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Canada Is Ready To Exploit Huge Oil Reserves Locked in Sands

ALBERTA'S tar sands, long recognized as a potential source of massive amounts of oil, may in a few years become a notable factor in the world oil market.

Recent tests of a new technique for exploiting the underground resource indicate costs can be brought down to a competitive level with recovery of deposits of liquid oil at present world prices, government experts say. The Athabasca tar sands are located in the flat, featureless terrain at the northern end of this province.

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These deposits contain ``greater volumes than the entire Middle East oil reserves,'' states the 1993 report of the Alberta Oil Sands Technology & Resource Authority, the agency mandated to promote exploitation of this vast energy resource. Official estimates record a volume of at least 1 trillion barrels of oil enmeshed in gritty, tarry masses of bitumen, sand, clay, and shale, equal to six times the reported reserves of Saudi Arabia.

To date, oil sand production is minor. Development has been disappointing because of the high costs of extracting the oil. One problem is weather. Winter temperatures drop well below zero degrees F., when tempered steel mining equipment can snap like dry noodles. Second, the oil does not flow. The tarry agglomerations must be mined and the bitumen separated from the sand. The tar then must be upgraded to a salable product.

Total costs for this process run about $20 per barrel (Canadian, US$15), leaving little margin for government royalties, federal taxes, or company profits. Even with royalty and tax breaks, the projects eke out a modest rate of return. Saudi oil can be produced for less than $2 a barrel.

``We are the Saudi Arabia of the North,'' says Dr. Rick Luhning, vice chairman of AOSTRA. ``We now believe that we have developed the key to these riches.'' That key is a new mining/extraction process. It worked at the pilot stage and is now poised for commercial-scale development.

The tar sands are not new discoveries. Peter Pond, when first exploring the area more than 200 years ago, found Indians waterproofing canoes with bitumen from natural seeps.

Two multibillion-dollar ``mega-projects'' have been completed and produce almost 300,000 barrels per day (bpd) - as much as the smallest OPEC members. Four other follow-on schemes are on hold. The technology, still too costly, leaves little scope for future refinement: The tarry masses are mined using oversize equipment including huge excavators and draglines. They are then frothed and centrifuged to separate the oily bitumen. The viscous residues are then upgraded to a low-sulphur ``synthetic'' crude oil in refinery-like plants. The process is capital intensive and promised savings from large-scale operations were not realized.

The new method reverses the conventional logic. First, it starts from the bottom up, rather than from the top down. Instead of surface mining the sands, the ``steam- assisted gravity drainage'' technique starts from mining shafts 500 to 600 feet down into hard rock underlying the tar beds. The surface is barely disturbed. Then pairs of parallel horizontal wells are drilled from the shaft into the sands. The top horizontal wells are pumped full of medium-pressure steam. That fluidizes the viscous tars, which flow into the lower horizontal well. The tar is then easily pumped to the surface.

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The second advantage of the new approach is its small scale: The optimal size is 30,000 bpd, a fraction of the size of the existing megaprojects.

The savings are dramatic. No overburden must be removed, no land reclamation costs whatsoever are incurred, and by far the bulk of the sand and waste rock is left undisturbed. Instead of excavating tons of sand and rock, the process pumps out tons of hot bitumen. The process is economically and environmentally much simpler.

The final technical breakthrough came as horizontal drilling techniques were perfected. The process only works if the pairs of pipes are properly positioned - about 8 to 14 vertical feet apart. If the pipes are too close, there is a ``short-circuit,'' and the steam bypasses part of the sands. If too far apart, the yield is much reduced. Pipes now can be positioned within one to two feet of a target over almost 1,800 feet. This permits 50 percent to 60 percent of the contained oil to be recovered. These wells are prolific, flowing at 10 times the average for conventional ones in this area. The production cost for bitumen before upgrading to crude oil is US$6 per barrel, about $4 to $5 per barrel less than present projects and enough to make the process viable.

A consortium is mobilizing to launch the commercial project, although realization will take three to four years. The Alberta government has shared the costs and the technology with a clutch of North American oil companies, but two unexpected partners have recently joined. The Chinese National Petroleum Corporation hopes to use the techniques to exploit tar deposits in the eastern Gobi Desert.

The Japanese government is also represented. JAPEX, its agent, has spent billions of dollars searching for large-sized, reliable, and economic oil sources outside of the Middle East, a goal which has eluded them.

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