The National Energy Board predicts that Canada’s crude oil requirements will increase by at least 20% by 2025. As the Canadian and global demand for oil continues to grow, and with current oil prices passing US$100/barrel in 2008, many projects which were previously not viable are now attractive for investment. This creates an increasingly pressing need to address the environmental implications of the oil and gas industry.
Sustainable Development Technology Canada’s SD Business CaseTM on Clean Conventional Fuels assesses existing and developing technology options which can help mitigate environmental impacts, increase energy efficiency of operations and increase oil production of the upstream oil and gas segment. For the purposes of the report, this segment includes the following technical or business divisions: conventional oil production, heavy oil extraction and upgrading, oil sands in-situ and surface mining, extraction and upgrading, and sweet and sour gas production and processing.
The Business Case evaluates the market potential of the technologies and the optimal near and long-term investment options.
The oil and gas industry represents close to a $100 billion-a-year segment within Canada’s Energy Exploration and Production economic sector and provides direct and indirect jobs for hundreds of thousands of Canadians. Oil and natural gas companies operate in 12 out of 13 Canadian provinces and territories, with much of the crude oil and natural gas production concentrated in the Western Canada Sedimentary Basin (WCSB), which spans across Alberta and in some parts of Saskatchewan, British Columbia, Manitoba, the Yukon and the Northwest Territories. The largest growth in terms of production is in the oil sands, which are expected to reach about 85% of total western Canada production by 2020.
The constant rise of both the oil demand and oil sands production - which requires more energy-intensive practices than conventional oil production - creates a pressing need to address the environmental implications of the industry. This can be done through technological improvements geared to assist in reducing at least some of the environmental impacts, such as greenhouse gas emissions and the emissions of other air pollutants as well as land and water contamination. These four areas are all recognized by the industry and the public as being major challenges for the future of the oil and gas industry.
Needs Assessment and Analysis
In order to better face these challenges, the upstream oil and gas segment must assess its key issues and identify the technologies that can potentially address these issues. In the SD Business CaseTM on Clean Conventional Fuels, SDTC, in collaboration with industry stakeholders, conducted a needs analysis that identified the key economic, social, technical and political issues of the oil and gas industry. The analysis was organized into four technical application groups: energy efficiency; enhanced production; C02 capture, transport and storage; and large scale hydrogen production. Each technology area was examined for its potential to reduce environmental impact. A market assessment was then conducted on each of the technology groups to consider the current marketability of identified technologies (at the development and demonstration stages), in terms of their economical and financial performance.
Energy Efficiency: Market impact potentials are large given the size of the oil and gas market. With increased production costs, increasing oil and gas prices and uncertainty over GHG emission commitments, the business case for energy efficiency technology investments will become increasingly justified. In addition to its environmental benefits, energy efficiency also brings economic efficiency, hence making it the most attractive area of investment.
This technology area has the fewest perceived risks in terms of achieved results and development, as advances are pursued as a course of standard business process improvement. Development in this area is not dependant on the development of a carbon market and, therefore, there are few barriers to implementation.
Although economics and business improvement support the introduction and rollout of energy efficient technologies, the upstream oil and gas industry has been slow to introduce these new technologies, since sunken investments create significant barriers to adoption.
According to the needs assessment, the main focus in the energy efficiency technologies area should be on promising technologies which can also yield significant greenhouse gas emission reduction and clean air benefits for the industry. They include: technologies for the production of steam and heated solvents that reduce energy costs and greenhouse gas emissions, and lower steam pressures for steam assisted gravity drainage (SAGD).
The results of the analysis showed that the energy efficiency technology area is ranked highest in terms of near-term investment potential. This comes mostly from the fact that energy efficiency technologies are 'fundamental' technologies (as opposed to 'end-of-pipe technologies) and that these types of technologies typically emerge as being the most sustainable and most cost effective.
From a sustainability point of view, investment in energy efficiency priority technologies for the industry can lead to increased productivity (for example operations and maintenance, production, and avoided environmental air, water and waste treatment costs) in companies, which in turn contributes to increases in competitiveness of the industry in the near term. Energy efficiency technologies advances are also expected to have positive societal impacts such as local skills development, and there are human health and ecosystem benefits, such as reductions of air contaminants, to be derived from them.
Enhanced Production: Rather than focusing on greenhouse gas emission reductions, many forms of enhanced production are being pursued with the objective to increase yields at the same or lower unit production costs. As oil and natural gas prices increase, enhanced production techniques and technologies will become increasingly viable.
Technologies for enhanced production which have the best potential to reduce GHG emissions in the near term are: CO2 enhanced oil recovery (EOR); CO2 enhanced gas recovery (EGR); improved technologies for Steam Assisted Gravity Drainage (SAGD); solvent extraction processes (e.g. enhanced VAPEX); and hybrid solvent/thermal/steam extraction processes. These technologies are considered to have near-term potential for enhancing production at a lower CO2 and energy intensity.
The analysis showed that most of these technologies already exist and have the potential for economic benefits such as enhanced oil production, which uses carbon dioxide to push deeper oil reserve to the surface. However, there are still technological improvements which are required to achieve widespread commercialization. In the case of C02 EOR and EGR, they are considered to be near-term technologies from a technical perspective; however, there is still uncertainty concerning the permanence of C02 storage if these technologies are to be used as a C02 storage method. Another key barrier is the cost of existing C02 capture technology. However, this barrier could be overcome in part through new technological advancements.
