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Big oil getting desperate: Making oil with nuclear energy

by Jerome a Paris Sat Sep 24th, 2005 at 04:36:23 AM EST

Total May Use Atomic Power At Oil-Sand Project (WSJ, behind subscription wall)

PARIS -- French oil giant Total SA, amid rising oil and natural-gas prices, is considering building a nuclear power plant to extract ultraheavy oil from the vast oil-sand fields of western Canada.

This comes as oil prices -- driven even higher by Hurricane Katrina and now the threat of Hurricane Rita -- are removing lingering doubts about the long-term profitability of extracting the molasseslike form of oil from sand, despite the fact that the output is much more expensive to produce and to upgrade than is conventional crude.

At the same time, prices of natural gas -- which oil-sands producers have relied on to produce the steam and electricity needed to push the viscous oil out of the ground -- have risen 45% in the past year. That is prompting Total, which holds permits on large fields in Alberta that contain oil sands, to consider building its own nuclear plant and using the energy produced to get the job done.

This is interesting for two things: the global comeback of nuclear energy, and the staggering investments required to develop the Canadian oil sands. Neither are a sign that we are about to get back to an era of cheap energy...

Total's interest is the latest sign that nuclear energy is making a global comeback. Finland commissioned a new reactor in 2003, the first such order in Western Europe in 13 years. France has chosen a site in Normandy where a reactor will be built. The U.S. hasn't commissioned a new nuclear plant for three decades, but the industry is talking seriously about a revival, encouraged by the Bush administration and the rising cost of fossil fuel.


Total is relying on Areva SA, the French state-run nuclear engineering company, to define what type of reactor might suit its needs in Canada. Research is focusing on a dedicated reactor significantly smaller than those used by utility companies to produce electricity for large city grids.

Areva said discussions with Total are centering on a new type of reactor, known as a High Temperature Reactor, with a capacity of around 500 megawatts, about a third of the size of a traditional reactor. Areva also has been approached by other oil companies but discussions are most advanced with Total, Jean-Jacques Gautrot, Areva's director for international operations and marketing, said.

Areva, the French builder of nuclear plants (and the main contractor for the new Finnish plant), has recently signed an agreement with Constellation energy to prepare the ground to build new nuclear reactors in the US. It is also bidding for new nuclear tranches in China.

I wrote most of what I know about nuclear energy in this diary: Nuclear energy in France - a Sunday special, which describes how the industry is run in France, how waste is stored (and how it will be stored for the long run), and how costs are accounted for. I am certainly not trying to sell nuclear as a cure all on the energy front, but it is certainly better than coal for baseload (still the main source of electricity in the US, UK and Germany) and it is mostly carbon-free and, when well-run like in France, very cheap. Against that, you have the (manageable) problem of storing dangerous waste for long periods of time, the (small but uninsurable) risk of a major accident, and the high upfront cost (in money and energy) of the initial investment. On balance, nuclear should remain part of our energy supply - but just a part, and mostly as a preference to coal-fired plants.

But back to the oil sands:

In Canada, Total holds half of an oil-sands permit in Alberta and has secured more heavy-oil acreage with the purchase of Deer Creek Energy Ltd., located in the same western province. Total said it plans to invest $7 billion in Deer Creek, on top of the $1.4 billion it expects to pay for the company. The company says it could one day produce 200,000 barrels of heavy crude a day, close to 8% of Total's current global output.

Canada's oil sands contain 174 billion barrels of recoverable reserves, the world's second-largest oil resource behind those of Saudi Arabia, according to Canadian government estimates.

Oil sands, a mixture of grit and a tarlike grade of crude oil known as bitumen, were discovered more than a century ago but have been considered economical to produce only in recent years as the price of oil has surged. In addition to nuclear power, producers are considering burning oil-sands residue and coal as alternatives to natural gas to make the steam needed for extraction.

Mr. Darricarrère said a nuclear power plant would help Total comply with tougher constraints on carbon dioxide and other so-called greenhouse-gas emissions. Although they generate toxic, radioactive waste, nuclear reactors don't emit greenhouse gases that scientists believe contribute to global warming.

