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Posted by on December 14, 2007, 5:47 pm
When Ed Koshka first saw the inner workings of Ivanhoe Energy's small
scale upgrader in Bakersfield, California, he thought, "hey this works
like a refinery." What he was looking at was a pilot plant built by
Ensyn in 1998 and purchased by Ivanhoe in April 2005.
Koshka, Ivanhoe's new vice-president for business development, knows
refineries, having worked early in his career at three Petro-Canada
refineries in the areas of process engineering, operations and planning.
"The heart of any refinery is the fluid catalytic cracking," he says. "
A refiner looks at the technology and says:
This looks familiar. This is a thermal cracking process, but we're
circulating sand instead of catalysts." Knowing the refining business
inside out is a big plus for Koshka, as he must spend the next few
months persuading potential investors that the mini-upgrader is a
commercially viable proposition.
Ivanhoe is not alone in taking on this challenge.
Two other enterprises in Canada, Genoil and ETX Systems, are working on
developing "field" upgraders. What they want to achieve is similar to
what the designers of the Volkswagon Bug wanted to build: a smaller
model that more people can afford.
Like Ivanhoe, these companies have reached the stage of running pilot
demonstration units.
Ivanhoe is producing 1,000 barrels a day at its California demonstration
plant using local California heavy oils.
In June, Ivanhoe announced it had completed a successful test run with
Athabasca bitumen.
Genoil is testing bitumen at its plant outside Edmonton, and ETX is
demonstrating its technology at a one barrel a day at the CANMET
research centre in Devon, Alberta.
Koshka, a chemical engineer, has jumped into the centre of an issue of
growing concern amongst heavy oil producers in Alberta: how can they get
the most value for their product?
They decry the discount they incur when they send raw bitumen south to
refiners in the United States. Yet, refinery capacity in Alberta is
limited. "Everyone has to make a decision on how to market the bitumen,"
says Koshka. "Do they send it south to refine in the U.S. or upgrade it
locally and get away from [the need for] diluent and from the
light-heavy differential?"
The distances between Athabasca's bitumen reservoirs and the market for
the upgraded product are vast. The cost of building a 3,680-kilometer
pipeline like the ones Altex and Enbridge/Exxon Mobil are proposing from
Edmonton to the Texas Gulf Coast would be astronomical - not to mention
the on-going and continually-rising cost of diluent necessary to
transport the Canadian unrefined product to the Texas refineries.
This is why some in the refining and heavy oil business have invested
many years and a great deal of equity into pursuing development of a
"field" upgrader - that is, a small unit that can upgrade the bitumen on
the spot.
Behind the creation of Ivanhoe's proprietary heavy to light oil (HTL)
technology were Bob Graham and Dee Parkinson-Marcoux. In the U.S. it is
now successfully being used for biomass applications in seven commercial
operations. In the 1990s Parkinson-Marcoux, a leading heavy oil expert,
saw the potential of adapting the technology to heavy oil upgrading and
became a co-owner of Ensyn, the company that Ivanhoe acquired in 2005.
The bright minds behind the development of field upgraders are risking
their reputations on the conviction that their technology eventually
will be adopted by the industry. As far as potential customers are
concerned, the jury is still out. In 2003, when John Zahary was
president of the heavy oil producer Petrovera (which has since been
acquired by Canadian Natural Resources), he said, "If somebody can build
an upgrader that unlocks a lot more potential, then from an upstream
producer's perspective, we'll sell our oil to anybody.
The idea of not creating a pile of coke is certainly something the
producers are interested in." The question is: is a field upgrader
economically viable? "When you're building a 100,000 barrel a day plant
you can go and buy new technology. Then you get economies of scale,"
says Zahary. "People now think that through time it will be possible for
these smaller scale facilities [closer to 10,000 to 30,000 barrels per
day] to be competitive. The reason most companies haven't coupled up is
that they're keeping their options open. We're all trying to figure out
who's got the best technology."
Another scientist who has doubts about how quickly field upgraders will
be adopted is Dr. Theo De Bruijn of the National Centre for Upgrading
Technology (NCUT). "I think if you go bigger - 50,000 barrels a day or
more - the economies of scale will always be better. Why build ten small
ones if you can get away with one big one?"
Koshka, who spent four years with the industry analyst firm Purvin &
Gertz, says, "I'm always thinking about the marketing side." And he
argues that the economics will work. The mini upgrader is "good for
start-up bitumen producers," especially those who can see the benefit of
locating an upgrader right on site. Not only does Ivanhoe generate a
product that is "bottomless" - that is, it is upgraded enough to be
pipeline-ready - its process mitigates the need for diluent. As well,
its by-product can be used to create power needed to generate steam.
For perspective, it is helpful to compare three small-scale upgraders
that are currently under development by ETX Systems, Ivanhoe Energy and
Genoil Inc. They each take one of two basic approaches to upgrading: one
approach involves adding hydrogen and the other, known as the thermal
process, does not. What each one ultimately wants to achieve is the
highest yield of the highest value product at the least cost. In order
to "crack" the bitumen molecules into a lighter product with relative
speed, the process operates at close to or above 500 degrees Celsius.
