Alberta expansions continue apace

For generations, people from the have-not parts of Canada have found themselves “going down the road” to work in Alberta’s oil patch.

Now they find themselves going up the highway, drawn north to Fort McMurray, Alta., and beyond, as the whole of the oilsands shifts into high gear with massive expansion and new construction.

Syncrude Canada completed its last major expansion in 2006, but not without certain challenges. The project ran two years longer than planned and, at $8.55 billion, cost twice the original estimate.

The third stage officially began operating in August 2006, after a final three-month delay due to problems with a flue gas desulphurizer. It was the source of a strong ammonia odour, but that has been corrected. The unit is now operating efficiently, scrubbing sulphur emissions from the new coker and producing a slurry of ammonium nitrate that is turned into fertilizer.

Along with expanded capacity came the opportunity to improve product quality. Modification to the steam generation unit of a new hydrogen plant will allow the production of higher-value Syncrude Sweet Premium (SSP) crude rather than Syncrude Sweet Blend (SSB) crude.

Work is under way on expanding the mining operations at both the Mildred Lake and Aurora mines.

Syncrude placed a $230-million order for 20 Caterpillar 797B, 345-T haul trucks in January 2007, to be delivered by Finning Canada in 2009, and awarded a $100-million engineering contract to AMEC last February. The latter contract covers relocating and improving processing facilities as well as applying new technologies.

Some of those new technologies are expected to come from the engineers at Imperial Oil (IMO-T, IMO-X), as Syncrude signed a management agreement with Imperial in 2006. The 10-year deal gives Syncrude access to new tools and resources with which to improve operational reliability. It also covers improved energy use, better procurement efficiencies and strengthened business controls. Employees of Imperial and Exxon Mobil (XOM-N) will be seconded to Syncrude to implement the new systems.

The stage-three expansion brought capacity up to 350,000 barrels per day. Now the company has embarked on a major de-bottlenecking program that will add another 30,000-50,000 barrels per day by about 2012.

Syncrude is planning for the next growth spurt — stage four –which will add 100,000 barrels per day of capacity. Construction is 10 years away but, when complete, the next expansion will bring total capacity up to 500,000 barrels per day in 2020.

The Syncrude leases have a resource of 9 billion barrels, which will provide 50 more years of operation at the 500,000-barrel-per-day rate. The leases have the potential for hosting even more resources, allowing for an even longer life or further expansions.

Since startup in 1978, the Syncrude joint venture has produced over 1.8 billion barrels of oil. The partners include Canadian Oil Sands Trust (COS. UN-T, COSWF-O) (36.74%), Imperial Oil (25% and the only remaining original partner in the project), Petro-Canada (PCA-T, PCZ-N) (12%), ConocoPhilips (COP-N) (9.03%), Nexen (NXY-T, NXY-N) (7.23%), Murphy Oil (MUR-N) (5%) and Mocal Energy (5%).

Suncor’s growth

There almost seems to be no upper limit to spending in Alberta’s oilsands, and Suncor Energy’s (SU-T, SU-N)announcement that it will spend $20.6 billion on expansion sets a new high. The move will add 200,000 barrels per day to the project, situated north of Fort McMurray. Production capacity is expected to reach 550,000 barrels per day in 2012.

The expansion is part of the Voyageur growth strategy that was kicked off in 2001. Production in 2007 was 260,000 barrels per day, and that number is expected to rise to 350,000 barrels per day in 2008. The expansion to 550,000 barrels involves four more stages of in-situ bitumen production and the construction of a third upgrader, plus related infrastructure and utilities.

The move toward more production from in-situ sources reduces the environmental impact of recovering bitumen. In-situ recovery disturbs only about 15% of the land compared with truck-and-shovel mining, and makes it possible to recycle more than 90% of the necessary process water.

A look at the remaining 15 billion barrels of recoverable bitumen resources on Suncor’s leases highlights the importance of in-situ technology. Only 6 billion barrels are recoverable by mining, while the other 9 billion barrels are deeper below surface and can only be recovered using in-situ methods. The company expects to continue recovering bitumen from oilsands for the next 70 years or more.

Suncor was the world’s first oilsands miner, commissioning its original facilities in 1967. Over the last five years, it has reduced water use per barrel of oil by nearly 50%, and the current expansion has earmarked $225 million to further improve water management.

Greenhouse gas levels have been cut 50% compared with 1990 levels. Expansion will bump up the absolute amount of greenhouse gases emitted, but Suncor promises to continue investigating new technologies that will lead to long-term reductions.

Air quality has improved with the expenditure of $800 million to cut the emissions of sulphur dioxide, nitrous oxide and foul odours.

The company is also investigating integrated land management practices with neighbouring producers, to try to reduce the cumulative effect of oilsands development.

Key to Suncor’s Voyageur plans is to increase in-situ production from the Firebag project. Two steam-assisted gravity drainage (SAGD) stages have already been established, and there will be four more by 2012. Each stage will produce about 68,000 barrels per day. Total cost of the four new stages is expected to be $9 billion.

The construction of a third upgrader has a higher price tag of $11.6 billion. It is designed to produce 200,000 barrels per day of crude oil by treating 245,000 barrels of bitumen from in-situ sources.

Preliminary engineering is nearly complete, and construction has begun. The upgrader should be ready for commissioning in the third quarter of 2011.

Suncor has not forgotten its roots in oilsands mining. Plans were announced in July 2007 to develop the Voyageur South open pit. This mine will use mobile oil preparation facilities rather than conventional trucks and shovels. The project will provide flexibility of feed for the new upgrader. Construction could start in 2009 or 2010 with production beginning in 2012 or 2013. A preliminary estimate has put the capital costs at $4.4 billion. This pit would supply 120,000 barrels of bitumen per day for 40 years.

