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Oil and Gas industry of Alberta Canada

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Bearing Point
Q2 Presentation
June 22 2007

Oil and Gas industry of Alberta Canada

  1. 1. Q2 Presentation: The Oil sands Industry in Canada Usman Khan June 22, 2007
  2. 2. Agenda and Objectives To understand the significance of Canadian Oil Sands and appreciate their importance to international players. To understand the upstream Oil Sands product life cycle where most of Canadian industry is active. © 2007 BearingPoint, Inc. ENERGY SERVICES 2
  3. 3. Table of Contents Global Oil Market Global Oil Resources Global Oil Demand and Geopolitics Canadian Oil Sands Canadian Oil Sands Ore Quality Canadian Oil Sands Economics Canadian Oil Sands Challenges Canadian Oil Sands Market Oil Sands Processes Oil Sand Life Cycle Upstream Oil Sand Phases Extraction Processes Open Pit Mining In-Situ Extraction Cyclic Steam Stimulation – CSS Steam Assisted Gravity Drainage – SAGD Emerging Technologies: In-Situ Conversion Process – ICP Emerging Technologies: Toe to Heal Air Injection – THAI Upgrading Vs. Refining Upgrading or Visbreaking Recap © 2007 BearingPoint, Inc. ENERGY SERVICES 3
  4. 4. Global Oil Market
  5. 5. Global Oil Resources Global proven reserves according to most recent data The total world proven oil reserves = 1200.8 Billion Barrels. Reserves that are economically viable to extract with available technology at a given time are called “proven reserves”. Proven reserves are a portion of total reserves. The amount of proven reserves has thus varied with time, and have at time significantly increased with technological innovations. The OPEC Cartel comprising of Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela has 75.18% of world total proven oil reserves. Former Soviet Union (FSU) states comprising of Russia, Estonia, Latvia, Lithuania, Belarus, Ukraine, Moldova, Georgia, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, and Tajikistan have 10.23% of total world proven oil reserves. Organization for Economic Co-operation and Development (OECD) has 6.71% of total world proven oil reserves. OECD comprises of 30 countries, including U.S.A., UK, most of E.U., Canada, Japan, Australia among others. The balance of 7.88% of world proven oil reserves are in southern US, and Gulf of Mexico. Their development is blocked by US senate under Petroleum Administration for Defense Act of 1970s. More than 75% of world proven reserves are operated by state owned More than 75% of world proven reserves are operated by state owned companies in OPEC countries, such as Saudi Aramco and Kuwait Oil Company companies in OPEC countries, such as Saudi Aramco and Kuwait Oil Company etc. and are not accessible to international oil players. etc. and are not accessible to international oil players. OECD has only 40% of non-OPEC proven Oil Reserves OECD has only 40% of non-OPEC proven Oil Reserves Canadian Proven Oil Reserves account for 80% of OECD Proven Oil Reserves. Canadian Proven Oil Reserves account for 80% of OECD Proven Oil Reserves. © 2007 BearingPoint, Inc. ENERGY SERVICES 5
  6. 6. Global Oil Demand and Geopolitics G l o b al O i l D emand 90 Demand Total 85 Supply Total 80 75 70 65 60 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E Y ear A higher differential of Supply Vs. Demand is pushing the price/barrel higher and keeping them High. Also that gives Russia an immense position for bargain in the world market. OPEC Cartel, which controls more than 75% of world oil reserves has become an unreliable source of energy. Most of Iraq’s infrastructure is offline post second Iraq war. Algeria, Nigeria and Venezuela have unstable political situation, and armed conflicts. Political unrest is on the rise in middle east affecting Saudi Arabia, Kuwait, Qatar, UAE due to instability in Iraq. Iran is in a lockdown with global community due to its nuclear program. Separatist tendencies in parts of Indonesia since East Timor. Higher Oil prices, and instability in OPEC region has made investment in FSU and Higher Oil prices, and instability in OPEC region has made investment in FSU and OECD reserves economically viable, and lucrative. OECD reserves economically viable, and lucrative. © 2007 BearingPoint, Inc. ENERGY SERVICES 6