The result is two products: molecules that are liquids at ambient
conditions and molecules that are gases at ambient conditions. The
processes that do not use hydrogen (those developed by Ivanhoe and ETX)
produce a by-product of solid coke. This is heated to generate power,
thereby obviating the need for natural gas. Therefore, if Ivanhoe's
upgrader were adopted by a steam assisted gravity drainage (SAGD)
producer with a 2.8 to one steam to oil ratio, the unit would produce
enough by-product to create all the steam necessary to off-set the need
for import natural gas.
At 530 degrees Celsius, it takes about 30 seconds to create the liquid
pitch. Gases that are produced will continue to react in the gas phase
until they are "quenched." Koshka explains what quenching means: "We're
putting a gas into material that comes off the top of the cyclone. We're
cooling it, which stops the reaction instantaneously, stopping the
cracking and stopping the diolofins from being produced. Speed is
critical to the process. "We crack and cool quickly, which means much
more throughput per pound of steel [in the plant]." As a general rule
the more hydrogen that the produced liquids contain the higher quality
they are.
However, one of the highest costs refiners face is the addition of
hydrogen. Ivanhoe's HTL model uses a thermal process that does not
require hydrogen. The technology relies on speed: less than a second in
reaction time. The way Ivanhoe's HTL process works is that hot sand is
introduced into the reactor. The pitch is sprayed on to the sand,
coating its particles. The sand provides the energy for the cracking
reactions, and the resultant coke bonds to the sand grains, along with
the unreacted liquid.
These are forced to the top of the reactor where the sand is separated
from the liquid products. The solids then flow to a reheater where the
coke and unreacted feed are burned to reheat the sand particles, which
are then sent back in to the reactor to be recycled. One problem that
the HTL process has not yet resolved is that of losing part of the
yield. Ivanhoe's upgrader therefore offers two options to potential
users: the high yield option or the high quality option.
In one the reactor is operated to produce a high yield of lower quality
product, and in the other, the reactor produces a lower yield of higher
quality product. In the high quality mode, the yield will be 81 per cent
per barrel of bitumen. "We can vary the yield but we sacrifice quality,"
explains Koshka. For Athabasca bitumen, the ideal is to upgrade it to
state where it is "pipeline-ready." To do that, "We want to crack the
resid to extinction to get a bottomless sour synthetic crude." The
ability to vary the yield versus the quality makes the HTL model
flexible enough to be adapted to different parts of the world where a
different feedstock will be fed into the upgrader. "The whole intent is
to market the HTL process worldwide," Koshka said.
As for the ETX model, which is several years behind Ivanhoe's HTL in
being piloted and tested, its creators say that it can achieve a 79
percent yield. Its process is a thermal process that, like HTL, does not
require the addition of hydrogen. The process involves introducing solid
particles of sand or coke into a reactor. Pitch is then sprayed onto the
particles, and the energy in the solids initiates the cracking. Once
they exit the reactor the solid particles are sent to a burner where the
coke is burned to reheat the solids.
According to ETX Systems' COO Wayne Brown, "The key to the technology is
that the products are collected perpendicular to the flow of solids.
With this configuration the ractor can be designed to provide the
desired ~30 second residence for the liquids and provide a short
residence time for the products. In this way both product yields and
qualities are increased, and no compromise is required." Genoil owns a
patented upgrading process, which relies on hydrogen and involves a
fixed bed of catalyst.
As in OPTI/Nexen's model, hydrogen is produced through gasification, and
hydrogen and power requirements are completely satisfied without
requiring the import of natural gas. Hydrogen production is expensive,
however. When it comes to size, all three upgraders can boast "small is
beautiful."
However, it is unclear just how their sizes compare one to the other. In
the case of Ivanhoe's model, Koshka says that it is approximately 400
feet by 300 feet square.
ETX describes their upgrader's size as: 15 times smaller than a standard
fluid coker of the type used by Syncrude. Since the Genoil process
requires catalyst facilities and hydrogen production, more facilities
and equipment - and therefore a higher capital cost - are associated
with their model. Brown says that, "This will increase the per barrel
cost of production. However, the products will be of higher quality,
which may justify some increase in capital expense." Each of the three
mini-upgraders is still far from being launched as a commercial
enterprise. According to Brown: "Before any of the new technologies can
be considered commercial each must be demonstrated at a significant
scale, on the order of 1,000 barrels per day reactor feed. The units
must also be run for many months in order to satisfy a potential
operator as to their commercial readiness."
Ivanhoe is eager to find a partner in the oilsands who is willing to
share in the cost of building the first field upgrader. First, it must
reveal the results of its tests on Athabasca bitumen. Koshka says the
company is also considering the option of purchasing and developing its
own lease. Once the company reaches that stage it must then prepare its
application for regulatory approval - which will take several months.
Canadian regulators are currently so back-logged that it is likely to
take them at least two years to complete their review.
Realistically, we will not see the Volkswagon upgrader up and running at
earliest for another half a decade. That said, when the first one is
unveiled, if it achieves what Koshka promises: "just enough upgrading to
capture the lion's share of the differential," bitumen producers may be
so smitten by what they see that they will place orders for them far
into the future.
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