Unconventional oil resources and development prospects

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Unconventional Oil Resources and Their Development Prospects Source: Contemporary Chemical Engineering Author: Li Ruoping Publication Date: 04.25.2007 Abstract: This article reviews the world’s unconventional oil resources (oil sands and heavy oil) and their utilization, as well as the development prospects of China’s unconventional oil resources (heavy oil, oil shale, and oil sands). Keywords: Unconventional oil resources; Heavy oil, oil shale; Oil sands Chinese Library Classification Number: TE 132 Document Code: A Article ID: 1671 0460 (2006) 03 0145 05 In recent years, issues such as the continuous rise in international crude oil prices, increasing demand for oil, and excessive exploitation and consumption of conventional oil resources have attracted worldwide attention. As the world economy’s demand for oil continues to rise, conventional oil resources can no longer meet this growing demand. As a result, people are turning their attention to unconventional oil resources. Against this backdrop, unconventional oil resources have become the favorites in the global oil market, thanks to their large reserves, concentrated distribution, and increasingly advanced extraction technologies. Among them, the resources with the largest reserves and that are already viable for economic exploitation are the oil sands in Alberta, Canada, and the heavy oil resources in the Orinoco Belt in Venezuela. 1 World’s unconventional petroleum resources 1.1 Canadian oil sands resources Oil sands are one of the types of unconventional petroleum resources. Oil sand, also known as bitumen sand or tar sand, refers to sand or sandstone that contains bitumen or tar, and it belongs to unconventional oil resources. It is currently known that the world’s recoverable oil sands reserves amount to approximately 651 billion barrels, accounting for 32% of the world’s total recoverable oil reserves, and they have become an important part of the global energy structure. According to U.S. statistics, Canada has the second-largest proven oil reserves in the world, after Saudi Arabia, amounting to 178.9 billion barrels, which represents 15% of the world’s total reserves. 95% of these proven reserves come from the oil sands in Alberta province. The oil sand deposits in Alberta, Canada, account for 85% of the world’s total natural asphalt, with exploitable reserves of around 300 billion barrels. The oil sand resources in Alberta cover an area of 141,000 km2, primarily concentrated in three regions of the province: Athabasca, Cold Lake, and Peace River. According to statistics from Canada’s **Energy Department (NEB), Alberta’s oil sands contain more than 2.5 trillion barrels of bitumen resources in total. The confirmed reserves amount to 178 billion barrels, of which approximately 3 billion barrels have already been produced. Canada’s production of heavy crude oil and asphalt increased from 449,000 barrels per day in the early 1990s to 839,000 barrels per day by the end of that century, with an increase of 390,000 barrels per day during that period. Since economic extraction of oil sands in Canada began in 1967, production has been increasing year by year. Production in 1980 was 138,000 barrels per day; it increased to 345,000 barrels per day in 1990, and by 2000 it had reached 609,000 barrels per day. By 2005, the production of oil sands products had exceeded 1 million barrels per day, reaching 1.047 million barrels per day. According to forecasts from the Canadian Association of Petroleum Producers (CAPP) and First Energy Investments, oil sands production in Canada will continue to increase. It is expected to rise from over 1 million barrels per day in 2005 to around 2.8 million barrels per day by 2015, eventually reaching 3.9 million barrels per day. In 2005, Canada’s average total oil production was 2.8 million barrels per day. As the production of conventional crude oil declines, oil sands oil will account for an increasingly larger share of Canada’s crude oil production; by 2015, this share is expected to rise from 50% of the total crude oil production at present to 75%. Canada’s largest oil sands producer, Syncrude Canada Ltd., increased its output by 40% in 2005, bringing its production volume to 368,000 barrels per day. The cost of producing synthetic crude oil has decreased from $17.2 per barrel in 2000 and $18.47 per barrel in 2001 to $16.5–$17.5 per barrel in 2002. The oil sands boom that began in 2005 has made Alberta, where Canada’s oil sands reserves are most