Hidden behind these paragraphs are two things:

- getting oil sands into something usable is a very messy process, which requires a lot of industrial treatment of the oil sands, and a lot of energy. So you need oil sands AND natural gas or some other power source to make oil, which, as energy prices increase, will make the resulting oil quite expensive...

- as the numbers above show, this is an amazingly expensive effort. Consider that Total says it will spend about 8 billion $ to build a 200,000 b/d capacity - worth about 2 billion dollars per year at current prices, but equivalent to 1% of US daily consumption - and imagine how much more will need to be spent to get to volumes able to service America's insatiable thirst for oil... The graph also shows that oil sand production in Canada is not expected to reach significant volumes in the next 10-15 years, reaching barely 3-4% of world production (and less than a third of current US imports), so it will not be enough on its own to significantly modify the global oil balance. It will certainly create few more fortunes in Alberta, and lots of prosperity around Calgary, but it won't solve the looming oil crisis.

A spokesman for Imperial Oil Ltd. of Canada, an affiliate of Exxon Mobil Corp., which operates some of the world's largest oil-sands operations, said it looked into the nuclear option in the past but didn't pursue it because of cost and technology challenges.

Shell Canada Ltd. said it isn't considering nuclear power as part of its oil-sands plans. Rather, the company said it is looking into the possibility of turning asphaltene, very heavy oil, into gas to save on its natural-gas bill.

So there is still abundant skepticism in the industry. Most of all, this shows the desperation of the industry in the face of dwindling reserves, lack of access to the countries that still have some oil, and the increasing cost of production of new volumes of oil.

Those that say that oil will come back to 40$/barrel or less are either lying to us, hopelessly naive, or unaware of these worrying trends. The Financial Times published an article (Storm over the oil industry (behing sub wall) that came out just during Katrina and which I did not find an opportunity to comment upon then)

The issue of costs might not get much attention as hurricanes, terrorist threats to oil production, the dwindling spare capacity of oil in Saudi Arabia and the insatiable thirst for energy in China and the US. But cost inflation is being viewed as a significant reason why oil prices are so high and a sign that they will remain so for some years to come. Sanford Bernstein expects the cost of producing a single barrel of oil to increase by 9 per cent a year, from about $22 a barrel this year to $36 in 2010, and the cost of finding and producing the so-called marginal barrel - beyond which the activity becomes unprofitable - will double to $60 over the same period. Uncertainty about how much new projects will cost also prompted Goldman Sachs this month to raise its prediction of the long-term oil price from $45 a barrel to $60.

The only words that come to my mind are "desperate" and "fucked".

You know, I was reading through your article thinking "in summary, we're fucked." Who knew I'd guess the punchline?

Nuclear plants to extract oil? Bwahahahahaha. Ha.

How about we spend a little more money on the whole fusion deal, because at this stage that sounds like rather a better idea than this nonsense. Hell, let's pump a few hundred billion into cold fusion. Doesn't seem like we have anything better to do with it.

by Colman (colman at eurotrib.com) on Thu Sep 22nd, 2005 at 06:49:04 PM EST
Well, I am not so skeptical. If you are going to need a continuous supply of power for a big number of years to produce the oil, nuclear does make sense, given the scale of the project costs. It would provide an input with a different price determination, thus avoiding the self-referencing vicious circle to determine production costs.

But it does show that there is no easy or cheap oil around anymore if this starts making sense.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Sep 22nd, 2005 at 06:54:34 PM EST
[ Parent ]
Oh, I'm not skeptical, just horrified. How about we spend the money running the hell away from oil as fast as we can rather than squeezing out the last couple of barrels to burn it.

