North West Upgrading:

Full Speed Ahead

For the past six months or so, anytime we heard the word ‘upgrader,’ we also heard words like ‘shelved’ or ‘delayed’ … except when we heard the words ‘North West.’ In spite of the recession that has abruptly turned Alberta’s boom to bust, North West Upgrading is forging ahead with plans to build a 231,000 barrels-per-day upgrader 45 kilometres northeast of Edmonton.

 

 “What makes us different from a lot of the other upgraders is we will take the bitu­men and convert it to fuels. We’re actually an upgrader-refinery,” said president and CEO Doug Quinn.

The norm in Alberta oilsands is to upgrade bitumen to crude oil, then send it to another facility for refining. But the North West Up­grader will churn out value-added products, such as ultra low-sulphur diesel, diluent, low-sulphur vacuum gas oil for refining into gaso­line and butane.

 

 “The margins between the raw material and these products have maintained them­selves relatively flat for the last five years,” said Quinn.

 “Even in a downturn, the margins aren’t drying up or being squeezed, so we’re staying pretty healthy in our business model. There’s still not a sufficient supply of diesel fuel in Al­berta. And if that changes, we can swing our product mix to whatever the demand is.”

 

 Another aspect of North West’s facility that will set it apart is its processes. It will use hydrotreating, hydrocracking and gasification – thereby lessening its dependence on exter­nal natural gas sources, improving the quality of the product and reducing the generation of unwanted byproducts.

“We are not using unproven technology. We are not a step-out on technology, but we will be one of the few processors using these technologies in this combination in North America.

“There is one other that I’m aware of, and I happened to work in that facility – the Mo­tiva Refinery in Convent, LA.” Unlike Motiva and North West, most up­grader-refineries use ebullating-bed crackers with steam methane reformers to make hy­drogen.

“That is a very solid, proven technology. Unfortunately, it uses natural gas,” Quinn noted.

 

Hydrogen produced by the gasifier will be used to power the plant, so North West will only buy natural gas to heat its buildings, thereby insulating itself from the wild fluc­tuations in the price of this commodity.

Meanwhile, a commercial arrangement to sell carbon dioxide from the gasifier for en­hanced oil recovery makes the North West project the only upgrader designed with an integrated CO2 management solution, ac­cording to the company website.

 

The upgrader is to have three, 77,000 bpd phases. But even with an ultimate capacity of 231,000 bpd, the company sees itself as a small operator, and sees its niche as servicing other small oilsands operators.

“Not everybody builds upgraders. You take a small producer that doesn’t have the where­withal to actually upgrade, we’re going to be in a place where a small producer can sell us the material and we can process it, essentially, on their behalf,” said Quinn.

 

“We’re very focused on helping the Gov­ernment of Alberta see its vision of respon­sible oilsands development. We are building an upgrader here, we’re not building an up­grader someplace else.”

 

North West in a Nutshell

 

A relatively new venture, North West is a private, Calgary-based firm that was created less than a decade ago to develop and build the North West Upgrader.

 

“Fortunately, we’re privately funded and privately owned. I don’t have the concern that some of my peers have: satisfying the current set of shareholders,” said Quinn. “I have shareholders to satisfy – we have a set of investors who’ve entrusted us with their money, and we have to manage it responsi­bly. But they’re also people who are willing to gain, but it’s going to take a bit of time.”

 

In August 2007, the Alberta Energy and Utilities Board (EUB) granted North West regulatory approval for the three-phase proj­ect, and the company commenced site prepa­ration for Phase 1. Quinn said the $4.2-billion first phase is to be in operation in early 2013, while company website calls for Phases 2 and 3 to follow by 2016.

 

At the moment, North West has about 20 employees – most of whom currently work in Calgary and the rest in Redwater, the town that is nearest the upgrader’s future home.

“During construction, we’ll generate 2,500 jobs for a couple of years. Once it’s complete, it’ll take around 300 people to operate the facility’s first phase. There are economies of scale with future phases, so we’ll be at around 700 workers when fully built.”

 

Building in a Bust

 

While the economic downturn has deflated many other oilsands-related capital projects, North West is forging ahead. This presents a number of advantages from a people and materials procurement perspective, but the credit crisis that caused today’s economic slowdown means it’s tougher these days to borrow money to build plants.

Therefore, when asked if the building time line could be impacted by the recession, Quinn said he’s no fortune teller.

 

“What I have confidence in is that the cy­cles will continue. I’ve been in this business for 35 years, and I’ve seen downturns and upturns a number of times. Is this one the worst? Possibly. But the reality is, these cycles take place. “You cannot make decisions on these kinds of complex assets, just in a very short period of time. This plant’s going to be around for 30 years generating some sort of cash. It will go through good times and bad.”

 

He noted that the company is in a great cash position, so it has time to continue work­ing while the world’s credit system sorts itself out. “We don’t need $4 billion today to get going. What we need is segments of money to continue to the next phase. But at some point, you’ve got to get your billions, because you’ve got to buy all your equipment, so you can do the assembly work at site.”

