Rise of Canadian Oil Sands Projects Promote Round of New Bitumen Upgraders

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). As more and more oil sands projects are announced in western Canada, the value of dumping bitumen on the market seems less and less fiscally appealing. The sheer amount of proposed projects will create a supply side equation increase and overwhelm the capacity of refiners to process this low API value bitumen. If you talk with anyone in the business they will tell you that there is very little if no value in dumping their proposed product on the market in an un-upgraded form. From that stand point, several companies have now included on-site bitumen upgrading in the scope of their project.

Companies like Canadian Natural Resources Limited (NYSE:CNQ)(Calgary, Alberta), UTS Energy (TSX:UTS.TO) (Calgary, Alberta), Husky Energy Incorporated (TSX:HSE.TO) (Calgary, Alberta), Deer Creek Energy Limited (TSE:DCE.TO), and others are now considering bitumen upgraders with a daily throughput capacity of 100,000 barrels to 250,000 barrels of bitumen. The synthetic crude output of these facilities will have a much more marketable value with an API rating of between 34 and 41. Some companies are seeking to peg the price of their synthetic crude at a dollar less than the price of West Texas Intermediate crude. Upgrading the low value bitumen into higher value synthetic crude will allow many existing refiners to utilize it as feedstock. Combining this tactic with plans to convert several existing refineries into facilities that accept diluted bitumen will go a long way to absorb the predicted 3.1 million barrels per day of increased production that will come out of the Northern Alberta oil sands patch over the next decade.

If the upgrading issue is properly addressed, the flow of synthetic crude from Canada into U.S. markets will occur unimpeded. This Canadian supply will go a long way to stabilize the price of crude and even reduce the price in the long term, as well as to secure the U.S. a more politically stable supply. The numbers are on the side of stability and growth. Over the next decade approximately $25 billion is expected to be invested in the oil sands sector in Alberta, as well as in infrastructure, transportation and storage in the northern U.S. and British Columbia. The resource itself is enormous. The estimates for total oil sands in place in Alberta range from 1.3 to 3 trillion barrels, about 350 - 400 billion barrels, of which are extractable using today’s technology. Only time will tell if the facilities will be constructed to refine and export this resource and whether it will have an effect on the price of petroleum products in the U.S.

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