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Battle for the oil sands

Across Alberta, companies have spent years developing new technologies that promise cheaper, greener production. In the next few months, some will move from the lab to the field in critical tests that could radically reshape the industry.

Nathan VanderKlippe

Friday, December 18, 2009

Calgary — Inside a small garage-like laboratory in a north-east Calgary industrial park, there sits a box.

It's small, less than a metre to a side, with 72 wires attached to its top in a dense snarl. Two exposed stove elements are stuck vertically to the outside of one of its side walls, which are made of metal. The elements are on, and hot. On the opposite side, a thin metal pipe descends to the floor and into a small vessel that looks like a steel bowling pin.

But if the exterior of the box has all the elements of a high school science project gone madly awry, what it contains makes this a serious experiment, with potentially enormous consequences for the economic future of Canada's oil sands and its environmental impact. This box is designed to find a new way to lift the oil out of the thick, crude-filled sand that surrounds Fort McMurray.

Across Alberta, tiny upstarts and major energy companies have spent years developing a number of promising new technologies to tap the oil sands. In recent months, several have taken a major step, moving from the lab to the field in small pilot tests that will, finally, prove whether they work or not. Companies are spending millions to prove out a variety of new approaches that could substantially cut the cost of producing oil sands – now among the highest for crude production anywhere – while also greatly cutting back on greenhouse gas emissions and, in some cases, opening access to hundreds of billions of barrels currently considered unrecoverable.

The field tests are critically important, both to the companies racing to win the technological battle for oil sands supremacy, and for Canada's oil patch as a whole. What's at stake is no less than a radical reshaping of the industry and, potentially, a type of Oil Sands 2.0 that no longer bears the shame of being dirty.

Getting there may require heeding lessons from the past. It may also require leadership not currently on display – either among politicians or industry titans. The search for improved oil sands technology is made all the more urgent by increasing political pressure, highlighted at the Copenhagen climate summit, to reduce global carbon emissions.

The road ahead remains fraught with risk. Oil sands projects under engineering and construction today aren't employing these innovations. That means it will be years before any large-scale change in oil sands technology could possibly take root.

Though new methods have great promise, they remain some distance from proving they work well enough to merit billions in investment; some will likely be discarded.

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To get a sense of what's possible, consider that box in Calgary. Packed into its small confines are a few kilograms of oil sands – a blend of sand, water and crude that is churned together in a nearby cement mixer. If you could peek inside, you would see a wall of fire moving slowly through the oil sands, which are glowing bright red like a charcoal briquette.

For the scientists who oversee its operation, the most exciting part is the liquid that comes out of the box, and is then collected in several dozen jam jars. It is crude oil, but a better kind of crude than what's initially extracted using current methods from the 1.7-trillion barrels that lie beneath northern Alberta.

Only about 10 per cent of the oil in the box burns. The rest is melted out of the sand at temperatures of 600 degrees Celsius, hot enough that it changes the composition of the oil, making it lighter and cleaner.

In its large-scale application in the field, that means oil produced through this process is cheaper to extract. That's because it doesn't require huge volumes of natural gas to boil water, which is used to melt bitumen from the oil sands. It's also more climate-friendly, since it requires less refining. In total, Petrobank Energy and Resources Ltd., which is developing it, believes that what it calls Toe-to-Heel Air Injection, or THAI (so-named because it pumps air into the ground to generate the combustion) could cut oil sands greenhouse gas emissions in half.

“The fact that we have, from day one, produced a higher-quality oil in the ground is absolutely world-changing,” says Petrobank chief operating office Chris Bloomer, whose company has begun operating the process at several demonstration sites. “Nobody has ever attempted this. Nobody has ever done this. And we're doing this day in and day out.”

The box was built by Conrad Ayasse, a chemist who runs the Calgary lab and consults for Petrobank. Surrounded by blue-coated lab technicians from around the world and glass jars labelled “Toluene” and “Standard Silver Nitrate,” he engages in a moment of blue-sky dreaming: This technology, he hopes, could be worth billions.

