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Should Alberta Upgrade Oil Sands Bitumen?:An Integrated Life Cycle Framework to
Evaluate Energy System Investment Tradeoffs
Nicolas Choquette-LevyDr. Heather MacLeanDr. Joule Bergerson
31st USAEE ConferenceNovember 6, 2012
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Case Study: Should Alberta Upgrade Oil Sands Bitumen?• Motivation for study:
Oil sands = 3rd largest proven oil reserves in the world
60% of bitumen upgraded (2009)
Alberta’s target: 72% of bitumen upgraded (2016)
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• Key Tradeoffs:High upstream GHG emissions vs. low downstream emissions
High capital expenses vs. higher expected profit margins
Bitumen Production
Bitumen Production
Heavy Crude
Refineries
Heavy Crude
Refineries
Medium Crude
Refineries
Medium Crude
Refineries
Light Crude
Refineries
Light Crude
RefineriesUpgradingUpgrading
Light Sweet SCO
Heavy Sour SCO
DiluentDiluent
Medium Sweet SCO
Dilbit
Source: Adapted from Gary R. Brierley et al, 2006 3
Technical Overview
Synbit
Coke
• Previous Studies:– Consultancy reports (Jacobs, TIAX, CERI, CERA) – Academic studies (McCann and Magee 1999, Furimsky 2003)– Government models (GREET, GHGenius)
• Academic Contributions:1. Build integrated well-to-tank model2. Develop ranges of GHG emissions3. Integrate LCA results with cost-benefit model
• Policy Contributions:1. Aid stakeholders in exploring the tradeoffs of upgrading investments2. Develop recommendations for environmental and Alberta policymakers
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Existing literature does not explore GHG and economic tradeoffs
Private and Public Stakeholder Perspectives
Stakeholder Objective Unit of Analysis
Discount Rate
Industry Maximize the profit of investment
1 bbl bitumen 15%(high risk)
Alberta Public Maximize the aggregate wealth of Alberta
1 bbl bitumen 5%(low risk)
Climate-Concerned Alberta Citizen
Minimize life cycle GHGs; maximize the wealth of Alberta
1 GJ transportation fuel
5%(low risk)
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Base Case Scenario
150,000 bpd bitumen 214,000 bpd dilbit
128,000 bpd SCO
Dilution
Upgrading
64,000 bpd naphtha
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150,000 bpd bitumen
27 kg coke
Industry Perspective
Costs Benefits
Bitumen Production Costs
Upgrading/Dilution Facility Costs
Royalties
Income Taxes
Upstream GHG Taxes
Diluent Expenses
SCO/Dilbit RevenuesSCO/Dilbit Revenues -Adjusted
Discount Rate = 15%*
7* Sensitivity Analysis conducted
Alberta Public Perspective
Costs Benefits
Bitumen Production Costs
Upgrading/Dilution Facility Costs
Royalties
Income Taxes
Upstream GHG Taxes
Diluent Expenses
SCO/Dilbit Revenues -Adjusted
Upstream GHG Social Costs
Discount Rate =5%
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Industry prefers Dilution to Upgrading under any CO2price < $200/tonne (Base Case) – 15% discount rate
Dilbit -IndustrySCO -Industry
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However, AB public prefers upgrading at CO2 prices > $80/tonne – 5% discount rate
SCO AB public
Dilbit AB public
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Dilbit -IndustrySCO -Industry
Risk perception is key leverage point:10% Industry discount rate
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SCO -Industry
Dilbit -Industry
SCO AB public
Dilbit AB public
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Risk perception is key leverage point:5% Industry discount rate
SCO AB public
Dilbit AB publicDilbit -Industry
SCO -Industry
Industry results robust for economic variability
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SCO-Dilbit Differential ($/bbl)
Base Case
Industry results dependent on technical variability
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Base Case
Bitumen:SCO Ratio
Should Alberta Upgrade Oil Sands Bitumen?Stakeholder Position
Industry No: If GHG emissions are near base case results
Maybe: If SCO can be refined at hydroskimming refinery or if risk of investment is reduced
Alberta Public No: If carbon tax/social cost of GHGs are low
Yes: If carbon tax/social costs are above $80/tonne CO2e
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Research Themes Revisited
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Future Work• Improve LCA model
1. Link parameters (e.g. electricity consumption and SOR) for more plausible GHG ranges
2. Track other indicators of crude quality (e.g. aromaticity) that affect refinery emissions
• Develop alternate scenarios (e.g. partial upgrading)
• Explore other research questions/approaches
1. Real Options Analysis
2. Consequential LCA
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Acknowledgements• Dr. Joule Bergerson and Dr. Heather MacLean
• LCAOST research group members
• Institute for Sustainable Energy, Environment, and Economy
• Natural Sciences and Engineering Research Council of Canada
• Carbon Management Canada
• Canada School of Energy and the Environment
• Oil sands industry reviewers18
Alternate Slides
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Context
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From Brandt and Farrell (2007), Climatic Change
• High initial expenses vs. future expected profits
• Investment in capital vs. degree of reversibility
Energy systems investment tradeoffs…
• Energy consumption vs. GHG costs
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…Involve industry and public stakeholders
Policy Case Study: Low Carbon Fuel Standard
• Implemented in B.C. and California
• LCA used to assign each fuel a “carbonintensity”
• Fuels must reduce carbon intensity by 10% over 10 years
• Low-carbon fuels gain credits, high-carbon petroleum fuels must buy credits
• In CA, oil sands crude assigned higher carbon intensity than conventional crude
• “Upstream” processes (up until refinery) are more heavily emphasized than “downstream”23
Recommendations for cost- and GHG-effective energy investments
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Methods
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Integrated Model Steps
GHOST Model
Pipeline Model
PRELIM Model
Bitumen Life Cycle Stages:
Corresponding Models:
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Recovery&
Extraction
Recovery&
Extraction RefiningRefining End UseEnd Use
Diluted Bitumen
SCO TranspFuelUpgradingUpgrading
Integrated Model Steps
GHOST Model
Pipeline Model
PRELIM Model
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SORElectricity
H2 ConsumptionBitumen-Crude ratio
Crude Densit
y
Crude ViscosityPipeline Diameter
DistanceElevation Change
Sulphur ContentH Content
MCRRefinery Config.
