Oil Sands Renaissance!?

Last week, when reading Calgary Herald, I was largely encouraged by Cenovus Energy chief executive Brian Ferguson, who said he believes the oil sands are entering a “renaissance”. We all know in the past 2 years oil price collapse, oil sands industry is the worst victim because of its cost. Even now, when oil price has slightly recovered, oil sands are struggling and badly threatened by shale oil.  

Canada has the world's third largest oil reserves, mostly located in the oil sands. About 10% of the world's oil reserves are located in the Alberta oil sands. I was luckily involved all kinds of oil sands projects:

Tucker Thermal Project for Husky, SAGD

Horizon Oil Sands Project – Froth Treatment for CNRL, Mining

Horizon Secondary Upgrading Project for CNRL, Upgrader

Fort Hills Project – Froth Treatment for previous Petro-Canada, Mining

Since oil sands are so essential to Alberta, I’d like to share some understanding about them.

What Are Oil Sands?

Oil sands are combination of clay, sand, water, and bitumen, a heavy black viscous oil. Because it does not flow like conventional crude oil, it must be mined or heated underground before it can be processed.

Oil sands recovery processes include extraction and separation systems to separate the bitumen from the clay, sand, and water that make up the oil sands. Bitumen also requires additional upgrading before it can be refined. Because it is so viscous, it also requires dilution with lighter hydrocarbons to make it transportable by pipelines. 

How Are Oil Sands Extracted?

There are two ways to extract bitumen from the oil sands: either mine the entire deposit and gravity separate the bitumen, or extract the bitumen in-place (or in-situ) using steam without disturbing the land.

1.               Surface Mining

Deposits located at a depth of less than 75 meters can technically be surface mined. Only 20% of all oil sands are close enough to the surface to be mined.

Oil sands are crushed and mixed with water to form slurry that is transported to a plant. The slurry is fed into Primary Separation Vessels (PSVs), where the bitumen floats to the surface as froth. Middlings, which remain suspended in the middle of the vessel, are fed through smaller versions of the PSVs to recover additional bitumen.

The remaining material consists of sand, water, clay, fine silts and residual bitumen, is known as tailings. Tailings are pumped by pipeline to one of several settling basins on site. These settling basins, or tailings ponds, are the source of the recycled water used in the bitumen extraction process.

 

2.               In Situ

The remaining 80% of the bitumen is too deep to be mined and can only be extracted in-situ (or in-place) using steam. Most of the in-situ facilities currently in operation extract bitumen from a depth of at least 200 meters.

Currently, bitumen is recovered commercially using two major techniques. Steam Assisted Gravity Drainage (SAGD) is the most commonly used. This method requires the drilling of two horizontal wells through the oil sands deposit. Heated steam is injected into the upper well, where the build-up of pressure and heat melts the bitumen and causes it to flow downward to the second horizontal well, from which it is pumped to the surface. Water is injected into the deposit to maintain stability after the bitumen is removed.

 

In Cyclic Steam Stimulation (CSS), high-pressure, high temperature (350°C) steam is injected into a vertical wellbore in the oil sands deposit, which is fractured by the stream pressure. As the steam soaks through the oil sands, the bitumen melts and flows to a producing well, from which it is pumped to the surface. Each cycle of this process can take from four months to two years, and several cycles can be completed in a formation.

 

Bitumen Upgrading

Bitumen produced from oil sands is too heavy to be sent directly to a conventional refinery due to its high viscosity and sulfur content. In upgraders, this product is processed into a light synthetic crude, which is then sold on the open market. About 40% of Alberta's bitumen is currently upgraded before being sold to market.

Comparing with shale oil, oil sands are with high up-front costs and a very long-lived resource base. The shale typically has much lower up-front costs and moderately lower operating costs. However, high decline rates in the shale mandate continuous drilling just to keep production flat.

Ferguson believes the oil sands costs will come down and production will go up as the escalating impact of innovation and technology takes hold, such as the use of solvents in thermal projects, innovation around improved business processes, better reservoir management, increased use of data analytics and more automation. As a veteran in oil and gas sector, I hope renaissance can be seen as oil sands hit middle age!