A start has been made on lightening the long shadow cast on the future of Canadian natural gas supplies by rapid development of the northern Alberta oilsands with the arrival of the first example of new technology aimed at tapping alternative fuel sources.
OPTI Canada Inc. made introduction of a method that is a sure bet to takes the next new oilsands plant off the gas market.
The newcomer to the oilsands scene succeeded in raising C$1.5 billion (US$1.2 billion) to cover most of its 50% share in a C$3.4-billion (US$2.6-billion) project called Long Lake. Partner Nexen Inc. is Canada’s 15th-largest oil and gas producer, and its capacity to take on the project has never been in doubt. With the funds in hand, construction is scheduled to start later this year.
OPTI is introducing a synthetic-oil “upgrader” technology, trademarked OrCrude, which will make gas to fuel the operation’s heat processes and power plant from its initial production of bitumen. The breakthrough was developed by OPTI’s founding shareholder, ORMAT Industries, an Israel-based technology firm that makes an international specialty of scavenging energy sources to build power plants in difficult places in 60 countries.
Over the past 40 years, ORMAT has built more than 50 geothermal and waste-heat power plants plus about 3,500 turbo generators for remote locations along pipelines ranging from the TransAlaska oil system to the Siberian gas network of Gazprom. OPTI describes the new oilsands technology as a relatively straightforward piece of work by ORMAT standards which works by rearranging conventional refining and processing equipment without re-inventing any wheels.
The start being made by the Long Lake partnership on such energy-efficiency innovations has come none too soon, Canadian industry leaders say. A state-of-the-oilsands report by the Alberta Chamber of Resources warns that continuing to develop the estimated 175 billion barrels of bitumen reserves with current technology would cause “unsustainable” strain on gas supplies. Depending on whether plants use strip-mining or “in-situ” underground extraction systems, current oilsands operations burn gas at rates ranging from seven-tenths to one Mcf per barrel of synthetic-crude production.
Already about one million barrels daily, oilsands production is rated as capable of rising to five million b/d in 2030 by the industry consensus expressed in the chamber report. “In this scenario, natural gas usage would rise from 10% of combined Western Canada Sedimentary Basin, coalbed methane and Mackenzie supply in 2012 to an unthinkable 60% or more by 2030.” The Long Lake technology is the first of numerous alternatives to gas-fired oilsands development in varying stages of research and development to reach the large-scale construction stage.
The project also highlights the sheer scale of oilsands development. The Long Lake plan calls for completion of a 72,000 b/d initial installation in 2007, followed by four-fold growth into the range of 280,000 b/d in the 2013-17 period. On just an 85-square-mile corner of the 7,200-square-mile Athabasca deposit — itself only one of three similar-sized areas in the oilsands belt — the Long Lake leases harbour an estimated 1.9 billion barrels of recoverable bitumen. OPTI also sent a wider message of encouragement to gas as well as oil producers when it succeeded in raising loans from a consortium of Canadian banks as well as equity commitments from an international lineup of institutional investors that included money managers in the United States, Australia and Europe.
The Canadian industry badly needed a sign that the financial community is still willing to trust it with the large-scale developments on its horizon, including the C$5-billion (US$3.8-billion) Mackenzie Gas Project. Industry sources describe money managers as increasingly spooked, into wondering whether the Canadian industry has capacity manage big projects, by a series of worsening cost overruns in the last wave of oilsands developments.
In the most spectacular — and many hope, the last — example, the Syncrude Canada oilsands complex disclosed earlier this month that costs of a major expansion under construction jumped dramatically. The estimate grew by C$2.1 billion (US$1.5 billion) to C$7.8 billion (US$5.8 billion) — up 37% from a 2002 forecast of C$5.7 billion (US$4.3 billion) and nearly double the original projection of C$4.1 billion (US$3 billion) less than three years ago. Other oilsands projects earlier consistently chalked up overruns on the order of 50%.
OPTI assured the financial markets that Canadian project managers are learning from past mistakes and showed them how the next generation of developments will feature direct participation in contractor operations, more completely engineered plans, and discipline at sticking to them once construction starts.
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