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Posted by Jeff Rubin on February 18th, 2014 under SmallerWorld
One of the largest accidental releases of oil in Alberta’s history isn’t a burst pipeline and it doesn’t involve a train of tanker cars derailing into a river. It’s also not a thing of the past. It’s been going on for about a year and it’s still happening. An estimated 12,000 barrels of bitumen and water has now risen from giant cracks in the forest floor at an underground oil sands project run by Canadian Natural Resources Ltd.
Oil leaks are a regrettable fact of life in the business, but this one might send shivers up the spine of even a veteran oilman. CNRL insists the seepage is due to the failure of four well bores that are supposed to draw oil from its Primrose project, near Cold Lake, to the processing facilities on the surface. Others, including even Alberta’s pro-industry energy regulator, aren’t so sure.
The well bores are separated by several kilometers, which calls into question why four would fail at the same time. A more frightening theory that’s gaining currency suggests CNRL may have overpressurized the underground formation causing the caprock closer to the surface to fracture, which is allowing the bitumen to seep upwards.
Primrose is a so-called in situ oil sands play, which means it uses a process that involves heating bitumen in the ground to a point where its viscosity allows it to be pumped to the surface. It doesn’t create the moonscapes and toxic tailings ponds that have become the signature features of oil sands mining projects, but it’s also not without its environmental footmarks. At Primrose, CNRL, for instance, has been ordered to pump more than 400,000 cubic meters of contaminated water from a small lake contaminated by the bitumen seepage. On a broader scale, the enormous amount of steam needed to extract bitumen from in situ plays, makes the undertaking more carbon intensive than even the mining projects that begin by stripping all traces of the original boreal forest from the landscape.
The carbon trail from in situ projects isn’t the only worry. The extraction method may also be having more of an impact on the earth itself than was previously thought. Geologists have found that injecting massive amounts of steam into bitumen deposits can actually lift the ground cover by more than a foot a month. If this upheaval fractures the caprock then that’s one less barrier left to stop the uncontrolled flow of bitumen to the surface.
The proliferation of such unconventional extraction methods, as the US experience with fracturing shale rock shows, can also have unintended seismic effects. In Oklahoma and other places, for instance, fracking has been linked to earthquake activity.
So far, the Alberta Energy Regulator has yet to deliver a final verdict on the Primrose leak, although it did recently move to limit the amount of steam that CNRL can inject into its wells. While the provincial energy regulator — led by a former EnCana executive and president of the oil industry’s lobby group — does seem to be suspicious of CNRL’s proffered explanation for the seepage, it has yet to order the company to stop injecting steam at its Primrose operations. The longer bitumen keeps seeping to the surface, though, the more pressure the regulator will face to do so.
Whether CNRL’s problems at Primrose are specific to that site or will become a more generic issue for the industry remains to be seen. But with 80 percent of the massive expansion planned for the oil sands coming from in situ production, it’s a question that investors in oil sands stocks will soon want answered.
By Chen Aizhu
BEIJING (Reuters) – Sinopec Group wants to sell half of its two biggest shale gas fields in Canada to spread costs and accelerate their development as the Chinese energy company focuses increasingly on return of investment, an executive said.
The sale of an overseas asset would be a rare move for one of China’s state-owned energy companies, which have spent hundreds of billions of dollars investing in hydrocarbon resources from North America to Australia to secure China’s energy supply, often to hostile reaction.
Canadian Natural Resources Minister Joe Oliver told Reuters in Ottawa that Sinopec’s stance shows “a state-owned enterprise that is acting like a commercial operation”: buying, selling or bringing in partners when appropriate.
Sinopec would join a number of other companies seeking partners in the shale regions of Western Canada, in what has become a buyer’s market, albeit a popular one because the high-value shale gas is likely to soon find a ready market in Asia.
“We are not only buyers, but also actively seek joint-venture partners to optimize assets,” said Feng Zhiqiang, newly appointed chairman of North America operations at Sinopec International Petroleum Exploration and Production Corp, Sinopec Group’s main acquisition vehicle.
“There is no such thing that a state-owned company’s job is only to obtain resources. Scale is important, profitable scale is more so,” Feng told Reuters in an interview.
Sinopec Group, the parent of top Asian refiner Sinopec Corp, is looking for an equal equity partner for Montney and Duvernay, two Western Canadian shale gas plays totaling some 500,000 acres (2,000 sq. km). They are operated by Daylight Energy, which Sinopec acquired in 2011 for more than $2 billion and later expanded.
A sale could be viewed positively in Canada, where a landmark $15.1 billion acquisition of domestic company Nexen by state-owned Chinese oil firm CNOOC Ltd generated intense political debate and a policy backlash that centered in part on whether state-owned firms would follow market signals like normal commercial companies.
