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A little bit helps Giant step for North West Upgrading one more small step to ease refining bottleneck Gary Park For Petroleum News
The drive to increase bitumen upgrading in Alberta made another breakthrough with the signing of a supply agreement between producer Canadian Natural Resources and private start-up North West Upgrading.
Under the deal, Canadian Natural will supply 25,000 barrels per day of Cold Lake Blend heavy crude over five years to the C$2.4 billion North West plant that is due on stream near Edmonton in 2010 with initial capacity of 50,000 bpd, with tentative plans for two more phases of 50,000 bpd each if the venture succeeds.
Canadian Natural also has an option to hike the agreement by 20,000 bpd once the expansion receives final take off.
For the industry, it’s a case of every little bit helps as refiners run out of ability to handle any more Canadian crude — not just the slate of oil sands volumes but conventional crude as well — without undertaking plant conversions and additions. That in turn forces producers to reconsider the pace of their plans to increase supplies.
North West aims to become major processor North West Chief Executive Officer Robert Pearce said the Canadian Natural deal is “a gesture of support for upgrading within Alberta,” adding another notch to the provincial government’s declared ambition of reaping more of the rewards from the value-added end of oil sands production.
He said North West’s objective is to become a “major processor of increasing supplies of bitumen and will support North America’s growing demand for light sweet products.”
“For us it’s an important step in that it says we are on our way,” Pearce said.
The company recently raised C$175 million through a private placement and expects to raise funds in the public markets prior to a construction start late in 2007.
Canadian Natural gains new outlet Canadian Natural Senior Vice President Real Cusson said the contract gives his company a new outlet for a port of its heavy oil production and reduces the need for condensate to aid the shipment of bitumen to more distant upgraders.
Canadian Natural is still committed to building its own upgrader to handle production from the Wolf Lake/Primrose operation that is being designed to produce 120,000 bpd by 2009, in addition to an upgrader that is in the works for its Horizon mega-project.
The first phase of the Horizon upgrader, costing about C$2.5 billion, is planned to handle 110,000 bpd of synthetic crude in 2008. A second phase expansion will add about 45,000 bpd in 2010, followed by 77,000 bpd in 2012, although Canadian Natural is evaluating the merits of combining those two stages.
Fourth and fifth phases could boost the total from 232,000 bpd to 500,000 bpd by 2017.
North West’s application is currently before the Alberta Energy and Utilities Board and expected to obtain approval by mid-2007.
It aims to have total processing capacity of 231,000 bpd of blended feedstock by 2015, with crude bitumen accounting for 150,000 bpd.
The pact is another step forward in the challenging task of doubling bitumen processing in Alberta to double to 1.43 million bpd over the next four years.
For upgrader proponents, the good news is that they are largely managing to stay close to budget at a time when oil sands mining projects are exceeding forecasts by billions of dollars because of the cost of labor, materials and equipment.
BA Energy upgrader under construction A second private merchant upgrader, BA Energy, has already entered the field by starting construction of its C$900 million stand-alone Heartland upgrader, also near Edmonton.
It received a regulatory green light in 2005, expects its initial phase to start processing 77,500 bpd of bitumen blend in early 2008 and has two more stages of 77,000 bpd each in the line up, yielding refinery-ready sour light crude.
The two merchant projects are part of a slate of upgraders in the works for northern Alberta that could involve capital spending of more than C$50 billion (and uncalculated additional spending if tentatively planned expansions proceed), although the labor shortage has caused misgivings among companies such as Husky Energy and Imperial Oil.
Upgraders have been described as the heavy lifters of the oil sands world. They turn the tar-like bitumen into lighter crudes that more conventional refineries can use to produce gasoline, diesel fuel, lube oils and asphalt.
Upgraders in the works The list includes:
• An upgrader at the Nexen-OPTI Canada venture at Long Lake, which is about half completed and targeted to turn out 59,000 bpd of primarily 39-degree API sweet crude within a year.
The partners also have regulatory clearance to add 60,000 bpd of capacity in 2010-2011.
Like Canadian Natural, the joint venture appears to have its costs under control, having committed 75 percent of the budget, limiting the chances of a major cost overrun.
• Total E&P Canada, the Canadian subsidiary of the French oil giant, has declared its intention to build an upgrader to handle output from the Joslyn and Surmont oil sands operations and expects to launch a 200,000 bpd plant by 2015.
• Petro-Canada has the green light for a 190,000 bpd upgrader to support its Fort Hills project, although its Fort Hills partners, UTS Energy and Teck Cominco, think something in the range of 100,000-170,000 bpd is more likely by the first phase start up in 2011.
Later additions by about 2015 could push the total towards 400,000 bpd.
• Recently emerged North American Oil Sands has set its sights on a 70,000 bpd upgrader, scheduled to debut in 2014, although an application has yet to be filed with regulators pending a final decision on a location.
• Oil sands power Suncor Energy is pushing ahead with plans to grow its upgrading capacity from 260,000 bpd to 350,000 bpd in 2008 and has filed for a third upgrader to achieve 500,000-550,000 bpd in the 2010-2012 period.
• Shell Canada and its Athabasca partners, Chevron Canada and Western Oil Sands, is on track to introduce its first addition later this year as it doubles output to 300,000 bpd by late 2009.
• Syncrude Canada, the other oil sands pioneer, will grow its capacity by 110,000 bpd to 350,000 bpd later this year despite being slowed by odor problem emanating from the site in May.
• Despite indications that severe labor shortages could put a crimp in its plans to build an upgrader tied to its Sunrise oil sands project which is scheduled to come on stream in 2010-2012 and recover 3.2 billion barrels of bitumen, Husky Energy has not been diverted from almost doubling output at its established Lloydminster upgrader to 150,000 bpd. Front-end engineering is under way and if a final go-ahead is received construction of the Lloydminster addition will take up to four years to build.
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