The Canadian Oil Sands: A backgrounder: LOCATION AND EXTRACTION

by Bennett Jones LLP

Alberta’s oil sands deposits are distributed in three main areas:

  • Athabasca region (1.3 trillion barrels);
  • Cold Lake (200 billion barrels); and
  • Peace River (155 billion barrels).

Together, these areas encompass 140,200 km2 (54,131 mi2) of Northern Alberta and contain 15 bitumen-bearing deposits. The government of Alberta currently estimates that 420 km2 (162 mi2) are disturbed by oil sands mining, which accounts for 0.3 percent of Alberta’s total land area. Exploration continues to expand the boundaries of the recognized deposits, especially in Alberta’s neighbouring province of Saskatchewan.

Extraction is accomplished either through mining or via in situ methods. Each method is described in more detail below. In situ methods are becoming more widely used out of necessity as a greater proportion of the remaining reserves are located too deep underground to be accessed by conventional surface mining. Of the total 169.9 billion barrels remaining as established bitumen reserves, it is estimated that approximately 80 percent of the total proven oil sands reserves will be recoverable via in situ techniques. Alberta Energy reports that there are 91 active oil sands projects in Alberta. Of these, five are mining projects with the remaining projects employing various in situ recovery methods.

Surface Mining

Surface mining operations involve clearing trees and brush from the site and removing the overburden from the ground surface to reveal the oil sands. Giant hauler trucks, up to three stories in height, transport the oil sands from the mine face to a crusher and slurry operation. The crushers and sizers break up any lumps in the sand. The crushed material is then transported to the processing plant, where it is mixed into a hot water slurry and pumped through hydro-transport pipelines into a separation vessel. There it settles into three layers: sand, middlings (a sand, clay and water mixture) and bitumen froth.

The bitumen froth is skimmed off the top, cleaned and processed to remove fine clay particles and water. It is diluted with naphtha and processed further to remove any remaining minerals and water. Clean bitumen is transported to a refinery or upgraded on site. The middlings undergo a secondary separation whereby air is injected into the mixture to recover an additional two to four percent of bitumen. The bottom sand is mixed with water and pumped into tailings ponds, where it settles. In August 2010, Shell Canada announced its new Atmospheric Fines Drying Technology as part of its effort to speed up reclamation and minimize the need for increased tailings ponds.[1]

In Situ Extraction

In situ methods typically use heat from injected steam to reduce the viscosity of the bitumen, allowing it to be pumped to the surface. The main method of in situ extraction is steam-assisted gravity drainage (SAGD).

SAGD involves drilling pairs of horizontal wells into the oil sand deposits. Continuous low pressure steam is injected into the upper well, creating a high-temperature steam chamber. This softens the bitumen so that it flows downwards into the reservoir and through the lower second horizontal well where it is pumped to the surface. The bitumen product is then mixed with a diluent (typically naphtha or condensate) so it can be shipped to market. A SAGD project uses natural gas to generate steam and uses large amounts of water, although, as noted above, up to 90 percent of the water can be recycled. After the water and the remaining sand particles are removed, the bitumen is diluted and shipped by pipeline to an upgrader or refinery.

From 25 to 75 percent of the bitumen in place can be recovered using SAGD, which can be applied to thinner reservoirs by utilizing lower steam injection pressure. SAGD works best in high permeability reservoirs which require lower injection pressures and lower steam-to-oil ratios. SAGD is viewed as the most economical in situ method currently used. Operations employing SAGD can be viable at production levels as low as 10,000 to 15,000 bbl/d and can accommodate gradual production increases.

Table 1 - Evaluating Your Potential Investment – Mining vs. SAGD

Advantages of Mining

Advantages of SAGD

Higher recovery rates: Recovery rates for mining projects can be up to 90 percent compared to the lower and less certain 25 to 75 percent recovery rates for SAGD projects.

Lower capital costs: Up-front capital costs for fully integrated mining projects are greater than in situ projects due to higher construction costs associated with upgrading and overburden removal.

Lower sensitivity to natural gas prices: SAGD operations require roughly 0.8 to 1.2 thousand cubic feet (Mcf) of natural gas for every barrel of bitumen produced, so these projects have almost twice the amount of exposure to natural gas prices because of the need to generate steam in order to extract bitumen. Natural gas costs can account for an estimated 65 to 75 percent of total operating costs for a typical SAGD project, excluding upgrading costs. In contrast, fully integrated mining projects require about 0.5 to 0.7 Mcf of natural gas for every barrel of bitumen upgraded into synthetic crude oil.

Access to markets: All of the recoverable reserves suitable for mining are located in the northernmost part of the oil sands region, resulting in higher transportation costs. As a result, an upgrader may be needed to make a project economically feasible. In contrast, due to their relative proximity to diluent and diluted bitumen pipeline transportation, in situ projects generally do not need to include an upgrader on site and can market diluted bitumen. This means that in situ projects can be commercially completed at lower production levels and scaled up in smaller increments relative to mining operations.

Lower emissions: Emissions for SAGD projects are around 0.06 tonnes of carbon dioxide equivalent per barrel of bitumen. This is one-third less than emissions for a mined oil sands project producing synthetic crude oil in mining operations.

Smaller workforce demand: Due to the smaller scale of in situ projects, workforce demand is much lower than that for mining projects.

Smaller development footprint: Less land is disturbed because most of the work is below ground. Reclamation costs for in situ projects are therefore significantly less than those for mining projects.

Fewer water-handling issues: According to the Alberta Chamber of Resources, the inventory of process-affected water is much smaller for in situ projects, eliminating the need for on-site containment.

[1] “Shell starts up commercial-scale tailings field demonstration” (26 August 2010), online: Shell Canada



Written by:

Bennett Jones LLP

Bennett Jones LLP on:

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