Upgrading with a soft touch

Transcription

1 Upgrading with a soft touch Canadian Heavy Oil Conference 4 November 2014

2 Agenda Heavy Oil Industry the market & its challenges Upgrading in Canada Fractal Systems JetShear Technology Commercializing JetShear Value Proposition Fractal Systems Summary 2

3 Heavy oil industry the market and its challenges 3

4 The Canadian Heavy Oil market Thermal Oil Sands in-situ Athabasca Oil Sands Region Mining Projects Peace River Oil Sands Region 10 API Fort McMurray 8-9 API SAGD Projects Conventional Heavy Oil ( cold ) Cold Lake Oil Sands Region 10 API Thermal Oil Sands in-situ Conventional Heavy Oil ( cold ) Edmonton Hardisty 12+ API Lloydminster/Provost Heavy Oil Region 4

5 Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity Producers inject steam underground into the heavy oil reservoir; the heat from the steam thins the oil If shallow, producers mine the bitumen 2. Difficult to transport to market due to high viscosity Once the oil is to the surface, it cools and the high viscosity becomes a challenge; producers use diluent ( very light oil; typically field condensate/pentanes plus) to blend with the heavy oil 3. Priced lower than conventional ( light ) oil Due to the heavier, longer chain molecules in heavy oil, it is more costly to refine into products such as gasoline and jet fuel. Oil is also discounted due to acidic nature as well as other contaminants. 5

6 Challenge 1 Difficult to produce Energy required to generate steam is inefficient 6

7 Challenge 2 Difficult to transport Diluent* required for transportation of Heavy Oil is expensive Produced Bitumen/ Heavy oil Purchase C 5 + price plus tariff Sell blend price less tariff Bitumen & Heavy Oils are dense (<12 API) and highly viscous (100,000+ cst) requiring significant diluent to meet transportation quality specifications; often as much as 30% blend ratio Netback to the producer is highly volatile * Diluent is a light hydrocarbon (typically a natural gas liquid or condensate C5+ ) that is used to dilute the heavy oil in order to improve its transportation characteristics (lower viscosity) 7

8 Canada - A growing oil sands market... Target volume to more than double in 5 years From Canadian Assoc. of Petroleum Producers June 2014 Bitumen blend is primary target of business development Upgraded oil does not need Fractal technology There are a limited number of potential opportunities in the conventional heavy oil market... Leads to growing diluent demand Approximately ~C$12-13 billion* market in 2014 From Canadian Energy Research Inst. July 2014 * - Jan-Sept 2014 avg. diluent (condensate) price in Canada = $109.85/barrel 8

9 Challenge 3 - Price lower than conventional oil Heavy oil has less desirable chemistry Upstream (Oil Field) Downstream (Refinery) Typical pricing $58/bbl $75/bbl $95/bbl Refined Product Use Carbon Atoms Petroleum Gas 1-4 Naptha Further process to gasoline 5-9 Gasoline 5-12 Kerosene Jet fuel/tractors Gas oil/diesel dist. Diesel fuel, heating oil, feedstock for other products 12+ Lubricating oil Heavy gasoil or fuel oil Residuals Motor oil, grease, etc Industrial fuel, etc Coke, asphalt, tar, etc Most valuable (~80% of refinery yield)

10 Heavy oil challenges - the bottom line Canadian thermal project (SAGD) example Basis WTI = $89/barrel Netback to producer Cost of gas for steam generation (challenge 1) Other operating costs Royalties to Canadian gov t Transportation expense (challenge 2) Heavy oil differential (challenge 3) Excerpt from Alberta Oil Sands Presentation July

11 Upgrading in Canada 11

12 Upgrading in Canada Pros & Cons Upgrade in Canada Capture refining margin Reduce transport costs (diluent) Capture production synergies Export Diluted Bitumen Economies of scale 12

13 Field upgrading Decision to build driven by expectations of differentials 100% 80% 60% Heavy oil discount WCS to MSW Avg discount = 16.2% $14.58/bbl Avg Discount to WTI = 20.8% 40% 20% 0% Condensate premium Condensate to MSW Source: CAPP $9.07/bbl Avg premium = 10.6% 13

14 Net Value Uplift* after incremental Opex ($/bbl) Field upgrading More value means greater cost & complexity Partial/Field Upgraders Conventional Upgraders 10 5 JetShear 0 1,000 10, ,000 1,000,000 Capital Intensity complexity project risk ($ per bpd of capacity) 14

15 JetShear the technology 15

16 Bitumen and heavy oil challenges 1. Difficult to get out of the ground due to high viscosity Producers inject steam underground into the heavy oil reservoir; the heat from the steam thins the oil (Fractal not focused on subsurface technologies) 2. Difficult to transport to market due to high viscosity Once the oil is to the surface, it cools and the high viscosity becomes a challenge; producers use diluent ( very light oil; typically condensate C5+) to blend with the heavy oil (Fractal s JetShear technology addresses transportation) 3. Priced lower than conventional ( light ) oil Due to the heavier, longer chain molecules in heavy oil, it is more costly to refine into products such as gasoline and jet fuel. Oil is also discounted due to acidic nature as well as other contaminants. (Fractal is developing new technologies to enhance heavy oil price) Fractal Systems Technology Focus 16

17 Heavy Oil industry value chain Upstream Midstream Downstream heavy oil producer truckers blending terminal bitumen producer blending terminal JetShear application Pipeline Key Bitumen/HO Diluent Upgraded oil refinery Integrated producer/upgrader oil sands mine integrated upgrader 17

