​Deflation aside, Alberta heavy oil upgrading still a challenging investment: IHS

The Long Lake oilsands upgrader, which was completed in 2008. Image: Joey Podlubny/JWN

Investing in new bitumen upgraders in Western Canada remains a challenging prospect despite changes in the economics since the oil price collapse.

A new report from IHS Markit says that the positives from cost deflation and the pending shift in marine fuel specifications aren’t enough to turn the table on bitumen upgraders, which went largely out of favour as costs increased and light tight oil took centre stage around 2010.

The report — an update to IHS Markit research in 2013, before the oil price drop — concludes that, with oilsands growth expected to continue (albeit at a slower pace), the preferred option may continue to be exporting bitumen, rather than investing in heavy oil processing.

IHS Markit also looked at the economics of converting an existing refinery to process heavy crude and construction of a brand new refinery altogether.

“The economics for refinery conversions are the most favorable of the three options reviewed in our study. But the abundance of light, tight oil diminishes the incentive for facilities to make that switch,” Kevin Birn, head of IHS Markit’s Oil Sands Dialogue, said in a statement.

Since 2008, four new upgrading projects have been completed in Alberta, the report noted: Horizon Phase 1 and 2, Long Lake Phase 1, and the Scotford Upgrader Expansion. Horizon Phase 3 was recently completed, and the Sturgeon Refinery is in the process of commissioning. In 2008, Petro-Canada also completed a conversion at its Edmonton refinery to entirely bitumen feedstock, prior to its merger with Suncor.

IHS Markit estimates a new greenfield 100,000 bbl/d bitumen upgrader in Alberta would cost $5.8 billion to $7.0 billion, compared to a refinery conversion in the province with the same capacity costing between $2.7 billion and $3.9 billion. A new greenfield refinery in Alberta is estimated to cost $6.9 billion to $8.6 billion per 100,000 bbls/d of capacity. The report also compares capital costs for projects in B.C., Quebec, the U.S. and Asia (see chart).

Suncor has for years been considering a conversion of its Montreal refinery to process Alberta heavy crude, but has not yet given it the investment go ahead.

“The most attractive option for growing oilsands production continues to look like the export of heavy sour bitumen blends to U.S. Gulf Coast region which imported over 1.8 million b/d of crude oil of similar quality to the oilsands from offshore places like Venezuela, Mexico and others in 2016,” study co-author Patrick Smith said in the statement.

“But present conditions have oilsands producers searching for new options as well. A key area of interest is what is being call partial upgrading which seeks to improve the mobility of bitumen—reducing the need for diluent used in the creation of bitumen blends—a significant cost for the industry today.”

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