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From The Sip Trunking Experts

[December 01, 2006]

Conoco planning for tar sands oil

(Billings Gazette (MT) (KRT) Via Thomson Dialog NewsEdge) Nov. 30--ConocoPhillips is preparing to spend hundreds of millions of dollars in retrofitting its Billings refinery to handle the heavier, dirtier Canadian crude flowing from the oil sands of northern Alberta.


The company is evaluating various technologies and its board will vote on the project early next year, ConocoPhillips Board Chairman and Chief Executive Jim Mulva said during an interview this week in Billings with The Gazette.

"We are studying both an expansion and a capability improvement at the Billings refinery," Mulva said. "That means our ability to handle tougher crudes, worse-quality crudes."

He declined to reveal many details of the Montana project except to say it is part of the company's 2007-08 overall business plan.

The multiyear construction project would be significantly larger than the low-sulfur diesel conversion completed this year in Billings, whose cost has not been revealed.

Billings Refinery Manager Michael Wirkowski said the heavy-crude project would "add to the value of the contribution we make to Billings and the state of Montana in providing high-quality petroleum products."

But those products in their raw state are something different. Step in the northern Alberta tar sands during the summertime and you may need a friend to pull you out.

Yet during the province's 40-below winters, you'll need a jackhammer to break up the oily, sandy and clay turf.

Although at least two tons of this black tar sand is needed to give up a single barrel of crude, the petroleum-rich tundra crisscrossing hundreds of miles of northern Alberta contains enough oil to eventually replace the Middle East in supplying U.S. imports.

Yet, tar sands, or oil sands as the Canadians prefer to call them, are black goo -- difficult to produce and refine. Monster-size dump trucks that can haul 400 tons of earth at a time are used to strip-mine the shallow oil sands. The sandy soil is then hauled to a processing plant and the sand eventually returned to the muskeg for reclamation.

Deeper deposits of the bitumen, which can seep down hundreds of feet into the ground, must be extracted through steam-assisted gravity drainage. Two parallel wells are drilled vertically, then they're curved 90 degrees to become horizontal tunnels. Steam is injected into the upper well to heat the oil so that it can flow into the second well. The bitumen is then pumped to the surface and mixed half and half with light oil so it can be piped to a refinery.

With an eye to dwindling light-crude supplies, ConocoPhillips -- the third-largest oil company in the U.S. -- announced in October a joint venture with EnCana Corp. of Canada. EnCana gets half ownership in two U.S. refineries, Wood River in Illinois and Borger in Texas.

ConocoPhillips receives half ownership in two oil sands properties in Alberta -- Foster Creek and Christine Lake. These properties are near Cold Lake, which is close to Alberta's border with Saskatchewan, some 100 miles south of Fort McMurray.

If the Billings refinery is retrofitted to handle more of the heavy, high-sulfur and acidic Canadian crude, the product wouldn't necessarily come from these fields, EnCana spokesman Alan Boras said. ConocoPhillips would buy the most economical product.

"They (apparently) are retrofitting the refinery to match market supply coming now and coming in the future," Boras said.

During an energy forum Tuesday at The Billings Depot, Mulva said companies are scrambling to find enough oil to keep up their current reserves, much less to meet future worldwide demand that could triple to 220 million barrels a day by 2030.

Meeting that demand would cost $4.3 trillion by some estimates, Mulva said.

The easier-to-refine and cheaper light crude is becoming scarcer. That's one reason ConocoPhillips is moving toward the other half of the world's supply -- heavy oil.

"We're having to go deeper, use more technology. It's more expensive, but we're finding lower-quality oil," Mulva said. "It's going to be the product of the future."

ExxonMobil's Billings refinery invested four or five years ago in the hardware to process heavy-sour crudes, including those from Canadian tar sands, according to public affairs spokesman Dale Getz.

However, how much heavy crude is being run through ExxonMobil's process is proprietary data.

For once, Montana's northern location -- long a bane to development -- is an advantage.

Ted Funk, a visiting professor of chemical engineering at the University of Illinois Chicago campus, owns two tar sand patents and has been consulting on the subject for 20 years.

A barrel of oil from this difficult source costs between $10 to $15. When crude oil cost $15 to $20 a barrel in the late 1980s and the 1990s, Funk's consulting telephone rarely rang.

The $60 crude prices of the last two years make tar sands a hot topic again.

"The tar sands oil, although it's heavy and has a lot of sand and a lot of impurities, is attractive," Funk said. "But you've got to pipeline it somewhere and you've got to own it."

The EnCana joint venture, which will be finalized in January, could provide tar sands crude to the Billings refinery, which Funk calls a logical move.

"It's not that far from Alberta. You're not pipelining it to Louisiana," Funk said. "That's what's attractive to ConocoPhillips."

ConocoPhillips owns a dozen U.S. refineries. Built in 1949, the Billings refinery is one of the oldest and is the smallest. Yet Billings is one of the most profitable. This year, the 60,000-barrel-a-day refinery is setting production records while maintaining a no-injury safety record, Mulva said.

"We're looking at ways we can make some substantial investments so as to add capacity and... ability to handle the lower-quality crude," he said. "So, we see a really bright future for the Billings refinery and our presence in the community for decades to come."

To see more of the Billings Gazette, or to subscribe to the newspaper, go to http://www.billingsgazette.com.

Copyright (c) 2006, Billings Gazette, Mont.
Distributed by McClatchy-Tribune Business News.
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