a policy that would limit oil sands production. According to this policy, synthetic oil from the oil sands could supplement conventional oil sales, but could not displace it. Oil from the plant could not exceed 5 per cent of total volumes in markets already supplied by conventional Alberta oil.
Financial difficulties delayed construction of the GCOS plant until a new investor - Sun Oil Company's Canadian subsidiary, today known as Suncor - was found. The capacity of the proposed plant increased to 7,500 cubic metres per day and the cost escalated from $122 to $190 million. The larger plant received approval in 1964 and went into commercial production in September 1967. The final cost: $250 million.
During the opening ceremonies for the plant, Sun Oil Company chairman J. Howard Pew
J. Howard Pew
J. Howard Pew was an American philanthropist and co-founder of Sunoco .Joseph Howard Pew was born in Bradford, Pennsylvania in 1882 and raised as a devout Presbyterian. In 1886 Pew’s father, Joseph Newton Pew, Sr. started an oil business in Pennsylvania, expanding to Texas when oil was discovered...
(then 85 years old) made remarks which still ring true:
The Suncor plant was a landmark in oil sands development. It pioneered technology for bitumen extraction and upgrading, and it was the world's first large-scale commercial plant. In the early years it was not particularly profitable, but the plant was nonetheless able to cover operating expenses from the sale of its own production. And in 1979, when federal policy permitted the company to charge world price for its oil, the plant finally became a money-making asset to Suncor. The plant found solutions to the problems of extracting a commercial grade of oil from the sands - problems that had been the concern of financier
Financier
Financier is a term for a person who handles typically large sums of money, usually involving money lending, financing projects, large-scale investing, or large-scale money management. The term is French, and derives from finance or payment...
s, chemist
Chemist
A chemist is a scientist trained in the study of chemistry. Chemists study the composition of matter and its properties such as density and acidity. Chemists carefully describe the properties they study in terms of quantities, with detail on the level of molecules and their component atoms...
s, petroleum engineers, metallurgists, mining engineers, geologist
Geologist
A geologist is a scientist who studies the solid and liquid matter that constitutes the Earth as well as the processes and history that has shaped it. Geologists usually engage in studying geology. Geologists, studying more of an applied science than a theoretical one, must approach Geology using...
s, physicist
Physicist
A physicist is a scientist who studies or practices physics. Physicists study a wide range of physical phenomena in many branches of physics spanning all length scales: from sub-atomic particles of which all ordinary matter is made to the behavior of the material Universe as a whole...
s and many other scientist
Scientist
A scientist in a broad sense is one engaging in a systematic activity to acquire knowledge. In a more restricted sense, a scientist is an individual who uses the scientific method. The person may be an expert in one or more areas of science. This article focuses on the more restricted use of the word...
s and pseudo-scientists for many decades.
Syncrude
In 1962 (the same year the Great Canadian Oil Sands proposal went up for approval) Cities Service Athabasca Inc. proposed a 16,000 cubic metre per day plant at the site of its Mildred Lake pilot project. Including a pipeline to Edmonton, the plant was to cost $56 million, with construction beginning in 1965 and completion in 1968. However, the Oil and Gas Conservation Board had concerns about competition between synthetic oil and conventional oil for limited markets. It therefore decided not to bring too many oil sands plants on stream at once, and rejected the Cities Service proposal in favor of the GCOS project.Cities Service later reapplied for a much larger plant, and the proposal received approval in late 1969. The Syncrude
Syncrude
Syncrude Canada Ltd. is the world's largest producer of synthetic crude oil from oil sands and the largest single source producer in Canada. It is located just outside Fort McMurray in the Athabasca Oil Sands, and has a nameplate capacity of of oil, equivalent to about 13% of Canada's consumption...
plant which resulted went on production exactly two centuries after Peter Pond's first sighting of the oil sands, in 1978. But before the plant shipped its first barrel of oil, the project went through many trials.
The reason for the long gap between approval and completion was an alarming escalation of costs that beset all major North American projects in the 1970s. High inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
multiplied budgets for practically every aspect of the Syncrude project.
