TECHNICAL REPORT SERIES

Prospective Analysis of the Potential Non Conventional World Oil Supply: Tar Sands, Oil Shales and Non Conventional Liquid Fuels from Coal and Gas

EUR 22168 EN

Institute for Prospective Technological Studies

European Commission Joint Research Centre (DG JRC) Institute for Prospective Technological Studies http://www.jrc.es

Legal notice Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information.

European Communities, 2005 Reproduction is authorised provided the source is acknowledged.

Prospective Analysis of the Potential Non-conventional World Oil Supply: Tar Sands, Oil Shales and Non-conventional Liquid Fuels from Coal and Gas

Institut Franais du Ptrole Direction des Etudes Economiques

Jean Franois Gruson Sbastien Gachadouat, Guy Maisonnier and Armelle Saniere

December 2005

Technical Report EUR 22168 EN

European Commission Joint Research Centre (DG JRC) Institute for Prospective Technological Studies http://www.jrc.es

Legal notice Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information.

Technical Report EUR 22168 EN

European Communities, 2005 Reproduction is authorised provided the source is acknowledged. Printed in Spain

Table of contents
TABLE OF CONTENTS...................................................................................................................................... 1 TABLE OF FIGURES.......................................................................................................................................... 3 PREFACE.............................................................................................................................................................. 4 EXECUTIVE SUMMARY................................................................................................................................... 5 1 TAR SANDS AND EXTRA-HEAVY OILS .................................................................................................... 8 1.1 EVALUATION OF RESOURCES IN PLACE AND RECOVERABILITY ...................................................................... 8 1.1.1 Tar sands ............................................................................................................................................... 8 1.1.2 Extra-heavy oils..................................................................................................................................... 9 1.2 EXISTING, PAST AND FUTURE PROJECTS FOR COMMERCIAL EXPLOITATION .................................................. 10 1.2.1 Tar sands ............................................................................................................................................. 10 1.2.2 Extra-heavy oils................................................................................................................................... 14 1.3 KNOWN EXTRACTION AND UPGRADING TECHNOLOGIES, INVESTMENT AND OPERATING COSTS ................... 16 1.3.1 Extraction technologies....................................................................................................................... 16 1.3.2 Transportation technologies................................................................................................................ 20 1.3.3 Upgrading technologies ...................................................................................................................... 21 1.4 CO2 EMISSIONS AND OTHER ENVIRONMENTAL ISSUES ................................................................................. 23 1.4.1 Atmospheric emissions ........................................................................................................................ 23 1.4.2 Water use and conservation ................................................................................................................ 24 1.4.3 Tailings and by-products..................................................................................................................... 25 1.5 MAIN INPUTS FOR THE DATABASE AND MODEL ............................................................................................ 26 1.6 MAIN REFERENCES ...................................................................................................................................... 26 2 OIL SHALE...................................................................................................................................................... 28 2.1 EVALUATION OF RESOURCES IN PLACE AND RECOVERABILITY .................................................................... 28 2.2 WORLDWIDE PRODUCTION AND EXPLOITATION PROJECTS ........................................................................... 30 2.2.1 Worldwide oil shale and synthetic oil production ............................................................................... 30 2.2.2 Present and future production projects ............................................................................................... 30 2.2.3 Past production projects ..................................................................................................................... 33 2.3 KNOWN PRODUCTION TECHNOLOGIES AND THE PYROLYSIS PROCESS .......................................................... 35 2.3.1 Surface pyrolysis ................................................................................................................................. 35 2.3.2 In-situ pyrolysis ................................................................................................................................... 37 2.3.3 Summary of pyrolysis process ............................................................................................................. 38 2.4 ENVIRONMENTAL ISSUES ............................................................................................................................. 38 2.4.1 CO2 emissions - from oil well to petrol tank........................................................................................ 38 2.4.2 Air quality............................................................................................................................................ 38 2.4.3 Water quality ....................................................................................................................................... 39 2.4.4 Spent shale disposal ............................................................................................................................ 39 2.5 MAIN INPUTS FOR THE DATABASE AND MODEL ............................................................................................ 40 2.6 MAIN REFERENCES ...................................................................................................................................... 40 3 WORLD GTL PROSPECTS .......................................................................................................................... 41 3.1. BACKGROUND ............................................................................................................................................ 41 3.2 TECHNICAL AND ECONOMIC BACKGROUND ................................................................................................. 41 3.3 COUNTRIES WITH GTL POTENTIAL .............................................................................................................. 42 3.3.1 Analysis by country ............................................................................................................................. 42 3.3.2 Analysis by field .................................................................................................................................. 46 3.4 PROJECTS UNDER DEVELOPMENT, PLANNED OR ANNOUNCED ...................................................................... 48 3.5 END-MARKET TRENDS (DIESEL) ................................................................................................................... 50 3.6 GAS-TO-LIQUIDS AND CO2.......................................................................................................................... 50 3.6.1 International action on greenhouse gases........................................................................................... 50 3.6.2 Kyoto Protocol implementation........................................................................................................... 51

