Oilsands technology developer Nsolv is facing its biggest hurdle yet as it starts the process of shutting down its field pilot, says chief executive officer Joe Kuhach.
The pilot, which tests a solvent-only extraction process, has been operating on Suncor Energy’s Dover lease since 2014. The company says it has proven “reliable and robust” and achieved all key performance indicators.
A recent report from CIBC World Markets noted the system as potentially commercial within five to seven years, with many potential benefits including—due to its lack of water use—reduced capital and operating costs and lower greenhouse gas emissions.
CIBC noted that Nsolv’s lower operating pressures could also provide access to shallower formations and zones with thinner cap rock that are not currently economic with SAGD.
“The ability for Nsolv to overcome these hurdles in shallow applications could potentially offer billions of barrels of incremental resource recovery for the industry,” analysts wrote.
“Assuming US$50/bbl WTI, we see that a solvent-only project like Nsolv would have over a ~15.6 percent internal rate of return as compared to ~5.2 percent for a traditional SAGD development.”
These figures, based on comparisons to a SAGD project in 2015, do not include the benefit of lower carbon costs. The key challenge, CIBC notes, is the amount of solvent that stays in the reservoir. Nsolv estimates a 95 percent recycle rate.
The company has previously received funding from government agencies, including $10 million from Emissions Reduction Alberta (formerly the Climate Change and Emissions Management Corporation) and $15 million from Sustainable Development Technology Canada. SDTC has also awarded Nsolv $13 million towards a commercial demonstration project. But the company is at a point where it needs much more.“In the technology space you need small amounts of money to test things in the lab, and as you move closer towards commercialization and to technically prove things out, the cost goes up,” Kuhach says.
“We’re now at the biggest chasm that there is. We’re technically proven and ready to go from a commercial standpoint, but getting over that barrier to commercialization, that’s the biggest cost investment and that’s arguably where you need the most help. That’s where lots of technologies die. I don’t think that’s going to happen to us, but I think we’re delaying a lot of the benefits that we could be reaping today by getting this technology going now… At some point you’ve got to start betting on the winners.”
Nsolv estimates that a greenfield commercial 10,000 bbl/d project using its technology would cost, all in, $350 million or $35,000 per flowing barrel.
In today’s market context, where even greenfield SAGD projects are off the table for oilsands producers, it’s a tough sell.
“While we believe we can have rates of return in the mid-teens at $50 oil, from a first adopter standpoint I think the market is demanding a higher return and that’s part of the challenge,” Kuhach says.
“We just don’t see prices quite where they need to be for those folks that are somewhat risk averse but yet maybe willing to try something new….They are very eager to be first to be second.”
In the mid-1980s the Government of Alberta invested $135 million (the first $80 million without industry funding) to construct the Underground Test Facility on the Dover lease, according to commentary from Eddy Isaacs, the former CEO of Alberta Innovates, in the Edmonton Journal in 2010.
This investment, which is not adjusted for inflation to reflect today's project costs, ultimately resulted in the commercialization of SAGD, which now accounts for more than one million bbls/d of oilsands production.
“The government made some huge investments in SAGD and they paid off very well,” Kuhach says.
“To be honest I think Nsolv is an opportunity like that, it’s really taking things to the next step in what I believe would transform the industry into being more environmentally and economically sustainable.”
As the federal and provincial governments roll out low-carbon rules, he says Nsolv would be a wise public investment.
“We would really like to see government step in at this point and say that they are serious not only about creating the challenge for industry to become a lower carbon business but also helping; finding ways now to reinvest some of that money that’s going to be collected in ways that can help the industry survive, can help Canadians be employed and generate economic value for all of us.”