Reviewing project costs in late 1973, the Syncrude consortium found that costs had more than doubled, from $1 billion to $2.3 billion. In December 1974, Atlantic Richfield (whose American parent needed cash to develop its Prudhoe Bay interests) withdrew its 30 per cent participation in the project. A few days later, the three remaining partners informed the Alberta government that the maximum risk they were willing to take on the project was $1 billion. They would need to find another $1 billion of risk capital if the project were to go on. The alternative - shutting down the project - would have cost the four partners (Including Atlantic Richfield) an estimated $250 million.
By this time the world was in the thralls of an energy crisis. Beginning in 1973, the members of the Organization of Petroleum Exporting Countries had taken advantage of tight world oil supplies to rapidly and regularly increase prices. Policy-makers in the oil consuming countries therefore considered it a matter of national urgency to develop stable, secure energy supplies. Because the resource was so large and development was clearly possible, the oil sands looked like Canada's best bet. As a result, the prospect that the Syncrude project would collapse was a matter of both political and economic concern.
Ontario
Ontario is a province of Canada, located in east-central Canada. It is Canada's most populous province and second largest in total area. It is home to the nation's most populous city, Toronto, and the nation's capital, Ottawa....
participated in a historic meeting in Winnipeg in February, 1975. That meeting salvaged the project.
The federal government
Government of Canada
The Government of Canada, formally Her Majesty's Government, is the system whereby the federation of Canada is administered by a common authority; in Canadian English, the term can mean either the collective set of institutions or specifically the Queen-in-Council...
took a 15 per cent interest, Alberta 10 per cent and Ontario five per cent. The private partners - Cities Service Canada, Gulf Oil Canada and Imperial Oil - agreed to retain their $1.4 billion interest in the project, but gave Alberta the option to convert a $200 million loan to Gulf and Cities Service into ownership interests. Alberta also took full ownership in the no-risk pipeline and electrical utility which the plant needed.
The plant went into operation in the summer of 1978 and produced 5 Moilbbl of oil within a year. World oil prices leaped skyward in 1979-80 and remained high for the first half of the 1980s. This helped Syncrude become successful financially as well as technically. Syncrude now meets about 14 per cent of Canada's oil requirements, mostly in the form of synthetic oil
Synthetic oil
Synthetic oil is a lubricant consisting of chemical compounds that are artificially made . Synthetic lubricants can be manufactured using chemically modified petroleum components rather than whole crude oil, but can also be synthesized from other raw materials...
. The plant has produced nearly 2 Goilbbl of this oil.
Shell in the oil sands
In 2003, Shell Canada and its partners began producing from the Muskeg River MineAlbian Sands
Albian Sands Energy Inc. is the operator of the Muskeg River Mine, an oil sands mining project located north of Fort McMurray, Alberta, Canada. It is a joint venture between Shell Canada , Marathon Oil Canada and Chevron Canada . The company's legal headquarters are located in the Shell Tower in...
, located 75 kilometres north of Fort McMurray. Known as the Athabasca Oil Sands Project, the entire complex consists of Muskeg River, Shell's Scotford Upgrader
Scotford Upgrader
The Shell Scotford Upgrader is an oilsand upgrader, a facility which processes crude bitumen from oil sands into a wide range of synthetic crude oils. The upgrader is owned by Athabasca Oil Sands Project , a joint venture of Shell Canada Energy , Marathon Oil Sands L.P. and Chevron Canada Limited...
located near Fort Saskatchewan, Alberta
Fort Saskatchewan, Alberta
Fort Saskatchewan is a city in Alberta, Canada, located northeast of downtown Edmonton, Alberta's capital city, along the North Saskatchewan River. Fort Saskatchewan is part of the Edmonton Census Metropolitan Area and is one of 24 municipalities on the Capital Region Board...
, and supporting facilities.
Four years later, by which time Shell Canada had been wholly acquired by its parent, Royal Dutch Shell
Royal Dutch Shell
Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...