3.6.3 "Well-to-wheel" analysis ..................................................................................................................... 51 3.6.4 Impact of Kyoto on GTL development................................................................................................. 53 3.7 CONCLUSION - GTL DEVELOPMENT POTENTIAL .......................................................................................... 54 3.8 MAIN INPUTS FOR THE DATABASE AND MODEL ............................................................................................ 54 3.9 MAIN REFERENCES ...................................................................................................................................... 56 4 COAL TO LIQUIDS ....................................................................................................................................... 57 4.1 EVALUATION OF WORLDWIDE COAL RESERVES ........................................................................................... 57 4.2 KNOWN PRODUCTION TECHNOLOGIES, INVESTMENT AND OPERATING COSTS .............................................. 60 4.2.1 Carbonisation and pyrolysis................................................................................................................ 61 4.2.2 Direct liquefaction............................................................................................................................... 62 4.2.3 Indirect liquefaction ............................................................................................................................ 64 4.2.4 Underground gasification ................................................................................................................... 66 4.3 EXISTING PLANTS AND FUTURE PROJECTS.................................................................................................... 68 4.3.1 Existing Plants..................................................................................................................................... 68 4.3.2 Future projects .................................................................................................................................... 68 4.4 CO2 EMISSIONS ............................................................................................................................................ 69 4.5 MAIN INPUTS FOR THE DATABASE AND MODEL ............................................................................................ 70 4.6 MAIN REFERENCES ...................................................................................................................................... 71 ANNEX I - OVERVIEW OF THE FT GTL PROCESS CHAIN ................................................................... 72 1/ THE ELEMENTAL STEPS IN THE FT GTL CHAIN ............................................................................................ 72 1.1 Syngas - first elemental step ................................................................................................................... 72 1.2 FT - second elemental step..................................................................................................................... 73 1.3 HCI - third elemental step ...................................................................................................................... 73 2/ FT GTL PROJECT ALLIANCES ....................................................................................................................... 74 3/ AREAS FOR FURTHER DEVELOPMENT AND STUDY ........................................................................................ 75 ANNEX 2 NON-CONVENTIONAL FUEL SOURCES IN THE POLES MODEL .................................. 76

Table of figures
Table 1. Worldwide bitumen resources in place and recoverability ................................................. 9 Table 2. Worldwide extra-heavy oil resources in place and recoverability..................................... 10 Table 3. Canadian bitumen mining - ongoing projects ................................................................... 11 Table 4. Canadian in-situ bitumen production - ongoing projects .............................................. 12 Table 5. Venezuela extra-heavy oil - ongoing integrated projects .................................................. 15 Table 6. Venezuelan tax regime for Orinoco extra-heavy oil projects............................................ 15 Table 7. Summary of extraction technologies ................................................................................. 20 Table 8. Residual upgrading technologies and licensors................................................................. 23 Table 9. Worldwide oil contained in oil shale................................................................................. 29 Table 10. Worldwide oil shale extraction...................................................................................... 30 Table 11. Australian Stuart Project - phased development............................................................ 32 Table 12. Australian Stuart Project - saleable products................................................................. 32 Table 13. Pyrolysis processes, including commercialisation stage ............................................... 38 Table 14. First step - countries with over 200 Bcm of proven reserves or four times the minimum for a 20 000 b/d plant .................................................................................................................... 44 Table 15. Second step - GTL potential by country........................................................................ 45 Table 16. GTL potential based on fields of over 50 Bcm ............................................................. 46 Table 17. GTL potential based on fields of 50 to 100 Bcm, e.g. 25 000 b/d - 50 000 b/d ............ 47 Table 18. GTL potential based on fields of 100 to 200 Bcm, e.g. 50 000 b/d - 100 000 b/d ........ 47 Table 19. GTL potential based on fields of over 200 Bcm e.g. potential production of 100 000 b/d 47 Table 20. Main GTL projects in 2005 ........................................................................................... 49 Table 21. Possible GTL trend based on several sources ............................................................... 54 Table 22. Worldwide proven coal reserves at end 2004 (million tonnes) ..................................... 58 Table 23. Worldwide coal reserves at end 1999 Proven amount in place (million tonnes) ....... 60 Table 24. Companies developing direct liquefaction technologies ............................................... 63 Table 25. Direct coal liquefaction - economics ............................................................................. 64 Table 26. Companies developing gasification technologies.......................................................... 65 Table 27. Companies developing indirect liquefaction technologies ............................................ 65 Table 28. Indirect coal liquefaction - economics .......................................................................... 66 Table 29. Standard bituminous coal and crude oil ........................................................................ 70

Preface
One of the duties of the Energy and Climate Change Group at IPTS is the elaboration of analyses and policy making guidance reports in the field of energy resources, and its implications for the economy and environment. Recent events on crude oil markets are the manifestation of emerging tensions that may lead to a drastic mismatch between growing demand and shrinking pumping capacity. Oil price fluctuations obey both to short term perturbations due to market expectations and momentary asymmetric information, as well as long term trends that reflect the overall evolution of the crucial indicators like the reserve-to-production ratio, proven reserves and improvement in recovery factors. There are signs that conventional crude oil resources are approaching exhaustion, and the cut-off date is within the span of a few decades. Many alternative fuels to mitigate the resulting energy shortage should be considered. Some technological forecasts have considered technologies such as solar electricity, nuclear alternatives, or other which are not likely to be implemented in nearest future. However, there are technologies close to commercialisation or even already used, that have been abandoned as uncompetitive during the years of cheap crude oil. This report is devoted to the analysis of reserves and technologies for treatment of tar sands and oil shale, as well as conversion of relatively abundant fossil fuels gas and coal, to liquid fuels. They all constitute not only a future substitute for vanishing oil but a feasible alternative for this increasingly expensive energy. Their main advantage comparing to other options is that they could use already well developed infrastructure for oil treatment and products distribution. Having identified the importance of this emerging issue, IPTS launched a project aiming at characterise the economic potential of those non-conventional oil reserves. The Institut Francais du Ptrole (IFP), a well-know institution in the field of the economics of fossil fuel resources has carried out this analysis and elaborated the synthesis report presented hereafter. The report is published as background material to inform decision-makers and energy planners hoping it may help in the design of options to face security of energy supply problems. This report accompanies a software development aiming at the development of a new and detailed model representing the foreseen exploitation pattern of these resources. This modelling tool is conceived as an improvement of the POLES global energy model, and its characteristics will be described in a separate report.

