Upgraders on the up and up for AlbertaCanada-China venture joins three other plans to process oil sands’ bitumen in Edmonton area, ignoring Imperial’s message Gary Park Petroleum News Canadian Contributing Writer
What made Imperial Oil uneasy has not deterred others as they roll out plans for upgraders to support rapid growth in Alberta’s oil sands production.
Start-up producer Synenco Energy, in partnership with China’s Sinopec, said it has chosen a location for a two-stage, 100,000 barrel per day plant near Edmonton linked to its Northern Lights mining and extraction operation in northeastern Alberta.
In gearing up to file a regulatory application for the facility, Synenco joins North West Upgrading, Heartland and Shell Canada’s Scotford refinery — all of them in the Edmonton region — in pressing ahead with upgraders, which turn raw bitumen into synthetic crude.
The Synenco announcement came two weeks after Imperial Chief Executive Officer Tim Hearn announced his company would not proceed with an upgrader at the site of its possible 300,000 bpd Kearl project because of a concern that the line-up of projects was growing too long.
He said a combination of surplus oil capacity as more non-OPEC production comes on stream and an economic slowdown could cause a “lot of pain” for upgrader owners. Upgraders profit from value added The upgraders derive their profit from buying feedstock at low prices, converting the raw material into a value-added product and selling high, with bitumen generally priced at 40 percent below the synthetic crude that comes from the plants.
But their success is based on those market “differentials” holding firm.
Synenco said it plans to build a 50,000 bpd plant at a cost of C$1.7 billion to come on stream in 2010, followed by a second phase in 2012.
With Sinopec as a 40 percent partner in Northern Lights and now that it is trading publicly, Synenco is hoping to file its mining and extraction application by mid-2006.
It is already spending C$250 million on advance work and is placing deposits for long lead-time equipment orders. Northern Lights estimated at 1.49 billion barrels The Northern Lights lease covers almost 50 square miles and independent estimates put the in-place bitumen deposit at 1.49 billion barrels, with high and low estimates ranging from 2.38 billion to 836 million.
To make the project “virtually energy self-sufficient,” the partnership is developing plans for a gasification unit to turn bottom-of-the-barrel bitumen into synthetic gas, eliminating the need for natural gas to fuel mining, extraction and processing.
Synenco has updated its budget projections to C$5.3 billion, but has warned that could reach C$6.9 billion.
Synenco President Todd Newton is not troubled by the number of upgraders in the works.
North West is moving ahead with a C$1.6 billion plant to produce premium grades of refinery-ready oil; Heartland has started construction on its C$1.8 billion facility; and Shell’s Scotford facility is targeted for additions as part of a planned C$7.3 billion expansion of the Athabasca oil sands project.
Newton told the Edmonton Journal he does not see the upgraders entering competition with each other.
Noting industry and government forecasts that oil sands output will increase from 1 million bpd to between 3 million and 5 million bpd over the next 10 years, he said that so long as the profile holds up there will be sufficient bitumen for all of the upgraders.
North West President Robert Pearce shares the view that “there’s room for more than one project.”
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