  7. 7. Canadian Oil Sands Most of Canadian Oil reserves are in the form of Oil Sands, which are non- traditional Oil reserves. Traditional oil reserves are of crude oil (or Crude) which contain hydrocarbon molecules with 30-56 Carbon atoms. Crude is a thick viscous substance that is liquid at normal temperatures. Oil sands consist of Bitumen which contains 56-70 Carbon atoms in its hydrocarbon molecule. It is more viscous than organic crude oil, and doesn’t flow in temperatures less than 100 C at atmospheric pressure. Bitumen doesn’t form a reservoir (unlike crude) due to its viscosity, and is spread along the soil surface in millions of hectares. Almost all of Canadian Oil Sands are in northern prairies with the exception of Melville Island deposits in Arctic Canada. The Melville Island deposits probably may never see development. Canada has 1691 billion barrels of proven original bitumen in place (OBIP). 81% of that (1370 billion barrels) is in Athabasca deposits in northern Alberta. The balance 19% are in Cold Lake Saskatchewan and Peace River Alberta. Oil Sands are non-traditional oil reserves, consisting of Bitumen, which is more Oil Sands are non-traditional oil reserves, consisting of Bitumen, which is more viscous than Crude Oil, and doesn’t flow under normal temperatures and pressures. viscous than Crude Oil, and doesn’t flow under normal temperatures and pressures. © 2007 BearingPoint, Inc. ENERGY SERVICES 7
  8. 8. Canadian Oil Sands Ore Quality The quality of Oil Sand ore is determined by: Depth of reservoir. Sand to Bitumen Ratio. Overburden of the reservoir: depth of earth above a geological layer of interest. Canadian Oil Sands deposits are of varying quality of bitumen across Athabasca basin, resulting in different costs of production per barrel of crude. This makes Ore quality of extreme importance in rate of return on investment. Ore quality of Oil Sands determines the Rate of Return on Investment. With varying Ore quality of Oil Sands determines the Rate of Return on Investment. With varying Ore quality across the region, ROI varies as well, making some areas more viable Ore quality across the region, ROI varies as well, making some areas more viable than others. than others. © 2007 BearingPoint, Inc. ENERGY SERVICES 8
  9. 9. Canadian Oil Sands Economics Based on latest reported figures: Estimated min. price of U.S. $45/barrel to sustain production in oil sands. Cost of production in Oil Sands is much higher than traditional extraction. Estimated at around U.S. $37.5/barrel Traditional extraction (such as in OPEC) is estimated around U.S. $5.5. With current crude prices around U.S.$70/barrel, and forecast for crude prices to remain stable around U.S. $60 - $65 / barrel, the economic factors are in place to foster growth in Canadian Oil Sands. That translates to more projects undertaken to improve and expand existing infrastructures, and research new technologies to increase the recovery from Bitumen. With economics in favor, the international oil players are investing heavily in With economics in favor, the international oil players are investing heavily in Canadian Oil Sands. Canadian Oil Sands. Production from Canadian Oil Sands will increase by more than 325% by year 2015 in Production from Canadian Oil Sands will increase by more than 325% by year 2015 in best case scenario for all currently approved projects. best case scenario for all currently approved projects. © 2007 BearingPoint, Inc. ENERGY SERVICES 9
  10. 10. Canadian Oil Sands Challenges Oil sand extraction has heavy demand of water. Thus the water supply available to oil operators is a limiting factor in expansion in Northern Alberta. The Athabasca River and Peace River are of paramount importance to oil operators as source of required fresh water. But oil operators share these water resources with other members in the community: farmers, human and wild life population. Oil Extraction has high environmental effects. Government of Canada is a signatory on global accords to reduce green house emissions, and has been introducing stricter regulation to administer those accords. These regulations have made it more challenging to get permits and approvals, and have increased cost of regulation compliance. Cost of capital projects to develop new facilities has sky-rocketed. It has more than tripled from ~C$29000 per barrel/day in 2000 to ~C$95000 per barrel/day in 2006. Contributing factors include, but not limited to, high labor costs, high cost of environmental regulation compliance etc. With multitude of mega capital projects, and O&M underway, there is acute shortage of skilled labor in Alberta. This has a negative effect on projects timelines. These challenges has not deterred the oil players from spending on development and These challenges has not deterred the oil players from spending on development and expansions. expansions. The forecast is still strong despite all these challenges. The production is expected to The forecast is still strong despite all these challenges. The production is expected to double by 2015. double by 2015. © 2007 BearingPoint, Inc. ENERGY SERVICES 10