Antonio Soria Co-ordinator, Energy and Climate Change IPTS, DG JRC

Executive Summary
Coal, petroleum and natural gas are the traditional fossil fuels whose direct use today accounts for most of the world's energy consumption. These fuels are rich in carbon and hydrogen. A relatively large amount of energy is stored in them and they have a high calorific value. As they are depleted, or their price increases, other fossil fuels can become more attractive for commercial exploitation. Crude oil has a major role amongst these fossil fuels. It is, of course, a limited resource whose fundamental importance is based on the fact that oil products account for more than 90% of energy consumption by the global transportation sector, not to mention their industrial applications in chemicals, manufacturing and construction. Estimates of undiscovered oil reserves range from 300 to 1,500 billion barrels (Bb), depending on the source. However, these numbers must be treated with caution, as they include economically recoverable reserves, which may increase as new technologies are introduced. About 77% of crude oil has already been discovered, and 30% of it used so far. Between 1860 and the first oil crisis in the 1970s, 200 Bb of oil were used, since when oil production has roughly stabilized at 20-25 Bb per year. Reserves are expected to become progressively scarcer, and the recent surge in prices reflects market expectations of this. Higher oil prices make the exploitation of non-conventional oil resources, such as heavy and extraheavy oils, tar sands and oil shales, more attractive. This study addresses the potential market for these products. Technologies also exist for obtaining liquid fuels from fossil fuels other than petroleum, e.g. coal and natural gas. These technologies are also examined in the study. Monitoring and estimates of coal and gas reserves are less of an issue for this study, since they are well covered by standard energy prospective analysis. The purpose of this study is rather to take a more general look at the technological options, assess their commercial viability compared with the other non-conventional liquid fuel options, and address the potential niche for each in the global energy market, with a particular focus on the role they could play in security of energy supply. The report goes on to outline the main characteristics of the commercial and experimental methods available for exploiting these non-conventional resources, discuss the technical characteristics in use at each exploitation site and provide comprehensive technical and economic data. Identified volumes in place of tar sands are estimated at between 2 200 and 3 700 Bb, the bulk of them in Canada, which has an estimated 1 600 to 2 500 Bb. Smaller volumes have been identified worldwide, mainly in Asia (270 Bb), Russia (260 Bb), Venezuela (230 Bb) and the US (60 Bb in Utah, Texas and California). Bitumen deposits would also seem to be present in Africa but the figures are contradictory and estimates of resources in place vary from 50 to 430 Bb. In Russia, very large resources are present in Eastern Siberia in the Lena-Tunguska basin. The available technologies allow 9-15% of these reserves to be recovered, but with advanced technologies the recovery rate could ultimately reach 30% (depending on the characteristics of the reservoirs). Some reserves are located at a shallow depth and can be exploited using mining technologies, whereas others can only be exploited with petroleum technologies. As regards extra-heavy oils, the United States Geological Survey (USGS) estimates worldwide resources to be around 1 350 Bb. About 90% are located in Venezuela (1 200 Bb). Estimates are that 20% of Venezuelan resources in place are ultimately recoverable, i.e. some 240 Bb. Extra-heavy oil has also been identified in other countries, in particular Ecuador (5 Bb), Iran (8 Bb) and Italy (1.5 Bb). In Russia, small amounts have been identified in the Volga-Urals and North Caucasus-Mangyshlak basins, but the lack of accurate and up-to-date information precludes reliable estimates.

Technologies for extracting tar sands include direct mining (which tends to be the most economic method of extraction when the oil sands are close to the surface), with total costs estimated at between 9 and 12 $/b; in-situ cold heavy-oil production (CHOPS process); Steam Assisted Gravity Drainage (SAGD), and Cyclic Steam Stimulation (CSS). The costs of these technologies, applicable to different reservoir characteristics and yielding different recovery rates, range between 7 and 16 $/b. Processing heavy and light crude oils yields the same range of refined products but in very different proportions and qualities. Heavy oils produce much greater vacuum residues than lighter ones. Several processes exist to convert vacuum residues, either thermal, catalytic or both. An attractive route for exploiting heavy oil is gasification, which involves partial oxidation of the feed, liquid or solid to convert it into a synthesis gas in which the major components are H2 and CO. Gasification is a clean, flexible technology already proven on coke or heavy crude. It is now receiving global interest due to the development of the integrated gasification combined cycle (IGCC), in which gasification can be used to process low-value refinery streams. Oil shales are sedimentary rocks containing a high proportion of seaweed organic matter. Since the transformation of this material was not complete, the shales are rich in kerogen, making them a potential source of energy. The kerogen can be converted into synthetic oil or gas by industrial processing. Identified oil shale volumes in place are estimated to be around 7 000 billion tonnes. Different sources put their oil content at between 2 600 and 4 400 Bb. About 70% of these in-place resources are concentrated in the USA, in the Green River Formation, and 14% in Russia. The other main locations are Zaire (100 Bb), Brazil (82 Bb) and Italy (73 Bb). At present, about 69% of world oil shale production is used for electricity and heat generation, some 6% for cement production and 25%, mainly the higher-yield varieties, is upgraded into jet fuel, gasoline, light fuel, bitumen, coke, phenols and other products. Oil shale can be exploited in two ways: - direct combustion - oil shale is directly burnt to provide thermal energy or electricity; - pyrolysis - extracts the oil contained in the shale or transforms the organic matter into gas or ethylene components. These technologies are less mature than those for exploiting tar and oil, and none are yet commercially available. The in-situ conversion process (ICP) converts kerogen with high yields into high-quality oil and hydrocarbon gases. ICP significantly reduces (and in some case eliminates) the environmental impact of previous shale-oil recovery methods. Shell believes its technology could be profitable at 25 $/b, once steady-state production is reached. GTL (Gas to Liquids) is a generic technology cluster designed to convert natural gas into petroleum products (mainly diesel, kerosene, naphtha and waxes). Recent years have seen a real take-off in this industry, with the construction of many pilot plants. Successive developments have finally produced a technology that can be considered to be operational, although its technical and economic viability remains to be demonstrated on a large scale. Economically, conditions are favourable: - high crude oil prices, likely to remain well above 30-35 $/b in future; - the (declared) unit cost of GTL technology has dropped sharply: from over 50 000 $/b/d to between approx. 25 000 and 35 000 $/b/d, with some operators targeting a figure under 20 000 $/b/d. The profitability of these installations largely depends on the cost of gas, which must be around 0.5/1 $/Mbtu (5 to 10 $/b product equivalent) if a production cost lower than 20/25 $/b is to be attained. This represents a big difference from refining - unit investment is substantially lower (10/15 000 $/b), giving scope for higher raw material costs (crude oil). 6