, the company applied to build a massive oil sands upgrading complex at the site of its Edmonton refinery. The project, which could cost as much as $27-billion, would be built in four 100000 oilbbl/d stages. Like its existing upgrader, Shell's new facility would process bitumen from the Athabasca Oil Sands Project, as well as bitumen from steam-driven in situ oil sands projects.
In situ recovery
The oilsands projects just described are unique in the world: They exploit near-surface bitumen from open-pit mines. The industry has also spent decades experimenting with ways to recover bitumen from deeper deposits. The only way to develop petroleum resources underground is through in situ production techniques.In situ
In situ
In situ is a Latin phrase which translated literally as 'In position'. It is used in many different contexts.-Aerospace:In the aerospace industry, equipment on board aircraft must be tested in situ, or in place, to confirm everything functions properly as a system. Individually, each piece may...
means "in place," and refers to recovery techniques which apply heat or solvent
Solvent
A solvent is a liquid, solid, or gas that dissolves another solid, liquid, or gaseous solute, resulting in a solution that is soluble in a certain volume of solvent at a specified temperature...
s to oil reservoirs beneath the earth. There are several varieties of in situ technique, but the ones that work best in the oil sands use heat.
The first in situ experiment in Alberta took place in 1910, when a Pittsburgh-based outfit, the Barber Asphalt and Paving Company, drilled a bore hole into the bitumen and pumped in steam to liquefy the oil. The experiment failed. In the early 1920s, other in situ experiments also took place, but none were commercially successful.
Jacob Owen Absher: In the mid-1920s, a remarkable and persistent experimenter named Jacob Owen Absher incorporated the Bituminous Sand Extraction Company. In 1926, Absher received a Canadian patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
for his in situ experiments, and he carried on numerous experiments over the following five years - efforts that drew the interest of oil sands pioneers Sidney Ells and Karl Clark. Absher not only used steam to melt the bitumen, but also tried igniting fires within his wells. In the end, however, he was unable to produce oil from the oil sands. His activities ended as the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
raged.
While Absher has been largely forgotten as a pioneer in the oil sands business, others have realized his dream of using heat to release oil from the sands. Today, some commercial projects pipe high-pressure steam into the oil sands reservoir. Other projects actually ignite the oil underground, then pump air below the surface to keep combustion going. These techniques effectively melt the oil, which pumps then bring to the surface.
Thermonuclear thinking: The most dramatic proposal for in situ production from deep oil sand deposits came from Richfield Oil Company. In 1959 Richfield suggested an experimental plan to release liquid hydrocarbons from the sand through the expedient of an underground nuclear explosion
Nuclear explosion
A nuclear explosion occurs as a result of the rapid release of energy from an intentionally high-speed nuclear reaction. The driving reaction may be nuclear fission, nuclear fusion or a multistage cascading combination of the two, though to date all fusion based weapons have used a fission device...
. The company proposed detonating a 9-kiloton explosive device below the oil sands at a site 100 kilometres south of Fort McMurray. Thermonuclear heat would create a large underground cavern and simultaneously liquefy the oil. The cavern could serve as a collection point for the now-fluid oil, enabling the company to produce it.
This idea came remarkably close to reality. The project received federal approval in Canada, and the United States Atomic Energy Commission
United States Atomic Energy Commission
The United States Atomic Energy Commission was an agency of the United States government established after World War II by Congress to foster and control the peace time development of atomic science and technology. President Harry S...
agreed to provide the device. But before the experiment could take place, public pressure for an international ban on nuclear testing had mounted. The provincial government withheld approval and thus killed the plan.
In situ bitumen production: Many companies experimented with thermal techniques
Steam injection (oil industry)
Steam injection is an increasingly common method of extracting heavy oil. It is considered an enhanced oil recovery method and is the main type of thermal stimulation of oil reservoirs. There are several different forms of the technology, with the two main ones being Cyclic Steam Stimulation and...
to produce heavy oil from the oilsands, especially in the Cold Lake
Cold Lake, Alberta
Cold Lake is a city in northeastern Alberta, Canada, named after the lake it is situated near.-Geography:The city is situated in Alberta's "Lakeland" district, 300 km northeast of Edmonton, near the Alberta-Saskatchewan provincial border. The area surrounding the city is sparsely populated,...
