Oilsands Review - September 2006

CNRL is currently completing
a scoping study for the new
upgrader.

A second upgrader for CNRL would help mitigate the impacts of the heavy to light oil differential.

“Three years ago, we didn’t have the in-house technical expertise to build this new upgrader. Now we have synergies in place so that we can marry our in-house expertise with our resource base.”

The most likely site for the upgrader will be the Edmonton area or the heavy oil belt in the Lloydminster/ Bonnyville region. The Fort McMurray vicinity is not under consideration.

A corporate presentation from July describes the proposed upgrader as an “integrated, regional in situ oilsands development,” which will be built using a “step-wise, disciplined approach.” With two upgraders in place—Horizon near Fort McMurray and the new upgrader near Edmonton or in the Lloydminster/Bonnyville region—the company will have upgraders at each end of the heavy oil corridor.

CNRL is completing a scoping study for the new upgrader. If all goes to plan, the design-basis memorandum will be drawn up in 2007, followed by detailed engineering design. Ground-breaking is tentatively scheduled for 2009, with a target capacity of 125,000 barrels of upgraded oil per day by 2012. A further expansion to 175,000 barrels per day is slated for 2015.

The scoping study will help determine the technologies to be used on the project, though Bieber says that “we’re relatively conservative in that we’ll typically leverage towards a more proven technology.”

CNRL has no plans to take feedstock from other producers, and will use a gated engineering approach (through the scoping study) to determine the front-end engineering and design of the project.

Despite the cost-overrun stigma currently associated with oilsands ventures, Greg Stringham, vice-president of markets and fiscal policy for the Canadian Association of Petroleum Producers (CAPP), says that the justification for upgraders is big.

“The economics behind it are fabulous,” he says. “The rule of thumb in much of the industry is around a US$10 differential—if the differential is over that, it makes sense to build an upgrader.”

Stringham sees upgraders as a means to maximizing value for product, rather than a pricey gamble.

“We’ve been getting half price [for our non-upgraded heavy oil] in Canada. Half the oil is half-price.”

Stringham isn’t sure what to make of Western Oil Sands’ recent claim that its costs have risen 50 per cent over the past 10 months. (The company has a 20 per cent stake in Shell’s Athabasca Oil Sands project.) Is it an isolated incident or indicative of what’s happening in the industry?

“It’s a little early to judge it,” Stringham says, before referring to cost estimates from prior Shell, Suncor, and Syncrude projects that turned out to be much too low: “I had hoped we were at the end of these learnings.”

When asked, Stringham offered this advice to companies planning upgraders: “Keep an eye on costs and an eye on the differential. Where do you think costs will be in the long term? You build an upgrader for 20 to 30 years, not for a season.”