Syncrude pumps up oil sands production

The Athabasca oil sands deposit in northeastern Alberta hosts the single largest source of petroleum on earth, so it comes as no surprise that the region’s largest producer, Syncrude Canada, is spending billions to double production by the end of the decade.

The Syncrude project, near Fort McMurray, is divided among eight companies which have interests in Syncrude Canada, the operator. EnCana (ECA-T) is the newest participant, having gained its stake through the recent merger of Alberta Energy Company and PanCanadian Energy. The others are Imperial Oil Resources (IMO-T), Canadian Oil Sands Trust (COS.UN-T), Petro Canada (PCA-T), Conoco Oil Sands Partnership (COC-N), Nexen (NXY-T), Murphy Oil Company (MUR-N), and Mocal Energy, a subsidary of Mitsubishi of Japan.

The Syncrude project began commercial production in 1978, when the Mildred Lake upgrading facility was fired up to process near-surface oil sands from the eastern tenaments. The operation was second out of the gates (the Suncor project had been operating for a decade), but it has since become the leader, accounting for 13% of Canada’s oil requirements.

Originally, Syncrude was expected to produce 1 billion barrels of crude oil over 25 years at 40 million barrels per year. However, by 1996, annual production had risen to 74 million barrels, so that milestone barrel was actually shipped five years earlier than predicated.

In the meantime, Syncrude research teams had made several technological advancements, and its geologists had outlined an ample supply of new reserves — enough to support annual production of 90 million barrels over 30 years and possibly twice as much over 50 years. Thus began the proposed $8-billion Syncrude 21 expansion project, which has resulted in the development of two new mines, North and Aurora, and modifications to the upgrading facility in order to accomodate the extra feed. Also, a fleet of modern hydraulic shovels and trucks was purchased to replace the old draglines and bucketwheel reclaimers.

Key to the expansion project is “hydro-transportation,” which allows run-of-mine ore to be partially processed on-site and then pumped to Mildred Lake for upgrading into crude oil. The system still relies on the inherent properties of the oil sands but does so at a fraction of original energy consumption rates.

Unlike conventional reservoirs, oil sands consist of sand, bitumen, mineral-rich clays and water. Fortunately, the water is volumous enough to form a continuous barrier between the desirable bitumen and waste; otherwise, the materials could not be separated.

Previously, mined-ore was placed on conveyors and transported to tumblers or conditioning drums to be sprayed with hot water (about 80C) and caustic soda for conversion into slurry. The slurry then passed through a series of sceeners and on to a separation tank, where the heated bitumen was “frothed” for easy skimming and then diluted with naphtha (a colourless, volatile petroleum distillate) for transportion to the upgrader, where conversion into crude oil takes place.

In hydro-transporting, the slurry is formed right at the mine site, starting with a crushing, screening and hot-water bath (45C at Aurora and 50 at North) to form the slurry. The slurry is then hydraulically transported by pipeline (during which it settles) to the extraction plant for frothing and subsequent pumping, again by pipeline, to Mildred Lake.

By 1997, the first train had been installed at North, followed by a second, two years later. In the end, the $470-million project increased Syncrude’s annual production capacity to 82 million barrels.

The second phase of the project, which entailed installing the first of three planned trains at Aurora, had begun in the meantime. Aurora is 35 km northeast of Mildred Lake, making it the first fully integrated satellite oil sands mine.

This second phase officially came on-stream last year at a cost of $1 billion, which included additional improvements and $80 million in expansion preparations at Mildred Lake. Consequently, Sycrude’s annual production capacity rose to the current rate of 95 million barrels.

6-year program

The current phase is expected to cost $4 billion and take two years to complete; the fourth and final stage, another four years and $2.3 billion. If all goes as planned, Syncrude will be producing 360,000 barrels daily by 2005 and 465,000 barrels daily by 2010. At current consumption rates, the latter amount is considered sufficient to satisfy fully one-quarter of Canada’s oil requirements.

But what of results? Last year, Syncrude produced a record 81.4 million barrels of crude, or 10% more than in 2000 when, on average, 203,000 barrels were shipped each day. Startup problems at Aurora account for the difference between actual and potential production, though improvements were evident in the final quarter, when daily production averaged 235,000 barrels, or 90% of full design capacity.

Unit costs are also improving: in the fourth quarter of 2001, one barrel cost $15.29 to produce, compared with $16.40 in corresponding period of the previous year. The picture brightens even more when corporate, research and service expenses are taken into account.

In 2002, Syncrude expects to produce 85-90 million barrels at a cost of $16.50-17.50 per barrel. Natural gas prices, which account for a large portion of operational expenses, are expected to remain unchanged from 2001, so the lower projection for unit costs is a reflection of envisaged output, cost reductions and operating reliability.

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