Mega-loads: Oil project proceeds

Thousands already at work in Alberta despite hangups to the south

By William L. Spence of the Tribune

Monday, August 30, 2010

Plans for the Kearl oil sands mine may have run into a potential roadblock in Idaho, but the $8 billion project is proceeding full speed ahead in Alberta, Canada, where thousands of people are already at work.

Located about 40 miles north of Fort McMurray, Kearl is a joint venture between Imperial Oil and ExxonMobil (which owns 69 percent of Imperial). It’s one of two open-pit bitumen mines currently under construction in the oil sands region.

Imperial Oil spokesman Pius Rolheiser said the first phase of the mine is scheduled to begin operation by the end of 2012. It will have a daily production capacity of 110,000 barrels of bitumen, which will then be “upgraded” to heavy crude oil. Two additional phases are planned by about 2021. Together, they’ll increase production to around 330,000 barrels per day, or 120 million barrels per year.

“We probably have about 2,500 people working at the site right now,” Rolheiser said. “During peak construction in 2011 and ’12, that will increase to about 3,000 people.”

Workers are doing preparatory work for the main plant, he said, including removing trees and overburden and putting in roads and buildings. They’ve also completed a water intake pipeline that will deliver water from the Athabasca River.

Kearl will be a “truck-and-shovel” operation, Rolheiser said, with huge electric shovels digging out the dark, crumbly oil sands formation, which contains about 10 percent bitumen by weight. The ore will be loaded into trucks that hold up to 400 tons and delivered to a central location for crushing. It’s then mixed with hot water to form a slurry. The slurry flows into an extraction plant, where the bitumen is separated from sand and clay.

That’s where Idaho comes in. Imperial wants to ship about 200 oversized truckloads of equipment from South Korea to the Port of Lewiston. The loads would then travel east along U.S. 12 to Montana before turning north to Alberta.

“Those modules form part of the extraction plant,” Rolheiser said. “They don’t contain any hydrocarbons or chemicals at this point. Until they arrive on site you can think of them as big pots and kettles.”

Opponents recently sued to block four similar oversized loads destined for an oil refinery in Montana. It’s unclear if that will affect Imperial’s shipments, which haven’t yet received approval from the state.

One of the concerns expressed about the company’s proposal is that U.S. 12 might become the standard route for big loads heading to the oil sands region. Rolheiser said Imperial has “no further plans” to ship additional equipment to Lewiston during construction of the second or third phase of the mine.

However, he said the equipment was purchased in South Korea because the manufacturer there specializes in such modules. Given the booming pace of development in the region, it’s possible other companies could make similar procurement decisions.

There are five active strip mines in the oil sands region today. Seven more are planned over the next decade, not including the two already under construction.

Alberta Department of Energy spokesman Bob McManus declined to speculate on the likelihood that future mines will follow Imperial’s procurement lead. The existing extraction plants were all manufactured in Edmonton, he said, or assembled there after the components were shipped in via rail.

“Heavy, oversized loads normally begin here (in Edmonton),” McManus said. “To ship them from South Korea to Lewiston and then up, that’s a first.”

The agency estimates $143 billion worth of oil sands development projects are either under construction or will be within the next two years. Besides surface mines, that includes dozens of “in situ” projects that use steam injection wells to extract bitumen from layers too deep for mining.

Overall production in the region is forecast to double by 2019, McManus said, from 1.5 million to 3.2 million barrels of raw bitumen per day.

Even that’s a small fraction of the region’s potential. The Alberta oil sands cover 54,000 square miles – an area almost two-thirds the size of Idaho – and hold an estimated 1.7 trillion barrels. Ten percent of that is economically recoverable using current technology, but some industry estimates suggest more than 300 billion barrels will eventually be recovered – enough to supply 100 percent of U.S. crude oil imports for the next 50 to 80 years.

The Kearl mine is expected to produce upward of 4.6 billion barrels of bitumen over its 40-year life. The project covers 77 square miles. Four main pits are planned – two of which are larger than the city of Lewiston. Mining will progress from one pit to the next, with reclamation following. The mine will be a camp-style operation, with workers living on site for a two- or three-week stint and then flying home until their next tour starts.

Imperial estimates Kearl will generate about $24 billion in taxes and royalties over the life of the project, plus $700 million in local property tax payments. The operation should generate about 1,300 direct jobs, according to the company, together with a similar number of indirect jobs.

“It’s a massive undertaking,” Rolheiser said. “Developing a new mine isn’t something every company can do. It’s a major, long-term strategic decision.”

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Spence may be contacted at [email protected] or (208) 848-2274.