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Mining versus in-situ: A look at how energy companies are shifting their priorities

Mining versus in-situ: A look at how energy companies are shifting their priorities

There are only 2 paths to extracting bitumen from the oil sands:

  1. by injecting steam deep underground and pumping the oil to surface (thermal in-situ), or
  2. by mining the ore and physically separating the bitumen from the sand in a processing plant.

Suncor Energy has been mining the oil sands since the late 1960s. Mining was initially the only path to development of this vast reserve, ranked one of the largest oil deposits in the world. Oil sands mines are massive in size and very expensive to build, making it accessible to only the largest of energy companies with deep pockets.

Thermal in-situ extraction of bitumen was first pioneered by Imperial Oil in the 1980s, but recovery rates were painfully low. As the technology improved over the years, more operators are choosing to build small in-situ facilities, which can be cheaply replicated with little engineering and construction risk.

As a result, the split between bitumen mining and in-situ bitumen extraction has dramatically shifted over the past 5 years.

Since 1999, bitumen extraction from mining operations has grown 245%. However, thermal in-situ extraction has expanded by over 500%.

 
Bitumen-production-1999-2015-mining-in-situ.png
 

That's actually good news for 2 reasons: 

  1. a majority of Alberta's reserves, about 80%, are too deep to be mined and can only be extracted in-situ
  2. mining operations have a large footprint and can take decades to remediate and reclaim, far too long for our modern fast-paced society.

A SAGD well pad never makes the front page of a Greenpeace propaganda campaign. Thermal in-situ operations have a very small footprint. The action all happens underground, which makes it difficult to elicit a visceral reaction.

CHRISTINA LAKE SAGD WELL-PADS (COURTESY CENOVUS ENERGY)

CHRISTINA LAKE SAGD WELL-PADS (COURTESY CENOVUS ENERGY)

Instead, the image more commonly projected is a strip mining operation, typically the brown/black swampy muskeg and soil that sits underneath the green shrubs and trees.

A common misconception among the less-informed is that operators "choose" to mine the deposit and build huge tailings ponds just because it's cheaper and easier. This simply isn't the case.

The choice of whether a deposit is developed through mining or in-situ is determined by mother nature.

If the bitumen deposit is near the surface, the oil sands is mined and sent to a bitumen processing plant. But for deposits that are deep below the surface, bitumen is extracted in-situ. It would be far too expensive to haul away the overburden (the bitumen-free dirt that sits on the oil sands deposit) for any deposit that's more than 50 meters below the surface. Similarly, for deposits that are too close to the surface (typically anything shallower than 200 meters), injecting steam into the ground would not be safe due to risks of a blow-out to the surface.

Mining still has its advantages though. Bitumen recovery rates are very high for mining facilites, typically in the 95% range. And mines have a very long life, allowing the owner more than 40 years to recoup their sunk costs and ride out low oil prices. Mining operations also have lower greenhouse gas emissions due to better heat integration and a much lower steam load per barrel of oil extraction.

Once the Fort Hills mine comes online in 2018, mined and in-situ bitumen production will be about evenly split. But lower for longer oil prices probably means future growth will likely be dominated by expansion of in-situ operations.

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