oilsands deposit, in the 1970s and 1980s. Bearing such field-hand monikers as "steam flood", "fire flood" and "huff and puff" techniques, these extraction methods - like the Barber Asphalt and Paving Company's 1910 experiment - essentially apply heat to the underground reservoir. This melts the oil - that is, decreases its viscosity - so it can be pumped to the surface. An increasingly successful system now in use is steam assisted gravity drainage
Steam assisted gravity drainage
Steam Assisted Gravity Drainage is an enhanced oil recovery technology for producing heavy crude oil and bitumen. It is an advanced form of steam stimulation in which a pair of horizontal wells are drilled into the oil reservoir, one a few metres above the other...
(SAGD).
SAGD was initially tested at the Underground Test Facility (UTF
UTF
UTF may refer to:* Several Unicode Transformation Formats** UTF-1** UTF-7** UTF-8** UTF-16** UTF-32* U.T.F. , an American comic book title...
), ah experimental bitumen mining project funded by AOSTRA and officially opened on June 29th, 1987. The magnitude of the UTF is hard to imagine. Sinking the shafts was done with a drill bit almost four metres in diameter, weighing 230 tonnes. The two shafts below the oil sand reservoirs were 223 metres deep and neither one deviated from the vertical by more than 25 mm. As a safety measure, AOSTRA constructed two parallel tunnels through the limestone
Limestone
Limestone is a sedimentary rock composed largely of the minerals calcite and aragonite, which are different crystal forms of calcium carbonate . Many limestones are composed from skeletal fragments of marine organisms such as coral or foraminifera....
under the oil sand reservoir. More than a kilometre in length, each tunnel was five metres wide by four metres high.
From the tunnels the researchers drilled wells up into the reservoir to conduct two sets of tests. The Phase A pilot involved three well pairs 70 metres in length, each with 40-50 metres of exposure to the McMurray formation. Phase B involved another three well pairs, 70 metres apart, each with 500 to 550 metres of direct contact with the oil sand reservoir. The results were excellent, and the petroleum industry soon began producing bitumen through SAGD well pairs drilled and operated from the surface.
The largest single plant in Canada to use in situ production is Imperial Oil
Imperial Oil
Imperial Oil Limited is Canada's largest petroleum company. The company is engaged in the exploration, production and sale of crude oil and natural gas. It is controlled by US based ExxonMobil, which owns 69.6% of its stock...
's Cold Lake
Cold Lake, Alberta
Cold Lake is a city in northeastern Alberta, Canada, named after the lake it is situated near.-Geography:The city is situated in Alberta's "Lakeland" district, 300 km northeast of Edmonton, near the Alberta-Saskatchewan provincial border. The area surrounding the city is sparsely populated,...
oil sand plant. This plant uses a technique called cyclic steam injection
Steam injection (oil industry)
Steam injection is an increasingly common method of extracting heavy oil. It is considered an enhanced oil recovery method and is the main type of thermal stimulation of oil reservoirs. There are several different forms of the technology, with the two main ones being Cyclic Steam Stimulation and...
. Using this method, the company pumps high-pressure steam into a section of the underground reservoir for a week or so, then pumps the liquid oil out for as long as several months. Imperial also uses steam-assisted gravity drainage. In its SAGD production system, Imperial drills two horizontal wells, one five metres above the other. Steam injected through the upper well reduces the viscosity
Viscosity
Viscosity is a measure of the resistance of a fluid which is being deformed by either shear or tensile stress. In everyday terms , viscosity is "thickness" or "internal friction". Thus, water is "thin", having a lower viscosity, while honey is "thick", having a higher viscosity...
of the oil, which is recovered through the lower borehole. This plant produces more than 150000 barrels (23,848.1 m³) of bitumen per day.
The first Asian-owned company involved in the oil sands was JACOS
JACOS
Japan Canada Oil Sands Limited is an oil sands extraction company. It is the operator of the Hangingstone oil sands project. JACOS is a subsidiary of JAPEX , which owns 86% share in the company...
