Should Alberta Upgrade Oil Sands Bitumen?: An Integrated Life Cycle - PowerPoint PPT Presentation

Should Alberta Upgrade Oil Sands Bitumen?: An Integrated Life Cycle Framework to Evaluate Energy System Investment Tradeoffs Nicolas Choquette-Levy Dr. Heather MacLean Dr. Joule Bergerson 31 st USAEE Conference November 6, 2012 1

Case Study: Should Alberta Upgrade Oil Sands Bitumen? • Motivation for study: Oil sands = 3 rd largest proven oil reserves in the world 60% of bitumen upgraded (2009) Alberta’s target: 72% of bitumen upgraded (2016) • Key Tradeoffs: High upstream GHG emissions vs. low downstream emissions High capital expenses vs. higher expected profit margins 2

Technical Overview Diluent Diluent Dilbit Heavy Heavy Heavy Sour SCO Crude Crude Synbit Refineries Refineries Medium Medium Medium Bitumen Sweet SCO Bitumen Crude Crude Production Production Refineries Refineries Light Light Light Sweet SCO Crude Crude Upgrading Upgrading Refineries Refineries Source: Adapted from Gary R. Brierley et al, 2006 3 Coke

Existing literature does not explore GHG and economic tradeoffs • 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 model 2. Develop ranges of GHG emissions 3. Integrate LCA results with cost-benefit model • Policy Contributions: 1. Aid stakeholders in exploring the tradeoffs of upgrading investments 2. Develop recommendations for environmental and Alberta policymakers 4

Private and Public Stakeholder Perspectives Stakeholder Objective Unit of Discount Analysis Rate Industry Maximize the 1 bbl bitumen 15% profit of (high risk) investment Alberta Public Maximize the 1 bbl bitumen 5% aggregate wealth (low risk) of Alberta Climate- Minimize life 1 GJ 5% Concerned cycle GHGs; transportation (low risk) Alberta Citizen maximize the fuel wealth of Alberta 5

Base Case Scenario 64,000 bpd naphtha 150,000 bpd bitumen 214,000 bpd dilbit Dilution 128,000 bpd SCO 150,000 bpd bitumen Upgrading 27 kg coke 6

Industry Perspective Bitumen Production Costs Upgrading/Dilution Facility Costs Diluent Expenses Income Taxes Royalties SCO/Dilbit Revenues - Upstream GHG Taxes SCO/Dilbit Revenues Adjusted Discount Rate = 15%* Costs Benefits * Sensitivity Analysis 7 conducted

Alberta Public Perspective Bitumen Production Costs Upgrading/Dilution Facility Costs Diluent Expenses Income Taxes Royalties SCO/Dilbit Revenues - Upstream GHG Taxes Upstream GHG Social Costs Adjusted Discount Rate =5% Costs Benefits 8

Industry prefers Dilution to Upgrading under any CO 2 price < $200/tonne (Base Case) – 15% discount rate Dilbit - Industry SCO - Industry 9

However, AB public prefers upgrading at CO 2 prices > $80/tonne – 5% discount rate SCO AB public Dilbit AB public Dilbit - Industry SCO - Industry 10

Risk perception is key leverage point: 10% Industry discount rate SCO AB public Dilbit AB public Dilbit - Industry SCO - Industry 11

Risk perception is key leverage point: 5% Industry discount rate SCO AB public Dilbit - Dilbit AB public Industry SCO - Industry 12

Industry results robust for economic variability SCO-Dilbit Differential ($/bbl) Base Case 13

Industry results dependent on technical variability Bitumen:SC O Ratio Base Case 14

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 CO 2 e 15

16 Research Themes Revisited

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 17

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 reviewers 18

Questions Nicolas Choquette-Levy nicolas.choquette.levy@gmail.com (403) 531-6739 Joule Bergerson jbergers@ucalgary.ca (403) 220-7794 19

