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Controversial Redwater upgrader advances

Alberta needs the Redwater upgrader project to succeed to prove its case that CCS technology can clean up the oil-sands

THE ALBERTA government decided five years ago that force-feeding was the way to both profit from processing raw bitumen, while reducing greenhouse-gas (GHG) emissions from oil-sands operations.

Step one was to supply some of the oil-sands volumes collected under its Bitumen Royalty in Kind (Brik) programme as feedstock for commercial upgraders, which convert the bitumen into synthetic crude for further refining into transportation fuels. That, the government argued, would keep more capital investment, jobs and government revenues in Alberta, rather than sending the bitumen to upgraders and refineries in the US.

Step two would see Alberta provide financial backing for commercial operators willing to gamble on the largely untested technology of capturing carbon dioxide (CO2) from upgraders, and using the gas to rebuild reservoir pressures and prolong the life of ageing oilfields, while reducing the release of GHG emissions into the atmosphere.

After lengthy negotiations with the private sector, the province has formally launched the first carbon capture and storage (CCS) venture in Alberta by agreeing to supply 37,500 barrels a day (b/d) of Brik feedstock to a joint-venture of North West Upgrading and Canadian Natural Resources. In addition to the government's Brik contribution, Canadian Natural will supply 12,500 b/d from its own oil-sands operations.

The Redwater upgrader is planned for development in three equal phases over the next decade at a total cost of C$15bn ($15.4bn) and will eventually process 150,000 b/d of bitumen. It will be the first in the world to combine a gasification technology with CO2 management. The first C$5bn phase is scheduled for completion in 2014.

An associated agreement will see Alberta provide C$495m over the next decade to Enhance Energy to build a 145 mile pipeline from the upgrader near Edmonton to central Alberta. The Canadian government will contribute C$63.3m.

The government says sufficient enhanced oil-recovery capacity exists in the province to store 450m tonnes of CO2 – with the Redwater upgrader capturing 3,000 tonnes a day – and extract an additional 1.4bn barrels from conventional reservoirs to generate royalties of C$25bn.

Premier Ed Stelmach says the joint refinery/CCS project "underlines Alberta's commitment to responsible, cleaner energy production," adding: "What we are doing will add value by processing bitumen in the province. Yes, it is risky, but we have never shied away from taking bold steps." Energy minister Ron Liepert added to Stelmach's cautionary tone, saying: "conservatively, we believe the long-term economics of this project are positive."

A wait-and-see attitude is already evident within industry ranks. In 2008, the government invited bids for 75,000 b/d of Brik feedstock, noting that eventually it expected to offer 400,000 b/d. The only enthusiastic backer of the scheme has been North West president Ian MacGregor, who says the Redwater upgrader will be a "legacy" for all Albertans by maximising the value of bitumen.

He says a processing fee charged by the province "will ensure Alberta always profits as the facility does. The Brik initiative is doing exactly what it was created to: keeping jobs, taxes and revenues in Alberta." But, so far, North West has been the lone participant and even it needed a helping hand from Canadian Natural to clinch a deal.

Greg Stringham, a vice-president at the Canadian Association of Petroleum Producers, the industry's chief lobby organisation, says it is not yet clear how much North West is paying for its Brik share. He suggests there is the appearance of a government incentive to get the upgrader built when 62% of the 1m b/d of bitumen produced in Alberta is already being upgraded in the province and a Suncor Energy-Total joint venture is adding another 200,000 b/d of upgrading capacity.

Liepert disputes any suggestion that the project represents government intervention in the marketplace. "This is no different from what we have been doing with conventional oil," he argues. "All we are doing is entering an agreement to have the product refined locally versus refined somewhere else."

Everybody happy?

Behind the scenes, some industry sources are unhappy that a new merchant upgrader – one that is not integrated with an oil-sands project – is receiving public money to achieve a purely political objective and, indirectly, helping North West obtain financing.

There are also questions about why Canadian Natural is participating when it is developing its own upgrading facilities at its Horizon oil-sands project. Others say that even if the government is entering the marketplace, the bitumen volumes involved are not large enough to constitute meddling.

What is clear is that Alberta badly needs the Redwater project to succeed to prove its case that CCS technology can do more to help clean up the oil-sands than mandatory cap-and-trade legislation.

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