  11. 11. Canadian Oil Sands Market United States of America is the single largest market of Canadian Oil Sands U.S.A. market is divided into five Petroleum Administration for Defense Districts (PADDs). Approximately 64% of Canadian Oil exports are delivered to PADD II, which includes states of Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, Noth Dakota, South Dakota, Ohio, Oklahoma, Tennessee, and Wisconsin. Another 17% are delivered to PADD IV, which includes Colorado, Idaho, Montana, Utah, and Wyoming. Pipeline companies are expanding their capacity to transport synthetic crude to USA. Canadian entities, such as Suncor, are acquiring mid-stream and downstream infrastructure in U.S.A. The Oil Sands are profitable throughout The Oil Sands are profitable throughout the product life cycle from extraction to the product life cycle from extraction to consumer markets. consumer markets. © 2007 BearingPoint, Inc. ENERGY SERVICES 11
  12. 12. Oil Sands Processes
  13. 13. Oil Sand Life Cycle Includes the searching for The midstream sector The downstream sector potential oil sands fields, processes, stores, markets includes oil refineries, drilling of exploratory wells or and transports commodities petrochemical plants, strip mining, and subsequently such as crude oil, natural gas petroleum product operating the wells or mine and natural gas liquids such distribution, retail outlets and that recover bitumen, and as ethane, propane and natural gas distribution upgrade them to Synthetic butane. companies. Crude Oil (SCO) Upstream Midstream Downstream Producers Upgraders © 2007 BearingPoint, Inc. ENERGY SERVICES 13
  14. 14. Upstream Oil Sand Phases Cyclic Steam Stimulation (CSS) Oil Sands Steam Assisted Gravity Drainage (SAGD) Emerging Technology Extraction In-Situ Conversion Process - ICP Open Pit Mining In-Situ Toe to Heal Air Injection - THAI Bitumen Upgrading Synthetic Crude Oil © 2007 BearingPoint, Inc. ENERGY SERVICES 14
  15. 15. Extraction Processes – Open Pit Mining Open pit mining is done when overburden is less than 75m. Overburden is defined as geological depth above a geological layer of interest. 22% of Alberta’s remaining oil sands can be recovered by mining. Bitumen recovery rates are up to 90% through open Pit Mining Production rate/ton of Soil varies across Oil Sands with the varying grade of ore. Averages to 2 tons/barrel of crude. With such production rate, large area needs to be mined to produce significant crude. Typical mine size in Alberta is between 150 to 200 square km. Consumes high volume of water, despite the fact that most of water is recycled. © 2007 BearingPoint, Inc. ENERGY SERVICES 15
  16. 16. Extraction Processes – Open Pit Mining Ore is accessed by removing top soil. The mixture diluted by added further extra hot water and allowed to settle in Ore is picked up through shovels and Extraction Vessel. loaded into trucks to haul them to slurry plant The mixture settles into three layers Top Layer: Bitumen Froth – Sent to Upgrader Ore is crushed and mixed with Steam, Hot Water, NaOH. Middle Layer: Bitumen – Secondary separation Bottom Layer: Sand – Sent to Tailings Pond Mixture is graded through screens to remove oversized particles. © 2007 BearingPoint, Inc. ENERGY SERVICES 16
  17. 17. Extraction Processes – In Situ In Situ: Latin – means “in place”, “undisturbed”. The soil structure is not disturbed for extraction. Overburden typically more than 75 m. 78% of Alberta’s remaining oil sands are extractable through these methods. Reservoir quality is key in determining the yield and indeed the financial viability of an in-situ project. Quality factors include a high pay thickness, good vertical permeability, no bottom water, and little shale. The objective is to have a low steam-to-oil ratio (SOR). Two methods of In-Situ extraction: Cyclic Steam Stimulation (CSS) Steam Assisted Gravity Drainage (SAGD) © 2007 BearingPoint, Inc. ENERGY SERVICES 17