The largest share of GTL production is intended for the transport market in the form of very high-quality diesel fuel. Apart from diesel, FT plants also produce naphtha (petrochemical feedstock), kerosene and waxes. The outlook for GTL would be jeopardised only by technical or commercial problems with the first plants, scheduled to come online from 2006. Another factor is the CO2 balance (throughout the chain), which is relatively unfavourable compared with conventional refining. This factor could impact negatively on the development of this system, or on costs, if CO2 sequestration becomes mandatory. Finally, a depressed oil market, with prices under 25 $/b, would also hinder the development of these plants. Such prices, while occasionally conceivable for relatively short periods, now seem unlikely for many years to come. Liquid fuels have long been produced from coal via the generic Coal to Liquid (CTL) technology cluster. Being a relatively expensive technology, its deployment would depend on the price of the raw feedstocks (i.e. cheap coal vs expensive crude oil). With demand for oil products continuing to grow, and oil stocks becoming depleted, there will come a time when demand begins to exceed supply. Coal liquefaction is an alternative source, and is backed by large recoverable coal reserves globally. Indeed, these reserves are significantly larger than for other fossil fuels. Direct coal-liquefaction processes have been developed to obtain liquid fuels from solid coal. The technique basically consists of dissolving coal in an adequate solvent at high temperature and pressure, followed by hydrocracking of the mix with hydrogen gas (H2) and catalyst. According to studies of market prospects, direct coal liquefaction investment costs are estimated to be about $60 000 per daily barrel (bbl/d) in the US, for output of 20 000 bbl/d of liquid fuels and with 12 000 tonnes per day (t/d) of coal feed. The required threshold price of the liquid fuels would be around $35/bbl, or in the range $25-30/bbl on a crude-oil-equivalent basis. In emerging economies, the estimated capital cost of the first phase of a 20 000 bbl/d direct coal-liquefaction plant is $800 million, and the required selling price of the liquid fuels is estimated to be $24/bbl, or $15-20/bbl on a crude-oil equivalent basis. For instance, lower labour and equipment costs in China would result in capital costs of about $45 000/bbl/d, compared to $60 000/bbl/d in the US. If these cost estimates prove accurate, the cost of fuel produced will be lower than the cost of imports, given the current high price of crude oil on world markets. Indirect liquefaction processes are based on a two-step approach. First, coal is gasified, then the syngas is converted into liquid fuel by means of a GTL Fischer-Tropsch (FT) process. One example of a commercialised process is South Africa's Sasol technology, with three operational plants producing gasoline, diesel fuel and a wide range of chemical feedstocks and waxes. The typical mixed output of the FT process is napthas (20-30%), kerosene (25-35%), diesel (35-45%) and fuel oils (0-5%). According to Sasol, indirect coal liquefaction investment costs are 1.5 to 2 times higher than for GTL, i.e. $50 000-70 000/bbl/d., and with low-cost coal operating costs may be comparable to GTL (which uses more expensive feedstock). A recent study quoted in this report puts capital costs for indirect coal liquefaction at $67 000/bbl/d for output of 20 000 bbl/d of liquid fuels and 100 MW of power in the US, with 15 000 t/d of coal feed. This would translate into a required selling price of the liquid fuels of approx. $40/bbl, or $29-34/bbl on a crude-oil-equivalent basis. The figures in this summary clearly indicate how close these technologies are to being economically viable. At the time of writing, international oil prices have been above $50/bbl for over a year, reaching peaks of $65/bbl (August 2005). At these price levels, most of the methods described in this report are commercially attractive and likely to play a role in future. The economic and environmental impact of their deployment needs to be addressed, as well as the implications for international energy markets and security of supply. As a standardised technical and economic analysis, this study provides the data needed to examine these issues.

