About two dozen refineries – including one in Malaysia – have processed crude from Imperial Oil Ltd.’s Kearl oil sands mine, which uses a proprietary technology to remove the “heaviest, thickest, gooiest” parts of the bitumen before it’s put in a pipeline, CEO Rich Kruger said Wednesday.
The northern Alberta mine produced an average of about 70,000 barrels of crude a day during the first quarter of this year – below its design capacity of 110,000 barrels, but output has been progressively improving.
“We’re still working through some things, but I expect you’ll continue to see significant, consistent jump-ups toward the capacity in the months ahead,” Kruger told reporters following an investor conference in New York.
Imperial had initially planned to run Kearl crude through its own refineries and those operated by its U.S. parent company Exxon Mobil Corp., but was surprised by how eager other players were to get their hands on the product.
“There’s a lot of interest in the crude,” Kruger said “Our efforts will be to deliver those volumes to the customers that will pay us the most money for it wherever they happen to be.”
Imperial says 22 refineries have used Kearl’s crude. All were located in North America with the exception of one, when a few cargoes were sent to Malaysia.
Currently, the only pipeline outlet from Alberta to Canada’s West Coast is the Trans Mountain pipeline, which delivers crude from Alberta to the B.C. Lower Mainland and Washington State. The pipeline’s operator, Kinder Morgan, wants to nearly triple Trans Mountain’s size – a $5.4-billion proposal that’s currently before regulators.
Kruger said Imperial’s paraffinic froth treatment technology is working better than expected at Kearl.
He declined to comment on what price a barrel of Kearl product is fetching in the marketplace.
All three production trains at the mine have been able to operate at full capacity, but the challenge has been running each simultaneously, said Kruger.
There are about 8,000 valves that need to operate properly, steam must be distributed in just the right way and there are a number of other aspects that must be checked when a project of this size starts up.
“Not one of the items on the list are of any long-term concern. They are the normal kinds of things you see on the startup of a project,” he said.
“We’d rather be safe than sorry. If something starts to deviate, rather than run the risk and try to push production through it and run the risk of an equipment failure, I want to take it down, I want to inspect it, investigate it, understand what it is and then we’ll bring it back up.”
Kearl started up just under a year ago at a cost of $12.9-billion – $2-billion over its previous estimate.
The company met legal and regulatory delays in bringing the enormous pieces of South Korean-made equipment to the mine site, which were shipped across the Pacific and then through the United States and Canada by river barge and truck.
The 200 modules had to be broken up into smaller pieces so they could be transported along highways in Idaho and Montana and then put together again near Edmonton.
That work added to the cost, as well as harsh winter weather around Fort McMurray while final construction work was being completed.
An $8.9-billion expansion to Kearl, with the same capacity as the first phase, is 72 per cent complete and is on track to startup next year.
Labour costs for the second phase should be better than the first phase, as the expansion is being built in “a bit of a sweet spot, a little bit of a lull in some others’ major activity plans,” Kruger said.
The company is learning from the challenges of the initial development and expects startup on the second phase to go much more smoothly than the first, he added.
“It’s going to be quicker,” he said “It’s going to be significantly quicker.”