IT WAS SUPPOSED TO COST $3.4 BILLION. THEN $4.2 BILLION. THEN $4.6 BILLION. And now, in April, 2007, the bill was $5.3 billion.
Charlie Fischer had some explaining to do. The CEO stood stoically before reporters after Nexen Inc.'s annual meeting in Calgary, trying to explain why his firm was trapped in an upward budget spiral in the oil sands.
"It's very hard to predict costs," Fischer told the reporters. "These are massive projects. The competitive forces in the last half-dozen years have been unprecedented."
Anyone involved in the building boom in Northern Alberta might use that excuse. But Fischer had special cause: The spiral in question is for a technologically ambitious project, dubbed Long Lake, that could be a game changer for the entire oil sands. Novel technology put into play in a joint venture with upstart Opti Canada Inc. promises to slash a key operating cost--the natural gas used to power the production process--to the tune of $10 per barrel.
If achieved, that saving is going to be a huge advantage in a world of $100-plus oil and demand that won't let up. If. This is the doubters' constant refrain, from investors in Toronto and beyond, and among engineers in Calgary. The inherent risk in projects costing billions of dollars is always astounding. To doubters, a leap of faith on untried methods is taking things one step too far. Just look at the escalating costs: Since Fischer was in the hot seat at the annual meeting, the price has soared even higher, to $6.1 billion, and the schedule for actually producing some oil has been pushed back.
Fischer says he'll soon prove the skeptics wrong. "We're on the verge," he says in an interview. "Where for the last four years I've been challenged--'Does the technology work?'--I'll be able to say: 'Yes, it does work, and here's the results. And now you can go ask all those other guys what they're going to do to make up the $10 margin advantage.' "
THE ROAD TO LONG LAKE STARTS IN Yavne, Israel, south of Tel Aviv. That's where Nexen dispatched engineer Jim Arnold in 1998. His task: Check out an intriguing invention.
The invention owed its genesis to Israel's geopolitical quandary. Surrounded by hostile countries but with none of its own oil, Israel in the 1950s poured research funding into solar power. At the country's national physics lab, engineer Lucien Bronicki came up with a turbine design that could generate electricity from solar-heated water. The idea led to the founding in 1965 of Ormat Industries Ltd. by Bronicki and his wife, Dita.
Ormat was a "green" company decades before the term was coined. It worked not just on solar power, but also on geothermal and other alternative sources of energy. In the mid-1990s, Ormat looked at residues from oil refineries and saw a potential source of inexpensive power. That line of inquiry turned the company's attention to Canada's oil sands, which produce a very low-grade oil--"heavy," in the parlance of the oil patch, hence suitable to Ormat's research.
The priority of oil producers and refiners is the "light" portion of a barrel, which is most easily made into gasoline, jet fuel and the like. Ormat turned the barrel upside down, focusing on the heavy stuff that most people consider simply a hindrance.
Yoram Bronicki, the son of Ormat's founders, tested the new idea in "lab-scale, beaker-type activity." The invention that Ormat developed took a barrel of heavy oil, sucked out the residues using established processes-- but sequenced in a new way--and pro- duced two products: semi-processed oil and asphaltenes, which are a mixture of carbon, hydrogen, nitrogen, oxygen and sulphur.
