A modern “Gold Rush” in Canada’s oil sands region

In 1848, when James Marshall discovered gold at Sutter's Mill, the ensuing rush to the mountains of California precipitated a global migration of people and innovative entrepreneurs to the region that altered the future of a nation.

Today, in northeastern Alberta, Canada, a new gold rush of sorts is taking place. The sought after prize is not gold, but rather the oil contained in bituminous sands of the terrain in that region. The discovery is anything but recent, as companies have been involved in extracting oil from the “tar sands,” as they are known, for decades. Bitumen is a semisolid form of oil, which is too viscous to flow under normal conditions.

The bitumen is contained within a mixture of clay, sand and water making it extremely difficult, and expensive, to extract effectively. Even after the extraction from the sand, bitumen has the viscosity of molasses, so it will not flow in pipelines. Expensive diluents,
such as condensates and natural gas liquids must be added to enable it to be pumped. In the past several years, ever-increasing economic incentives to supplement the available oil supply, as well as advancements in equipment and technology, have made developing and producing the reserves more feasible.

Oil sands deposits can be found in many countries throughout the world, and may comprise more than 65 percent of the world's total oil reserve. The two largest deposits are in Canada and Venezuela. Canada's oil sands comprise three major deposits covering a region estimated to be more than 140,000 square kilometers, or roughly the size of Wisconsin. Estimates from the Alberta Energy and Utilities Board indicate that approximately 1.6 trillion barrels of crude oil are contained within Canada's oil sands. Of this amount, more than 170 billion barrels are considered recoverable based on current oil prices. “U.S. crude consumption is roughly 20 million barrels per day, or 7.3 billion barrels per year,” said Dick Heusinkveld, director, Power Recovery and Power Turbines, at Dresser-Rand Company. “Less than half of this is produced within the U.S., however, and the balance is imported. Consequently, 170 billion barrels represents approximately 23 years of supply at current consumption rates. It should be remembered that the 170 figure represents only a small fraction of the oil known to be in place in the region. But it's all that is designated as 'proven' or economically producible with current technology and existing market conditions.”

These oil sands are expected to be a major answer to the refining needs of the North American markets. From a current level of just over 1.0 million barrels per day (bpd), production from the oil sands projects is expected to expand to 2.1 million bpd by 2010, and 3.5 million bpd by 2015 (source: CAPP). The current cost of production is estimated at about $25 a barrel. Because the resource has been identified, there are no new exploration costs or production risks associated with the projects.

“The first commercial-scale plant began operation in the region in 1967,” Heusinkveld said. “Since then, there have been several new plants and various expansions, as well as an extended hiatus in new construction activity. But in the past several years, global oil producers have become focused on increasing the available oil supply by tapping into the vast resources stored in the Canadian oil sands.”

In the past 40 years, Dresser-Rand has supplied equipment to every one of the projects in the region, including steam turbines, centrifugal compressors, and reciprocating compressors. The company recently received an order for a high-efficiency DATUM® centrifugal compressor for one of the newest projects. The unit is planned for the first commercial scale application of a new upgrading process, with service conditions that are similar to those of a delayed coker wet gas unit.

Extraction from the oil-rich sands presents some unique challenges, according to Heusinkveld. First, there's the upstream production to extract the bitumen from the sands.
Two methods are used: open pit mining for deposits within 50 meters of the surface, and in situ production for deeper deposits, which involves steam heating and gravity separation into horizontal production wells to extract the oil from the sands. This method commonly is referred to by the acronym SAGD, for steamassisted gravity drainage. The scale of these production facilities is enormous, as two tons of oil sands must be processed to yield one barrel of synthetic crude oil.

The second aspect is upgrading the bitumen. “The majority of Dresser-Rand equipment applications are found in the upgraders; there are few on the production end,” Heusinkveld noted. “Upgrading looks like the front end of a traditional petroleum refinery. Different companies are taking various approaches. Some will do a lot of upgrading to create high-quality synthetic crude at the site; others will perform a minimal upgrade and have a major upgrade at the refinery. One company is upgrading just enough to take out some of the sulfur, metals, and ashphaltines to achieve 20° API, so the product can flow down a pipeline.

But it will require significant additional refining. Others are performing substantial local upgrading, requiring minimal additional refining. So there is no standard design.” Regardless of the method, a greater number of turbocompressors, reciprocating compressors, and pumps requiring drivers such as steam turbines are needed for bitumen upgrading than for conversion of high-quality sweet crude. Whether at the production site or downstream at the refinery, bitumen upgrading will involve hydrotreaters and hydrocrackers requiring hydrogen makeup and recycle compressors, cokers requiring wet gas compressors, and the waste streams requiring additional compression.

