EnCana Corp. is planning a multibillion-dollar oil sands project that will dramatically boost production and use a new technology that promises sharply reduced greenhouse gas emissions.
The company's Narrows Lake project, which it unveiled Thursday, will produce between 80,000 and 120,000 barrels a day, double EnCana's current oil sands output.
Narrows Lake will incorporate the first major use of a novel technique the company believes can cut greenhouse gas emissions by 25 to 30 per cent a barrel, compared with current methods, making it the most climate-friendly project of its kind in the oil sands.
It would also be substantially cheaper to operate, an important step for an industry struggling both against construction costs and the looming threat of carbon penalties in new greenhouse gas legislation.
The plan is another sign of renewed confidence in Alberta's oil sands industry, following a series of shelved projects last year amid plummeting oil prices.
Narrows Lake is the second major new oil sands project announced this year. Imperial Oil gave the green light to its $8-billion Kearl mine in May.
"Over all, we see a lot of potential here," said Dave Mudie, an EnCana vice-president responsible for some of the company's oil sands operations.
EnCana plans to make its first regulatory application for Narrows Lake, in the northeast of the province, midway through next year.
The project would begin producing oil in about six to seven years.
Narrows Lake will be developed by Cenovus Energy Inc., the new oil-focused company EnCana plans to spin off in December.
Unlike other oil sands projects, Narrows Lake will use a blend of steam-assisted gravity drainage (SAGD) and a new technology EnCana calls "solvent-aided process."
Where SAGD uses pure steam to free bitumen from underground rock, the solvent process adds hydrocarbons like butane, propane or even certain kinds of light oil to the heated water. The addition of those substances has been shown to more effectively liberate oil sands bitumen and several companies are working to perfect the technique, including Imperial Oil and Laricina Energy Ltd.
In a call with investors yesterday, EnCana executives said their process allows them to recover more bitumen - their best SAGD gets about 80 per cent; adding solvents will bump that number higher. It lets them shave costs by building wells at 130-metre intervals, rather than the 100 metres currently required.
And most importantly, it will cut the company's steam-oil ratio by 30 to 40 per cent. SAGD operators generate steam using natural gas, and the steam-oil ratio refers to how many barrels of steam are needed to produce a barrel of oil. EnCana's best steam-oil ratio today is 2.1. It believes it can achieve a ratio of 1.5 with the solvent process, which would save 600 cubic feet of natural gas per barrel of oil sands crude. For a project the size of Narrows Lake, that would save enough gas to heat tens of thousands of homes for a year.
One major hurdle is the price of butane, which can fluctuate, and has limited availability in Alberta, although EnCana believes there is enough to power its project. It also hopes to recover 90 per cent of the butane it injects.
The company did not disclose a price tag for the project, but has reported construction costs at other projects of around $20,000 per flowing barrel. That would translate to between $1.6-billion and $2.4-billion for Narrows Lake.
But the Narrow Lakes price tag may be higher. EnCana estimates that building a solvent-style project will cost 5 to 10 per cent more than traditional SAGD. However, it believes it can save between 20 to 25 per cent on operating costs.