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Horizon Oilsands Project Cuts Gas Use 40%

The next Alberta oilsands mega-mine, the first to enter construction since energy prices have gone to a new plateau, aims to respond to the expensive new energy market realities by cutting about 40% off the industry average consumption of natural gas to produce synthetic crude oil.

The Horizon Oil Sands Project will use about 600 cubic feet of gas for each barrel of oil output, Real Doucet, oilsands chief of sponsor Canadian Natural Resources Ltd., said after final corporate approval for construction of the C$6.8 billion (US$5.4 billion) first stage was announced Thursday. Horizon stands out as the first oilsands project to be "integrated from the energy standpoint," Doucet said.

Conservation has been built into power consumption and heat processes used at every step of production: oilsands mining, bitumen extraction and "upgrader" manufacturing of refinery-ready light synthetic oil. Even at the new, improved efficiency level Horizon will be a formidable energy consumer. Production will start at 110,000 bbl/d in second-half 2008, then climb in two expansions forecast to cost C$4 billion (US$3.2 billion) to 155,000 bbl/d in 2010 and 232,000 bbl/d in 2012.

With variations to improve cost control, CNRL's project will follow a pattern set by its predecessors. Horizon extends a strip mining belt near Fort McMurray, about 300 miles northeast of the Alberta capital of Edmonton, built since 1967 by Suncor Energy and the Syncrude and Athabasca oilsands consortiums. All are in various stages of expansion towards targets of producing up to 500,000 bbl/d each. All were designed and built when Canadian gas routinely fetched as little as C$1 (US$0.80) per MMBtu and sometimes considerably less.

Gas consumption is even higher than the miners' average of about one Mcf per barrel of crude production at projects that tap bitumen too deeply buried to dig up. Gas use by a newer technique, SAGD or steam-assisted gravity drainage with paired horizontal wells for simultaneous heat injection and bitumen production, can exceed one Mcf per barrel of output. But like the miners, the oilsands drillers are responding to changed gas markets.

The newest projects aim to eliminate gas consumption entirely. The C$3.4-billion Long Lake project, currently under construction by Nexen Energy and OPTI Canada to produce an initial 70,000 bbl/d, includes a new synthetic oil upgrader process that will convert the heaviest parts of bitumen from SAGD wells into fuel gas.

The idea of eliminating natural gas use is also finding its way into planning for the next generation of mining projects. A variety of emerging technical options will be considered for the Fort Hills project now in field trial stages on an oilsands lease next to Horizon, said Will Roach, president of sponsor UTS Energy.

Continued use of natural gas not only builds now-predictable cost increases into the oilsands production process. The volume of gas the growing sector is forecast to use unless current practices change is just plain "unsustainable," Roach said. Barring a change in oilsands methods, Alberta stands out as the fastest-growing industrial gas consumer region in Canada in surveys by an array of agencies ranging from TransCanada PipeLines Ltd. to the National Energy Board and the Alberta Chamber of Resources.

With production projected to triple or quadruple into a range of three to four million barrels per day over the next 10 years or possibly less, gas use by the oilsands sector is forecast to about triple into a range of 1.8 Bcf/d. Cost-conscious oil executives such as Roach echo the industry's environmental critics in warning that new level of gas consumption would absorb all the new deliveries planned by the Mackenzie Gas Project.

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