Although bitumen too deep for conventional mining accounts for 80 per cent of Alberta’s oil sands reserves, in situ operations only contribute about half of oil sands production. Their share is growing steadily, however, driven by new technology and extraction methods designed to increase recovery rates. In situ production rates are expected to overtake those of mining by 2015 and could reach 1.92 million barrels per day (Mbpd) by 2020.
Nearly all in situ operations are involved in pilot projects using a variety of new methods and technologies, including the addition of solvents and polymers, electric submersible pumps, vapour extraction, in situ combustion (toe-to-heel air injection) and carbon dioxide injection.
Steam-to-oil ratio (SOR) – barrels of water used to produce a barrel of oil – is a key measure of steam-assisted gravity drainage (SAGD) efficiency. Connacher Oil and Gas Limited has reduced their SOR by 15 per cent by combining steam with solvent at their Algar project, with a corresponding production increase of 23 per cent. Cenovus Energy has achieved an SOR of 2.5 at their Christina Lake operation, and is testing the use of wedge wells to access the unrecovered bitumen between sets of SAGD wells.
Cenovus has received approval for major expansions at both its Christina Lake and Foster Creek SAGD projects. Production capacity at Christina Lake will increase from 98,000 to 218,000 barrels per day (bpd), and Foster Creek from 120,000 to 225,000 bpd. The company hopes to produce over 400,000 bpd by the end of 2021.
Seven in situ projects are scheduled for startup between 2012 and 2013, notably phase 4 of Cenovus’ Christina Lake project and phase 4 of Suncor’s Firebag project. For mining projects, Imperial Oil’s Kearl Mine is scheduled for startup in 2012, with a capacity of 110,000 bpd, with two additional phases approved for an additional 200,000 bpd.
New projects are taking advantage of high oil prices, which have remained steady after leaping to US$100 a barrel in March 2011 off of strong global demand. Oil is expected to remain strong in 2012, with forecasts between US$95 and $110.
The pipeline pinch
The U.S. is the largest market for Canadian oil, and Canada its largest supplier, providing over 2 Mbpd. There remains, however, an oversupply of domestic oil in Canada, which is only able to refine about 1 Mbpd of western Canadian supply.
The U.S. Gulf Coast, North America’s largest refining district, is critical to Canadian production. Its 50 refineries have a refining capacity of 8.9 Mbpd, over half of which can process heavy crude oil. These refineries, in turn, are looking to replace declining supplies from foreign and domestic sources. Yet of the 5.3 Mbpd of foreign crude oil refined on the Gulf Coast in 2010, only 119,100 were from Canada.
The industry is held back by pipeline capacity limitations. Canadian oil travelling by pipeline to Gulf Coast refineries must eventually pass through Pegasus Pipeline, which has a capacity for Canadian crude of less than 97,000 bpd.
The industry’s answer is the proposed TransCanada Keystone XL pipeline, a direct route from Alberta to the Gulf Coast that could carry an additional 700,000 bpd. Together with two completed stages of the Keystone, total Keystone capacity would be 1.29 Mbpd.
In November, the U.S. government delayed the approval decision on Keystone XL until 2013. While this was a disappointment to the industry, the effect on oil sands operations will be minimal. The industry remains confident that the pipeline will be approved, and most projects under development will not be sending supply to the market until after the approval decision.
In the meantime, creative steps are being taken to increase supply to refineries. Enbridge is reversing the direction of its Seaway pipeline, sending an additional 150,000 bpd to the Gulf Coast.
More attention is now being given to the fast-growing Asian markets, especially as the industry is keen to diversify in its markets beyond the United States. Again, there are hurdles in pipeline capacity – Kinder Morgan’s Trans Mountain pipeline is currently the only option for Alberta crude heading to the West Coast. A proposed Trans Mountain extension could increase capacity from 300,000 to 700,000 bpd, and could be built by 2016 if approved. Enbridge’s proposed Northern Gateway pipeline, with a 2014 startup, would have a capacity of 525,000 bpd.