concentrated, a focal point for Chinese oil companies. Currently, China’s three major oil companies have all turned their attention to Canada’s oil sands. With high oil prices, investing in Canadian oil sands is still seen as a promising option by Chinese oil companies. It is estimated that profits will be achieved as long as oil prices remain above $45 per barrel. As early as June 2004, Klein, the governor of Alberta, Canada’s province with large oil sands deposits, said that investing in those oil sands would ensure China’s future oil supply. In 2005, Canada and China signed a \"Statement on Energy Cooperation in the 21st Century,\" officially launching China’s strategy to import oil from North America. Since then, large Chinese oil companies including CNOOC and Sinopec have taken action, with companies from the two countries successively establishing joint ventures for oil exploration and transportation. Current projects under construction in Canada for oil sand extraction by domestic companies include two joint ventures between CNOOC and Sinopec. In April 2005, CNOOC entered into a contract with the Canadian company MEG Energy to acquire 16.69% of its shares, through its wholly-owned subsidiary CNOOC (Belgium) BVBA. CNOOC paid 150 million Canadian dollars (approximately 121 million US dollars) for this acquisition. As an oil sands company, MEG holds 100% working interests in 52 oil sands lease licenses in Alberta, covering a total area of 32,900 acres. It is estimated that the total geological reserves of oil sands in these areas exceed 4 billion barrels, with total recoverable reserves of around 2 billion barrels. Following CNOOC’s significant entry into the Canadian oil sands sector, at the end of May 2005, Sino-Canada Petroleum, a company under Sinopec Group International Petroleum Exploration and Development Company, signed a cooperation agreement with Canadian energy company Synenco to form a partnership aimed at developing the ‘Northern Lights’ oil sands project located in northeastern Alberta. Under the agreement between the two parties, Sino-Canadian Petroleum Company will invest approximately 150 million Canadian dollars (about 989 million yuan) to acquire 40% of the shares in the ‘Arctic Light’ partnership, while Xienanke Company will receive 60% of the shares. It is reported that this integrated oil sands project could reach a production rate of 50,000 barrels per day by 2009. The ‘Aurora Borealis’ project, in which Sinopec Canada Petroleum is involved, has a total investment of around 4.5 billion Canadian dollars. The operational procedures include mining, extraction, and bitumen upgrading, with the goal of achieving a crude oil production rate of 100,000 barrels per day and 5 million tons per year. Sinopec thus became the second domestic oil company to enter the Canadian oil sands sector. In addition, CNPC already holds interests in several oil and gas field blocks in Canada, and is discussing downstream cooperation matters with various Canadian companies. China National Petroleum Exploration and Development Corporation will build a special refining plant with a capacity of 15 million tons in China, to transport the crude oil extracted from oil sands in Canada back to China for heavy oil refining. 1. 2 Venezuela’s heavy oil resources: As efforts to develop heavy oil increase, Venezuela has now become one of the largest regions in the world in terms of heavy oil reserves. According to data released by the country, the reserves of recoverable heavy oil, ultra-heavy oil, and natural asphalt in Venezuela’s Orinoco heavy oil belt amount to 235 billion barrels. These reserves, together with the existing proven reserves of light and medium crude oil, total 312.8 billion barrels. Of Venezuela’s existing oil reserves, heavy and extra-heavy crude oil accounts for 80%, while the remaining 20% is light and medium crude oil. The deposits of heavy crude oil in Venezuela’s Orinoco region account for 90% of the world’s extra-heavy oil; the recoverable reserves of extra-heavy oil are estimated at about 270 billion barrels. Petrocaribe has discovered 35 billion barrels of ultra-heavy oil in the Orinoco oil belt, accounting for 3% of the total resources. Currently, production amounts to about 600,000 barrels per day, which represents one-fifth of Venezuela’s total oil production. Canada and Venezuela currently produce 1.7 million barrels per day of unconventional heavy oil, which accounted for 2% of global oil production of 800 ×1012 barrels per day in 2005. Venezuela has the largest proven reserves of heavy crude oil in the world. Since