In the context of oil as raw material I could live with this sort of thing, but as a fuel?

by Colman (colman at eurotrib.com) on Thu Sep 22nd, 2005 at 07:16:58 PM EST
[ Parent ]
Big Oil Braces for Rita

The US Minerals Management Service, in a daily update originally given to track Hurricane Katrina's devastation a few weeks ago, said crude oil output shut in as of Sept. 21 had risen to 1.097 million barrels per day, or 73.16% of normal Gulf output of 1.5 million barrels. On Sept. 20, MMS put shut-ins at 877,275 barrels per day. ---

The markets are already responding. In early electronic trading on Sept. 22, October futures for natural gas rose 66 cents, to $13.30, gasoline futures gained 8.89 cents, to 214.20 cents, and heating oil futures rose 3.79 cents, to 207.66 cents. November West Texas Intermediate crude was up 95 cents, to $67.75 per barrel. ---

Evacuations began on the Texas Gulf Coast, and employees were moving out of the energy-company hub of Houston. Citgo relocated traders from Houston to Tulsa, Okla. BP traders were being evacuated to Longview, Tex., and ConocoPhillips moved critical personnel to Bartlesville, Okla.

Houston refineries were also shutting down. BP's massive 446,500 b/d Texas City plant was expected to be fully down by midnight Sept. 21, a spokesman says. "We have a small hurricane team that will be at the site during the storm and a hurricane incident management team working out of the remote unit some distance away," he says. ---

ExxonMobil says staff at its 557,000 b/d Baytown and 348,500 b/d Beaumont refineries were "participating in hurricane preparedness meetings with local emergency response agencies and making preparations for elevated wind and rain." The company says nonessential personnel were being released from the Baytown plant. Flint Hills Resources will shut units at its 305,000 b/d Corpus Christi plants Sept. 22, according to filings with the Texas Commission on Environmental Quality.

The latest refinery outages compound the industry's already troubled downstream scenario, with almost 900,000 b/d of US capacity still off line from Katrina. Plants remaining down from that disaster include Chevron's 325,000 b/d refinery at Pascagoula, Miss.; ConocoPhillips' 250,000 b/d Alliance refinery at Belle Chasse, La.; ExxonMobil/PDVSA's 187,000 b/d Chalmette refinery in Louisiana; and Murphy Oil's 125,000 b/d refinery at Meraux, La. ---

The 100 million b/d Colonial Pipeline products trunk system from Houston to the East Coast planned to suspend gasoline and distillate scheduling deadlines for Sept. 23 and Sept. 26 ahead of any possible Rita problems. Colonial's decision took the edge off rising spot prices with traders feeling less pressure to secure prompt barrels.

The line reached normal rates Sept. 5 after halting shipments due to refinery and pump station power losses form Katrina. The US Energy Dept. began evacuating nonessential personnel at its Strategic Petroleum Reserve site at Bryan Mound, TX, ahead of Rita, a source close to Energy told Platts. That facility, from which Energy's Katrina-linked crude sales and loans would be met, has a capacity of 251 million barrels.

by das monde on Fri Sep 23rd, 2005 at 08:21:23 AM EST
In response to the Looney-Tunes idea of using nukes to extract oil from the Alberta Oil Sands:

Desperate Oil Jones-ing (none / 0)

Nukes have been thought of as a salvation technology for lots of applications - add this one to the "Pipedream Hall of Fame". It could also have another meaning - the price people can get for their natural gas is going sky high, and it is more profitable to sell it to urban retail markets than it is to sell it to bulk users, such as a tar sands project. I believe the natural gas would be used as both a source of H2 and a way to generate steam heat. The steam is needed to extract the tar from the sand, and the H2 is needed to upgrade the sand derived hydrocarbons into smaller average molecular weight components ("cracking") which can yield useful products like benzene, gasoline and diesel oils, as well as the lighter molecular weight components. Otherwise, the tar is about as useful as coal - it can also be made into something like Omrimulsion (a water/heavy oil mixture) and burned in industrial scale boilers. Some tar sands projects use the extracted oil for their steam heat source - and they get about half a barrel of product per barrel of tar extracted.

As for wind turbines, the US has at least 4 times the capacity of its current electrical consumption from high quality wind areas (< 13 % of the US qualifies). Canada has a similar wind turbine resource as the US has - which is at least 1800 GW delivered (450 GW is the average consumption nowadays). It's more if the production cost is raised from 5 cents/kw-hr to 7.5 to 10 cents/kw-hr - dramatically more.

