The Long Haul

Wednesday, 22 February 2012 07:48

Imperial Oil charts Kearl’s expansion over the next decade

By R.P. Stastny
Oilsands Review

When the bonfire of oil and gas activity died out after the financial market crash and recession, it was Imperial Oil Ltd. that threw the first log on the smouldering pit of ashes with its sanctioning of the Kearl project in 2009. The first phase of this massive open-pit mine in the Kearl Lake area, 70 kilometres north of Fort McMurray, is currently under construction and expected to begin producing in late 2012.

While no one seriously believed—even during those dire economic times—that all the fun was over, Imperial’s vote of confidence, at the time, was an important signal to the industry that if producers had the resources to forge ahead with their growth plans, the early days of the economic recovery were actually a pretty good time to start. Labour was available. Service costs had dropped. And module manufacturers and fabrication shops were crying out for business.

Much has changed since then. Today, the economy has made a recovery of sorts, oil prices are robust and the oilsands industry is booming again. Amidst all the drilling and hauling, the battles over bitumen export pipelines and general oil and gas activity, Imperial’s announcement just before Christmas that it is going ahead with an $8.9-billion expansion of Kearl, towards full licence capacity of 345,000 barrels per day by 2020, drew about as much attention as a belch in a crowded bar.

Course correction

Kearl’s first phase is more than 80 per cent complete and is on track to a 2012 start-up, but Imperial reconfigured the overall development plan in 2010, shrinking a three-phase development plan to just two phases.

Imperial expanded the scope and cost of this first phase under construction. It is estimated to come in at $10.9 billion, up from the initial estimate of $8 billion. The initial start-up capacity of 110,000 barrels a day remains the same, but a subsequent increase in mining output will bring the total capacity of the first phase to 145,000 barrels per day by 2014 or 2015.

The second and final phase that Imperial approved last December is a virtual carbon copy of the revised first phase and is expected to cost another $8.9 billion. That initial production will also be 110,000 barrels per day, expected on stream by late 2015, and additional mining output will increase production to 145,000 barrels per day by 2017 or 2018.

The capacity of the two optimized phases will combine to about 295,000 barrels per day. Subsequent debottlenecking of both phases is slated to bring production to its full regulatory capacity of 345,000 barrels a day by about 2020.

In terms of resource, the two phases combined will develop about 3.2 billion barrels. The debottlenecking will make up the difference to the full 4.6 billion barrels or resource.

“Based on our execution experience, we concluded that we likely didn’t need a third mine processing train,” says Imperial spokesman Pius Rolheiser. “Part of that is based on the increase in the plant capacity of up to 145,000 barrels a day without the debottlenecking. The other driver is that we’re actually going to be able to reduce the size of the operation’s footprint because we won’t have to duplicate a facility.”

Climbing costs

Despite the advantages that accrued to Imperial in launching Kearl amidst the early days of economic recovery, the costs of the full Kearl development have climbed by 24 per cent to about $29 billion. The cost of the build is now estimated at $6.20 per barrel, up from Imperial’s original estimate of $5 per barrel. At $6.20, Kearl comes in at a pricey $80,000 cost per flowing barrel, which analysts expect could inflate further in the coming years.

“The reasons for the cost revision is because we’re including some additional investments we need to make in tailings management to comply with the Directive 74 [Alberta’s tailings rules], and some investments in downstream pipelines that were not in the original estimate,” Rolheiser says.

These downstream pipelines, Rolheiser stresses, have nothing to do with export lines such as Keystone XL or Gateway, but rather regional pipelines that will help the company ensure cost-effective transportation for Kearl bitumen.

Compliance with Directive 74 brought out changes to the design of Kearl’s tailings ponds, such as where tailings are deposited and the composition of the deposits in order to enable faster reclamation.

“There are real costs associated with Directive 74,” Roheiser notes. “Kearl is also subject to the same upward cost pressures as any project that’s currently going on in Alberta because of the increasing activity in the oil and gas industry. That’s also contributed to increasing our anticipated costs, though it’s certainly not the primary factor.”

Modules and Montana: round two?