Canada’s Alberta province is renowned for its rivers. The Abathasca River flows northeast from the Rocky Mountains past Fort McMurray and the oil sands region.

Boom town creates additional challenges

Complicating efforts is the fact that the supply of available personnel, equipment and resources is limited, while demand is very high. The Canadian oil sands projects are largely clustered near Ft. McMurray, more than 400 km from the region's major metropolitan center in Edmonton. The remoteness of the location makes it exceptionally difficult to develop the necessary infrastructure.

“Companies are limited in terms of what they can ship into the site; for example, it is difficult to transport world-scale reactor vessels,” Heusinkveld explained. “Labor costs are astronomical, so companies are reluctant to do much on-site fabrication. So while projects are large, the individual production units tend to be not much bigger than what one would see anywhere else. The exception to this, of course, is the hydrogen plants, where some of the largest ones in the world are being built. But the compressors are still relatively small. There are just more of them being applied to the process.”

In addition, producers are finding it very difficult to attract a sufficient number of skilled equipment operators to the region. As a result of these challenges, many companies have made the decision to build their upgrading facilities near Edmonton. This allows them to take advantage of more available skilled labor.

“There is a gold rush of sorts going on in Edmonton,” Heusinkveld said. “Housing prices are way up. They can't build hospitals, schools or even water treatment facilities fast enough.” Locating the upgrading facilities near Edmonton has spurred plans for the construction of major pipelines leading to and from the oil sands region. Pipelines will be used to carry diluted bitumen south to Edmonton for upgrading. After initial processing, the diluent will be removed and sent back north to the bitumen production sites to dilute the next batch heading south.

This migration of activity to Edmonton has led to the development of an entirely new business model for refiners. Third party companies have positioned themselves to serve several producers by building one, sizable gasifier or hydrogen plant to handle the requirements of several upgraders. This allows producers to take advantage of shared services that would not be possible with production site upgrading.

Keeping it green

While the oil sands projects are significant in helping to address the available oil supply, environmental concerns remain paramount for the producers. As a result, some innovative methods are being employed which serve not only to help protect the environment, but also contribute to the upgrading process.

In recent years, advancements in gasification make it possible to use process byproducts to replace costly natural gas. “Gasification will be used because natural gas is so valuable,” Heusinkveld said. “The gasification process takes coker and hydrocracker residue produced from upgrading and converts it into a syngas that has a variety of potential uses. Syngas can be used as a boiler fuel in place of natural gas to raise the steam required for in-situ production; it can be used to fuel large gas turbine generators to make the operations self-sufficient in power; it can be used to produce the hydrogen
needed for the hydrotreating and hydrocracking of the bitumen (replacing the natural gas fueled steam methane reforming process); and it can be used as a feedstock for various fertilizer and primary petrochemical production processes.

Residue gasification will dramatically reduce operating costs in these projects. The coke is a waste product, and none of the operating companies has a license to store it indefinitely. Something has to be done with it. So the gasification process solves two problems. It addresses the issue of disposing of the coke, and it alleviates the need for additional natural gas which is becoming increasingly more expensive.”

An additional advantage of the gasification process is that it produces a great deal of excess heat, which can be used to produce steam. This provides upgraders with an accessible supply of cheap steam to run steam turbines as equipment drivers or to produce electric power.

Another environmentally friendly aspect is the trend toward the capture of CO2 for use by fertilizer plants, as well as for reinjection for enhanced oil recovery. Rather than releasing the CO2 into the atmosphere, this greenhouse gas is collected. “This development alone could be of great value to the fertilizer industry in Canada,” Heusinkveld said. “There are a number of experts in business and academia looking at how to create new, environmentally friendly strategies for using the CO2 in areas such as the production of fertilizers and the safe re-pressurization of mature oil fields.”

Well positioned for an expanding need

The rapid expansion of projects in the tar sands region has required significant support from equipment and service providers to the oil and gas industry. Dresser-Rand's service center in Edmonton has been busy supporting the efforts of clients in the region since before the boom.

“We've been here longer than virtually anyone,” Heusinkveld noted. “We're close to the installations, and experienced in servicing all of the steam turbine and compression requirements of the projects. What we're seeing with the tar sands projects is that there are many ways to approach the task at every stage. There is no single cookie cutter approach that will work for each company or fulfill every requirement.

As an OEM, we provided equipment and services to virtually all of the producers involved in the oil sands projects. And as a total solutions organization, we are prepared to help our clients find the right solution for their process and add value to their operations.”