ultra-heavy oil is extremely viscous and unable to flow in natural conditions, 30% water along with a small amount of emulsifier is added to create an oil-in-water emulsion, thereby reducing its viscosity. The emulsified Orinoco ultra-heavy oil is known as Orinoco emulsified oil, and it can be used in power plants for combustion to generate electricity. The China-Venezuela Orimulsion Company, jointly funded by CNPC and Venezuela’s ** Petroleum Company and registered in Venezuela, has a contract term of 30 years. The cooperative development zone for the emulsified oil project of Zhongwei Company is located at the eastern end of the Orinoco heavy oil belt, covering an area of approximately 114.62 km2, with proven petroleum geological reserves of 2.2 billion tons. Under the agreement, the Sino-Venezuelan joint venture oil emulsion plant will be built with an annual production capacity of 6.5 million tons of oil emulsions, which will be sold in the Chinese domestic market by CNPC. The first phase of the Oli emulsified oil project at Zhongwei Company was completed and put into operation in March 2006, and by the end of April, the Oli emulsified oil produced by this project was shipped to China. The production of heavy crude oil in Latin America is expected to rise from 2.425 million barrels per day in 2005 to 3.799 million barrels per day in 2015, an increase of 1.374 million barrels per day. Canada’s asphalt resources are comparable to those of Venezuela’s heavy and ultra-heavy crude oils; its crude oil pipelines are connected to the United States, and Canada’s production of heavy crude oil and asphalt accounts for 22% of Latin America’s total production. Since 2000, asphalt production in Alberta has been rising steadily, and it now exceeds 330,000 barrels per day. By 2004, Canada’s production of heavy crude oil and asphalt had reached 1.24 million barrels per day, with about 80% of this output being exported to the major refining centers in the United States: Chicago/Whiting, Minneapolis/St. Paul, Billings, Toronto, and Wood River. In recent years, advances in petroleum technology have led to increased production of unconventional oil and reduced extraction costs. In 2000, Canada and Venezuela achieved crude oil production levels of 600,000 barrels per day and 300,000 barrels per day, respectively, in the form of both crude oil and synthetic crude oil (light, low-sulfur crude oil obtained through refining). Currently, Canada and Venezuela together produce about 3 million barrels of oil per day. It is expected that by 2015, the combined production of heavy oil or bitumen and synthetic crude oil in both countries will reach 3.5 million barrels per day. Of course, the development and utilization of unconventional oil resources also face numerous challenges, such as uncertainty and volatility in oil prices, limitations in global oil refining capacity, high extraction costs due to the inherent characteristics of unconventional oil resources, as well as related environmental issues. In the short term, these unconventional oil-producing regions cannot yet replace the influence of Middle Eastern crude oil on the global oil market. However, with the advent of an era of high oil prices, the extraction costs of unconventional oil resources continue to decline. As a result, investment projects involving heavy oil and oil sands will become more attractive. Unconventional oil resources will undoubtedly become a crucial source for stabilizing the global oil supply. 2 Unconventional petroleum resources in China and their utilization prospects
2.1 Heavy oil resources
China also possesses heavy oil (i.e., viscous oil) resources. Heavy oil is characterized by a high specific gravity (above 0.9), high viscosity (reaching 1700 MPa·s at 50°C), low content of light fractions (usually only about 4%), low wax content (less than 5%), and a relatively low freezing point (5–22°C). Research, development, and processing of heavy oil reservoirs in our country have become increasingly mature, resulting in a fairly large scale of exploitation. At present, major oil fields across the country have, based on their own characteristics and through the introduction, assimilation, absorption of advanced technologies as well as technological innovation, developed distinctive extraction techniques, achieving new progress and breakthroughs. The Shengli Oilfield, Liaohe Oilfield, Dagang Oilfield, and Xinjiang Oilfield all have heavy oil reservoirs. The Liaohe Oilfield is China’s largest heavy oil production base. In 2005, it produced a total of 7.8 million tons of heavy oil, accounting