Case Study Example: Petroleum Technology Research Centre
Petroleum Technology Research Centre is developing and demonstrating a simulation and analytical system that will facilitate the use of more environmentally sensitive and energy-efficient enhanced oil recovery (EOR) process for heavy oil reservoirs in western Canada. The technology uses a solvent vapour extraction process instead of steam to recover the heavy oil, thereby reducing both greenhouse gas emissions and fresh water use by over 90 percent compared with conventional processes.
CO2 Capture, Transport and Storage: The cost of carbon capture is one of the key market barriers to widespread commercialization. Benign, non-productive storage of CO2 is the least attractive from an investment perspective because there is no opportunity to recover costs.
Carbon capture, transport and storage as a whole is unlikely to be deployed on a large scale before 2015. The deployment on a large scale involves significant infrastructure requirements to bring the sources of CO2 to their respective markets and additional full-scale demonstration projects are needed to confirm the permanence of CO2 storage.
Carbon storage holds tremendous potential as the capacity of geological sites in Alberta are estimated to exceed 60,000 mega tonnes. However, there is uncertainty over whether CO2 remains permanently stored and whether storage will be accepted as a permanent solution.
Additional monitoring demonstration projects are needed, to build on experiences in Canada such as the Weyburn, Saskatchewan CO2/Enhanced Oil Recovery flooding project.
The future of carbon storage is also dependent on:
- Current and future value of CO2,
- Medium to long timeframes to technology development and introduction,
- Infrastructure development needs to support primary technologies,
- Significant investment requirements, and
- Lowering technology costs
Most C02 capture technologies are not new; however, advancements in the technologies are required to drive down capture costs.
From the results of the analysis, the carbon capture, transport and storage technologies come a close second behind the energy efficiency technologies in term of investment potential. The area is seen as an attractive longer- term investment opportunity, as it holds tremendous potential for GHG reduction. However, there remain longer-term development issues, including issues of social acceptance of storage as a permanent solution, lack of C02 transport infrastructure, hazards associated with long distance transport through populated areas, and the need to reduce the cost of C02 capture technologies.
Case Study Example: CO2 Solution
CO2 Solution Inc. is demonstrating a technology which can help Canada and the world deal with harmful carbon dioxide emissions from a variety of industrial processes. By employing a unique enzyme-based bioreactor that operates in an aqueous environment, this technology leverages mechanical and physical chemical principals, as well as the catalytic action of an enzyme, to capture and sequester CO2 in the form of inert bicarbonate compounds. These compounds can then be reused in valuable products such as baking soda.
Large Scale Hydrogen Production: Steam Methane Reforming (SMR) - which has been the favoured hydrogen-generation technology based on historically low natural gas prices - requires significant quantities of natural gas. With increasing pressures on natural gas prices over recent years, industry is already implementing other solutions which will reduce its dependency on natural gas for hydrogen.
Incremental improvements over standard SMR are expected to lead to lower hydrogen production costs. In addition, good market demand for more energy efficient SMR technologies is expected.
As SMR is a developed technology, the overall risk to investing in technologies that advance the existing SMR process are considered low to medium in the near term.
In terms of technologies, the area addresses the need for large volumes of hydrogen used in the upgrading of bitumen from the oil sands and for desulphurization of fuels, with a primary focus on technologies which can yield greenhouse gas emission reductions over the current industry standard of using SMR for hydrogen generation.
Gasification is considered as a longer-term investment opportunity for the area, with the gasification of coal or oil sands residue holding the greatest promise as an alternative hydrogen source. Advanced gasification technologies are being developed to the point of being close to commercialization, but, without C02 capture and storage, gasification of these lower quality feedstocks will increase C02 emissions, compared to current SMR approach. Both SMR and gasification technologies can produce highly concentrated streams of C02 which could be captured for C02 storage.
Considering all results of the analysis, SDTC created a ranking of the technologies reviewed to use as a guide for future investments in the upstream oil and gas segment. This list is not intended to be exclusive and is also expected to evolve as technological innovations are achieved.
The list is of long-term investment priorities not intended to be exhaustive, and the technologies are not prioritized, as there are many political, economic, and technological factors which are uncertain at this stage.
Given the typically large infrastructure and capital requirements for technology development in the oil and gas industry, SDTC must be selective in its investment. The organization will place the emphasis on, and give preference to, projects which address all three areas of sustainability (land, air and water). These projects typically have more efficient overall processes, making them the economic preference for the operator as well.
About the SD Business Case
The SD Business Case is founded on the concept of capturing a common vision of market potential, as described by those in the industry. It incorporates their ideas, expectations and knowledge into a single statement of purpose, so that the outcomes are relevant, pragmatic, and realizable.
The STAR process provides a common benchmark for all participants, as well as a consistent and reliable means of comparing technologies in a number of diverse and expanding areas.
The SD Business Case serves as a guide to SDTC for future investment priorities as well as a means of collecting non-technology input that may be useful in policy development. It evaluates short-term investment priorities, long-term investment priorities, and natural strategy impacts.
All SDTC SD Business Cases, including 'Clean Conventional Fuels', can be downloaded from the SDTC website.