But Mr. Ayasse, a man who has been called “Merlin” for his technical wizardry, knows as well as anyone that building a new technology – particularly one with the potential to unseat other technologies that have already seen tens of billions in development dollars – won't be easy.

“It was a completely untested technology,” he says. “A potential world-changer, but a potential bomb if things don't pan out the way you expected. It's a big risk.”

The same is true for the other leading oil sands technologies currently under development. Some of these technologies have been tinkered with for decades. They are the products of creative minds who have access to computers, where they can be modelled, and laboratories, where they can be tested.

But what those tests can't do is perfectly mirror the conditions in the oil sands, where changing rock types can pose unforeseen obstacles. Nor can they perfectly simulate the challenges of working in an environment where winter temperatures routinely drop to -50 degrees Celsius and equipment is prone to malfunction.

There's only one way to figure out whether any of them work: Find some land, drill a well and, most importantly, find the tens of millions of dollars it takes to pay for it.

The fact that several companies have recently succeeded in doing exactly that makes this a particularly important time in the development of the oil sands, which have been the object of international pillory and protest, in large measure for their high greenhouse gas emissions. The industry faces plenty of other challenges – including massive water usage and huge tailings ponds – but the emissions problem is particularly serious since, in a carbon-constrained world, it exposes the industry to a potentially destabilizing escalation in costs.

All of which explains why, on a windswept field not far from Fort McMurray, a small privately held Calgary company has run thick power cables to a series of wells. E-T Energy has installed the wells as an early test bed for its electro-thermal technology, which directs electrical currents underground to heat the oil sands and free the bitumen.

The technology promises a cheaper, more climate-friendly way to suck bitumen from depths too deep to mine and too shallow to access with steam. Though the company has had difficulty pulling together financing for a major expansion, it is now working to corral enough money to construct a crucial demonstration project, which it plans to start building in February.

The demonstration will be designed to produce 1,000 barrels per day, a sweet spot for converting technological skeptics into believers, E-T Energy president Bruce McGee says.

“That's the standard that the industry is going to hold anyone with a new technology to,” he says. “In the next 12 months, you're absolutely going to see some definitive results that are going to be very, very impressive.”

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Small companies aren't alone in pursuing oil sands advances. EnCana Corp. spinoff Cenovus Energy Inc. plans to test a solvent-assisted steam process at Narrows Lake, a new oil sands project that it says could cut greenhouse gas emissions by 25 to 30 per cent. Imperial Oil Ltd. has spent years testing a similar approach.

And this fall, Suncor Energy Inc. sought regulatory approval for a new method of treating tailings. Unlike other technologies, which are designed to more efficiently extract bitumen that is buried too deep to mine, Suncor has developed a way to radically speed its processing of mine effluent. Traditional mine tailings are filled with tiny bits of clay that, left to natural processes, remain suspended in water for decades, if not centuries, a period during which the tailings water cannot be released back to the environment.

It's a serious problem for mine operators, but Suncor believes it has found a solution. By adding a specially-blended polymer, it now says it can compress decades into days. In fact, if the technique gains approval, the company will be able to discard its plans for new tailings ponds, eliminating environmental sore spots the size of small lakes.

“It's a game-changer,” says Bradley Wamboldt, Suncor's director of tailings reductions operations, who uses a tree analogy to explain the impact. It takes 30 to 40 years to replant a tree cut down for mining operations in current systems.

“We estimate with this technology, we'll have a reclaimable surface within 10 years,” Mr. Wamboldt says.

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Yet there remains a profound skepticism on the part of industry to embrace new technology. It's visible in spending patterns – energy companies spend half as much on research and development than the Canadian industrial average.

And it's visible in the lab of John Nenniger, a man whose pedigree alone would appear sufficient to give him a leg up on others. Mr. Nenniger's grandfather, Emil, was one of the founders of SNC-Lavalin, the global engineering, construction and procurement firm. His last name, in fact, formed the “N” in SNC.

