If you take into account non-conventional fuels, the list of countries with huge reserves suddenly changes, and you have two heavy weights, pun intended, both very close (geographically at least) to the USA: Canada and Venezuela.
Venezuela has fully 90% of the known reserves of "extra-heavy" oil worldwide, and Canada has 85% of the known reserves of bitumen (or oilsands) deposits worldwide.
Can these reserves save the US gas-guzzling ways?
First, the Venezuelan heavy crudes
Extra-heavy oil is still oil, but it has a very low API value, and is rich in carbon, and often, sulfur. It needs to be mixed with a diluent to be transported, and then it needs to be upgraded to a lighter from of hydrocarbons, but the production process is not that different from other oil fields:
from hydrocarbons-technology.com about the Hamaca project in Venezuela
Oil is produced under 'cold production' methods (no added heat) using progressing cavity pumps to bring oil to the surface. Cold production is possible because of the extended length of the horizontal wells (5,000ft), excellent reservoir properties, and the foamy-oil nature of Hamaca crude. The heavy oil is mixed with diluent just downstream of the wellheads to facilitate transport to the upgrader facility.
The upgrader will accept extra-heavy sour crude oil mobilised with diluent (high in sulphur compounds and carbon) and process it by the use of a combination of diluent removal and recycling, hydrocracking, high temperature gasification processes, desulphurisation and coking. The final products will be syncrude (API 25.9°), coke (high carbon) and sulphur.
The process is pretty complex and long, and the overall cost of the synthetic crude produced is currently estimated to be in the 22-28$/bl range.
There are 4 main projects in production right now:
- Petrozuata (104,000 b/d of syncrude, since Jan. 2001, ConocoPhillips 50.1%, PDVSA 49.9%);
- Cerro Negro (105,000 b/d of syncrude, since Sep. 2001, ExxonMobil 41.67%, BP 16.66%, PDVSA 41.67%);
- Sincor (180,000 b/d of syncrude, since Feb. 2002, Total 47%, Statoil 15%, PDVSA 38%);
- Hamaca (170,000 b/d of syncrude, since Oct. 2004, ConocoPhillips 40%, Chevron 30%, PDVSA 30%);
All of these except Cerro Negro have expansion plans, and there is an additional project (Bitor) being negotiated with China's CNPC having 49% to PDVSA's 51%
The Canadian oilsands
Canada can give the world a fresh oil source (FT, Nov. 7)
The oilsands, which look and feel like molasses, are found in bands that are 6-10 metres thick. Shallow deposits are extracted by open-pit mining. Two tonnes of oilsands yield about 1.25 barrels of bitumen and a barrel of crude. At greater depths, the oil is recovered by injecting steam into wells, which melts the bitumen, allowing it to be brought to the surface. The bitumen is then "upgraded" into heavy crude oil and sent by pipeline to a refinery. "The difference between the conventional world and here," says Mr Williams, who spent much of his earlier career with ExxonMobil in the UK, "is that you can put a spade in the ground and you've got it. You know what it is and where it is."
Four existing projects produce about 1m b/d of oil. Suncor's site, which started production in 1967, moves close to 1m tonnes of rock a day, making it by that measure the biggest mining operation in the world.
Dominion Bond Rating Service of Toronto estimates that new oilsands projects are likely to be healthily profitable at world crude prices above $30 a barrel, around half the current level. Lloyd Byrne, an analyst at Morgan Stanley in New York, says that "costs at Suncor's Millennium are now not only competitive but advantaged". The oilsands have several advantages over conventional oil deposits, he says, including a lower exploration risk and a longer production life. Furthermore, the cost of operating conventional oilfields has risen markedly in recent years.
Yet some big questions hang over the future of the oilsands. Dominion titled a lengthy report on the sector, published last month, "One of the world's greatest sources of oil? But not without risk". Mr Williams says that oilsands operations are more akin to manufacturing businesses than to oil wells, requiring tight control over a variety of processes.
Recent projects have been dogged by delays and cost overruns. The bill for Shell's Athabasca project, commissioned in April 2003, climbed from C$3.9bn to C$5.6bn. An expansion of the Syncrude mine and upgrader, currently under construction, will cost more than C$8bn, close to double the initial estimate.
Soaring prices of natural gas are a concern for oilsands operations, which use huge quantities of gas to produce steam for the extraction process and to upgrade bitumen to crude oil. Producers and developers are scrambling to find less costly alternatives. Among the most closely watched is a refining technology developed by Nexen and Opti Canada, both of Calgary, for their Long Lake project, which is under construction. The refining process would itself produce the gas needed for steam injection. Long Lake expects to bring operating costs down to $5-$9 a barrel, though some outsiders say the technology has yet to be proved.
Another problem is labour, which is in short supply in northern Alberta, putting upward pressure on wages.
So it's extraordinalily heavy industry, with multi-billion dollar upfront investments, complex industrial processes and massive environmental impact. Costs are hard to control, and, as the process is extremely energy-intensive, there is a negative feedback loop from energy prices.
Canada expects to increase production from 1 mb/d to 3 mb/d by 2020, and Alberta is enjoying a real boom these days from all the associated investment.
Will they save the USA?
The short answer is, sadly, no. The reason is simple: as the numbers above, these non-conventional oils are expected to yield only 4-4.5 mb/d by 2020, i.e. 3 mb/d more than today at most.
This is barely 15% of US consumption, and less than 4% of world oil production. As the graph for Canada shows, a good chunk of it will simply offset the declining production from onshore fields in North America before it can be used to actually increase net production numbers. That's not so much to show for all the hype and an expected 75 billion dollars of investments.
As a structurally more expensive - but necessary - source of oil, it will also ensure that oil prices will not go below the levels that make these projects profitable, which can be expected to be in the 30s. That may not sound so high, but remember that this will a floor for prices - at a level which 2 years ago was seen as a cap on prices...
These heavy oils will play their part in the energy balance, and have the advantage (at least for the bigger Canadian chunk) to come from a nearby, politically stable and friendly country, but they are also a vivid illustration of the fact that we are entering the age of expensive energy and they are no longer any easy solutions on the supply side.