THE HEAVY OIL ISSUE

March is devoted to heavy oil, that is, oil which is literally heavier and thicker than the sweet light crude oil that the petroleum industry prefers. Heavy is much in the news today, and is the subject an oil rush reminiscent of the earliest days of the Texas wildcatters on the oil frontier except that nobody’s getting shot this time. That’s because it’s mostly happening in Canada, and Canadians are nice people who settle their differences amicably.

The reason people are so excited about heavy oil is that there is so much of it—way more than the remaining reserves of conventional oil by many estimates. It’s like we can start the petroleum age all over again, complete with gas guzzlers, cheap air fares, and maybe even high test.

Only it’s not going to be like that because heavy oil is not just gooier than light crude. It’s a lot harder to pull out of the ground, and most of it resides in two places, Venezuela which is now officially part of the Axis of Evil, and northern Alberta in Canada which is the only place in the world resistant to global warming and retains vilest climate in the Western Hemisphere. So you take your choice, Hugo Chavez or hypothermia.

In truth there are a multitude of other problems in making heavy oil happen in a really big way as well, let alone on a scale remotely comparable to what has happened and what is still happening with light crude. We’ll be examining both the challenges and the possible solutions in the March issue.

Heavy Oil’s Heavy Going

Heavy oil includes any form of petroleum with an American Petroleum Institute specific gravity rating of less than 22.3. The general range is from 22.3 down to 10, with 10 being heaviest, and that range encompasses soupy oils that are difficult but not impossible to pump as well as bitumen at the opposite extreme. Bitumen consists of sticky semisolids that are generally mixed with sand and for that reason it is sometimes known as tar sand, though that term applies properly only to the Canadian desposits. Bitumen, incidentally, has been used for waterproofing and surfacing for thousand of years, and, if it’s not all burned in the next few decades to meet transportation needs, it may be used in the original applications for thousands of more years.

Most but not all of the heavy oil in Canada comes under the designation of bitumen and is commonly referred to as tar sand. In Venezuela, on the other hand, practically all of the heavy oil resource has a relatively low specific gravity and can be pumped. Both countries are richly endowed with heavy oil, with either reserve containing perhaps as many as a trillion barrels—or even more, by some estimates.

As it happens, neither Canada nor Venezuela is producing a tremendous volume of refined products from heavy oil resources today, and there are a number of reasons why.

In the case of Venezuela the yield is next to nothing since the country still has plenty of conventional oil, and because President Hugo Chavez has reportedly purged many of the individuals within Venezuela’s state energy firm having expertise in extracting and processing heavy oil. Because of Venezuela’s utter dependence on oil revenues and declining conventional oil production, whoever is running the state enterprise in the years to come will be eventually forced to hire the know how to make heavy oil happen, but that won’t occur immediately.

In the case of Canada the problems are more purely technical and logistical rather than political. Those engaged in harvesting the oil sands are concentrating on surface deposits where the oily sand can be literally scooped out of the earth with gigantic power shovels, deposited on a conveyor belt, and immediately processed at adjacent facilities to separate the oil from the debris. However, most of the oil cannot be gotten by these means, and still experimental techniques are going to have to be utilized to get at the enormous subsurface deposits. Currently around one million barrels a day are emanating from the Alberta tar sands, a small percentage of the 82 million barrels being produced today globally on a per diem basis.
Unlike Venezuela, Canada seems disposed to increase production, but practically all credentialed oil engineers and geologists who’ve studied this resource caution that Canadian tar sands should not be regarded as panacea for the West’s and particularly the United States’ energy problems. While the resource is undoubtedly huge, the infrastructure for exploiting it is not, and was virtually nonexistent at the beginning of this decade. Indeed, the unconventional oil industry is approximately one hundred years behind the conventional oil business in terms of rigs and refineries. The fact that the fields themselves are incredibly huge and few in number suggests that development can take place much more rapidly than was the case for the world’s scattered deposits of light crude oil, but most authorities see a thirty year development cycle lying ahead, and believe that even when it is completed and anticipated improvements in technology occur, the fields will never produce more than 8 million barrels per day and probably a great deal less. That means any notion of Canada taking the place of the Middle Eastern producers is chimerical. Ain’t gonna happen. And even if we throw in America’s equally enormous oil shale outcroppings, achieving a production level of 10 million barrels a day would be a stretch, and the U.S. alone already consumes some 22 million barrels per day. That means that English speaking North America will not achieve oil independence unless the unconventional resources are greatly supplemented by synfuels derived from gas and coal, and, of course, by various biofuels.