, which in 1978 began participating in experiments at a pilot project in the Athabasca area. Like Imperial at Cold Lake, from 1984 to 1994 JACOS and its partners also experimented with a cyclic steam stimulation pilot project on the Hangingstone Lease. Since then the company has developed SAGD production on that lease. It is also constructing a demonstration plant using solvent
Solvent
A solvent is a liquid, solid, or gas that dissolves another solid, liquid, or gaseous solute, resulting in a solution that is soluble in a certain volume of solvent at a specified temperature...
-based in situ bitumen extraction.
Heavy oil
Heavy oilHeavy oil
Heavy oil may refer to:*Fuel oil that contains residual oil left over from distillation.*Heavy crude oil, viscous crude oil.*Coal tar creosote, a wood preservative and waterproofing agent....
is a sister resource to bitumen. It is lighter than bitumen and its reservoirs are much smaller than the great oil sands deposits. Like the oil sands, only a small percentage of Canada's large heavy oil resource is producible.
Often called conventional heavy oil, this low-density oil can be recovered by conventional drilling techniques or by waterflood, a technique of injecting water into the reservoir to increase pressure, thus forcing the oil toward the well bore. When these techniques work, heavy oil is like the more commercially attractive lighter grades of oil. But heavy oil can also be quite viscous. It can need some form of heat or solvent and pressure before it can flow into a well bore to be produced. When heavy oil requires these techniques to go into production, it is known as non-conventional heavy oil.
The first heavy oil discoveries came with the pursuit of conventional light and medium crude oil. Because much of western Canada's heavy oil is in pools close to the surface, early explorers using older rigs discovered many of those pools before they came upon the deeper light oil reservoirs.
One of the first finds was in the Ribstone area near Wainwright, Alberta
Wainwright, Alberta
Wainwright is a town on the prairies of east-central Alberta, Canada.It is located on the north side of the Canadian National Railway, with CFB Wainwright located on the southwest side. The town lies south of Vermilion, in the Battle River valley, along Highway 41, called the Buffalo Trail....
in 1914. The province's first significant production of heavy oil came from the Wainwright field in 1926. Producers drew almost 6000 barrels (953.9 m³) of heavy oil from the field in that year. A small-scale local refinery distilled the heavy goo into usable products.
Elsewhere in Alberta, petroleum explorers made other heavy oil finds as they pursued the elusive successor to the Turner Valley oil field. They developed production from many of these fields, but only in small volumes. The recovery techniques of the day combined with the low price of oil and the nature and size of the finds meant that most of the oil remained undeveloped.
Husky
The most important exception was at LloydminsterLloydminster
Lloydminster is a Canadian city which has the unusual geographic distinction of straddling the provincial border between Alberta and Saskatchewan...
. While the first discovery occurred in 1938, serious development did not begin until Husky Oil moved into the area after the second world war.
Husky Oil
Husky Energy
Husky Energy Inc. is a large integrated Canadian energy company based in Calgary, Alberta. Husky's foundation is in Western Canada, where it has extensive conventional oil and natural gas assets, significant heavy oil production and a range of midstream and downstream operations, including...
was born during the Depression through the efforts of Glenn Nielson, an Alberta farmer driven to bankruptcy when the bank called a loan on his farm. Nielson had moved to Cody, Wyoming
Cody, Wyoming
Cody is a city in Park County, Wyoming, United States. It is named after William Frederick Cody, primarily known as Buffalo Bill, from William Cody's part in the creation of the original town. The population was 9,520 at the 2010 census...
, by the time he founded Husky as a refining operation. He turned his attention back to Canada after the second world war, and decided to set up a refinery at Lloydminster. Steel was scarce, so Husky dismantled a small Wyoming refinery constructed during the war to provide bunker fuel to the American Navy. It loaded the pieces onto 40 gondola cars and shipped them north by railway.
The company began reassembling the 400 cubic metre per day facility in 1946, and the refinery went on production the following year. Strategically located between the Canadian Pacific and Canadian National railroad tracks in Lloydminster, the refinery soon began to get contracts for locomotive bunker fuel. The company also found a strong market for asphalt for road building.
