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

Top 1000

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

If you could peer inside the two-metre-long green tube at the University of Calgary, you would see something glowing like an ember. It is oil, mixed with water and sand, and it is on fire-a slow burn fed by a constant injection of air. The temperature inside is between 500 and 600 C, and can leap to double that level.

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If you were feeling poetic, you might describe it as a microcosm of hell. Or, if you were Gordon Moore, the 66-year-old researcher who has devoted most of his adult life to understanding the process, you might describe it as a vision of the future.

That future would see underground fires cauterizing at least some of the dirt from the image of Canada's oil sands-and ushering in more profits, too. The technology, it's true, has been long a-borning and yet is still far from reaching critical mass. But as governments move to penalize emissions and environmental groups castigate the oil sands as a leading global climate villain, the experts in these underground fires hope they are also igniting a new beginning for the oil sands. Counterintuitive as it seems, burning the oil sands could be the cleanest option Fort McMurray has.

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The path to the future foreseen by Moore starts at his cavernous, three-storey lab, with its green tube-a crude and colourful length of steel that looks like a jet engine designed by kindergarten students. The inside is a carefully calibrated analogue of the oil sands, the enormous, lucrative deposit of bitumen beneath the soils of northeastern Alberta. Fed by the air, the fire-or, as the scientists call it, the combustion front-slowly moves down the tube, its progress revealed by temperature sensors.

The result requires no sensors to detect. The naked eye can see the oil flowing. The fire consumes a small fraction of it, usually about 10 per cent. The resulting heat and pressure liberate the bulk of the crude from the sand-without using chemicals or water, and with no ugly open pit. The only ingredient is garden-variety air, pumped into the oil sands at high pressure.

This small environmental footprint makes combustion a potentially radical departure from current oil sands methods, which include unsightly open-pit mining and steam-assisted gravity drainage (SAGD). The latter process uses huge quantities of natural gas to boil water into steam, which is then injected underground, where it heats the oil and causes it to melt away from the sand.

However, combustion has its own issues. Yes, it can liberate oil underground. But the problem of bringing that oil to the surface safely and successfully is the nut that has to be cracked before combustion can go mainstream.

Still, enough global industry players have developed an interest in the technology that Moore's lab has a steady stream of test jobs. A single combustion test costs $100,000, and in 36 years of work, Moore and his lab of 35 staff and grad students have run nearly 400 of them, paid for by $2-million in annual funding from companies around the world. When Moore started, he believed this technology-which is variously called in situ combustion, fire-flooding or air injection-could unlock the oil sands. The decades have not changed his mind. If anything, they have reinforced his conviction, even if other researchers marvel at his doggedness. "My friends distrust my mental capabilities for doing it. But it's a tremendous research area," he says. "It's a process that has huge potential."

Combustion was first patented as a technique for extracting oil in 1923 by a pair of California scientists. The first tentative attempt to make it work in the field took place in the Soviet Union a decade later; it did not return to North America until the 1950s, where some favourable tests stoked hopes.

But its subsequent history has been largely disappointing. Though major energy companies in the United States and Canada tried out combustion and an Alberta government-funded oil sands test program was mounted, most tests were eventually abandoned.



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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."

Decades of study and engineering advances have mostly resolved the safety problems: In the Williston basin in the Dakotas, hundreds of wells have operated largely without incident. But combustion still involves playing with fire-engineers, for example, worry about the stresses that a fire-flood could place on metals used in wells-and other troubles persist. Among these are the "sand problems" referred to by Bennion: In trial projects run by Petrobank, oil has come roaring from the ground mixed with sand, a phenomenon that can wear out equipment and is difficult to clean up after, in part because the spewed stuff is laced with high levels of deadly hydrogen sulphide.

Bloomer counters that the sand is "not a big issue" and, with new well designs, "we've overcome that." He also says cleaning up the noxious gases adds only a "very small cost" to operations. THAI was designed and patented specifically to overcome some of the issues that hampered previous combustion projects, including the ability to keep oil flowing. Over the past few years, combustion has proven its ability to wring bitumen from the earth, Bloomer says, and people are noticing. "We've taken it from the back of the stage to the front of the stage."

But the problems have raised eyebrows, and a surprising number of combustion experts-including Moore himself, who has worked with Excelsior and prefers its method-are skeptical about Petrobank's process.

"I don't like THAI," he says. The reasons are technical, involving a design flaw Moore believes makes that process vulnerable to some of the problems Petrobank has already experienced.

But Moore's nightmare is that, if for some reason THAI can't match its promises, the whole notion of using combustion in the oil sands-and all the benefits it could bring-could go with it.

"My biggest worry is that if THAI is successful, it will be THAI [that wins out]" he says. "If it fails, it will be combustion [as a whole]that fails."

If combustion is to fulfill its promise, what it needs more than anything, Moore says, is a company with the financial might to install it in the field and prove that the method works.

So it is a strange irony that the man who killed combustion may also be the man who saves it. Harbir Chhina studied under Moore before rising through the ranks of EnCana Corp. and its spinoff, Cenovus Energy Inc., where he is executive vice-president of enhanced oil development and new resource plays.

Under Chhina's leadership, researchers developed a technique that would see combustion used as a sort of cleanup operation. After steam heats a reservoir and removes some of its oil, combustion could be used to sweep up much of what remains. Moore strongly supports the idea.

Just as Chhina prepared to test it in the field, however, he discovered that another research project, which involved drilling more wells to suck away oil from steam projects, would be a cheaper, easier alternative. So combustion was put on hold. Still, he says, "I believe in combustion."

Cenovus continues to devote roughly 10 per cent of its research budget to combustion, and, Chhina says, combustion could account for 10 per cent to 20 per cent of its oil sands production as the company begins to tap reservoirs less amenable to SAGD. Cenovus is a major company, with significant oil sands production and considerable clout. If it adopts combustion, others will take notice. It would be a huge gain for a technology that is, today, virtually invisible.

Yet even if Chhina's projection proves true, history has taught that technology marches slowly through the oil sands. SAGD was invented more than three decades ago. But it took until this February for the first major SAGD project to reach payout. With billions at stake, executives are loath to bet on new technologies until they're certain they will work-and even then, adoption can be slow.

Still, Bloomer is convinced that skeptical minds will also come around to combustion, despite its long and checkered history. "The past does not necessarily reflect the future in this business," he says.

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