Apart from the relative immaturity of extractive technologies and the lack of infrastructure, heavy oil producers face other serious if not insurmountable problems. Perhaps the most serious of these is the inadequacy of Canadian natural gas supplies to meet the demand of heavy oil refiners. Bitumen is heavily aromatic, that is, it contains a lot of carbon atoms that are not paired with hydrogen atoms. A high aromatic content in gasoline makes for lots of air pollution, and so the aromatic chains have to be converted into olefins and paraffins by adding hydrogen, which is normally obtained by steam reforming natural gas today. Canadian natural gas is already greatly in demand for electrical generation, heating, and chemical processing, and further demands imposed by oil refiners simply cannot be met. That means the hydrogen has to come from elsewhere. Techniques exist for deriving hydrogen from bitumen and also for coal, but the cost for either process is considerably higher than steam reforming of natural gas, and, of course, if bitumen is being sacrificed to produce hydrogen, there is less available for processing into fuel.

To make matters worse, copious amounts of natural gas are presently used to provide process heat for recovering and refining oil from bitumen. Bitumen has to be pyrolized, that is, heated to a temperature where it becomes fluid in order to be subsequently cracked into the various fractions of liquid fuels and lubricants. That process can be done after the bitumen is extracted or when it is still in ground, and, if the second course is followed, the hot oil can be pumped out of the excavation, eliminating the requirement for transporting bulky oil laden sand. In either case, however, a good deal of fossil fuel must be expended to obtain usable refined petroleum products, and so the cost is relatively high and the energy balance is relatively poor. And, it goes without saying, that the CO2 emissions are far worse than is the case for those from conventional oil refineries.

Proposals have actually made for using atomic energy to supply the process heat to produce light oil from bitumen, and I suppose it’s possible, but I wouldn’t present that as the likeliest scenario. Others have suggested that geothermal heat could be used for the same purpose, though the precise extent of geothermal resources in the oil sands regions is unknown. My guess is that the process heat as well as the hydrogen will come mostly from stranded natural gas, coal, and bitumen itself.

A final significant problem with heavy oil production is the large amount of toxic tailings left behind when the bitumen has been removed. For reasons we need not discuss here, the residue from bitumen extraction is approximately twice the volume of the original material removed, and so the waste cannot simply be stuffed back into ground. At present it is left to litter the landscape but that is hardly a solution. Moreover, bitumen harvesting is water intensive and water polluting, and at some point that problem must be addressed as well if the industry is to go forward.

The tendency today is to shunt such problems aside, but as the environmental damage spreads, obliviousness will seem less a suitable response. Only the fact that most of the oil sand is located in sparsely populated regions has kept such concerns from assuming much urgency to date.

Where’s the Money?

The heavy oil business has fewer startups than most areas of alternative fuel, but there are some, including companies touting novel extraction and refining techniques. Anyone capable of attacking any of the industry’s more intractable problems effectively stands to make a lot of money. We’ll report on some of the more interesting startups, including Syngas International, a Fairchild International Company which has developed a new chemical pathway for producing hydrogen and syngas from bitumen with purported cost breakthroughs, and Chattanooga Corporation, an independent American firm which has developed an in situ underground extraction technique which is claimed to be more energy efficient and less polluting than any rival techniques.

There are others as well, and undoubtedly more will appear, and quite possibly some of the new technologies being developed for oil shale will carry over into tar sand though the resources are not physically equivalent. Any synergy between the two areas would be highly beneficial to both.

Meanwhile, many new exploration companies are attempting to raise money for new tar sand ventures, and a tar sand bonanza may be said to be in progress. We do not comment upon the investment prospects presented by such endeavors, but we will state that the oil sands phenomenon is real and that the economics are already proven for the mining of surface deposits. In situ extraction schemes are another matter, and we would advise proceeding with caution if one is contemplating investment in this area. What should be pointed out, however, is that resources are well characterized, and we don’t see exploration companies drilling many dry holes. We already know where most of the tar sands are located. The problem is getting them out at a reasonable cost in cases where there is considerable overburden, which is the majority of cases.

In respect to Venezuelan heavy oil, we see little progress being made until political stability returns to that country. At that point the enormous heavy oil reserves will present a very attractive opportunity, and will almost certainly pose far fewer economic and environmental problems than is the case with Canada’s oil sands.