for over 60% of the field’s total output. Our country has gained some experience in heavy oil processing. For example, the heavy oil centralized processing project at Karamay Petrochemical Company came online at the end of December 2004, raising the company’s crude oil processing capacity to a new level of 500 ×104 tons per year. The commissioning of this project has enabled all heavy viscous oil in the northern Xinjiang region to be processed locally. The company has built auxiliary facilities, including a 1.5 million t/a delayed coking unit and a 0.9 million t/a hydrotreating unit for gasoline and diesel. Using heavy crude oil characterized by high acid value, high viscosity, and high density, as well as low wax content, low sulfur content, and low pour point—and which is difficult to extract, transport, and refine—the company produces specialty products such as transformer oil, rubber processing oil, refrigeration oil, and asphalt. Sinopec will invest 5 billion yuan to build a 300 ×104 t/a heavy oil upgrading project in Bortala Prefecture, Xinjiang Uygur Autonomous Region. By 2010, the crude oil production of Sinopec’s Northwest Branch will reach 7.5 million to 8 million tons, while natural gas production is expected to hit 140 million to 2 billion cubic meters. A large proportion of the crude oil produced is heavy oil. Preliminary work has now been carried out on the project to build a plant for producing 300,000 tons of synthetic ammonia, 520,000 tons of urea, and 3 million tons of heavy oil upgrading. 2.2 Oil shale resources: The hydrogen-carbon ratio of shale oil is similar to that of natural petroleum; it contains a relatively high amount of unsaturated hydrocarbons as well as non-organic compounds such as nitrogen, sulfur, and oxygen. Therefore, it serves as a raw material for petroleum processing and chemical production. China has very abundant reserves of oil shale, amounting to approximately 2 trillion tons, which is equivalent to 80 billion tons of shale oil. This makes China the fourth country in the world in terms of such reserves, after the United States, Brazil, and Russia. The total proven and estimated reserves of oil shale in our country amount to 483.17 billion tons. Calculated based on an oil content of 6%, the geological reserves of shale oil reach 28.99 billion tons. Based on the conversion rate of 1 ton of shale oil produced per 33–35 tons of oil shale, 14.2 billion tons of shale oil could be produced, which is close to the total amount of natural oil reserves that have been discovered in China to date. Taking Fushun as an example, the proven geological reserves in Fushun amount to 3.5 billion tons; the exploitable reserves in the open-pit mines in the eastern part alone total 430 million tons, with an average oil content of 7.01%. Assuming an annual extraction volume of 6.5 million tons, production can be sustained for over 65 years. China already possesses extensive experience and mature technologies in oil shale extraction, and emerging industries that utilize shale tailings and waste residues to produce cement, bricks, etc., are experiencing rapid growth. The cooperation agreement for the comprehensive development of oil shale between Fushun Mining Group and Australian Rock Oil Company was signed in July 2005. Fushun is rich in oil shale resources. To make full use of these resources, **a demonstration base for the comprehensive utilization of oil shale was established in Fushun Mining Company – the only one of its kind in China. The facility is capable of processing 4 million tons of oil shale per year, producing 120,000 tons of shale oil. In addition, two spray black production lines are available, with an annual output of 2,000 tons of black. In 2004, the company’s shale oil production was 132,000 tons, generating a profit of 90 million yuan. To accelerate the comprehensive utilization of oil shale, Fushun City has formulated an expansion plan to produce 500,000 tons of shale oil per year. The project is divided into two phases: in the first phase, an additional 100,000 tons of shale crude oil will be produced, and after that, a second phase will be carried out to add another 400,000 tons of production capacity. Once both phases are completed, Fushun will have a production capacity of 600,000 tons of shale oil per year. Meanwhile, projects for the comprehensive utilization of oil shale, as well as expansion projects for shale cement and shale brick production, will also be carried out. After more than 100 days of trial mining, as of April 18, 2006, Shandong Longkou Mining Group was able, thanks to its own