Transforming tarry oilsands into synthetic crude is far from a perfect science, especially in northern Alberta's often hostile environment.
A fire last week at Suncor Energy Inc.'s plant near Fort McMurray is just the most recent incident in a string of problems that have beset oilsands operators.
Suncor, which continues to investigate the fire, says the nine-hour blaze was located in one of the plant's two oilsands upgraders. It mainly affected a coker fractionator, equipment that separates various crude oil products from the molasses-like bitumen.
The fire has cut the company's production in half, from about 225,000 barrels per day (b/d) of synthetic crude to about 110,000 b/d. There were no injuries among the plant's 250 employees, including the firm's own firefighters who snuffed the blaze.
There have been two previous fires at the Suncor plant - one in October, 2004 and the other in July, 2003 - that caused production outages lasting four to five days.
But Suncor isn't the only oilsands operator that has run into problems.
Western Oil Sands Inc. says one of its processing units or "trains" at its Scotford upgrader at Fort Saskatchewan, northeast of Edmonton, is expected to be shut down to the end of January while repairs are made to metal tubing inside the unit's aerial coolers.
The upgrader, part of the Athabasca Oil Sands Project jointly owned with Shell Canada and Chevron Canada, continues to produce at about 65-per-cent capacity thanks to its second unit.
Shell's Muskeg River oilsands mine, which feeds the Scotford upgrader, had a fire a year ago during a bitterly cold January. Extensive freezing damage ran the repair bill to about $150 million, and the fire cost Shell more than $500 million in lost production.
Last fall, Suncor's new $630-million Firebag oilsands operation got knocked out of production after the facility's water-treatment plant required maintenance just seven months after startup. The plant cleans and recycles water used to make the steam that's injected underground to loosen the bitumen deposits.
Petro-Canada Inc. has also been dogged by water-handling problems at its $300-million MacKay River steam-assisted oilsands plant northwest of Fort McMurray since startup in 2002. Last year, the company shut down the plant for five days to install $25 million worth of equipment to produce consistent, quality water.
These problems are, for the most part, the anticipated "bugs" that come with operating complex oilsands-refining equipment - especially when temperatures plunge to -35OC.
But such incidents also illustrate the sometimes unpredictable nature of current oilsands technology. And they underline the importance of new research under way at the University of Calgary and University of Alberta.
At the U of C's new Alberta Ingenuity Centre for In Situ Energy, researchers are searching for the "holy grail" of oilsands development. Their ultimate goal is to develop novel methods and technologies for doing some or even all of the upgrading underground - right in the geological reservoir where the bitumen is located.
Such an advance would revolutionize the industry. It would eliminate the need for much of the facilities on the surface, from fractionators that catch fire to water-treatment plants that plug up.
The way upgrading works now, the gooey bitumen steamed out of the ground is essentially cooked at high temperatures in pressurized containers to separate the valuable hydrocarbon products from unwanted substances such as sulphur, metals and a waste residue called petroleum coke.
This so-called thermal cracking process is inefficient, uses a lot of energy and, because of the high temperatures and volatility of the substances involved, takes as much art as science.
At the U of A, researchers at the Imperial Oil Centre for Oil Sands Innovation are looking for more efficient, environmentally friendly and cheaper ways to upgrade bitumen. This includes investigating the use of nanotechnology-scale filters to separate desirable oil products from unwanted pollutants.
Meanwhile, the oilsands industry is still dithering over whether to help pay for a proposed new $2.6-billion northern rail and road network from the Edmonton area to Fort McMurray.
Highway 63 certainly needs upgrading, especially for the safety of the motoring public. But the heavy-gauge industrial railway's main purpose would be to haul the bulky and inefficient equipment now being used in bitumen-extraction and upgrading operations.
Such a rail link could lock the industry even more into using this kind of technology - technology that is bound to cause environmental problems, including increasing greenhouse gas emissions.
Oilsands companies that are looking to the future would be smarter to invest their money instead in the two new university research centres to speed development of highly efficient, "green" ways of tapping Alberta's vast energy resource.
The provincial government's newest offer to settle the contentious oilsands-versus-natural gas issue should also mean the dispute will never get to court.
The province expects to give up $95 million this year in royalty payments from gas producers as compensation for the Alberta Energy and Utilities Board's (EUB) decision to shut in producing gas wells to preserve reservoir pressures so bitumen can be extracted in the future.
About 70 per cent of Paramount Energy Trust's cash-flow losses will be covered by a policy that Alberta Energy outlined in a letter to the 12 affected companies, according to Paramount president and chief operating officer Susan Riddell Rose.
The policy will be in place for 10 years, with the amount of annual compensation tied to the market price for natural gas. Companies will have to repay the royalty adjustments if and when they get to resume production from their gas wells.
Riddell Rose has led a 17-month charge against the EUB's decision in mid-2003 to initially shut in 938 gas wells.
Paramount also threatened legal action if the province didn't provide adequate compensation.
But Riddell Rose, in talking with reporters last week, didn't mention going to court. She said the compensation plan settles the financial side of the dispute.
Hearings by the EUB to be held later this year are still needed to sort out technical issues, including the fate of certain contested wells and the need for more study on the effects of gas drilling on bitumen deposits.
But those aren't the kinds of issues that will spark a court battle. Thankfully for all concerned, this looks like the end of this sometimes nasty eight-year battle.
Why is the Ralph Klein government playing favourites among industry sectors when it comes to major projects?
Last month, the government granted "special project" status under a rarely used section of Alberta's labour code to Canadian Natural Resources Ltd.'s (CNRL) planned $10.5-billion Horizon oilsands project north of Fort McMurray.
The province says the labour code exemption - not used since 1989 - will allow Canadian Natural to negotiate a blanket agreement with one union on pay and working conditions that could also apply to all other labour contracts, union and non-union, for the project's duration through 2012.
The provision also makes any strike or lockout illegal during contract negotiations.
What the move really does is enable Canadian Natural to employ cheaper foreign labour to build its project. About 6,500 workers are expected to be needed at peak construction in 2006 and 2007.
Not surprisingly, now that the province has opened the door to such special arrangements, Shell Canada, Nexen Inc. and OPTI Canada Inc. are also reportedly considering applying for the soon to be not-so-rare labour code exemption for their new oilsands projects.
The government cut this special deal for an oilsands developer through an order-in-council. But what of other industries pursuing mega- projects, such as much-needed road or electricity transmission infrastructure? Shouldn't they also get a similar break?
If the Kleindom of Ralph is going to toss collective bargaining and competitive bidding to the wind and flood Alberta's labour market with cheaper-paid foreign workers, why play favourites with just one industry?
(Mark Lowey can be reached at mark@businessedge.ca)