Oliver, who visited China earlier this month, said he got no sense of a diminished interest in Canada’s resources.
“There was a lot interest and enthusiasm for our resources and investing in resource sectors in Canada at the very highest level in the government, right up to and including the president (Xi Jinping),” Oliver said.
“The president commented (that) …there is a real complementarity between our countries’ strategic interests, particularly in the energy sector. We need to diversify our markets. It’s a strategic imperative. And they want to diversify their sources of supply and want to make investments in that context as well.”
STEPPING UP EXPANSION
Feng declined to give a price tag for the stakes in the acreage but said their combined recoverable reserves were in the range of tens of trillions cubic feet.
Thanks to successful exploration and a low purchase price, Sinopec has boosted the value of Montney “many times over”, but the cost of the drilling to monetize the unconventional resource is too heavy for Sinopec to handle alone, said Feng. Sinopec wants to remain the operator.
Sinopec, which supplies nearly half of the Chinese oil market, has so far spent $10 billion in Canada, around 14 percent of its total overseas investments.
It pumps an oil equivalent of 3.5 million tonnes a year, or 70,000 barrels per day, from its two main acquisitions there -shale gas-focused Daylight Energy, and a 9.03 percent stake in heavy oil producer Syncrude.
That is a fraction of the nearly 5 million barrels a day Sinopec buys on the international market for Chinese refineries.
As a result of very high development costs and weak gas prices following the U.S. shale boom, Sinopec’s Syncrude operations have so far generated returns below expectations, and Daylight is still seeing negative cash flows, Feng said.
Despite that, Sinopec wants to accelerate expansion over the next few years in Canada, potentially a major and stable supplier to China, which overtook the United States last month as the world’s top net oil importer. Canada holds the world’s third-largest oil reserves after Saudi Arabia and Venezuela.
Sinopec also hopes to be a sizeable gas player in Canada, building on the Daylight business and targeting annual capacity of 10 million tonnes of liquefied natural gas by around 2020 to help feed China’s rapidly growing demand for the cleaner fuel.
“There are few other pairs of countries like Canada and China that best complement each other,” Feng said.
But regulatory hurdles and lack of key infrastructure may hinder the growth of the Canadian energy sector, he said.
The Canadian government has raised the bar for future acquisitions of its vast oil sands reserves by state-owned enterprises, limiting them to being minority stake holders.
Sinopec also holds a 5 percent stake in Enbridge Inc’s planned $5.8 billion Northern Gateway pipeline, which would take oil sands crude from Edmonton, Alberta, to the Pacific Coast port of Kitimat, British Columbia.
The line is awaiting a final decision from federal regulators, expected by yearend. But the provincial government of British Columbia is wary, and the project faces solid opposition from environmental groups and aboriginal communities.
Changing market conditions have brought Sinopec many takeover targets, but it will be picky and aim for “fair price” deals, Feng said.
“Many companies are chasing us as a lot of oil sands and gas companies are in financial difficulties. But most of them still have very high expectations and believe that Chinese or Asian companies are ready to pay significant premiums,” he said.
Talisman Energy Inc, Canadian Natural Resources Ltd, Athabasca Oil Corp and others are already looking partners for their holdings in the Montney and Duvernay shale gas regions.
The two regions have become attractive to the oil industry despite low natural gas prices. Not only will the gas from the regions’ fields find a ready market in Asia once planned LNG plants are completed on the British Columbia coast, but the regions also contain millions of barrels of high-value natural-gas liquids such as ethane and propane.
- Sinopec keen to sell half of its Canadian shale assets in Montney and Duvernay (business.financialpost.com)
- Sinopec profit rises as fuel price controls eased (kansascity.com)
- Sinopec 3Q profit up 20 per cent after China loosens fuel price controls (canadianbusiness.com)
- Sinopec Profit Precedes Li’s Plan to Reduce State Role – Bloomberg (bloomberg.com)
(Note: CBC does not endorse and is not responsible for the content of external links.)
Many oilsands projects will not have their potential environmental impacts reviewed by the federal government under updated rules announced today, environmentalists warn.
The Canadian Environmental Assessment Agency released lists Friday outlining changes to the types of resource development and infrastructure projects that will routinely require a federal environmental assessment. The federal review is intended to look at possible environmental impacts under federal jurisdiction, such as impacts on waterways or greenhouse gas emissions.
One concern that environmentalists have with the new rules is they won’t require environmental reviews for a growing type of oilsands development.