Husky's move into the area spurred drilling and production. Within two years of Husky's arrival, there were oversupplies of heavy oil and shortages of storage space. Producers solved the problem by storing the oil in earthen pits holding up to 16,000 cubic metres each. For a while Husky bought the oil by weight rather than volume since it was clogged with earth, tumbleweed and jackrabbits. The company had to strain and remeasure the stuff before it could begin refining.
Husky began producing heavy oil from local fields in 1946, and by the 1960s was easily the biggest regional producer. In 1963 the company undertook another in a series of expansions to the refinery. To take advantage of expanding markets for Canadian oil, it also began a program to deliver heavy oil to national and export markets.
The key to the $35 million project was the construction of a reversible pipeline which could move the viscous heavy oil into the marketplace. The 116-kilometre "yo-yo" pipeline - the first in the world - brought condensate from the Interprovincial Pipe Line station at Hardisty, Alberta
Hardisty, Alberta
Hardisty, Alberta is a town in Flagstaff County in Alberta, Canada. It is located in east-central Alberta, from the Saskatchewan border, near the crossroads of Highway 13 and Highway 881, in the Battle River Valley.- History :...
. The company began mixing this very light hydrocarbon with heavy oil, enabling it to flow more easily. The company then pumped the blend through its pipeline (hence the nickname "yo-yo") back to Hardisty. From there the Interprovincial took it eastward to market.
These developments made heavy oil for the first time more than a marginal resource. Within five years, area production had increased fivefold to nearly 2,000 cubic metres per day. By the early 1990s, production from the heavy oil belt was some 40,000 cubic metres per day, and Husky was still one of Canada's biggest heavy oil producers.
Upgraders
Heavy crude feedstock needs pre‐processing before it is fit for conventional refineries.This is called 'upgrading,' the key components of which include 1) removal of water, sand, physical waste and lighter products; 2) catalytic purification (hydrodemetallization, hydrodesulfurization and
hydrodenitrogenation; and 3) hydrogenation though carbon rejection or catalytic hydrocracking.
Since carbon rejection is generally inefficient and wasteful, catalytic hydrocracking is preferred in most cases.
Catalytic purification and hydrocracking are together known as hydroprocessing. The big challenge in hydroprocessing is to deal with the impurities found in heavy crude, as they poison the catalysts over time. Many efforts have been made to deal with this to ensure high activity and long life of a catalyst. Catalyst materials and pore size distributions need to be optimized to deal with these challenges.
Figuratively speaking, technological improvements
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
and new infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
cause heavy oil reservoirs to grow. Enhanced recovery techniques
Enhanced oil recovery
Enhanced Oil Recovery is a generic term for techniques for increasing the amount of crude oil that can be extracted from an oil field...
are urging a higher percentage of the reservoirs' oil to the surface. Research
Research
Research can be defined as the scientific search for knowledge, or as any systematic investigation, to establish novel facts, solve new or existing problems, prove new ideas, or develop new theories, usually using a scientific method...
and development
Energy development
Energy development is the effort to provide sufficient primary energy sources and secondary energy forms for supply, cost, impact on air pollution and water pollution, mitigation of climate change with renewable energy....
are creating technologies which have increased the amount producers can extract. Small improvements in technology applied to such a huge resource
Natural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
could mean enormous additions to Canada's recoverable crude oil reserves.
Few Canadian refineries can process more than small amounts of heavy oil, so production has traditionally gone to United States asphalt plants. This changed in the 1980s, however, with the announcement that construction would begin on two heavy oil upgraders. Like the plants at Syncrude, Suncor and Shell's Scotford facility near Edmonton, these refinery
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
-like operations turn heavy oil and bitumen into lighter and lower-sulfur, more desirable crude.
In the late 1970s, a group of heavy oil producers (Gulf, Husky, Shell, PetroCanada and SaskOil) proposed the Plains Upgrader. This facility would have cost $1.2 billion and upgraded 50000 barrels (7,949.4 m³) of oil per day. Gradually, however, consortium members pulled out of the project as they concluded that the high cost of upgrading would make the project uneconomic. In the end, only PetroCanada and Saskoil - both Crown corporations - remained.
