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(C.J. Burton for Report on Business Magazine)
(C.J. Burton for Report on Business Magazine)

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The oil sands: redeemed by fire? Add to ...



Today, combustion projects are largely limited to Romania, India and a small series of wells on the border between Montana and the Dakotas. A tally of the entire world's production of combustion-produced oil would come to about 30,000 barrels per day. That's roughly 0.00035 per cent of global production.

In other words, if combustion disappeared tomorrow, no one would notice.

Still, people like Chris Bloomer can't help but wonder: What would the oil sands look like tomorrow if combustion took over?

"This can play a very big role in the oil sands," says the senior vice-president and COO of Petrobank Energy and Resources Ltd., a mid-sized Calgary-based company that believes the future of the oil sands lies in fire. "It has the potential to replace SAGD."

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In the oil sands today, most in situ production-that is, "in-place" production where bitumen is extracted using wells in a reservoir, rather than from mines-is done using SAGD, which uses a lot of natural gas and a lot of water (though most companies draw from non-potable sources). Combustion uses virtually no water or natural gas. Petrobank estimates that its combustion method, a variant it has termed THAI (Toe to Heel Air Injection), will produce 50 per cent fewer greenhouse gases than SAGD.

"I think that's what people are looking for: a technology that will enable them to produce from these difficult resources with better efficiency and less environmental impact," Bloomer says.

Indeed, as oil sands production expands-by some estimates, it could more than quadruple by 2030-companies may find themselves without enough water or natural gas, says Robert Bailey, the chief operating officer at Excelsior Energy Ltd., a junior start-up that has designed its own variant of combustion.

"There's a constraint around water," he says. "And there isn't enough gas in Western Canada to get the hockey-stick increase in production from the Athabasca oil sands region."

Then there's combustion's financial potency: According to estimates compiled by Excelsior, capital expenses for a combustion project will be 22 per cent less than for steam, largely because air compressors are cheaper than water treatment facilities. And because it's cheaper to compress air than buy natural gas, operating expenses will be chopped by 26 per cent, the company believes.

Those savings, writ across all of Fort McMurray and beyond, could produce massive gains. By Excelsior's calculation, combustion could add roughly $2 to the net present value of every barrel in the oil sands, where recoverable reserves are estimated at 173 billion barrels. And Petrobank estimates it could actually increase the number of recoverable barrels by 20 per cent, since fire can liberate oil from reservoirs that steam can't. Both Bloomer and Bailey believe that combustion, compared to steam, can recover as much as 50 per cent more oil from a given reservoir.

Before legendary Canadian mining financier Frank Giustra invested in Excelsior this spring (marking his first foray into the oil sands), his due diligence contingent spent the bulk of its time with the company talking about its combustion technology. "We describe it as compelling," Bailey says.

So why, then, is Excelsior struggling to secure financing for a small, 1,000-barrel-per-day test project? And why is combustion still little more than a science experiment in an industrial complex battling to both right its image and reduce its costs?

Moore says part of the problem is that computer models don't do a very good job of simulating combustion, making it difficult to convince executives that the technology will work as well in the field as it does in a lab. For his part, Bailey faults the short time horizons of investors for discouraging companies from developing something new.

Doug Bennion has a more direct answer: "It really hasn't been that successful."

Bennion was one of the founding members of the lab that Moore now runs. His experience with combustion extends back to the 1960s, when Mobil Oil ran projects in California and Saskatchewan. Although Bennion is retired, he still gets calls from investors looking to evaluate combustion technology.

He remains skeptical. "Economically, it's a very efficient process. A lot less energy goes into it than goes into a steam process," he says. "But it burns wells out. It burns back and explodes, and it's had a lot of sand problems. Those have been its main problems. It's not the fact that you can't get the reservoir on fire. It's that you have a difficult time controlling it and getting oil to the surface."

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