This article is part of the Fall 2018 edition of the Journal of the Canadian Heavy Oil Association.
A new category of green bond could help boost the long-term profitability of the oilsands industry, helping producers create new low carbon products and deploy technologies to reduce upstream GHGs.
Corporate Knights and the Council for Clean Capitalism have released draft guidelines for what they call Clean Transition Bonds (CTBs). The idea is to create a pathway for oil and gas producers to tap into a growing pool of capital for energy-transition projects that investors may currently be passing by.
The hope is that the Government of Canada will formally adopt the guidelines.
“Investors are looking to get aligned with a low carbon world, and right now there’s a lot of things that are really simple to throw your money into. There’s a risk that investors could end up throwing the baby out with the bathwater,” says Corporate Knights CEO Toby Heaps.
“We have other commodities that can be derived from oilsands feedstocks in particular, and the potential margins on those and the compound annual growth rates are much more attractive than what we’re seeing for sort of traditional markets for the feedstock.”
The CTBs are a direct result of work conducted by Alberta Innovates through its Bitumen Beyond Combustion program, which has identified potential non-combustion products to be made from asphaltenes, the heaviest fraction of the oilsands barrel.
Earlier this year Alberta Innovates released a report produced on its behalf by Stantec Consulting summarizing results so far. The work was conducted in collaboration with representatives from the Bowman Centre for Sustainable Energy, Nexen, MEG Energy, Canadian Natural Resources, BASF Canada, Cenovus Energy, Suncor Energy and Canmet Energy.
Alberta Innovates is now conducting further assessment of opportunities for bitumen-derived carbon fibres and CF combination products like steel, cement and wood, as well as pelletized asphalt, vanadium flow batteries and polymers.
With greater strength and lighter weight than steel, CF is widely touted to become “the material of the 21st Century,” Alberta Innovates notes.
“CF markets globally are growing at a compound annual growth rate in excess of 10 percent, although from a small production base of less than 100,000 tons per annum. This is expected to grow to 250,000 tpa by 2030. Current high feedstock and manufacturing costs are limiting this growth,” reads the Bitumen Beyond Combustion Phase 2 report, released earlier this year.
“Production of CF is currently derived from both a synthetic feedstock Polyacrylonitrile (PAN) and a synthetic pitch. This study has discovered that bitumen can be used for producing PAN from cracked gas propane and potentially a pitch product, utilizing the high-asphaltene content that makes oilsands bitumen unique…
“Considering the growth potential and relative early stage development of the CF industry, there is tremendous opportunity to work towards oilsands-based feedstocks becoming a major component in the evolving CF industry in the future.”
Bitumen from the oilsands is already used to produce asphalt in western Canada, but with new technology, this could be significantly expanded. According to Alberta Innovates, global asphalt binder markets are experiencing year-on-year growth of 4.1 percent CAGR, which is expected to continue globally to 2030. Driven primarily by road construction, the global asphalt binder market is estimated to be over US$20 billion annually.
“Bitumen from Alberta’s oilsands could provide an excellent and consistent quality of asphalt with relatively easy processing. However, to this point, Alberta’s production of asphalt has not found major markets outside of western Canada due to molten-shipping limitations. Current practices involve loading and unloading of asphalt into railcars at 150 degrees C. Energy-intensive infrastructure is currently needed to load and unload railcars,” Alberta Innovates said.
“The use of alternative asphalt transportation technology, such as pellets or balls at ambient conditions, has the potential to significantly change the overall economics of asphalt shipment from Alberta to other parts of North America and beyond.”
The study estimates it would cost C$430/t for asphalt in solid form to arrive in Shanghai, where it would realize a selling price of C$539/t.
Vanadium flow batteries
The global energy storage market is another that is expected to expand rapidly to 2030, driven by increases in renewable energy and the wider adoption of electric vehicles, Alberta Innovates said. Right now, vanadium flow batteries offer the most promise for a large-scale energy storage solution.
“Vanadium is contained within oilsands bitumen in significant quantities (200 ppmw). Oilsands facilities already have concentrated vanadium in current streams (ie. fly ash and coke). Technology development and assessment work should continue to determine how vanadium could be removed economically from these streams. Processing recovered vanadium into a useable electrolyte could also represent a significant business opportunity.”
The global polymer market size is considerable, but oilsands feedstocks face barriers to entry such as comparatively lower feedstock costs (gas) and global market players owning highly proprietary technology for polymer production, Alberta Innovates found.
However, “consideration should be given to the production of polymer precursors (monomers) as opposed to the polymer itself. This would eliminate one aspect of the barrier to entry. Monomer production (or other chemical intermediates) could provide a step-wise strategy to market entry where production takes advantage of available feed/price."
CF products and pelletized asphalt alone
Corporate Knights says that with sufficient investment, through CTBs and other means, the annual market value of CF products and pelletized asphalt alone could be US$218 billion by 2030. Canadian oil and gas companies sold approximately $107 billion worth of traditional production in 2017, according to the Canadian Association of Petroleum Producers.
Carbon fibres are probably the most lucrative and biggest potential opportunity for the oilsands, with a projected annual market value of US$130 billion by 2030 “if we can bring the cost down on extracting the carbon fibers from the asphaltenes,” Heaps said.
“Making these investments to tap into these growth markets is tremendously capital intensive, and so it’s going to take a lot of money and it’s going to take tapping not just Canadian but international pools of capital. What we wanted to do is to create a common language so people could start lining up what their invest opportunities are.”
While Alberta Innovates has identified a tremendous opportunity for non-combustion uses for bitumen, it’s a challenging proposition, Heaps said — but it’s worth it.
“What gets blown away when capital is scarce is timelines. Instead of taking a few years [projects] take 10, 20 years and I don’t know if we have 10 or 20 years if we want to have a thriving economy in Alberta. It’s going to be fine for the next little bit here but when we look ahead to 2030, which is only a decade and a bit away, we could be facing potential headwinds. Why wouldn’t we want to tap into these amazing growth markets? The reason is it’s risky, it’s scary, and it’s something new, just like the oilsands were 50 years ago.
“That resource is still there and that’s the competitive advantage. There’s billions of bbls of bitumen right there, and that’s asphaltene and carbon fibre, and carbon fibre is going to be a really critical component for the low carbon economy, so I think that’s the new moon shot…It’s not for the faint of heart.”
Corporate Knights says that a roundtable discussion to refine the draft guidelines will be held in Toronto in November, co-hosted by federal representatives and Toronto Finance International.
The goal is to have the first private CTB issued before spring 2019, Heaps said.