 

 In the meantime, he aims to use the slow­down to the company’s advantage.“If there are 20 projects and they all want the same pump, it becomes difficult for the pump maker to make all the pumps. But if there’s only one project or two at a time, the pump manufacturer can logically produce the pumps at the right time. They’re not forced into hiring people that are less skilled to pro­duce the same product,” Quinn said.

 

“We’ve been blessed with time. Skilled la­bour is not a scarce commodity. Skilled en­gineering labour is not a scarce commodity. Steel prices are coming down – not as fast as they went up, but at least they’re coming down,” said Quinn.

 

 

 

Technology and Process

 

“North West has selected leading technolo­gy providers from around the world to ensure the use of high-quality, high-yielding process­es to maximize output and value,” according to the website.

 

First, the feed to the upgrader will be sepa­rated in the crude units into light, medium and heavy streams. Light oil is sent to light ends recovery, medium weight material flows to the hydrotreating units for light process­ing and high density material is sent to the residual hydrocracker for intensive process­ing. Diluent, which will have been blended with the bitumen feedstock to lighten it for transportation, is returned to the producers for future use.

 

Medium-density material from the crude units requires light hydrotreating by way of hydrogen addition. This removes certain im­purities such as sulphur, nitrogen and heavy metals, and improves the overall quality of the final products. High-density oil from the vacuum unit re­quires intense processing involving hydrogen addition at high temperature, high pressure and the presence of a catalyst. The longer hydrocarbon molecules are “cracked” into shorter, “lighter” hydrocarbons to improve the quality of the output products. These shorter molecules are then processed in the hydrotreating unit to stabilize them for inclu­sion in the final product.

 

The heavy oil that was not upgraded by the residual hydrocracker, or hydrocracker bot­toms, is sent to the gasifier where it is com­bined with steam and oxygen at high pres­sure and temperature to produce hydrogen. The hydrogen is separated for use in the hy­drotreating and hydrocracking units. “Manufacturing high-quality products requires the input of significant amounts of hydrogen that is typically sourced from natural gas,” according to the website. “Converting the hydroc­racker’s heavy residue bot­toms to hydrogen for use in the process avoids the use of significant amounts of high-value, high-cost natural gas. Further, gasification eliminates the production of low-value coke which must be disposed of.”

 

Very light hydrocarbons such as propane and butane are removed from the process and recovered for process use or resale. This stabi­lizes the products so that gas does not form during shipment. Sulphur is also recovered during the hydrotreating processes for sale into the market.

 

“The Alberta government asked the ques­tion, could you make gasoline? We could. But that’s not how we’re configured today,” Quinn said. “One of our processing units could make gasoline, should we choose to run it that way. But it would have to be economic. The world’s gasoline demand is actually going down – I would say temporarily.”

 

The Case for Gasification

 

Quinn said the upfront cost of building a gasifier is slightly more than the alternatives, but it’s worth it – both economically and en­vironmentally.

 

“The reason we’re building gasification is two-fold. You can capture the CO2 in pure form, and then use it for enhanced oil recov­ery. And secondly, it produces hydrogen in a more responsible manner than steam meth­ane reforming, which needs natural gas,” he said. “On a normal, running plant, we won’t take natural gas from the grid, we’re bal­anced. We’re almost like a closed-loop sys­tem. Over time, it’ll pay for itself.”

 

North West will capture its carbon dioxide and sell it to Enhance Energy, a young Cal­gary company that specializes in enhanced oil recovery through CO2, water and polymer flooding. “They’re the first commercial infrastruc­ture pipeline that we’re aware of being pro­posed for the province.” he said. “Right now, a lot of EOR people are buying liquid CO2 and injecting it. Enhance is going to take our CO2 and compress it to a point that it can be moved by pipeline.

 

“We see a tremendous opportunity for en­hanced oil recovery. I don’t want to be in that business – I want to generate products – but the fact they exist and the fact we will produce CO2 in a responsible way and not release it to the atmosphere, makes for a hand-in-hand kind of solution.”

 

The arrangement will see 3,500 tonnes per day of carbon dioxide captured, sold and se­questered. The plant will still have a green­house gas footprint, but instead of 5,000 tonnes per day, it will be 1,500.

“We still require heat for the process, and that means combustion. I haven’t seen any technology to capture it off the stack,” said Quinn.

 

Quinn-tessential Pet Project

 

Quinn was recruited recently to lead North West Upgrading, but that doesn’t mean he’s just a hired gun. The oil and gas veteran is committed to the company and the project for a number of reasons. “One is selfish. I want to build something in Alberta for Albertans. I want to see the value go back to the folks of this province in some form,” he said. “But this isn’t only going to benefit Alber­ta. To create the parts that need to be created, we’ll look to other parts of the province as well. Ontario and Quebec and B.C. will ben­efit tremendously. This is Canada’s resource, and it should be developed and built by Ca­nadians.”

 

Additionally, Quinn is excited about the prospect of putting 35 years’ experience with large, integrated resource companies to work in a smaller setting. “I also want to do it in a way that is not encumbered by big company bureaucracy. I want to build it from scratch, and create the right working culture. I believe in getting things done.”

 

The Author: Rob Petkau is the

Managing Editor of PROCESSWest