The Canadian Oil Sands: A backgrounder: Derivative Plays

by Bennett Jones LLP

Given the magnitude of projected economic activity, oil sands producers will not be the only beneficiaries of the unprecedented development now underway. Aside from the necessary infrastructure developments, a plethora of ancillary opportunities exist in many sectors, including electricity generation, petrochemicals, heavy metals and construction equipment.


Both in situ and mining-based oil sands projects require large quantities of electricity and are vulnerable to the electricity grid—in service date delays and to fluctuations in price. To secure power supplies, producers have increasingly turned to generating electricity on their project sites through cogeneration. A cogeneration plant, also known as a combined heat and power (CHP) facility, uses heat recovery and natural gas to run a combustion turbine to power a generator and produce electricity. A heat recovery steam generator then captures the remaining heat that would normally be wasted and uses it to produce low- and high-pressure steam and hot water, which is then used in the oil sands production process.

Cogeneration, with back-up from the electricity grid, provides a reliable supply source and helps oil sands producers meet their needs for electricity. Oil sands producers may choose to generate excess power in order to supply the grid or bilateral power customers, depending on the outlook for Alberta power prices.


Some suggest that the answer to the oil sands’ natural gas and electricity requirements may be the construction of nuclear power plants. Alberta’s Provincial Energy Strategy (announced December 2008) identified nuclear power as a potential source of clean, low-emission power. In December 2009, the government released the results of the Alberta nuclear consultation. Among its key findings was that most Albertans polled (45 percent) preferred that nuclear power plants be considered on a case-by-case basis. As a result, the Alberta government has decided to maintain its existing policy where power generation options are proposed by the private sector in the province. Any nuclear power proposal would be considered on a case-by-case basis.


The massive increase in production also represents a significant opportunity for investors in the petrochemical industry. The bitumen upgrading process produces off-gas from which ethane and other light hydrocarbons could be extracted and used by the petrochemical industry. Currently, ethane and most of the other light hydrocarbons remain in the off-gas and are used as fuel for operations. The National Energy Board has estimated that the oil sands sector could be producing up to 9,500 m3/day of ethane from upgrader off-gas by 2012. In Alberta, there may be a significant opportunity for bitumen-based ethylene, comparable to the production that has occurred on the U.S. Gulf Coast.

The potential synergy of extraction, upgrading, refining and petrochemical processing facilities located in close proximity is already being exploited in Alberta. Williams Energy of Tulsa, Oklahoma, for example, has entered into an arrangement with Suncor to remove synthetic gas liquids from off-gas produced by Suncor’s upgrader near Fort McMurray. Williams processes the synthetic gas liquids at its nearby facility and ships the extracted olefins mix via pipeline to its Redwater, Alberta, facility, where it produces propane, propylene and olefin concentrate.

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