In-situ oilsands developments — projects where the oil is melted directly out of the ground rather than being mined and then processed later — were not specifically addressed in the previous list of projects requiring federal environmental assessments, said Keith Stewart, climate and energy campaign coordinator and energy policy analyst for the environmental group Greenpeace. And now, they are not included in the new list of projects requiring them.
The Canadian Environmental Assessment Agency’s announcement lists the types of projects that once required a federal environmental assessment that no longer do, including:
- Groundwater extraction facilities.
- Heavy oil and oilsands processing facilities, pipelines (other than offshore pipelines) and electrical transmission lines that are not regulated by the National Energy Board.
- Potash mines and other industrial mineral mines (salt, graphite, gypsum, magnesite, limestone, clay, asbestos).
- Industrial facilities (pulp mills, pulp and paper mills, steel mills, metal smelters, leather tanneries, textile mills and facilities for the manufacture of chemicals, pharmaceuticals, pressure-treated wood, particle board, plywood, chemical explosives, lead-acid batteries and respirable mineral fibres).
The government also released a list of projects that did not specifically require a federal environmental assessment before but now do, including:
- Diamond mines.
- Apatite mines.
- Railway yards; international and interprovincial bridges and tunnels.
- Bridges that cross the St. Lawrence Seaway.
- Offshore exploratory wells.
- Oil sands mine expansions.
Focus on ‘major projects’
The government said the changes were made so that the agency’s work is focused on “major projects” that have the “greatest potential” to generate negative environmental impacts under federal jurisdiction, such as impacts on waterways, and other projects would not be “unduly burdened” with extra work.
The federal government heard from a wide range of stakeholders, including industry and environmental groups, before deciding what would be covered under the new rules.
Stewart said that while the government acknowledged environmental groups’ concerns, it did not make changes based on those concerns.
Most notably, he said Greenpeace is concerned about the lack of routine environmental assessments of in-situ oilsands developments. He noted that this type of project is the source of a huge bitumen leak Northern Alberta. As of the end of September, the leak near Cold Lake had already released 1.5 million litres of bitumen – a mixture of oilsands, heavy crude and water into the environment. The Alberta government has ordered the project operator, Canadian Natural Resources Ltd., to drain two-thirds of a lake in an effort to stop the leak.
Stewart said 80 per cent of known oilsands deposits are so deep that they are only accessible with in-situ technology.
“Yesterday, Environment Canada released report which projected that by 2020, this type of oilsands development will be generating more greenhouse gas emissions than all of the Maritime provinces put together today,” he added.
“They’re exempting themselves from environmental oversight over what’s going to be the biggest source of new pollution in the country in coming decades.”
The group that represents oilsands producers said developments will still face provincial environmental reviews.
“The province still has a mandate to do an assessment, so this eliminates two layers of doing the same thing — the provincial government will still do its review and it will be equally as comprehensive,” said Geraldine Anderson from the Canadian Association of Petroleum Producers.
While acknowledging that provincial environmental assessments will still be required for some projects, Stewart calls the permitting process for in-situ oilsands development in Alberta “a rubber stamp.”
In 2012, the federal government announced a major overhaul of the federal environmental assessment program, introducing fixed timelines for major projects and reducing the number of departments and agencies that can do environmental reviews from 40 to just three.
- Major oil, gas and provincial pipelines excluded from list requiring environmental reviews (o.canada.com)
- Ottawa backs off environmental assessments of oilsands projects (calgaryherald.com)
- Ottawa seems to be backing off oil sands assessment (macleans.ca)
- Fastest-Growing Emissions Source Won’t Get Canada Review (bloomberg.com)
- Muzzling of federal scientists widespread, survey suggests – Technology & Science – CBC News (olduvaiblog.wordpress.com)
- Line 9 protests see hundreds converge in downtown Toronto – Toronto – CBC News (olduvaiblog.wordpress.com)
Canadian Natural Resources Ltd said on Thursday it has cut production at its 115,000 barrel per day Horizon oil sands project and its Woodenhouse heavy oil operations after natural gas supplies were cut following a rupture on TransCanada Corp’s Nova regional natural-gas pipeline network.
Canadian Natural said in an email that production has been reduced following the incident on TransCanada’s 1.6 billion cubic foot per day North Central Corridor pipeline, which delivers gas to the Athabasca oil sands region.
- TransCanada says gas pipeline in northern Alberta may have ruptured (business.financialpost.com)
- TransCanada Pipeline Leak Being Investigated (olduvaiblog.wordpress.com)
- TransCanada says two customers still lack gas after pipeline rupture in northern Alberta (business.financialpost.com)
- TransCanada pipeline rupture forces oil firms to scale back production (theglobeandmail.com)
- Some Injured and Many Dead in Delta Gas Pipeline Explosion (etcetera9ja.wordpress.com)