How to Improve the Economics of the Oil Sands
Jan 11, 2023
Jan 11, 2023
Canada’s economy is largely dependent on the export of petroleum products. As of 2019, oil and gas exports accounted for 22% of all Canadian exports, or more than the 4th through 10th leading export categories combined. Canada is a net exporter of petroleum products largely due to the incredible reserve of oil located in the Western Canadian Sedimentary Basin centered in Alberta and widely known as the oil sands. The oil sands account for about 81% of the world’s recoverable reserves of bitumen, or about 26% of the world’s recoverable oil reserves in total (including extra heavy oil and conventional light oil).
Bitumen is the heaviest recoverable oil and requires upgrading to make it both refineable and transportable through pipelines. It also accounts for nearly half of Canadian oil production. In its natural state it is used for tar and asphalt products. Current technologies for upgrading bitumen are incredibly cost- and energy-intensive. The economic incentives to upgrade bitumen to lighter crude are large due to the price differences between bitumen and various grades of lighter crude, but the expense of building and operating these facilities is a major hurdle to keeping up with ever-growing bitumen production. In 2020, the six active upgrading facilities in Canada (four in Alberta, two in Saskatchewan) processed 42% of the bitumen produced that year. If you want to increase the value of the oil sands output, more upgrading capacity is sorely needed.
Aduro Clean Technologies Inc. (CSE: ACT) (OTCQB: ACTHF) (FSE: 9D50) has created the patented Hydrochemolytic™ platform technology that is capable of upgrading bitumen into higher value oils. The solution requires significantly less money, both to build and to operate, than current technologies while also decreasing the greenhouse gas emissions from its operation. Let’s take a closer look at Aduro’s progress and how the Hydrochemolytic™ process could work to improve the economics of the oil sands industry.
Watch a video breaking down the basics of the oil upgrading process and the potential for Aduro’s solution here. The presenter delves into the economics of the oil market and the relative value of different grades of crude, demonstrating the large profit opportunity for Aduro in the market in the near term.
Hydrochemolytic™ Technology Compared
There are two prominent ways bitumen can be upgraded into lighter, transportable, and higher value oil: either by removing carbon or by adding hydrogen. Carbon is removed by coking - high temperatures are applied to bitumen to crack it into lighter oils and natural gas liquids while also creating a solid, carbon-rich byproduct called coke. Coking units can cost in the $500 million to $1 billion range to build.
Hydrogen is added through hydroconversion, an upgrading process where the bitumen is cracked and combined with hydrogen in the presence of a catalyst, such as platinum, at high pressures. As hydrogen is added to the bitumen, with no carbon rejection, the volume of synthetic crude oil produced from hydroconversion could be equal or more than the volume of bitumen consumed during the process. Hydroconversion is both more expensive and more complex than coking while producing higher yields.
Aduro’s patented Hydrochemolytic™ platform utilizes a water-based chemical conversion process with a number of advantages over the systems widely used today. The technology is highly scalable and significantly less expensive to build than the coking and hydroconversion facilities noted above. It also operates at a lower temperature, with lower energy needs, while greatly reducing the need for dilutive hydrocarbon substances in the upgrading process. Hydrochemolytic™ processing also results in greatly reduced emissions, making the oil produced ‘greener’ than that created by conventional methods. It can even be applied to the lowest grade bitumen left over from these conventional methods in refineries, essentially turning waste into a much higher value and usable oil.
Aduro has been working on this technology for several years, from the lab to the field. The company is nearing completion of its R2 Bitumen reactor, designed as a customer engagement tool to prove the Hydrochemolytic™ process to potential clients. This is still a pre-commercial phase, but it employs all of the features of a commercial unit. The previous phase was the R1 batch reactor which processed one batch at a time, while the new R2 employs a continuous flow model that greatly increases output and efficiency.
In September Aduro announced an agreement with Prospera Energy on a three phase pilot project, representing Aduro’s second engagement with an Alberta oil producer. Phase 1 is expected to be completed in Q1 2023. Phase 3 covers the building and operation of a 50 bbl/day pilot plant with a Q4 2024 target date. From there, the two companies plan to create a roadmap to a 3,000 bbl/day capacity. Concurrently, Aduro will be using its R2 customer engagement model to complete the remaining milestones in its first agreement, with a confidential publicly listed company.
Success in these agreements should only lead to further engagements, especially in such a geographically concentrated market like the Alberta oil sands. A scalable, affordable, and efficient solution for bitumen upgrading is sorely needed. In the oil sands of Canada, with oil extraction rising, there are still about 1.6 million barrels/day of bitumen that are going unprocessed. That bitumen can be upgraded using current technologies and requires the addition of dilutive light hydrocarbons needed for pipeline transport. This grade of crude is called Western Canada Select (WCS) and sells for about 60% more money than bitumen itself.
Aduro’s Hydrochemolytic™ processing creates an even lighter crude that requires far less, if any, hydrocarbon dilution. The company anticipates that the resulting product will sell for more than the 60% premium for WCS while also requiring less money and resources than current methodologies. Add in the reduced greenhouse gas emissions from the process, and the recipe is there for the disruption of a major strategic market.
Investors are encouraged to keep an eye on Aduro Clean Technologies as it leans into the full commercialization of its patented oil upgrading technology. Also, visit Aduro’s site to learn more about the other capabilities of the Hydrochemolytic™ platform, including innovations in plastic recycling/upcycling that are in a similar stage of development as the company’s bitumen program.