University of Calgary extols the virtues of partial upgrading
The University of Calgary's School of Public Policy has concluded that partial upgrading would be in the public interest of all Albertans, as well as the rest of Canada.
Partial upgrading is a relatively new technology where bitumen is upgraded to a point where diluent is no longer needed, in turn increasing pipeline capacity. The technology was recommended by the Alberta Royalty Review Advisory Panel as a way to increase revenues for the province.
About 40% of bitumen currently extracted from the oil sands is fully upgraded into light synthetic crude. The remaining 60% is diluted with a generous volume of condensate (as much as 30% by volume) and sold directly to market as heavy oil. Condensate is very expensive, typically trading close to West Texas Intermediate (WTI) prices and takes up significant volume in the pipelines.
Full upgraders have fallen out of favour in Alberta due to high capital costs and waning demand. Most of the refineries in the US are highly complex and designed to process heavy/sour crude. Rising production of light oil from US shale has also boosted the demand for heavy crude, required for blending purposes.
Although partial upgrading technologies vary greatly, the general idea is to reduce the level of sulphur and asphaltenes, resulting in a less sour and "lighter" heavy crude with an API gravity of 19° to 24° (versus about 9° for bitumen and 20°-21° for diluted bitumen). Asphaltenes are extra-heavy highly-complex molecules contained in the bitumen that make the crude viscous, becoming almost solid at room temperatures. Partial upgraders are significantly cheaper than full upgraders, but the technology has yet to be commercialized.
Partial upgrading is not to be confused with partial de-asphalting, achieved directly at the mine site through the use of paraffinic solvent when cleaning the bitumen froth. Paraffinic froth treatment reduces the asphaltene content in half, but still doesn't make the bitumen "light" enough to flow in a pipeline without generous volumes of diluent. The Alberta government does not consider partial de-asphalting to be a "value-add" technology.
The authors of the study estimate that partial upgrading would increase the value of Alberta's bitumen by $10-15 per barrel, adding $500 million per year to Alberta's GDP. Greenhouse gas emissions for partially upgraded crude would be higher than diluted bitumen, but lower than fully upgraded crude oil.
Diluted bitumen currently sells at a discount of about US$15 a barrel to the WTI benchmark. A big part of that price differential is the transport cost from Edmonton to the US Gulf Coast. Not having to ship diluent would free up space on pipelines, translating into lower shipping costs per barrel. Fully upgraded light, synthetic crude trades at a US$4 discount to WTI.
The researchers estimate a 100,000 bbl/day partial upgrader would cost about $3 billion, or $30,000 per flowing barrel per day. The university recommends the provincial government enact public policies to help commercialize the technology, but stopped short of suggesting a taxpayer funded partial upgrader.
The Alberta government already provides funding for partial upgrading research through its National Partial Upgrading Program (NPUP) managed by Alberta Innovates. The goal of NPUP is for 20% of all in-situ production to be partially upgraded by 2030.
The government is currently partnered with Canadian Natural Resources in building a 50,000 bbl/day upgrader in Sturgeon County. The Sturgeon Upgrader (recently rebranded as the Redwater Refinery) has an estimated price tag of $8.5 billion and will likely be the last (full) upgrader to be built in Alberta. At least for now.
UNIVERSITY OF CALGARY SCHOOL OF PUBLIC POLICY PUBLIC-INTEREST BENEFIT EVALUATION OF PARTIAL-UPGRADING TECHNOLOGY
ROI PARTIAL UPGRADING: BACKGROUND REVIEW
ALBERTA INNOVATES ENHANCING ALBERTA’S COMPETITIVENESS: NATIONAL PARTIAL UPGRADING PROGRAM