CALGARY (CP) -- With natural gas prices remaining far above historical highs, the race is on to find other less energy intensive ways to turn the gluey oilsands of northern Alberta into synthetic crude.
Expending gas to make oil is the way it has worked in the oilsands for nearly 40 years. And few thought much of it through the years when gas prices were a tiny fraction of overall expenses.
But along with soaring costs for gas, oilsands production is changing.
Vast open-pit mining operations owned by Suncor Energy [TSX:SU; NYSE:SU], the Syncrude Canada joint venture and Shell Canada's [TSX:SHC] Athabasca oilsands project are not the only way to get at the oil-laden bitumen anymore.
In fact, it's estimated that about 70% of the 174 billion recoverable barrels lying in the oilsands are too deep for conventional mining and must be accessed using wells that suck up the bitumen.
Since the oilsands has a tar-like consistency, solutions are needed to thin the bitumen to enable it to flow up the wells and through pipes to the upgrader. So far, these technologies have focused on so-called 'thermal' recoveries or heating up the reservoir for months until it melts.
The most popular thermal method is steam assisted gravity drainage, or SAGD, which involves pumping vast quantities of steam down one well to melt the bitumen. A second horizontal well collects the melted oil and brings it to the surface.
But with natural gas averaging more than $9 per million British thermal units on the New York Mercantile Exchange last year, an increase of almost 50% over 2004, the process becomes a costly proposition.
''For the oilsands, natural gas price has become the single largest operating cost that the companies have,'' says Greg Stringham, vice-president of markets for the Canadian Association of Petroleum Producers.
''And from that perspective, reducing that dependency becomes very important.''
Leading the charge in this department is Nexen Inc. [TSX:NXY; NYSE:NXY] and partner Opti Canada [TSX:OPC], who are in the middle of constructing their C$3.5-billion Long Lake oilsands project and upgrader.
By taking the so-called ''bottom of the barrel'' of bitumen and converting it into a synthetic gas, the partners expect Long Lake to produce oil that is upwards of $9 cheaper per barrel than other oilsands producers.
The companies are completely confident in the technology, which has been used in a two-year pilot project as well as other applications around the world, says, Kevin Finn, Nexen's vice-president of investor relations.
''I think every other oilsands producer in town is looking at gassification in order to generate their own fuel,'' says Finn.
''With the cost of natural gas today where it is, you can't ignore it.''
Long Lake is expected to begin producing bitumen next year.
Industry heavyweights like Suncor and Canadian Natural Resources [TSX:CNQ] have already announced plans to include gassification units in future expansions.
Other technologies are also being touted as potential breakthroughs that will allow for easier and cheaper harvesting of the oilsands.
Smaller Petrobank Energy [TSX:PBG] is building a pilot project to test its technology that involves pumping air underground to fuel a fire that burns the heavier oilsands particles. Lighter, melted oil is accumulated by a second horizontal well and brought to the surface.
If it works, the company expects this so-called toe-to-heel air injection technology to boost recovery rates to upwards of 80% of the oil in place, significantly higher than the current steam-assisted methods.
Other companies are testing ways lowering the heat and steam needed to melt the oilsands by injecting solvents down the wells instead.
Lower temperature extraction methods are also being investigated for use in the oilsands mines as well, which would also reduce gas usage.
Larry Boisvert, an instructor in the petroleum engineering technology program at the Northern Alberta Institute of Technology in Edmonton, says huge technological strides have been made in the oilsands over the past few years.
''The big push for unconventional resources like oilsands is just the fact that we're running low on conventional supplies,'' he says.
''Unconventional resources are becoming very low risk, and that's the big advantage they have over conventional plays.''
(c) The Canadian Press 2005