proprietary technology, to extract 1,340 tons of oil shale per day from a depth of 300 meters underground, which is equivalent to 200 tons of crude oil per day. This move opens up new avenues for China’s energy diversification. The total planned investment for the oil shale mining project in the Longkou mining area is 1.76 billion yuan. It is reported that after 38 years of extraction, the coal reserves in this area are on the verge of depletion. Meanwhile, nearly 300 million tons of economically viable reserves of terrestrial oil shale have been identified there; the thickness of the oil shale layers ranges from 2.59 to 4.74 meters, with an average of 3.72 meters. The average oil content in these layers is much higher than that in oil shale deposits in places such as Fushun and Maoming. Its grade ranks first in the country, making it highly valuable for mining. Based on a conservative oil extraction rate for oil shale, this is equivalent to an output of 201 tons of crude oil per day. At comparable prices, this is equivalent to discovering a new oil field with reserves exceeding 50 million tons. In addition to being used for oil refining, oil shale can also be directly utilized for power generation and the production of new building materials, thereby helping to address and reduce environmental pollution. By introducing internationally advanced oil refining technologies, the group extracts oil from oil shale. Using refinery coke and screened oil shale as fuel, it has constructed a power plant equipped with two 200,000-kW oil shale-fired circulating fluidized bed units. Upon completion of the renovation and commissioning, the plant is expected to increase annual production by over 650,000 tons of raw coal and 2 million tons of oil shale, while generating 2.2 billion kWh of electricity. In the new round of national surveys and assessments of oil and gas resources, Jilin Province has the highest proven reserves of oil shale in the country, accounting for more than half of the total national reserves. The proven oil shale reserves in Jilin Province amount to 17.4 billion tons, while the total predicted resources are close to 300 billion tons. The 17.4 billion tons of proven reserves account for approximately 55.5% of the total proven oil shale reserves in the country. The oil content can reach up to 21%–22%, with an average of 5%–6%. Based on an average oil content of 5%, 870 million tons of oil can be extracted. The oil shale resources in Jilin Province have the following four characteristics: First, among the proven reserves, there are more low-grade deposits and fewer high-grade ones, with a total of about 16.9 billion tons, and an oil content ranging from 5.1% to 5.95%. Second, the reserves are relatively concentrated, mainly in Nong’an County and Qiange County, where the total reserve amount is about 16.9 billion tons, accounting for over 97% of the province’s total reserves. Third, there are few deposits suitable for open-pit mining; most of them are located within areas designated as agricultural land. Fourth, the ash content of the rock-forming minerals in oil shale makes it an ideal material for producing ceramic aggregates. Jilin Province will use technology developed by Shell to process local oil shale. Shell possesses the world’s most advanced in-situ conversion technology (ICP), which does not require digging or mining; this technology is highly suitable for the fact that most of the oil shale in Jilin Province is buried beneath plains and farmland, as well as for the requirements of building an ecological province. The in-situ conversion process technology is a state-of-the-art proprietary technique developed by Shell at great expense; it involves heating the oil shale underground to cause its pyrolysis, after which oil and gas are extracted separately through various channels. This method not only requires little land (practically no arable land), but also causes very little environmental damage, produces no air pollution, has lower costs, and results in products of higher value. Although this technology has not yet been fully commercialized, the key technical issues related to processes and equipment have been resolved, and commercial demonstrations have been carried out in Colorado, United States, and Alberta, Canada. Shell Jilin Energy Holdings Co., Ltd., established through a partnership between Jilin Guangzheng Mining Development Co., Ltd. and Shell (China) Co., Ltd., was founded in April 2006. The joint venture will explore and develop the oil shale resources in Jilin Province. Jilin Shell, a joint venture invested in by