Oil sands — the vast oil resource that doesn’t flow

by Stuart Hampton, February 22nd, 2008, 7:00 am

It’s a viscous lie. No, it’s the truth. Not all oil flows.

Canada and Venezuela both have oil sands (bituminous sands) reserves about equal to the world’s total reserves of conventional crude oil. World energy crisis solved then, right? Not so fast.

While oil sands — a tar-like mixture of sand (sometimes clay), water, and extremely heavy bituminous oil — exists in abundance, the financial costs and environmental challenges of producing oil from oil sands are daunting. For one thing, this oil is not drilled, it is mined. Conventional crude oil is extracted from underground reservoirs fairly easily by drilling wells into the geological formations into which oil flows under natural pressures. By contrast, oil sand deposits must be mined (usually strip mined using bucket excavators, massive trucks and/or conveyor belt systems to remove and transport the crushed material), or made to flow into producing wells by reducing the oil’s viscosity using steam and/or solvents. The crude bitumen extracted from these deposits is a viscous, solid, or semisolid form of oil that does not easily flow at normal temperatures and pressures. Separating the heavy oil from the sand and transforming it to a liquid state involves using large amounts of water and energy and refining processes that release high levels carbon emissions and other pollutants.

The heavier type of oil also requires expensive and more elaborate refining processes to convert into gasoline, diesel fuel, and other products. (The lighter “sweet” crudes, say from Nigeria, are closer to the finished petroleum products in their natural state and are less expensive to process.) Nevertheless, with growing world oil demand and high oil prices, oil sands development is a profitable business and investment is pouring in. Oil sands are being mined on a vast scale to extract heavy crude, which is then converted into synthetic oil by oil upgraders or refined directly into petroleum products by specialized refineries.

In Canada the power player in the oil sands business is Syncrude Canada, the world’s largest producer of light sweet crude oil from oil sands. It operates the Syncrude Project, which produces 94.3 million barrels annually (350,000 barrels per day) from the Athabasca Oil Sands deposits in Alberta. The Syncrude Product is a joint venture owned by seven oil and gas entities, including Canadian Oil Sands Trust, Imperial Oil, and Petro-Canada.

In Venezuela, state-controlled oil giant PDVSA holds sway over vast extra-heavy oil deposits in the Orinoco Oil Belt.  In the 1980s, PDVSA developed a method of using the extra-heavy oil resources by emulsifying it with water to enable it to flow in pipelines. The resulting product, called Orimulsion, can be burned in boilers as a replacement for coal and heavy fuel oil. However, Orimulsion’s high sulfur content and high particulate release makes it difficult to meet increasingly stringent international environmental regulations. (Not that President Chavez is particularly inclined to bend to international pressure.)

But with increasing demand for oil and decreasing conventional oil reserves, something has to give. On February 19, 2008 oil futures hit $100 a barrel again. The second annual Oil Sands and Heavy Oil Technology Conference & Exhibition takes place in Calgary in July 2008. Time to go with the non-flow?