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Steady research and development, coupled with an ever-increasing demand for oil, is spurring companies such as ConocoPhillips (Wood River Refinery) to tap into once unreachable reserves in a remote area of Canada.
Known as the oil sands or “tar sands” due to the heaviness of the crude contained within them, at least 174 billion barrels worth (10 percent) of this enormous oil reserve is now considered to be economically recoverable. Matt Fox, senior vice president of oil sands at ConocoPhillips’ Canadian headquarters in Alberta, says it’s a resource second in size only to Saudi Arabia.
Fox heads up the company’s oil sands division, including the Surmont project, which is ConocoPhillips’ first operational project in the oil sands effort. Phase I began construction in 2004, and operations began in 2007.
Alan Boras, spokesman for EnCana, ConocoPhillips oil sands joint venture partner on Foster Creek and Christina Lake, two oil sands projects also in northeastern Alberta, says 80 percent of the oil sands are buried so deep that they cannot be extracted by conventional mining techniques, as was attempted back in the 1960s. Since that time, government and private industry have worked in tandem to explore alternate measures of extraction that would prove financially feasible.
“How it is extracted today is by a steam and thermal recovery process called steam-assisted gravity drainage,” said Boras. “Two parallel horizontal oil wells are drilled in the formation. The upper well injects steam and the lower one collects the water that results from the condensation of the injected steam and the crude oil or bitumen. The injected steam heats the bitumen and lowers its viscosity, which allows it to flow down into the lower wellbore.” The large density contrast between steam on one side and water and heavy crude on the other side, Boras says, ensures that steam is not produced at the lower production well. “The water and bitumen is recovered to the surface by several methods including a natural steam lift or by pumps that work well for moving high-viscosity fluids with suspended solids,” he added.
The proposed $4 billion expansion project at ConocoPhillips’ Wood River Refinery in Roxana, Ill. will include an additional coker and the capability of processing an increased supply of Canadian crude - product that will come from these Alberta oil sands projects.
Fox says ConocoPhillips’ history in the oil sands is a curious one. In addition to the refiner’s stake in the Surmont oil sands venture with partner TOTAL E&P Canada Ltd., Conoco also owns a nine per cent interest in Syncrude, another oil sands operation.
“It’s interesting, especially if you consider that our parent companies have gone from having virtually no interests to being the largest leaseholder in the Athabasca (Canada) region in less than a decade,” he said. “We now have the leading land position in the Athabasca - about one million net acres - and see these oil sands resources as strategically significant to the company for many years to come. Our vision is to produce one million barrels per day from our various oil sands interests.”
In order to reach its goal, Fox says, ConocoPhillips will need to manage the environmental challenges associated with oil sands development. These include managing greenhouse gas emissions and reducing water and land use. “We believe this can be achieved, and we’re working to do this through technology and innovation,” said Fox. “Over the next five years, for example, we’re spending $500 million on heavy oil technology.”
What prompted ConocoPhillips and other refining companies to move forward with construction and operation of oil sands extraction and production? Fox says several factors came into play, and strategic timing proved to be critical.
“We came into the oil sands business as it was becoming economically viable to access and produce the resource,” he said. “Steam-assisted gravity drainage is a relatively new technology. I remember reading about it a decade ago when I was working as chief reservoir engineer in Houston and thinking it sounded like science fiction - technically viable but certainly beyond conventional oil field practices…who would have thought we’d use steam in a commercially and economically viable way to get the bitumen out of the ground? It’s amazing and is truly an indication of our industry’s technical brilliance and innovation.”
The price of oil, Fox says, certainly was another factor that spurred ConocoPhillips onward toward the reality of oil sands production.
“The economics in the oil sands are challenging, and it’s a cost-intensive resource to produce,” he said. “The infrastructure, cost of materials and cost of labor are all factors. These are truly capital-intensive mega-projects. And if oil is priced below a certain threshold, they are not economically viable.”
Finally, according to Fox, global energy companies such as ConocoPhillips continue to pursue viable options such as the oil sands as they work to secure enough supply to meet an ever-growing global demand.
“The oil sands represent a politically stable, enormous resource that can help North America meet energy demand for decades to come,” Fox said. “This makes Canada’s oil sands an appealing place to be, especially as a global, fully-integrated energy company. We believe Canadian crude has the potential to take an increasingly important role as a secure energy supply for the United States.”
Canada is currently the largest supplier of imported crude for the U.S., about 20 percent of imports in 2007, according to ConocoPhillips. Fox estimates that the U.S. could be importing 40 percent to 50 percent of its total crude from Canada by about 2030.
“The vast majority of those imports - about 90 percent - will be from the oil sands,” he said.
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