Oil Sands

Oil and natural gas company investments to develop, transport and refine Canada’s enormous oil sands resources are important to increase supply flexibility and North America’s energy security and reliability, while reducing the risk of supply disruptions. Critical refining investments will increase fuel supplies for key regions like the U.S. Midwest.

Canadian oil sands are a reliable and plentiful strategic resource that contributes to meeting our nation’s growing energy demand. This vast, nearby resource also makes the United States more energy secure.

• The U.S. Energy Information Administration estimates U.S. primary energy demand in 2030 will be 19 percent higher than 2006 levels.
• To meet increasing demand and the needs of a strong economy, the United States will need more energy of all types – more oil and natural gas, more nuclear, more alternative energy sources like ethanol, solar, wind and other renewables, as well as increased energy efficiency.
• Our North American neighbor, Canada, is the United States’ number one supplier of imported oil and natural gas. In 2007, Canada shipped nearly one million barrels per day more oil and refined products to the U.S. than did our second largest supplier of imported oil and refined products. About half of the Canadian crude oil brought into this country is derived from oil sands, and this proportion is expected to increase as oil sands production grows.
• Canada sends more than 99 percent of its oil exports to the United States.
• Canadian oil reserves are vast (estimated at 173 billion barrels) and are second only to Saudi Arabia. These deposits consist of sand and mineral-rich clay laden with water and bitumen, a form of heavy oil. Oil sands now account for more than half of western Canada’s total oil output, according to the Canadian Association of Petroleum Producers.
• Canadian oil sands production is expected to rise from about 1.2 million barrels per day currently to about 3.5 million barrels per day in 2020.

Canadian oil sands will provide greater fuel supply reliability and reduce the risk of supply disruptions to consumers.

• Oil companies are investing huge sums to expand and upgrade refineries in the Midwest and elsewhere to make gasoline and other refined products from the Canadian oil derived from oil sands. In addition, pipeline companies are investing in new infrastructure to transport Canadian oil into the United States.
• The expansion and upgrade projects will create new construction and other jobs and bring additional tax revenue and other economic benefits to the U.S.
• Using more of this nearby, reliable Canadian supply will make U.S. refineries less vulnerable to supply disruptions caused by geopolitical upheaval or storms in the Gulf of Mexico.

U.S. and Canadian Pipeline Expansion Plans

Some of the major pipeline projects in the U.S. and Canada, which have been publicly announced, include:

• Enbridge “Spearhead” System Reversal: March 2006 reversal of the Cushing, Oklahoma to Chicago, Ill. (formerly BP) line to extend regular flow of Canadian crude from Chicago area to Cushing (completed)
• ExxonMobil Pegasus Reversal: Spring 2006 reversal so that around 60,000 barrels per day of Canadian crude supplies received in Patoka, Ill. can now flow to U.S. Gulf refineries (completed)
• Flint Hill’s (Koch) MinnCan project to add a second pipeline from northern Minnesota to refineries in the Minneapolis/St. Paul area to increase Canadian crude refined in that area (ongoing)
• TransCanada’s “Keystone” project that creates a new pipeline system from Alberta to Wood River in Patoka, Ill. with a lateral to Cushing (ongoing)
• Enbridge’s Southern Access Program built in stages to increase the capacity of its existing system by 400,000 bpd into Chicago and extend the system from Chicago to Patoka (ongoing)
• Enbridge’s Alberta Clipper project expanding its mainline by 450,000 bpd (ongoing)
• Kinder Morgan Canada is expanding its Trans Mountain pipeline system to transport increasing volumes of crude oil and refined products from Western Canada to British Columbia, Washington State, and via ship to California and offshore markets (ongoing)
• Enbridge’s proposed “Gateway” pipeline to the British Columbia coast and via ship to serve off-shore and California markets (proposed)

There are other projects that have been proposed in recent years but that are not in full development and a number of other feasibility studies underway to extend capacity east of Chicago.  Altogether, these investments in pipeline infrastructure to secure crude supplies to many U.S. refining markets exceed $11 billion dollars in committed and potential investments.

U.S. Refinery Expansion Plans
Significant plans are in place to increase production in Canadian oil sands and to transport it to refineries throughout the Midwest and the Gulf Coast. Several companies are currently considering expansions to process this type of crude supply. To refine oil sands, a refinery typically requires additional coking and vacuum distillation capacity, additional sulphur recovery and hydrogen production. Metallurgy upgrades may be needed if the bitumen is processed on site. Additional upgrades to hydro processing units may also be required. Given the scale of a typical US refinery, these upgrades require significant planning and capital investment. Nevertheless, a conversion from one crude feedstock to another does not impact the quality of the finished products.

Some of the major refinery projects in the U.S., which have been publicly announced, include:

• Motiva Port Arthur Refinery has $7 billion expansion underway that will make it the largest refinery in North America in 2010; 325,000 barrel per day expansion will result in 600,000 BPD total capacity with capability to process Canadian oil sands crude.
• ConocoPhillips formed a partnership with EnCana to increase Canadian production of oil sands and refining capacity at Wood River and Borger.
• BP has plans for a $3.8 billion expansion at its Whiting refinery.
• Marathon has a $1.9 billion expansion in process at its Detroit refinery.
• BP formed a partnership with Husky to develop Sunrise oil sands and expand BP’s Toledo refinery to process an additional 110,000 barrels per day of heavy oil sands.
• Hyperion Resources has announced plans for a 400,000 BPD, $8 billion grass roots refinery in South Dakota to process oil sands-derived crude.

The Oil Sands Process
An overview of Steam Assisted Gravity Drainage (SAGD) and oil sands.

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• The extraction and processing of oil sands, like all minerals development, requires energy, which results in greenhouse gas (GHG) emissions. However, in a full lifecycle analysis, GHG emissions from the extraction, processing and use of oil sands oil is nearly identical to that of other heavy crude oil, like Venezuelan or Mexican crudes (see chart from TJ McCann and Associates, 2001 analysis).
• Technological advancements have cut per-barrel GHG emissions from oil sands production by 32 percent compared to 1990 levels, according to the Canadian government.
• Using oil sands as a feedstock does not affect the quality or the tailpipe GHG emissions of the refined products. In fact, gasoline and other fuels made from oil sands already are being used in the United States. The vast investments refiners and pipeline operators are making to increase capacity and flexibility to process oil sands includes all the necessary equipment to make products that meet all the required specifications.

The Canadian oil and gas industry is working in conjunction with the Canadian federal and Albertan provincial governments to reduce GHG emissions through accelerated research and development of carbon capture and storage (CCS) technology and energy efficiency improvements. For more information regarding how the Canadian government and oil and gas industry are addressing environmental issues associated with oil sands development, visit the Canadian Association of Petroleum Producers (CAPP).