Mr. Nenniger has carried on the family's engineering traditions, and has spent the past decade perfecting a technology first developed by his father, who in the 1970s and 1980s studied a way to extract oil sands without steam. Steam is problematic primarily because it takes huge amounts of energy to make. Mr. Nenniger's process uses only other petroleum products like propane, and uses them at a relatively cool temperature.

He formed a company called N-Solv, which conducted tests that show it works three times faster than steam processes, and is far cleaner.

“If our technology achieves what we've seen in the lab, you would basically have a process that would be able to produce oil with less emissions than conventional oil,” he says. “So it completely eliminates the whole ‘dirty oil' moniker.”

Bitumen produced using his process would still need the extra refining that all oil sands crude requires, meaning it is still “dirtier” than regular light oils. But the technology is still promising enough that Mr. Nenniger has created plans for a particularly intriguing test: He wants to build a demonstration plant at the exact same spot that current steam extraction processes were first commercially tested.

“We want to demonstrate in a head-to-head comparison at the same site that SAGD was originally done that we can beat the pants off SAGD,” he says.

The problem: despite years of trying, he can't get the money to build the demonstration plant. Both Enbridge Inc. and Suncor have kicked in, but he remains about $25-million away from his $85-million funding requirements.

“I'll be blunt, part of the problem is Alberta,” he says, blaming government-owned research facilities who control the flow of some research dollars. “I think part of the issue is that we may represent competition to the steam status quo. … I don't understand that myself. The industry has so much to gain and so little to lose.”

Whether or not Alberta is to blame, Prime Minister Stephen Harper insisted yesterday from Copenhagen that since the oil sands represent the fastest-growing source of Canadian emissions, it will have to be part of the solution.

Few in either industry or government will deny that new technology is desperately needed in the oil sands. But the march of new projects is largely proceeding without any new innovations. EnCana's Narrows Lake is an exception: Suncor's Firebag project expansions, StatoilHydro's development plans and a host of other projects are being designed and built using status quo technologies.

The reason is largely one of measured risk. New projects cost billions, and few have the stomach to devote those vast sums to something unproven. Massive shifts also take time, in particular because no company wants to risk jeopardizing its daily production for something new. It was largely for that reason that it took Syncrude more than a decade to shift from using massive bucket wheels to shovels and trucks, the system it uses today.

“To some people that may seem slow but it was actually quite fast,” says Eric Newell, who was the chief executive of Syncrude minority owner Nexen Inc. during that transition. “You just can't jump from the lab bench. We've been burned too many times. The scale of the operations and the environmental challenges – with the cold climate and very abrasive sand – means you have to have a very disciplined approach to how you bring new technology on.”

Yet those who have watched the oil patch transform itself in the past say a cleaner new future for the oil sands is unlikely without one key element: leadership. It was former Alberta Premier Peter Lougheed who created the Alberta Oil Sands Technology and Research Authority (AOSTRA) in 1974. An arms-length institution dedicated to developing new ways to profit from the oil sands, it invested $415-million over 18 years, and was largely responsible for proving that SAGD works – a success that reaped a reward far greater than its expenditures.

The process, however, took both enormous patience. It produced 116 patent applications and a long series of failures. It failed with most of the technologies it tried. But it also birthed a discovery that revolutionized the oil sands.

Clement Bowman, who led AOSTRA through its first decade, says a new AOSTRA-style program is needed, one that is led by the federal government and focuses on preparing Canada for a new era in energy. What it will also take, he says, is a visionary – a Peter Lougheed for the new millennium.

“We would reshape Canada over this century. We're not going to do it in forestry. We're not going to do it in mining. We're not going to do it in the automotive industry. The only chance that Canada has to be a world leader is energy. And we've got huge resources to call on – we've got natural gas, we've got the oil sands,” Mr. Bowman says.

“We've got everything. We're lacking one thing: that's the will.”