1 Tar sands and extra-heavy oils

Heavy crude, often the result of the bacterial oxidation of conventional oils inside the reservoir rock, has different physical and chemical properties, which are generally degraded: much higher viscosity, higher heavy metals and higher sulphur and nitrogen content than conventional crude.
Heavy, extra-heavy oils and bitumen
Density 20API Heavy oils 10API Extra-heavy oils <10 000 cp Bitumen and tar sands >10 000 cp
IFP/Economics Division/2004

Viscosity

Different categories of heavy crude are usually defined according to their density: - heavy oils, with an API degree of between 10 and 20; - extra-heavy oils and bitumen, with an API degree of less than 10. The difference between extra-heavy oils and natural bitumen is their in-situ viscosity: - extra-heavy oils have a viscosity below 10 000 centipoise (cP), i.e. they flow under reservoir conditions; - natural bitumen, also called tar sands or oil sands, has a viscosity above 10 000 cP; it does not flow under reservoir conditions. This section will concentrate on extra-heavy oils and tar sands. Their specific properties require specific, advanced technical solutions throughout the process of exploitation, from production to transport and refining; that is why they are called "non-conventional oil". 1.1 Evaluation of resources in place and recoverability 1.1.1 Tar sands Identified in-place reserves of tar sands are estimated to be between 2 200 and 3 700 Bb, the bulk of them in Canada, which has an estimated 1 600 to 2 500 Bb. Smaller volumes have been identified worldwide, mainly in Asia (270 Bb), Russia (260 Bb), Venezuela (230 Bb) and USA (60 Bb in Utah, Texas and California). Bitumen deposits would also seem to be present in Africa but the figures are contradictory and estimates of resources in place vary from 50 to 430 Bb. In Russia, very large resources are present in Eastern Siberia in the Lena-Tunguska basin. Only the Olenek deposit has been studied in sufficient detail to permit an estimation of discovered bitumen in place. Another example is the Siligir deposit. Most of the other Russian deposits are in the Timan-Pechora and Volga-Urals basins. However these deposits are scattered and the recoverable volumes not large. Other deposits are located in the Tatar Republic and have been extensively studied. Recoverable volumes outside Canada are estimated at between 90 and 130 Bb.

Canada's bitumen resources are situated almost entirely within the province of Alberta, with only minor oil sand deposits found on Melville Island in Canada's Arctic Island region. Alberta's oil sand deposits, grouped by geology, geography and bitumen content, are the Peace River, Fort McMurray and Cold Lake Oil Sands Areas. The Alberta Energy & Utilities Board (AEUB) estimates the initial volumes-in-place to be 1 600 Bb. The AEUB further estimates the ultimate volume in place - i.e. the volumes expected to be found by the time all exploratory and development activity has ceased - to be 2 500 Bb. Of this amount: - 140 Bb are amenable to surface mining; they are located in the Fort McMurray Oil Sands Area; - 2 400 Bb are amenable to in-situ recovery or underground mining methods. According to the AEUB, current technologies can recover some 178 Bb of bitumen. With anticipated technologies, the ultimately recoverable volume could be 300 Bb. About 20% (35 Bb) of the recoverable resources of bitumen are located at a shallow depth and can be exploited using mining technologies. Exploiting the remaining 80% (140 Bb) will require the use of petroleum technologies. Worldwide bitumen resources in place and the recoverable volumes are summarised in the table below: Table 1.
Canada USA Venezuela Africa Romania Jordan Asia Russia TOTAL

Worldwide bitumen resources in place and recoverability

Bitumen in place Bb 1600 60 230 50 - 430 0.024 0.24 267 260 2 260 - 2 640 Recovery rate % 11 10 9 10 14 12 16 13 Recoverable resources Bb 178 6 23 5 43 0.003 0.03 43 34 270 306

Country/area

1.1.2 Extra-heavy oils According to the USGS, worldwide extra-heavy oil resources are estimated to be around 1 350 Bb. About 90%, an estimated 1 200 Bb, are in the Orinoco Belt in Venezuela. 20% of the resources in place in Venezuela are thought to be ultimately recoverable, i.e. about 240 Bb. With current technology and prices, recoverable volumes are estimated to be about 3% (36 Mb), according to the Energy Intelligence Group. Extra-heavy oil has also been identified in other countries, in particular Ecuador (5 Bb), Iran (8 Bb) and Italy (1.5 Bb). In Russia, small amounts have been identified in the Volga-Urals and North Caucasus-Mangyshlak basins, but the lack of accurate and up-to-date information precludes reliable estimates. Worldwide extra-heavy oil resources in place and recoverable volumes are summarised in the table below:

Table 2.

Worldwide extra-heavy oil resources in place and recoverability

Oil in place Bb 1 200.00 0.15 5.21 0.15 0.03 0.06 1 206.00 8.80 0.01 8.81 n.d. n.d. n.d. 1.68 0.15 1.83 4.20 4.20 > 1 220 1 350 Recoverable resources Bb 36.00 0.05 0.5 0.03 0.00 0.01 36.60 1.30 0.00 1.30 0.90 0.70 1.60 0.21 0.04 0.25 0.80 0.80 40.5

Country/area Venezuela Peru Ecuador Colombia Cuba Mexico Latin America Iran Oman Middle East Russia Azerbaijan FSU Italy Albania Europe China Asia