20 Alternate Slides

21 Context

Energy systems investment tradeoffs… From Brandt and Farrell (2007), Climatic Change • Energy consumption vs. GHG costs • High initial expenses vs. future expected profits • Investment in capital vs. degree of reversibility …Involve industry and public stakeholders 22

Policy Case Study: Low Carbon Fuel Standard • Implemented in B.C. and California • LCA used to assign each fuel a “carbon intensity” • 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 24

25 Methods

Integrated Model Steps Bitumen Life Cycle Stages: Diluted Bitumen Recovery Recovery & Transp & SCO Refining Refining End Use Upgrading Upgrading End Use Extraction Fuel Extraction Corresponding Models: Pipeline PRELIM GHOST Model Model Model 26

Integrated Model Steps SOR Crude Viscosity Sulphur Content Electricity Pipeline Diameter H Content H 2 Consumption Distance MCR Bitumen-Crude ratio Elevation Change Refinery Config. Pipeline GHOST PRELIM Model Model Model Crude Densit y 27

What are the ranges of well-to-tank emissions of upgrading and dilution pathways from SAGD extraction? Bitumen Recovery SAGD, 2.1 – 3.3 SOR Upgrading Dilution API 20 Delayed Coking, API 27 - 32 Naphtha, SCO Hydrocracking diluents Pipeline Transport 2,000 – 4,500 km 24 – 46 in. diameter Refining SCO - Hydroskimming and medium conversion Dilbit – Deep conversion End use of fuel 28 Upgrading image from Suncor Energy Inc. image library

Climate-Concerned POV Bitumen Production Costs Upgrading/Dilution Facility Costs Diluent Expenses Income Taxes Royalties SCO/Dilbit Revenues - Upstream GHG Social Costs Life Cycle GHG Social Costs Adjusted Discount Rate =5% Costs Benefits 29

30 Results

Base case upgrading pathway has lower GHG emissions per barrel bitumen Dilution Pathways Upgrading 31 Pathway

Base Case upgrading pathway has higher GHG emissions than dilution pathways Dilution Pathways Upgrading 32 Pathway

Base Case upgrading pathway has higher GHG emissions than dilution pathways Dilution Pathways Upgrading 33 Pathway

However, ranges of plausible emissions overlap Dilution Pathways Upgrading 34 Pathway

Some upgrading pathways can be lower in GHG emissions than some dilbit pathways = modified pathway Dilution Pathways Upgrading 35 Pathway

The California LCFS does not account for this possibility LCFS Threshold WTR WTR WTR Emissions Emissions Emissions Dilution Pathways Upgrading 36 Pathway

Under Base Case assumptions, dilution is more profitable than upgrading Dilbit profit = $5.40/bbl bit 37

Full Base Case Results SCO AB public Dilbit AB public Dilbit Climate SCO Climate Concerned Concerned Dilbit - Industry SCO - Industry 38

39 Sensitivity Analyses

Sensitivity to Discount Rate – Company POV Dilbit SCO 40

41 Industry Sensitivities

Industry results robust for economic variability 42

Industry results dependent on technical variability 43

44 Economic Sensitivity

45 Economic Assumptions

46 Fuel Price Forecasts – Base Case Naphtha

Climate Policy Options • Economy-wide Carbon Tax: Direct Taxes Adjusted dilbit price • LCFS-like Policy: implemented Costs � �CI i,j – CI base � * MJ/year projected 47

48 Comparison with Other Studies

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 0.85 0.9 0.78 ratio (upgrading) API 27 (upgrading) 32 (upgrading) 27 (upgrading) 20 (dilbit/synbit) 20 (dilbit/synbit) 20 (dilbit/synbit) Transportation 3,000 2,000 4,500 Distance (km) Pipeline 34 46 24 Diameter (in.) Refining 69 (SCO) 23 (SCO) 69 (SCO) Emissions (kg 81 (dilbit) 73 (dilbit) 105 (dilbit) CO 2 e/bbl crude) 49

Comparison of SCO Range with Previous Studies 50

Comparison of Dilbit Range with Previous Studies 51