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Utah readies for oil-sands push

The first oil-sands mine in the US will start production in 2013 after the project’s operator received financing for an initial 2,000 barrels a day (b/d) project in Utah

Oil sands is more commonly associated with Canada, and indeed, Calgary-based US Oil Sands, owns 100% of the PR Spring project in Utah’s Uinta basin. The project will ramp up production in the first 10 years of its life to about 50,000 b/d. On 23 May the company announced an $11 million private placement from a syndicate led by FirstEnergy Capital that will fund the first phase. Permits and approvals are in place for the project, which will come on stream in September of next year.

Though it will use mining techniques to extract oil from the sand, company president Cameron Todd told PEU that there are key differences between Canadian and US oil sands in terms of quantity and quality of the resource. Both consist of bitumen; however, US in-place reserves of 20 billion barrels are barely 2% of the trillion gross barrels locked in northern Alberta.

Whereas Canada’s oil sands have become a hot topic around the globe - and especially in the US thanks to the Keystone pipeline debate - most Americans do not know there are oil sands deposits in the Lower 48 states and Alaska.

The irony is not lost on Todd, an engineer who has spent most of his 30-year career working for Canadian oil-sands companies before joining US Oil Sands when it went public in 2011. In contrast to Canada, so little is known about oil sands south of the border, that on 10 May Todd was called before the Congressional Science, Space, and Technology Subcommittee on Energy and Environment to explain the challenges and opportunities for unconventional oil development in the US.

During his testimony, Todd told lawmakers “the development of these valuable resources is not only economically viable and technologically proven, but also can be done in an environmentally responsible manner with significant economic benefit for Utah and the nation”.

Todd said the lack of awareness in the US is a competitive advantage when it comes to acquiring land, especially in states like Utah. “The mineable lands in Canada were leased long ago and aren’t really open for smaller companies like us,” he said, adding that while the firm holds a portfolio of just 32,000 acres, “we’re the largest oil-sands land owner in the US”.

Though they may be smaller in size, Todd insists the US deposits are cheap to develop. The company is targeting capital cost of about $15,000 per flowing barrel of capacity, compared to more than $100,000 per flowing barrel for a typical Canadian mega-project.

The sheer scale of construction costs to build a Canadian mine - ExxonMobil’s 110,000-b/d Kearl mine will come on stream this year with a projected price tag of $10.8 billion - results in poor capital efficiencies and intense competition for materials and labour, which are in constant short supply. By contrast, US Oil Sands plans to build smaller 10,000-b/d phases, which will place less stress both on local economies and on the environment.

Instead of using trucks and shovels to move massive amounts of earth, US Oil Sands plans to use small stripper machines, commonly used for recycling asphalt. Any open pits will be back-filled as work progresses.

There are other differences in how the bitumen is processed before it can be refined into heavy oil. Canadian oil-sands producers use a hot water separation method, where mountains of sand must be washed with heated water in specially-built boilers. Eventually, water and fine tailings like clay are discharged into sprawling settling ponds that blight the landscape.

By contrast, US Oil Sands’ proprietary processing uses a bio-degradable solvent made from citrus peel, similar to industrial cleansers. The solvent process requires little water and doesn’t create tailings lakes. Because it requires very little heat, the greenhouse gas emissions associated with Canadian oil-sands production are minimised.

Todd also claimed that there are additional advantages to working in Utah, which has seen much petroleum and mining sector activity over the years. He said US Oil Sands’ method of extracting oil sands does not differ substantially from techniques already used by the state’s miners and is easily supported by the local service industry.

The smaller scale and pace of development in Utah also ensures that production will not overwhelm existing refining capacity. Of Utah’s five local refineries, three have sufficient coking capacity to run bitumen and heavy crude without the need for additional pipelines. Todd added California’s heavy oil refineries are also good candidates for future volumes, which would be supplied by rail as shipments from Alaska fall.

Though he is well aware of the potential for controversy, US Oil Sands has managed to stay well under the radar of US environmental groups.

“It’s a bit of a different take on oil sands,” he said. “The resources are not as pervasive, but the pace of development is measured and not frenetic. I think that has helped to overcome some of the negative perceptions of the social and environmental impacts. This is a real breakthrough, economically and environmentally.”

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