TOTAL

1.2 Existing, past and future projects for commercial exploitation 1.2.1 Tar sands Projects for bitumen exploitation are mainly located in Canada. The Alberta deposits are so concentrated that they are the only ones that are economically recoverable. Small amounts of bitumen are still produced for road materials and mastic, e.g. from the Trinidad Pitch Lake deposit. In the US, no deposits are being commercially exploited. The geological conditions of the Utah deposits have made recovery difficult and expensive. Similarly, the Texan deposits, mostly deep and relatively thin, have also proved difficult to recover. Since 1967, there has been production from the oil sands in the Western Canada Sedimentary Basin, in Athabasca. The first company to start mining production was Suncor in 1967, followed by Syncrude in 1978. The first production using in-situ methods started in the early 1980s, with the initial expansion driven by the high oil prices during those years. Major in-situ bitumen producers are Imperial Oil (an Exxon Mobil affiliate), Canadian Natural Resources Ltd (CNRL) and EnCana. Tar sand resources in Canada are developed in very small quantities. In fact, according to the AEUB, 80% of possible oil sand areas are still available for exploration and leasing. That means that only 36 Bb of reserves are covered by ongoing or future development projects. 20% of the recoverable resources of bitumen are located at a shallow depth and can be exploited using mining technologies, and 8% of those volumes are already being produced. The remaining 80% of recoverable resources can be extracted with in-situ technologies of these, only 1% are already being produced.

10

Mining production projects 20% of recoverable bitumen resources are located at a shallow depth (less than 100 m) in the Fort McMurray Oil Sands Area and can be exploited using mining technologies. This production method currently accounts for 53% of Canadian bitumen production i.e. 590 000 b/d in 2004. These projects are very capital-intensive, but on such a scale, the installation of an upgrading unit for the extracted bitumen is commercially viable. In all the projects, the bitumen is upgraded at the production site and sold in the form of synthetic crude oil (SCO), with an API degree of between 29 and 36 and sulphur content between 0.1 and 0.2%. This sector is currently dominated by two companies, Syncrude and Suncor, who are both significantly expanding their operations, to increase their bitumen output. Syncrude, which produced 240 000 b/d in 2004, expects to double production in 2015 thanks to its "Syncrude 21" project. It will then be the leading company in the mining industry, well ahead of its rivals. Suncor, for its part, produced some 215 000 b/d in 2004 using mining methods. With its ongoing Project Millennium, the companys output should reach 325 000 b/d in 2010. Shell Canada, through Albian Sands Energy Inc., has also been producing oil sands by mining methods at Muskeg River since 2003. With the development of its Athabasca Oil Sands Project, Albian Sands Energy will become the second largest mining producer in 2015. In the Northern Lights project, there are large, high-quality coal deposits in the lease area that are also mineable at surface. In future, coal may be used for coal gasification, as a source of hydrogen for upgrading and for power generation. 4 other projects are under development. In 2015, they should all be up and running, with the total production of synthetic crude oil reaching some 1.8 Mb/d. Table 3.
Project Syncrude 21 Steepbank, Millenium, Voyager Athabasca Oil Sands Project

Canadian bitumen mining - ongoing projects

Operator 2004 production '000 b/d 240 215 135 2010 production '000 b/d 382 325 160 2015 production '000 b/d 507 325 360 Investment B Can$ 8 3 6

Syncrude* Suncor Albian Sands Energy Inc**.

(Muskeg Jackpine)

River

&
CNRL PetroCanada Synenco Imperial Oil 0 0 0 0 590 150 30 3 0 1 050 230 170 100 130 1 822 8 7 4 5 to 8 41 44

Horizon Fort Hills Northern Lights Kearl TOTAL

* Syncrude ownership: Canadian Oil Sands Trust (36.74%), Imperial Oil (25%), PetroCanada (12%), ConocoPhilips (9.03%), Nexen (7.23%), Mocal (5%), Murphy Oil (5%).

** Albian Sands Energy Inc. was created to operate Muskeg River on behalf of its joint venture owners: Shell (60%), Chevron (20%) and Western Oil Sands (20%). In-situ production projects 80% of recoverable bitumen resources are located at a greater depth and must be exploited using in-situ technologies (i.e. recovery by petroleum methods). Some twenty projects, either currently underway or being studied, are expected to be set up in coming years. In 2004, in-situ production of bitumen in Canada was about 327 000 b/d. By 2015, this could reach 1 315 Mb/d. The biggest current project is Imperial Oils Cold Lake operation, which produced 150 000 b/d of bitumen in 2004. It should remain the biggest into 2015.

11

In-situ production projects are generally on a smaller scale than mining projects and cannot accommodate the cost of a dedicated upgrader. In almost all such projects, the extra-heavy oil is blended with a lighter, less viscous hydrocarbon (diluent) and sold as bitumen blend (BB), with an API degree of 21 and sulphur content between 2 and 4%. Diluent typically constitutes 24-50% of the bitumen blend. Only two projects include on-site upgrading, producing SCO (Synthetic Crude oil) instead of bitumen blend: Firebag (Suncor) and Long Lake (Nexen/OPTI). Table 4. Canadian in-situ bitumen production - ongoing projects
Project Fort MacMurray Kirby Surmont Joslyn Jackfish Christina Lake Hangingstone Long Lake MacKay River Meadow Creek Lewis Firebag Cold Lake oil sands Orion Primerose/Wolf Lake Foster Creek Sunrise Tucker Lake Cold Lake Peace River oil sands Seal Peace River TOTAL Operator In-situ projects CNRL ConocoPhilips Deer Creek En. Devon EnCana JACOS* Nexen / OPTI PetroCanada PetroCanada PetroCanada Suncor In-situ projects Black Rock Venture CNRL EnCana Husky Energy Husky Energy Imperial Oil In-situ projects Black Rock Venture Shell 2004 production '000 b/d 51 2010 production '000 b/d 545 30 50 60 35 70 25 70 30 25 30 120 500 10 135 100 45 30 180 31 15 16 1 076 2015 production '000 b/d 680 30 75 60 35 70 50 70 30 40 60 160 605 20 135 100 140 30 180 31 15 16 1 316 Investment B Can$ 20.9 0.5 1.1 0.95 0.45 1.0 0.9 3.0 1.4 0.8 0.8 10.0 13.3 0.27 2.2 1.62 5.1 0.4 3.68 > 0.83 n.d. 0.83 35