The private sector
Private sector
In economics, the private sector is that part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the state...
partners pulled out of the Plains Upgrader because upgrading heavy oil at that time was a risky financial proposition. To be economic, these projects rely on substantial differences in pricing ("differentials") between light
Light crude oil
Light crude oil is liquid petroleum that has a low density and flows freely at room temperature. It has a low viscosity, low specific gravity and high API gravity due to the presence of a high proportion of light hydrocarbon fractions. It generally has a low wax content...
and heavy oil
Heavy oil
Heavy oil may refer to:*Fuel oil that contains residual oil left over from distillation.*Heavy crude oil, viscous crude oil.*Coal tar creosote, a wood preservative and waterproofing agent....
. Heavy oil is worth less than light oil; the question is, How much less? Unless upgraded oil fetched considerably more per barrel than the less attractive heavy oil, the upgrader would not make money on processing the stuff.
While the Plains partnership collapsed, the idea survived.
Co-op Upgrader
Their partners gone, SaskOil suggested reducing upgrader costs by integrating with the Consumers' Cooperative Refinery in ReginaCCRL Refinery Complex
The CCRL Refinery Complex is an oil refinery spread over located in the city of Regina, Saskatchewan, Canada owned by Consumers' Co-operative Refineries Limited that is in turn owned by Federated Co-operatives Limited . The refinery provides oil products to the member co-operatives of FCL...
. This would eliminate duplication in facilities and infrastructure by taking advantage of existing land, processing units, storage and pipeline facilities, technical and operating staff and management.
The Co-op refinery was a product of the Co-operative movement, which began in Britain in the mid-19th century. Frequently expanded and modernized, the Co-op plant (first constructed in 1935) was a small but modern refinery
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
when talk about a refinery/upgrader complex began in the early 1980s. Both the federal and Saskatchewan governments had forbidden their Crown corporations to participate in the project, yet both took part themselves. The province had a particular interest, since an upgrader would increase the market for heavy oil from Saskatchewan's fields. This would give the provincial oil industry an important boost. The federal government
Government of Canada
The Government of Canada, formally Her Majesty's Government, is the system whereby the federation of Canada is administered by a common authority; in Canadian English, the term can mean either the collective set of institutions or specifically the Queen-in-Council...
saw the project as an opportunity to move the nation one small step towards the stated goal of crude oil self-sufficiency. For its part, the Co-op wanted an assured supply of crude oil for its refinery.
Accordingly, Saskatchewan took a 20 per cent equity position and guaranteed loans equal to 45 per cent of the project. In exchange, it became a 50 per cent partner in the combined operation with Consumers' Co-op, which committed its existing refinery (valued at $500 million) to the project. The federal government guaranteed loans equal to 35 per cent of the project. Repayment on the principal of the loans would not begin until late 1992.
On stream in 1988, the Consumers' Co-op refinery/upgrader complex was a 50000 oilbbl/d facility. The $700 million upgrader provided upgraded oil as refinery feedstock.
Husky Upgrader
The company with the most extensive experience in the heavy oil belt was the one to propose - and eventually develop - Canada's other heavy oil upgrader. HuskyHusky Energy
Husky Energy Inc. is a large integrated Canadian energy company based in Calgary, Alberta. Husky's foundation is in Western Canada, where it has extensive conventional oil and natural gas assets, significant heavy oil production and a range of midstream and downstream operations, including...
began to prepare for the upgrader by building a new 25000 oilbbl/d refinery
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
next to the old plant. This facility - which processed heavy oil into asphalt
Asphalt
Asphalt or , also known as bitumen, is a sticky, black and highly viscous liquid or semi-solid that is present in most crude petroleums and in some natural deposits, it is a substance classed as a pitch...
and simultaneously provided light oils
Light crude oil
Light crude oil is liquid petroleum that has a low density and flows freely at room temperature. It has a low viscosity, low specific gravity and high API gravity due to the presence of a high proportion of light hydrocarbon fractions. It generally has a low wax content...
for refining into high-end products like gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
- was completed in 1983.
