The Need For A Marketing Strategy For Alberta Bitumen

Abstract

In the Alberta oil sands, Alberta has one of the three gigantic petroleum deposits in the world. The others being in the Middle East and in the heavy oil belt of eastern Venezuela. Fifteen years ago, we could produce only a small fraction of this immense deposit (perhaps 4 billion m3 from the Athabasca deposit and a small portion of the Clearwater formation in Cold Lake) and costs were high. Over the past 15 years, government and industry have invested heavily in research and development of new technology for bitumen extraction. The results have been spectacular. Not only can we produce vast amounts of bitumen (~ 45 billion m3) from the Athabasca, Peace River and Cold Lake deposits, but it can be done in many cases at one-third to one-half the previous cost. The application of Steam-Assisted Gravity Drainage Technology from Underground Access (SAGDUA) to the thick continuous sections of the Athabasca deposit can produce 12.6 billion m3 of bitumen for C$7.00/bbl (Fig. 1). This is the same average cost of producing conventional crude in Alberta, excluding exploration costs. At a supply cost for bitumen of C$9.00/bbl, it is estimated that up to 42.5 billion m3 (270 billion bbls) can be recovered. Despite these spectacular gains in technology and the resulting lower cost of producing bitumen, we see no rapid increase in bitumen recovery. Indeed, most new bitumen production projects have been put on the back burner or moth-balled. Five major integrated projects have been cancelled. Why is this occurring? Figure 2 gives the price in U.S. dollars of bitumen in Edmonton. The price is extremely variable and at times very low (C$5.00)/bbl). The field price is even lower (as low as C$3.00/bbl) With such highly variable and often very low prices, it is not surprising that investment and development has been suppressed. It also demonstrates the inadequacy of a marketing strategy for Alberta bitumen which relies on the sale of raw bitumen. Alberta is far from tide water and bitumen is not a readily transportable commodity. Alberta bitumen, therefore, cannot readily access world markets and command competitive world market price. In recent years, bitumen has been transported to the Chicago area, and more recently to Billings, Montana, by dilution with light condensate. This provides a very limited and restrictive market because only specialized conversion facilities can accept bitumen. The dilution condensate, which goes along for the ride, commands a low value because of its high yield of low octane gasoline containing excessive aromatics. These have low demand in an increasingly more environmentally conscious world. What are the options? The sale of bitumen in western Canada is dependent on the very limited and highly variable asphalt market and this currently contributes to the high variability of bitumen prices in Edmonton. The transport of bitumen, as an oil-in-water emulsion, while technically feasible, suffers the limitation in Canada that we live in a very cold climate.