2 7 7 25

10 225 65 30

130 20 8 12 296

*JACOS: Japan Canadian Oil Sands All of these in-situ projects are using or intend to use steam-injection methods to recover the bitumen; and almost all of them are using or intend to use natural gas as a source of energy to produce steam. The cost of supplying water and gas to bitumen production regions is becoming an issue, and the pressure on the gas market is set to become even greater with all the projects planned. To reduce their gas-dependency, some companies are starting to use other feeds: - in its Firebag plant, Suncor has added the capability to burn diesel fuel instead of natural gas to produce steam. The company is a net producer of both and will therefore choose to use the commodity with the lowest market value. - Deer Creeks Joslyn Creek facilities were planned to include a small steam generator to test the feasibility of using bitumen instead of natural gas as a fuel source. - the Nexen/OPTI Long Lake project is expected to employ its proprietary gasification technology to create synthetic fuel gas and hydrogen from the low-value, heaviest portion of the bitumen barrel. This process will more or less eliminate the need to purchase natural gas.

12

To optimise energy use and reduce their operating costs, other companies have installed heat and power (CHP) plants on their production sites:

combined

- PetroCanada has built a CHP plant on the MacKay River site operated by TransCanada Pipelines. On Meadow Creek, the company intends to install a CHP facility too. - Imperial Oil has installed a 170 MW CHP facility at its Cold Lake project. It expects to use about 60% of the power and will make the surplus available to the Alberta Power Pool. - Suncor is considering a CHP plant for stages 2 to 4 of its Firebag project. All except 3 of the projects in the table above use Steam Assisted Gravity Drainage (SAGD) to recover the oil (see section 1.3.1 "Extraction technologies" for details): - CNRL on Primerose/Wolf Lake and Shell on Peace River use a combination of CSS and SAGD. - Imperial Oil on Cold Lake uses CSS. There are two other projects in operation testing new technologies (see section 1.3.1 "Extraction technologies" for details): - Petrobanks Whitesands pilot project will test Toe-to-Heel Air Injection technology. Production is scheduled to begin towards end-2004 and last about 5 years. - The Devon Canada Corporation is leading a consortium conducting field trials to develop and test vapour extraction (VAPEX). Operations began in 2003 and are expected to continue into 2008. Altogether, more than 25 Canadian tar sand and bitumen exploitation projects have been or are about to be developed. If all are implemented, they will be producing 2.05 Mb/d of synthetic crude and 1.06 Mb/d of bitumen blend by 2015, increasing 2004 Canadian heavy oil and bitumen production by a factor of 3.4. Today, most of this production is exported to the USA, but deals are currently being negotiated to build pipelines from Alberta to deep-water ports on the British Columbia Coast (Prince Rupert or Kitimat), for tanker shipment to Chinese refineries. Enbridge and Terasen, Canada's dominant crude pipeline companies, are each working on projects to supply the Asian market: - Enbridges Gateway pipeline, scheduled to start in 2010, is designed to carry 400 000 b/d of synthetic crude from Edmonton to the British Columbia coast. PetroChina signed an agreement with Enbridge to receive 200 000 b/d, making it the anchor tenant for the C$2.5 Bn pipeline. Enbridge also hopes to ship 100 000 b/d to markets in California and 100 000b/d to other customers in China, Japan or South Korea. - Terasen claims to have support from Asian interests, including the Chinese, for its plans to build a parallel 500 000 b/d crude pipeline.

13

1.2.2 Extra-heavy oils Projects to extract extra-heavy oil are in operation in Venezuela, in the Orinoco Belt. No such projects are reported in Russia. The Orinoco Belt is the largest extra-heavy oil deposit in the world, with an estimated 1 350 Bb of oil in place. Exploration in the Orinoco Belt began in 1920 but with disappointing results: the oil discovered was too heavy for commercialisation given the available technologies and economic conditions. In 1930, 45 wells were drilled; however, for the same reasons, the area was abandoned once more. A third attempt was made in 1956-57, which resulted in up to 20 000 b/d of heavy oil going into production. Finally in the late 1960s and 1970s the Ministry of Energy and Mines (MEM) conducted an intensive exploration program, drilling 116 wells. Following the nationalisation of the Venezuelan oil industry, the MEM handed over the Orinoco oil belt to PDVSA to carry out a more detailed exploration. It was at this juncture that PDVSA divided the 54 000 km2 area into the four sections that exist today, assigning one to each of its subsidiaries (from west to east): Machete area to Corpoven, Zuata area to Maraven, Hamaca area to Meneven and Cerro Negro area to Lagoven. Between 1979 and 1983 the company drilled around 662 exploratory wells. Extra-heavy oils are liquid at reservoir conditions, but above ground, at normal temperature and atmospheric pressure, they cease to flow and transporting them is an issue. There are four options for transporting extra-heavy oil by pipeline: heating, blending , mixing with water or mixing with a diluent. As the latter is most economical it is this option that is most widely used today, especially by the four joint ventures (see below). The four joint ventures (strategic associations) exploiting the Orinoco Belt In the last ten years, joint ventures involving major international oil companies have proposed or studied integrated projects to develop and exploit extra-heavy oil resources in the Orinoco Belt. Given the huge volumes of recoverable reserves, these joint ventures are contracted for 35 years, and four extra-heavy oil projects are currently underway. In all of these the heavy crude is extracted by cold production and transported by pipeline via dilution to an upgrader on the Coast at San Jose. There, the crude is upgraded to a greater or lesser degree, depending on the project (see table below): in the Sincor and Hamaca projects, extra-heavy crude is upgraded to a 26-32API crude which can then be exported and used as feed in common refineries. In the Petrozuata and Cerro Negro projects, the crude is only partially upgraded and then exported to specific U.S. refineries dedicated to the upgrading of heavy oil. The upgrader produces upgraded crude, which is exported, as well as coke and sulphur (also exported), and recovers the diluent that was added upstream. This is then send back to the production plant (about 200 km away) in a dedicated pipeline, to be reused for the same purpose. Recycling the diluent reduces operating costs. However, investment costs are higher, as a return pipeline has to be constructed. Cold production is the cheapest and the most environmentally-friendly method. Its disadvantage is that it gives the lowest recovery rate (5 to 10%), but the oil in place is so huge that the reserves are still very large. Concerning investment costs, in projects with deep conversion of extra-heavy oil, one third of the investment is on the upstream side of the project and the remainder on the downstream side. The 4 projects are today producing at maximum rate - total output of synthetic crude is close to 600 000 b/d. 14