So, there is so much wind turbine capacity in both the US and Canada that you can seriously think about producing lots of H2 from water and electricity. Some obvious things to do with this H2 is to stop using natural gas for an H2 source - although simple economics is going to force that issue. And the main uses of H2 at present are the production of ammonia and  upgrading/sulfur removal for petroleum (odd that Brimstone and crude oil seem so intertwined, at least in the religious sense). After that, H2 can actually be used to make useful feedstock chemicals and also fuel chemicals by hydrogenating either CO2 or ground up plants/wood. The key is to allow petroleum prices to rise to the point where this can be viable - which is somewhere between $5 to $10/gallon for gasoline. And if gasoline goes way beyond $10/gallon, maybe some transportation devices (ships, trains, trucks) could go the fuel cell route, but H2 fuel cells are likely to be a "boutique" usage, as will photovoltaics for electricity production. Think of the H2 as a form of stored energy that is a pain to store, and a pain to transport - as you can't use existing pipelines to transport H2, due to hydrogen embrittlement, and the dreadful economics. It seems more sensible to react it into something more easily transported - even if that is only methane (=natural gas). Besides, there does not seem to be a shortage of available CO2 these days, and there are THOUSANDS of demonstrated ways to hydrogenate CO2 into a wide variety of products (these are also very exothermic reactions, too). If you have the money for decent chemical literature access, check out Chem Abstracts or some other reputable (and not free internet accessible) electronic sources. Or go the book route. And there are even a few internet accessible references for those inclined to dabble with the free search engines (provides a nice start for investigating this approach).

Anyway, wind turbines have more than enough potential to replace nukes, most coal, gas and oil burning electricity plants, with plenty to spare in the US and Canada. They can also be used as H2 sources, after replacing the aforementioned polluting approaches to electricity manufacture. These won't make liquid fuels that are the equivalent of $1.50/gallon gasoline, but looks like such gasoline has gone the way of the Dodo bird and the brontosaurus. Odds are, they might be a lot cheaper than nuking oil sands with expensive, government subsidised steam for some low grade heavy crudes that need H2 treatment before they yield decent amounts of gasoline for the hordes of awaiting Petro-junkies.


by db9 on Fri Sep 23rd, 2005 at 10:06:44 AM EST
I agree with everything about this article except the title. Using one energy source, whether it be nuclear or solar or tidal or whatever, to refine or modify another source, whether it be coal or tar or shale, makes perfect sense.

For example if diesel oil is the preferred fuel for busses and trains, and if it can be refined from oil sands using some other energy source, then if the price of diesel oil and the cost of crude oil rise sufficiently it will be economically preferable to use oil sands instead of crude.

It's not "desperation" that is driving this, it's straightforward economics working within the current regulatory rules. If nuclear power is considered undesirable, then a regulation is required to prevent it.

by asdf on Fri Sep 23rd, 2005 at 10:22:36 AM EST
Shell's tar sands investment:

$4 billion for 150 MBD production of syncrude
Shell link 1

Shell's Na Kika development $1.5 billion for 200 MBD oil/gas in the very deep waters off USGC.

Shell link2

looks pretty awful except that the Na Kika development is only expected to recover 300 million bbls of oil equivalent or just 4 years of peak production (probably will take 10 years+ to actually achieve).
See: http://www.rigzone.com/news/article.asp?a_id=9818

So only about $12 billion worth of oil/gas ($40/bbl) for the deep water investment spread over a decade or two.  Shell/BP probably costed it out at $20 or less so they'll be happy (as long as an annual hurricane doesn't shred it).

Meanwhile the tar sands stuff will have a much longer lifespan (tar sands deposits are huge).  If the equipment has a design life of 20 years, the oil sands deal looks equally attractive or more.  Especially as the system is being set up to expand to 500 MBD.

All these deep water/oil sands/oil shale(future) investments look desperate vs sticking a hole in the ground in Saudi and having 30,000 BPD flow out at $1-5/bbl.  So did windmills vs just throwing up another nat gas turbine with gas at $4/MMSCF.  But i'd give my left (you pick) if I could get my Co-op to throw up some windmills at 6cts/kwhr vs burning on spec diesel at 16cts/kwhr.

The era of essentially free energy is over but some of this hand wringing is getting a litte OTT.

by HiD on Sat Sep 24th, 2005 at 05:58:51 AM EST
[ Parent ]

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