18 Thermal facility application Natural Gas Supplier (expense) Well Pad Producer Processing Facility (simplified) Steam Generation Water Diluent supports separation Diluent Storage Trim Blender About ½ of the diluent required to meet the pipeline specifications (viscosity & density) is added in the separation process; the other half is added at the trim blender Diluent added to meet pipeline specifications Diluent Supplier (expense) dilbit Pipeline Steam Injection Well Oil Well Separation Oil Storage Crude Oil Purchaser (revenue) Underground heavy oil reservoir JetShear replaces blending skid in thermal operation 18

19 A very simple system! Process utilizes heat + cavitation Simplified process flow diagram* Small footprint Fast deployment Low engineering risk * - commercial demo 19

20 Viscosity 15 o C Using JetShear, a heavy oil producer can meet pipeline viscosity requirement with substantially less diluent Viscosity Blending Cold Lake Bitumen (10 o API) JetShear vs. Conventional Blending 1,000, ,000 JetShear Blend Conventional Blend Pipeline 350 cp 10,000 Achieves viscosity spec using ~half the diluent 1, cp 100 0% 5% 10% 15% 20% 25% 30% 35% Diluent Results from Fractal Sherbrooke labs (vol%) 20

21 JetShear Environmental Benefit 4% emissions reduction Wells to refinery analysis excluding refinery product distribution and transportation Source: Fractal Systems Inc analysis, using emissions data from IHS CERA Special Report Oil Sands, Greenhouse Gases, and US Oil Supply: Getting the Numbers Right; 2010 Wells to Refinery: refinery product distribution and transportation emissions excluded 21

22 JetShear commercialization of the technology 22

23 Commercializing JetShear Demonstrating progress 300 bopd Pilot Facility Successfully validated lab results (Aug 09); processed bitumen blend (May-June 10) 1-30 bopd Lab Facility in Sherbrooke 1,000 bopd Commercial Demo Operations during 1H 2012, retrofit Q Completed preliminary designs Feasibility Study 100,000 10,000 1, Typical commercial opportunities Facility capacity (barrels oil per day) Time 10 23

24 Results from pilot facility bitumen Dramatic reduction in viscosity! Without Jetshear With JetShear cst ~91% reduction ~2.5 API increase Pipeline 17 Specifications Viscosity 16 API Gravity density (inverse) May 2010 Monthly Average Results Bitumen-Diluent blend provided by a SAGD producer 7.5 API feedstock, 70 API ~25% blending ratio 24

25 Scale-up risk is minimal Scale-up risk is primarily associated with nozzle scale-up Process equipment is standard for the oil industry Prudent scale-up approach with nozzles based on scientific fundamentals and experience Novel, patented technology in this box! Scale-Up Sequence 1 bpd/nozzle Commercial unit multi-nozzle assembly 500 bpd/nozzle 3 bpd/nozzle 30 bpd/nozzle 150 bpd/nozzle North View of 1000 bpd Skid 500 bpd/nozzle 2 sets of 6 banks of bpd/nozzle 25

26 1,000 bpd JetShear Commercial Demo Glycol Cooler H2S Removal Heater JetShear Building Thermal Oxidizer Electrical Room feed and product tanks Metering station Warehouse Office Trailer 26

27 Value proposition 27

28 Value of reducing diluent Simplified value proposition assuming 50% reduction Conventional blending 7 barrels 3 barrels 10 barrels Produce Bitumen or Heavy Oil + Purchase C5+ price plus tariff Sell LLB price less tariff JetShear (50% diluent reduction) 7 barrels 1.5 barrels 8.5 barrels Three components of value add: Diluent savings per bbl ={1.5 barrels x (cost of diluent per bbl price of dilbit)}/7 Tariff savings per bbl = {(1.5 barrels x dilbit tariff) + (1.5 barrels x cond tariff)}/7 Savings reduced by JetShear opex Assuming: Dilbit = $83.11/bbl 1 ; Diluent = $109.85/bbl 2 ; Dilbit tariff = $1.20/bbl; Diluent tariff = $1.30/bbl; JetShear opex = $0.82/bbl Diluent savings = {1.5 x ( )}/7 Tariff savings = {(1.5 x 1.20) + (1.5 x 1.30)}/7 Less JetShear opex Value add per bbl = $ 5.73/bbl = $ 0.54/bbl = ($0.82/bbl) = $ 5.45/bbl Prices from CAPP(2014 Jan-Sept avg): 1 WCS 2 - Condensate 28

29 Value Add after JeShear Opex ($/bbl) Before Capex Value added by displacing diluent Sensitivity - Conventional Blend Ratio vs Diluent Displacement Based on average product (WCS & Cond) prices from CAPP from Jan 14 thru September 14 $10 $9 $8 $7 $6 $5 $4 $3 $2 30% DD 40% DD 50% DD 60% DD DD=diluent displacement $1 $0 25% Blend Ratio 30% Blend Ratio 35% Blend Ratio Cold Lake Bitumen Athabasca Bitumen 29

30 Summary 30

31 Summary Fractal is a private Canadian corporation with offices in Calgary, Alberta and Sherbrooke, Québec JetShear TM process adds value by Improving viscosity Improving density Scalable, cost-effective JetShear TM commercialization on target Pilot facility successfully operated in field Agreements executed with large oil sands producer for technology development and commercial demonstration Commercial demo in operation processing partially diluted bitumen R&D program developing new, value adding technologies Patent application filed for enhancements to JetShear Patent application filed for acid (TAN) removal process ARP Ongoing R&D targeting total diluent displacement - TDD 31