Suncor calls itself “First in oilsands,” and the company is now leading the way in new technologies that will improve the industry’s care of the land, air and water.

Two new projects

In late March, UTS Energy (UTS-T, UEYCF-O) of Calgary and its joint-venture partner Teck Cominco (TCK. B-T, TCK-N) of Vancouver announced a proposed development plan for two new oilsands projects — Frontier and Equinox — that, combined, will produce between 150,000 and 210,000 barrels per day of de-asphalted bitumen, starting as early as 2014 (see feature article, page B1).

The first phase of the new Frontier mine and extraction project has estimated production capacity of between 100,000 and 160,000 barrels per day for 40 to 60 years, possibly followed by another phase. It lies 10-20 km northwest of the Fort Hills project (20% UTS, 20% Teck Cominco and 60% Petro-Canada), bordered to the south and east by Shell Canada’s proposed Pierre River project.

Equinox (formerly Lease 14) is a single-phase development project with an estimated production capacity of 50,000 barrels per day of de-asphalted bitumen over 20 years. The project is directly across from the Fort Hills project and 1
0 km south of the Frontier project, about 90 km north of Fort Mc- Murray. It could proceed either as a standalone mine with dedicated bitumen production and extraction facilities, or as one where bitumen froth is treated at either the Frontier plant or another neighbouring project.

Options for upgrading bitumen from Frontier and Equinox include expanding the partnership’s Sturgeon upgrader, merchant upgrading or a dedicated upgrader via a downstream partner.

On the Horizon

Canadian Natural Resources (CNQ-T, CNQ-N) is nearing completion of the Horizon oilsands project, 70 km north of Fort Mc- Murray.

Startup is scheduled for the third quarter at a rate of 110,000 barrels of synthetic crude oil per day. And this is only the beginning: Canadian Natural has plans to expand the project in phases to 232,000 barrels per day by 2011, and eventually to 500,000 barrels daily.

The company committed as much as $8.7 billion to the first phase of the Horizon project, up from an original development estimate of $6.8 billion. Part of the problem has been an unusually cold winter in northern Alberta that is pushing costs up at all projects in the area. Canadian Natural said the extreme cold added $1 billion to Horizon’s costs.

Horizon will be a conventional open-pit, truck-and-shovel mining operation with on-site bitumen extraction and upgrading facilities.

North American Construction Group was awarded the 10-year contract to remove 400 million cubic metres of overburden.

The Horizon leases contain an estimated 16 billion barrels of bitumen in place; 6-8 billion barrels are recoverable with existing technologies. However, only 3.5 billion barrels are included in proven and probable reserves. The project has an estimated life of 40 years.

By the end of 2007, the Horizon project was over 90% complete. The construction workforce had peaked at 6,500, making it one of the largest construction projects in the world. The permanent workforce is expected to number 2,400 people.

Canadian Natural grew out of an ambitious little company with nine employees producing 14,000 barrels of oil per day in 1989. When it gave the nod to the Horizon project in February 2005, it had grown to 2,500 employees and production of more than 575,000 barrels of oil equivalent daily. These are big numbers that are only going to get bigger as Horizon is commissioned and expanded.

Albian Sands

At almost every oilsands project in the Athabasca, expansion is being talked about, and Albian Sands is no exception. Albian Sands Energy was created by the Athabasca Oil Sands Project (AOSP), a joint venture of Shell Canada (60%), Chevron Canada (20%) and Marathon Oil Sands (20%; it purchased West Oil Sands’ interest).

Albian Sands operates the truck-and-shovel Muskeg River mine on Lease 13, about 75 km north of Fort McMurray, and the Scotfield Upgrader north of Fort Saskatchewan, Alta. The upgrader produces synthetic crude oil, much of which is refined at Shell’s adjacent Scotford refinery. The mine and upgrader have a capacity of 155,000 barrels of bitumen per day, currently supplying almost 10% of Canada’s oil needs.

Lease 13 contains more than 5 billion barrels of minable bitumen close to the surface with a high oil concentration, making it ideally suited to mining. The current Muskeg River mine is designed to recover 1.6 billion barrels of that resource. As well, there are plans to expand the Muskeg River mine and Scotford upgrader, and to build the Jackpine and Pierre River mines, which, together, will develop most of Lease 13.

The $7.3-billion AOSP first-phase expansion is under way, adding capacity of 100,000 barrels per day by 2010 (for 255,000 barrels total). This includes developing the Jackpine mine and extraction facilities, expanding the froth treatment facilities at the existing Muskeg River mine, expanding the Scotford upgrader, and developing common infrastructure such as power transmission lines, roads, camps and site pipelines to support future expansions.

Shell has applied for approval to build and operate a Scotford Upgrader 2 beside its existing Scotford facilities, in four stages. Scotford 2 could ultimately process up to 400,000 barrels per day of oilsands bitumen from the mines as well as Shell’s in-situ oilsands projects into a range of synthetic crude oil products.

AOSP has also applied to expand capacity at the Jackpine mine to 300,000 barrels per day, and to build a 200,000-barrel-per-day mine at the Pierre River mining area. The expansion includes mining and bitumen processing extended to the west side of the Athabasca River, initially on Leases 9 and 17 and progressing to Leases 309, 310, 351 and 352, as well as possible lease exchange areas acquired from other companies.

The bitumen produced could be transported via pipeline from the Athabasca area to Fort Saskatchewan and onwards to Canadian or potential U. S. markets. –Marilyn Scales and Jane Werniuk are the field editor and editor, respectively, of the Canadian Mining Journal. This is a condensed version of a story published in the magazine’s April 2008 edition, available at: www.canadianminingjournal.com.