  18. 18. In-Situ Extraction: CSS Injects superheated high-pressure steam (about 350°C) into the oil sand deposit via a vertical well. The pressure of the steam fractures the oil sand, while the heat of the steam melts the bitumen. All CSS projects involve a six- to 24-month “soaking” period, where the steam just soaks into the deposit. Hence in-situ projects typically have very high SOR ratios at the outset. After the soaking period, the heated bitumen is pumped to the surface via the same well used for steam injection. This complete steam stimulation cycle can be repeated © 2007 BearingPoint, Inc. ENERGY SERVICES 18
  19. 19. In-Situ Extraction: SAGD This second well is located parallel to and below the steam injection well. The heated and, therefore, liquid bitumen is then pumped to the surface from the second horizontal well, also called the production well. Much as in conventional drilling, maintaining the stability of the reservoir is important. To this end, water is injected into the bitumen-drained area. SAGD is the evolution of CSS made possible by horizontal drilling capability The horizontal drilling increases the contact area with the reservoir. Two parallel horizontal wells are drilled through the oil sand deposit. Steam is injected into the deposit via the upper well. The heat loosens the thick crude oil causing it to flow downwards in the reservoir to the second horizontal well. © 2007 BearingPoint, Inc. ENERGY SERVICES 19
  20. 20. In-Situ Extraction: Summary 20-50% recovery rate Intensive requirement of water in the start up. 90-95% of water used in a steam cycle is recycled. Still requires 5-10% additional water in every steam cycle. NEB estimates 1 Barrel of Crude = 0.2 Barrel of Fresh Water High energy requirements to operate boilers. NEB estimates 1 Barrel of Crude = 1.1 Mcf natural gas. Miniscule geological footprint compared to Open Pit mining. © 2007 BearingPoint, Inc. ENERGY SERVICES 20
  21. 21. In-Situ Extraction: New Technologies - ICP The process should be commercially feasible with world oil prices at $30 a barrel. The energy balance is favorable; under a conservative life-cycle analysis, it should yield 3.5 units of energy for every 1 unit used in production. Reclamation is easier because the only thing that comes to the surface is the oil you want. While the rock is cooking, at about 650 or 750 degrees Fahrenheit, how do you keep the hydrocarbons from contaminating ground water? You build an ice wall around the well. Ice is impermeable to water. So around the perimeter of the productive bore, more wells are drilled only 8 to 12 feet apart, with piping, and refrigerants circulated in them. The water in the ground around the shafts freezes, and eventually forms a 20- to 30-foot ice Drill shafts into the oil-bearing rock. Drop heaters down barrier around the site. the shaft. Heat (or cook) the rock until the hydrocarbons boil off, the lightest and most desirable first. Shell will make a decision to put this technology to production at the turn of decade (2010-11). On one small test plot about 20 feet by 35 feet, on land Shell owns, they started heating the rock in early 2004. Shell International exclusively developed and "Product" - about one-third natural gas, two-thirds light tested this technology in Colorado and Peace crude - began to appear in September 2004. Shell turned River Alberta. Yours truly was part of a sub- the heaters in September 2005, after harvesting about contractor team who helped Shell with 1,700 barrels of oil. instrumentation, controls and safety requirements and implementation. This conversion rate translates to Upwards of a million barrels an acre, a billion barrels a square mile. © 2007 BearingPoint, Inc. ENERGY SERVICES 21
  22. 22. In-Situ Extraction: New Technologies - THAI THAI™ is an evolution of conventional fire-flooding It implies only modest usage of water and natural gas, techniques, where the producers set fire to the petroleum which are key concerns. in the reservoir by injecting oxygen/ozone. Estimated recovery rates in the 70%-80% range, higher The heat from this combustion and the products than typical SAGD projects. generated in the process (carbon dioxide gas and water Could potentially be used in lower-quality reservoirs than vapor) decrease the viscosity of bitumen adjacent to fire SAGD. front. There are some concerns about the ability to control the The fire front pushes the less viscous oil in front of it fire front to push oil towards the recovery rather than in towards the recovery well. any other direction. However, Petrobank believes that the THAI combines the vertical air injection well with a cold immobile bitumen outside the heated zone could act horizontal production well. like a container for the heated front. In Canada, Petrobank owns the rights. This technology is currently in the pilot stage. © 2007 BearingPoint, Inc. ENERGY SERVICES 22