Shell (61%) and Jilin Guangzheng (39%), will carry out oil shale geological exploration for two years. The long-term goal of this venture is to achieve the commercial development of oil shale resources in order to produce clean, high-quality transportation fuels as well as other energy and chemical products. Based on Shell’s research and development of ICP technology in North America as well as its investigations into local oil shale resources, it is expected that this technology will enter the commercial demonstration phase in 2006. The joint venture will start carrying out demonstrations in that year, and after 2 to 3 years of such demonstrations, full-scale commercial production will begin after 2010. The expected annual output will be 14 million tons of light oil, with a total investment of $20 billion. Inner Mongolia’s first oil shale development project, with a total investment of 3 billion yuan, began construction in Guyang County, Baotou City, in October 2005, marking the start of the development and utilization of oil shale resources in Inner Mongolia. The project is located in the Wo’erqinhao mining area of Guyang County, Baotou City. It will be carried out in two phases: Phase 1 is scheduled to require an investment of 1.5 billion yuan, with a production capacity of 600,000 tons of crude oil per year; Phase 2 also requires an investment of 1.5 billion yuan, during which another production line with a capacity of 600,000 tons of crude oil per year will be built on the basis of Phase 1. Five companies have already planned to invest in this project and cover the exploration costs: Liaoning Fushun Mining Company, Inner Mongolia Baijin, Zhungeer Qiaoyaoqu Coal Mine, Beijing Guohuan Exhibition Center, and Beijing Xinyangqiao Technology. As early as the 1950s, when the Fifth Institute of Geological Exploration in Inner Mongolia was carrying out work in the area, it was discovered that oil shale covered the coal seams there; this area covered roughly 15 km2, the thickness of the oil shale ranged from 20 to 100 meters, and the oil content was above 4% (a level sufficient for exploitation). The total reserves amounted to approximately 1.4 billion tons. According to surveys conducted by relevant research institutions, the estimated reserves of oil shale in Inner Mongolia amount to 208.54 billion tons, ranking first among all provinces in China. Data from surveys carried out by the former Ministry of Geology show that the proven reserves in Inner Mongolia are 241 million tons, with an oil content of 5.6%. The development of this project will provide a basis for the large-scale exploitation of oil shale resources in Inner Mongolia. 2.3 Oil sands resources: China also possesses abundant oil sands resources, which are distributed over a wide area. Oil sands have been found in basins such as the Junggar, Qaidam, Ordos, Songliao, Sichuan, Erenhot, Tarim, and Tuhai. China has a large number of oil sand deposits spread over a wide area, with high oil content; in some regions, the oil content in oil sand exceeds 12%, making the exploration prospects very promising. 3 　Conclusion **The Outline of the 11th Five-Year Plan states that efforts will be focused on the exploration of unconventional oil and gas resources such as coalbed methane, oil shale, and oil sands, in order to promote diversification among the entities involved in oil and gas exploration and development. Making full use of sulfur-containing and heavy crude oils, as well as developing unconventional oil resources, represent new challenges and opportunities for the sustainable development of the petroleum industry worldwide and in China. References: Sierer K. Rapid pyrolysis process now works with crudes. Chemical Engineering Progress, 2005, 101(5): 22–25. Qian Bozhang. New developments in world refining technology in 2003. Lubricants & Fuels, 2004, (4): 11–26. Qian Bozhang. Selection of processing routes for sulfur-containing crude oils. Refining, 2004, (4): 12–18. Swaty T. E. Global refining industry trends: the present and future. Hydrocarbon Processing, 2005, (9): 35–38. Lifschultz D. K. Oil refiners facing challenges: help is needed. Hydrocarbon Processing, 2005, 84(9): 59–62. Development prospects of unconventional crude oil resources. LI Ruoping (PetroChina Fushun Petrochemical Company, Fushun 113008, China). Abstract: This article discusses the global status and utilization of unconventional crude oil resources such as oil sands and heavy oil, as well as the development prospects of such resources in China. Keywords: Unconventional oil resources; Heavy oil; Oil shale; Oil sands