The case for partial upgrading of raw bitumen from Alberta's oil sands

Exporting raw bitumen as dilbit isn't in Canada's national interest from the perspective of jobs, energy security, taxes, royalties and to discourage foreign imports, an oil and gas industry expert says. Upgrading would not only be safer, but also generate far more domestic jobs. 

"What's really important to me... is that we process the bitumen from the oil sands in Alberta, which creates a lot of jobs, and a lot of job activity… that would be a better thing to do than merely sending the raw bitumen down the pipeline.”

 

—the late former Alberta Premier Peter Lougheed in an interview on September 13, 2011. 

The export of raw bitumen is one of the biggest economic and environmental problems faced by Canadians. If all exports were upgraded bitumen Albertans would have fewer problems getting pipelines built — and all Canadians would obtain greater economic benefit from the bitumen sands with less risk to the environment.

Alberta petroleum production will be 4.2 million barrels/d by 2022, of which 3.6 million barrels/day is marketable crude bitumen. Of that marketable crude bitumen, only 1.3 million barrels/day, or only 36%, will be upgraded bitumen, while the remaining 2.4 million barrels/day will be raw bitumen.

All natural gas producers in Alberta pay to build and operate gas plants to remove impurities from raw natural gas and to compress it for pipelining. Similarly, Albertans and Canadians must insist that producers of dilbit pay to build and operate plants to remove condensate diluent, and other impurities from the raw bitumen to make it pipeline-quality, and to reduce its viscosity to make it pumpable without requiring diluent thereby making its transport more environmentally acceptable.

Partial upgrading of 2.4 million barrels/day of raw bitumen, contained in 3.4 million barrels/day of dilbit, could be accomplished by strategically-located “straddle-plants”. These would process multiple streams of condensate-diluted raw bitumen from producers with economies of scale and recycle recovered diluent back to producers.

Such partial-upgrading straddle plants for dilbit are analogous to nine existing large straddle plants in Western Canada located on major gas pipeline systems designed to extract incremental amounts of valuable hydrocarbon liquids from billions of cubic feet/ day of natural gas exports.

A dilbit partial-upgrading straddle plant would produce just enough upgraded bitumen to produce pipeline-quality crude when mixed with cleaned raw bitumen. Mixing syncrude and conventional light crudes into the upgraded bitumen further improves pipeline quality.

The cost of large-scale partial-upgrading straddle-plants for dilbit will be more than recovered by:

1) elimination of diluent premium cost estimated at $6/barrel of bitumen;

2) elimination of cost estimated at $7/barrel of bitumen to import diluent using trans-border pipelines;

3) elimination of losses estimated at $10/barrel of bitumen for diluent sold as dilbit;

4) higher price estimated as several $/barrel obtained for partially-upgraded bitumen;

5) re-cycling diluent close to source;

6) the need for 30% fewer export pipelines;

7) re-cycling proprietary diluents back to producers allowing the use of more expensive solvents to extract raw bitumen more efficiently, increasing recovery factors and reducing greenhouse gas emissions by reducing steam required for production of raw bitumen ;

8) lower costs for upgraded bitumen pipelines;

9) the higher efficiency of a partial upgrading process;

10) economies of scale;

11) proportionately smaller volumes to be upgraded;

12) less demanding specifications for pipeline-quality crude compared to syncrude;

13) lower costs to ship partially-upgraded bitumen by rail car;

14) conversion and reversal of diluent import pipelines to export upgraded bitumen;

15) sale of upgrader off-gases as petro-chemical feedstock;

16) value-added at petrochemical plants;

17) greatly reduced pipeline and marine shipping environmental risk and, last not least;

18) an enhanced “social licence” to produce the bitumen sands.

In total, estimated benefits as a result of partial upgrading of raw bitumen in Alberta are $25/barrel of bitumen —not including 5) through 18) above.

Furthermore, bitumen royalty calculations in Alberta are based on the gross revenue of a bitumen project, defined as revenue collected from bitumen and products (or equivalent fair market value) less costs of any diluents contained in marketed dilbit.

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