  23. 23. Upgrading Vs. Refining Refining Upgrading An oil refinery is an industrial process plant where Oil Sands were discovered much later than traditional oil crude oil is processed and refined into more useful deposits. petroleum products, such as gasoline, diesel fuel, asphalt Till very later parts of 1900s, oil sands were not base, heating oil, kerosene, and liquefied petroleum gas. developed. By that time several large refineries were The refining process was designed in early 1800s, and already established, processing crude. first refinery was setup in 1854-56 in Jaslo, Austrian The oil sands contain higher unsaturated hydrocarbon, Empire (currently Poland). that are heavier than crude oil, and resembles the end The crude oil is distilled (separation of a mixture by tailings of refining process, hence the name Bitumen. using difference of boiling points of its elements) into The development of Oil Sands required facilities that can various products. accept oil sands produce and produce usable products, OR The residue is a thick black substance which is called convert oil sands bitumen into a product that already Bitumen, and is commonly used in construction, established refineries can process. Industry opted for later specially roads and bridges. option and Upgrader facility was born. Refineries are large expanding facilities that costs tens Upgrading turns oil sands Bitumen into Synthetic Crude, of billions of dollars, and number of years to construct. that established refineries can process. Refineries are not environmentally friendly facilities, to the extent that even in U.S.A. (who is not very concerned about environment and green houses) has not permitted construction of another refinery for more than three decades (since 1976). © 2007 BearingPoint, Inc. ENERGY SERVICES 23
  24. 24. Upgrading or Visbreaking Upgrading is the first step in converting bitumen into a Hydrogen Addition more valuable product. Done in two stages. In the first step, the heated bitumen Upgrading separates the lighter components of bitumen is mixed with hydrogen and sent to the reactor where and converts the heavy components into a refine-able catalysts convert sulfur and nitrogen compounds to product: Synthetic crude oil - the primary product of hydrogen sulfide (H2S) and ammonia (NH3). upgrading, needs further refining to be converted into The bitumen is cooled, liquefied, and directed to a usable consumer products. hydrocarbon separator for hydrogen recovery. Heavy oil upgrading techniques are typically referred to After this first stage, kerosene-range products are as “bottom-of the-barrel” conversion technologies. removed as side-draw products. There are two main methods for upgrading heavy oil The first stage residuals from the fractionating tower are bitumen: once again mixed with the hydrogen steam and transferred Carbon rejection to the second stage, where they are subjected to higher temperatures and pressures. Hydrogen addition Once again, the resulting product is cooled and liquefied Carbon Rejection for hydrogen recovery and then transferred to the Bitumen feedstock heated to high temperatures of up fractionator. to 500 C in a furnace. The volume of SCO from hydrogen addition is 17% higher This heated feedstock is then pumped to a coker drum than from Carbon Rejection. where it is held until it cracks into coke and gas vapor. Capital intensity per flowing barrel of SCO for hydrogen Vapors from the drums are then channeled to the addition is 20%–30% higher. fractionator where naphtha, gas, and gas oils are The hydrogen addition uses 45%–55% more natural gas, separated out. raising operating costs. There are three different version of this technique in Also hydrogen addition on-steam time is 5% lower than production: Delayed Coking, Fluid Coking, Catalytic the Carbon rejection. Cracking © 2007 BearingPoint, Inc. ENERGY SERVICES 24
  25. 25. Recap Discussed the significance of Canadian Oil Sands and appreciate their importance to international players. Discussed the upstream Oil Sands product life cycle where most of Canadian industry is active. © 2007 BearingPoint, Inc. ENERGY SERVICES 25

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