This article is part of the Fall 2018 edition of the Journal of the Canadian Heavy Oil Association.
Work that challenged the established borders of Alberta’s bitumen resource led to the development of Teck’s proposed Frontier oilsands mine. Now the company’s decision to move Frontier through the regulatory process is challenging the view of some that the oilsands is in sunset mode.
Teck is Canada’s largest diversified mining company, with operations worldwide that produce primarily copper, metallurgical coal and zinc. It has total assets worth more than $36 billion and more than 13,000 employees. It is a major force on the global mining scene, but new to the oilsands space.
Teck officially became an oilsands producer earlier this year when the Fort Hills mine went into commercial service, but the company has been advancing its oilsands interests for more than a decade. The miner owns 21.13 percent of Fort Hills along with operator Suncor Energy (54.11 percent) and Total SA (24.58 percent).
At full build out, the $20.6-billion, 260,000 bbls/d Frontier mine would dwarf the 194,000-bbl/d capacity of Fort Hills, which is just the sixth commercial oilsands mining operation since the 1960s. With high capital costs, market access issues and extended regulatory timelines suppressing oilsands growth opportunities, the general narrative has been that Fort Hills would be the last new mining project.
But Teck is plowing ahead with what appears to be a multi-billion dollar vote of confidence in Alberta’s oilsands and long-term global demand for oil.
“Given the current project timing, and the future demand we see, we think it’s a strong project to move ahead,” said Teck spokesman Doug Brown.
In late October, the joint federal-provincial panel reviewing the Frontier application concluded public hearings in Fort McMurray, Alta.
Changing mining boundaries
In 2009, what is now the Alberta Energy Regulator (AER) redrew the boundaries of the surface mineable oilsands area for the first time since the 1980s. In part, this was a result of exploration work conducted by oilsands junior UTS Energy and Teck that confirmed surface mineable oilsands to the north of any previously known deposits.
The regulator added 14.5 townships to the existing 37 townships of surface mineable area. In addition to UTS, Total SA and Shell owned leases in the expanded area – including what became the proposed location of Shell’s Pierre River Mine, which is now owned by Canadian Natural Resources Limited.
“At the time everyone thought the oilsands leases ended north of what is now the Horizon mine,” says Daryl Wightman, president of Rock Doc Consulting, who was a senior executive with UTS at the time.
“We launched a successful exploration program north of the known limits of the surface mineable oilsands, on the west and east sides of the Athabasca River, and discovered a sizable resource.”
UTS and Teck initiated the regulatory process for Frontier with a public disclosure document in March 2008. In March 2012, months after becoming sole owner of the project, Teck submitted its Frontier application and environmental impact assessment. The project was then referred to the joint federal-provincial review.
The earliest a federal decision statement is now expected is mid-2019.
Economics and environmental impacts
Teck claims the Frontier project would have lower GHG intensity than about half of the oil currently refined in the U.S. That is partly owing to the paraffinic froth treatment it will use, which eliminates the need for an upgrader.
This is the same technology that is in use at Fort Hills, as well as Imperial Oil’s Kearl project and Canadian Natural’s AOSP.
Critics have questioned the economics of the Frontier project, as energy majors like Royal Dutch Shell have divested of oilsands mining assets, Western Canadian Select has fallen recently below US$20/bbl compared to above US$60 for West Texas Intermediate, and some producers face serious market access constraints.
“When you look at the short-term price of oil, it’s certainly not going to be in a place that would support the sanctioning of a new mine,” said Kevin Birn, director of North American Crude Oil Markets with IHS Markit.
“But that’s not the price of oil that’s going to be used to base the decision over this asset. It’s going to be Teck’s view over the long-term price of the oil.”
Birn doesn’t think the Frontier project would be in production until the mid-2020s, if it’s approved.
By then, prices for Alberta crude are expected to improve following construction of new pipeline egress.
Jihad Traya, an oil and gas analyst for Solomon Associates, said it makes sense for Teck to get the Frontier project into the regulatory queue now. Once the Trudeau government’s new Impact Assessment Act replaces the current CEAA, getting projects through the new federal review process could be even more difficult.
And at the provincial level, as part of its climate action strategy, the Alberta government has capped emissions from the oilsands at 100 million tonnes. Oilsands emissions already stand at about 70 million tonnes, and the Canadian Energy Research Institute estimates new oilsands projects could reach the 100 million tonne cap by 2030.
“Once they’re in the hopper…they are now one of those projects that can fall under that CO2 cap,” Traya said.
Birn said Teck is unique in Alberta’s oilsands space in that it is, first and foremost, a mining company, not an oil company. Teck’s primary business is copper, metallurgical coal and zinc.
“Mining companies are businesses about operational efficiency,” he said. “Bringing that skill set to bear on the oilsands, when you have an asset that is functionally just like a mine, which they have tremendous experience in, could mean they have a different view to the oilsands asset.”
Teck has signed 14 participation agreements with First Nations in the region, including the Mikisew Cree First Nation, which had initially opposed the project.