Upgrading image from Suncor Energy Inc. image library
Bitumen RecoverySAGD, 2.1 – 3.3 SOR
UpgradingDelayed Coking,
Hydrocracking
End use of fuel
DilutionNaphtha, SCO
diluents
Pipeline Transport2,000 – 4,500 km24 – 46 in. diameter
RefiningSCO - Hydroskimming and medium conversionDilbit – Deep conversion
API 20 API 27 - 32
What are the ranges of well-to-tank emissions of upgrading and dilution pathways from SAGD extraction?
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Climate-Concerned POV
Costs Benefits
Bitumen Production Costs
Upgrading/Dilution Facility Costs
Diluent Expenses
SCO/Dilbit Revenues -AdjustedLife Cycle GHG Social Costs
Discount Rate =5%
Royalties
Income Taxes
Upstream GHG Social Costs
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Results
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Base case upgrading pathway has lower GHG emissions per barrel bitumen
31Upgrading Pathway
Dilution Pathways
Base Case upgrading pathway has higher GHG emissions than dilution pathways
32Dilution PathwaysUpgrading Pathway
Base Case upgrading pathway has higher GHG emissions than dilution pathways
33Upgrading Pathway
Dilution Pathways
However, ranges of plausible emissions overlap
34Dilution PathwaysUpgrading Pathway
Some upgrading pathways can be lower in GHG emissions than some dilbit pathways
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= modified pathway
Upgrading Pathway
Dilution Pathways
The California LCFS does not account for this possibility
WTR Emissions
WTR Emissions
WTR Emissions
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LCFS Threshold
Dilution PathwaysUpgrading Pathway
Under Base Case assumptions, dilution is more profitable than upgrading
Dilbit profit = $5.40/bbl bit
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Full Base Case Results
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Dilbit AB public
SCO AB public
Dilbit -IndustrySCO -Industry
Dilbit Climate Concerned
SCO Climate Concerned
Sensitivity Analyses
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Sensitivity to Discount Rate –Company POV
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Dilbit
SCO
Industry Sensitivities
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Industry results robust for economic variability
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Industry results dependent ontechnical variability
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Economic Sensitivity
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Economic Assumptions
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Fuel Price Forecasts – Base Case
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Naphtha
Climate Policy Options
• Economy-wide Carbon Tax:
• LCFS-like Policy:
Direct Taxes
Adjusted dilbit price
projected
implementedCosts CIi,j– CIbase *MJ/year
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Comparison with Other Studies
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Ranges developed via Low- and High-Impact Values for Parameters
Parameter Base Case Low-Impact High-Impact
Steam-to-oil ratio 2.6 2.1 3.3
SCO/bitumen ratio (upgrading)
0.85 0.9 0.78
API 27 (upgrading)20 (dilbit/synbit)
32 (upgrading)20 (dilbit/synbit)
27 (upgrading)20 (dilbit/synbit)
Transportation Distance (km)
3,000 2,000 4,500
Pipeline Diameter (in.)
34 46 24
Refining Emissions (kg CO2e/bbl crude)
69 (SCO)81 (dilbit)
23 (SCO)73 (dilbit)
69 (SCO)105 (dilbit)
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Comparison of SCO Range with Previous Studies
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Comparison of Dilbit Range with Previous Studies
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Existing literature does not explore GHG and economic tradeoffs
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Feature Government Models (GREET & GHGenius)
Consultancy Reports (TIAX & Jacobs)
McCann & Magee
CERI Report
Linking of Parameters
✖ ✖
Range of Emissions
✖ ✖ ✖ ✖
Data Quality ✖ ✔ ✔
Effect of CO2 policies
✖ ✖ ✖ ✔
Thesis
✔
✔
✔
✔
Additional Material
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Technological Overview – Upgrading
54Source: Scotford Upgrader, NRCan
Raw Bitumen
Hydrogen, Electricity, Natural Gas
Coke
SCO
Fuel Gas
Technological Overview – Refinery Configurations
55Abella and Bergerson (2011)
Whether to upgrade involvesGHG and economic tradeoffs
Upgrade Dilute
Produce higher quality crude (SCO) ✔ Produce lower quality crude(dilbit)
Higher “upstream” GHGs Lower “upstream” GHGs ✔
Lower “downstream” GHGs ✔ Higher “downstream” GHGs
High CapEx ($1 – 10 billion) Low CapEx ✔
Self-sufficient ✔ Dependent on diluent (uncertainty)
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