Imperial advanced an elaborate plan for transporting giant modules manufactured in South Korea for its Kearl project. The routing involved docking the modules in the U.S. Port of Vancouver, Wash., barging them inland to the Port of Lewiston in Idaho, and then trucking them north through Montana along Highway 12 to the Alberta border. This routing of “mega-loads,” however, met with fierce opposition from residents, conservation groups and local governments. Permitting delays forced Imperial to implement contingency plans.

“While we continue to pursue, through legal and regulatory channels, permits for the original route, we’re currently transporting smaller loads than originally anticipated along different routes,” Rolheiser says.

Since July, Imperial has been disassembling modules at the Port of Lewiston. Smaller loads are being transported along Highway 95 to Coeur d’Alene, Idaho, and on Interstates 90 and I15 to the Canadian border. Since mid-September, Imperial has been transporting loads from Pasco, Wash., along US 395 to Spokane and then along I 90 and I 15.

“At this point, we still have a significant amount of equipment that needs to make its way to Kearl, but we remain on track to start up by the end of 2012,” he adds.
Disassembling giant modules that were not designed to be taken apart adds considerable cost and complexity to the logistics. The first 33 modules that were shipped to the Port of Lewiston at the end of 2010 cost upward of $500,000 per module to disassemble. The loads are then reassembled into complete modules in Edmonton—also at additional cost—before being delivered to site.

Kearl’s design for its first phase of development calls for a total of 205 modules from Korea. When the transportation issues arose, Imperial worked with its Korean manufacturer to reconfigure the modules that hadn’t been manufactured yet into smaller units, or to facilitate easier disassembly.

“So instead of 205 original module shipments, we’re now looking at between 300 and 350 loads, of which we’ve already move about half,” Rolheiser says.
Considering these routing challenges and the criticism Imperial weathered when it outsourced module manufacture to overseas interests at a time when Alberta’s module manufacturers were hurting for work, will Imperial continue with offshore outsourcing of equipment?

Rolheiser points out that about 80 per cent of the prefabricated modules for Kearl were actually manufactured in Alberta. Only the remaining 20 per cent—the 205 modules—were actually sourced from a South Korean manufacturer that has a track record in manufacturing this type of equipment for oilsands operations.

As for future role of this supplier, Rolheiser says, “It’s too early to comment on what equipment might be supplied from offshore for the second phase. Korea remains a safe and cost-effective supplier of equipment into Canada and oilsands projects.”

Froth treatment and GHGs
Kearl will use Imperial’s proprietary paraffinic froth treatment technology in both phases of development to process bitumen on site. This output will then be blended with natural gas condensates to make diluted bitumen for delivery to market via pipeline. This process eliminates the cost and environmental footprint required for an on-site upgrader.

“Paraffinic froth treatment is not upgrading,” Rolheiser says. “It’s a different process, which yields a lighter grade of bitumen.”
All bitumen that’s extracted by mining operations requires some kind of froth treatment process that prepares excavated bitumen for hydro-transportation via pipelines to upgraders. The most common one is naphtha-based. The resulting slurry requires further upgrading into synthetic crude, which then is processed at refineries into various petroleum products from diesel to jet fuel.

“The key environmental benefit of paraffinic froth treatment is that the extracted bitumen will only need to be processed once, rather than twice,” Rolheiser says. “Therein lies the significant reduction in greenhouse gas emissions. With paraffinic froth treatment, we estimate greenhouse gas emissions associated with each barrel of bitumen will become comparable to conventional crudes.”

A technical paper written by Imperial’s Tapantosh Chakrabarty titled Mitigating fouling in the High Temperature Paraffinic Froth Treatment process through science and serendipity, describes the technology: “a paraffinic solvent [pentane-isopentane blend] is added to the froth—consisting of bitumen, solid fines [inorganics], water and air—in a proportion to precipitate out a small fraction of the asphaltenes from the bitumen. The asphaltenes precipitation enhances the removal of solid fines and water from the froth.”

New technologies, transportation challenges, rising costs—even as Imperial heads into the finishing stretch on its initial construction phase of Kearl, it certainly has its work cut out for it in the long haul, to full Kearl development in 2020.