Canadian Natural Resources and North West Upgrading Submit Joint Proposal for Bitumen Upgrading and Refining Project in Alberta

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Canadian Natural Resources Limited (NYSE:CNQ) (CNRL) (Calgary, Alberta), the nation's largest producer of heavy oil, and North West Upgrading Incorporated (NWU) (Calgary) have submitted a joint proposal to the government of Alberta for the construction and operation of a bitumen upgrading and refining project, near Redwater in Sturgeon County, under the Bitumen Royalty in Kind (BRIK) processing agreement. Additionally, CNRL plans to acquire a 50% stake in NWU's assets and forge a 50:50 partnership to construct and operate the facility. The acquisition is expected to be finalized later this year.

The first phase of the project entails a one-step conversion of 500,000 barrels per day of bitumen, obtained from the oil sands of Alberta, to finished products such as low-sulfur diesel fuel. CNRL, which will hold a 50% stake in the project, will cater to 12,500 barrels per day of the facility's bitumen requirements in the first phase. NWU is looking to secure the balance 37,500 barrels per day of bitumen from the government of Alberta, which will procure the raw material from developers in lieu of cash royalties under the BRIK program. With the addition of diluents to raw bitumen, the volume of feedstock will amount to 77,000 barrels per day, with equivalent output from the facility. NWU will serve as the project operator. The total investment in the project is reported to be about $4 billion.

The plant will operate on a combination of hydrotreating, hydrocracking and gasification technologies. Instead of dry coke, NWU's hydrocracker will yield hot liquid bottoms, which will be converted into hydrogen, pure CO2 and oxygen in the gasifier. Hydrogen will be further used to convert bitumen into crude oil that can be refined. This will reduce the plant's requirement of natural gas in the heating process.

Since the gasifier will use oxygen instead of atmospheric air, it will yield pure CO2, unadulterated by nitrogen, which can be used for enhanced oil recovery, resulting in control of emissions. The CO2 recovery system at the facility will be the first to be connected to the upcoming Alberta Carbon Trunk Line of Enhance Energy Incorporated (Calgary), which is intended to supply CO2 for enhanced oil recovery in central Alberta. NWU's technology will reduce the volume of CO2 emissions per barrel in the refining process, in addition to producing pure CO2.

The facility also will be expanded at a later date, subject to economic viability, in two identical phases, each with a capacity of 500,000 barrels per day. Upon commissioning, the project will be one of the world's most advanced bitumen upgrading and refining complexes from an environmental perspective.

The project, planned to be developed some 40 kilometers northeast of Edmonton, Alberta, will also be a merchant upgrader facility in future, upgrading bitumen procured from oil sands producers that do not have their own upgrading facilities. It is expected to serve as a platform for research into the use of hydrogen for oil sands upgrading, and thereby eventually contribute to the development of the hydrogen economy.

NWU was established in 2004 with the vision of establishing a world-class bitumen refining operation in the Alberta Industrial Heartland. The firm is reported to already have spent $400 million on the refinery at Redwater, including $100 million on procurement of critical, long-lead equipment.

The project was delayed due to the global economic meltdown last year but is back on track with the proposed BRIK scheme. The firm completed the environmental impact assessment for the project in February 2005 and received approval form the Alberta Energy and Utilities Board in August 2007. Site preparation work commenced in October 2007. NWU also has completed front-end engineering work, obtained land permits and other approvals, and with more than 847,000 hours of engineering work concluded, says that the project is "shovel ready."

Subject to procurement of feedstock from the government, Ian MacGregor, the chairman of NWU, expects construction to begin in 2011 and the first phase of the project to begin in 2013, employing 3,000 people during the construction phase.

Bitumen is a mixture of viscous organic liquids, composed mainly of polycyclic aromatic hydrocarbons in a highly condensed state. It is primarily used for paving roads and in the manufacture of bituminous waterproofing products. Naturally occurring or crude bitumen is the primary feedstock for production of petroleum from oil sands under development in Alberta. About 99% of the province's proven oil reserves are found in its oil sands. Alberta's total oil reserves amounted to 171.8 billion barrels as of 2008, comprising 170.4 billion barrels of crude bitumen reserves and 1.5 billion barrels of conventional crude oil reserves.

Under the Mines and Minerals Act, the government of Alberta has the option to take its royalty share from production of resources owned by the Crown in right of the province either in cash or kind. The government takes royalties in kind for conventional oil production and in cash for other resources. In October 2007, the government decided to exercise the in-kind collection of royalties for bitumen production as a means for the Crown to supply bitumen strategically to potential upgraders and refineries in the province and optimize its returns on royalty volumes. The BRIK regulations are scheduled to come into effect in 2012 and will cover all bitumen produced in Alberta. The government has received proposals from several interested firms, and is expected to announce a decision in June this year.

View Project Report - 056001051

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project spending opportunity databases, market forecasts, high resolution maps, and daily industry news.