After a series of false starts, in 1988 Husky and its three partners announced a firm agreement to construct the Bi-Provincial Upgrader - today better known as the Husky Upgrader. Located just east of Lloydminster
Lloydminster
Lloydminster is a Canadian city which has the unusual geographic distinction of straddling the provincial border between Alberta and Saskatchewan...
, this $1.6 billion upgrader received most of its funding from government. Originally budgeted at $1.2 billion, the federal, Alberta
Alberta
Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...
and Saskatchewan
Saskatchewan
Saskatchewan is a prairie province in Canada, which has an area of . Saskatchewan is bordered on the west by Alberta, on the north by the Northwest Territories, on the east by Manitoba, and on the south by the U.S. states of Montana and North Dakota....
governments owned 31.67 per cent, 24.16 per cent and 17.5 per cent each. The balance belonged to Husky, which has since acquired the entire facility.
Under the terms of the original agreement, Husky would receive 50 per cent of the plant's net revenue plus a 10 per cent return on investment until Husky recovered that investment. The balance of plant profit would go proportionally to Husky's partners. A wrinkle in this arrangement occurred as the project neared completion, however, when Saskatchewan's newly-installed NDP
Saskatchewan New Democratic Party
The Saskatchewan New Democratic Party is a social-democratic political party in the Canadian province of Saskatchewan. It currently forms the official opposition, but has been a dominant force in Saskatchewan politics since the 1940s...
government refused to pay its share of $190 million in cost overruns. The other players eventually agreed to pay Saskatchewan's share, but would withhold returns to that province until they had recovered Saskatchewan's arrears.
The upgrader went on stream in mid-1992, but required debottlenecking before it could reach design capacity of 46000 oilbbl/d. The plant upgrades Lloydminster-area heavy oil and Cold Lake
Cold Lake, Alberta
Cold Lake is a city in northeastern Alberta, Canada, named after the lake it is situated near.-Geography:The city is situated in Alberta's "Lakeland" district, 300 km northeast of Edmonton, near the Alberta-Saskatchewan provincial border. The area surrounding the city is sparsely populated,...
bitumen, making still more of those resources available for central Canadian
Central Canada
Central Canada is a region consisting of Canada's two largest and most populous provinces: Ontario and Quebec. Due to their high populations, Ontario and Quebec have traditionally held a significant amount of political power in Canada, leading to some amount of resentment from other regions of the...
and American
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
markets.
Heavy oil differentials explain the large cost discrepancies between the Husky Upgrader ($1.6 billion for 46000 oilbbl/d capacity) and the Co-op upgrader ($600 million for 50000 oilbbl/d.) The Husky facility was designed to process heavier grades of oil than the Co-op upgrader, and its output was more desirable. This critical difference meant Husky would pay less for its feedstock and receive more for its output
Output
Output is the term denoting either an exit or changes which exit a system and which activate/modify a process. It is an abstract concept, used in the modeling, system design and system exploitation.-In control theory:...
than the Co-op plant. From the beginning, forecasts about these differentials were vital factors in economic calculations for the two projects, each of which has since undergone major expansions.
Metric conversions
One cubic metre of oil = 6.29 barrels.One cubic metre of natural gas = 35.49 cubic feet.
One kilopascal = 1% of atmospheric pressure (near sea level).
Canada's oil measure, the cubic metre, is unique in the world. It is metric in the sense that it uses metres, but it is based on volume so that Canadian units can be easily converted into barrels. In the rest of the metric world, the standard for measuring oil is the metric tonne. The advantage of the latter measure is that it reflects oil quality. In general, lower grade oils are heavier.
Further reading
- Peter McKenzie-Brown, Gordon Jaremko, David Finch, The Great Oil Age, Detselig Enterprises Ltd., Calgary; 1993
- J. Joseph Fitzgerald, Black Gold with Grit, Gray's Publishing, Victoria, British Columbia; 1978
- Robert Bott, Our Petroleum Challenge: Sustainability into the 21st Century, Canadian Centre for Energy Information, Calgary; Seventh edition, 2004