Table 5.
Project partners Sincor Total - 47% PDVSA - 38% Statoil - 15% Petrozuata ConocoPhillips - 50.1% PDVSA - 49.9% Cerro Negro ExxonMobil - 41.67% PDVSA - 41.67% VebaOel - 16.67% Hamaca ConocoPhillips - 40% PDVSA - 30% Chevron - 30% TOTAL

Venezuela extra-heavy oil - ongoing integrated projects

Reserves Gb Synthetic crude production b/d 180 000 Synthetic crude API 32 Investment US G$ 4.2 2000 Productions tart

2.5

1.6

105 000

19 - 25

4.8

1998

1.8

120 000

16

2.5

2000

2.2

180 000

26

4.4

2001

8.1

585 000

15.9

The four ongoing projects have been given special tax advantages, with a royalty rate of 1% compared with 16.66% or even 30% elsewhere. In 2001, Caracas decided unilaterally to raise the royalty rate for future extra-heavy oil projects to 16.66%. This new law has been in force since 2004. The fiscal impact of this measure is about 1 $/b and in today's high oil-price environment it has not undermined the profitability of the projects. In fact, according to the operators, the current production cost of synthetic crude is less than 10 $/b. In 2005, a new reform was proposed by Petroleum Minister Rafael Ramirez, seeking to increase the tax rate from 34% to 50%. To enter into force, this proposal must be passed by the Venezuelan Parliament. Table 6.
Royalty rate Tax rate

Venezuelan tax regime for Orinoco extra-heavy oil projects

Initial conditions (before 2004) 1% 34% 2001 law 16.6% 34% 2005 reform (proposed) 16.6% 50%

Another point to note is that synthetic crude produced from heavy oil is considered to be refined oil and is not, therefore, subject to OPEC quotas, unlike Venezuelas conventional oil production. Future development of Orinoco Belt In early 2005, four international oil companies were showing interest in the extra-heavy oil of the Orinoco Belt and it is possible that new projects will be launched in the near future: - Total has discussed an extension of the Sincor project with the Venezuelan government. The company intends to produce with thermal methods instead of cold production, to increase recovery rates. - Shell has held negotiations with PdVSA on forming a joint venture to exploit extra-heavy oil in the Orinoco Belt. The proposal was to use proprietary Shell technology, including solvent injection and in-situ refining. The recovery rate is claimed to be more than 20%. The contract should be signed towards end-2005. - finally, in April 2005, Chevron and Repsol-YPF signed a memorandum of understanding on the exploitation of a new block in the Orinoco Belt. The agreement provides for the construction of a new pipeline, the conversion of extra-heavy oil into synthetic crude and even the construction of a refinery. 15

Orimulsion Orimulsion is a branded product that is used as a boiler fuel. It is an emulsion made up of approximately 70% extra-heavy oil, 30% water, and less than 1% surfactant to stabilise the emulsion. Although the original objective of mixing extra-heavy oil with water was to solve a transport problem, Intevep's research revealed that this mixture could be used as a fuel in power stations, in competition with residual fuel oil and coal. Orimulsion has been in commercial use since 1991 and customers exist in Denmark, Italy, Germany, Finland, Lithuania, Canada, Japan, the UK and China. Bitor, a subsidiary of PdVSA, manages the processing, shipping and marketing of Orimulsion. It operates one Orimulsion plant in Cerro Negro with a capacity of 5.2 million metric tons per year. The future of Orimulsion production, however, is unclear. In September 2003, PDVSA announced it was dissolving Bitor into PDVSA's Eastern Operating Division and would not be expanding production of Orimulsion. PDVSA's decision was based on economics: the company said that at today's high oil prices, it could make more profit by selling fuel oil than Orimulsion. PDVSA sells Orimulsion at less than US$4 a barrel, plus 1% royalty, whereas the basic product could instead be sold with conventional blends or processed in Venezuela's four heavy crude upgrade units and sold at over US$17/b. Consequently, crude will no longer be used for manufacturing Orimulsion but will be blended or upgraded for export. PDVSA also announced that it intended to honour Bitors outstanding long-term contracts with utilities but would not sign any new Orimulsion contracts or carry through with contracts that were under negotiation. PDVSA's plan to stop Orimulsion production has met with an outcry from foreign power companies, including Canada's NB Power and Italy's Enel, and both companies have taken legal action against PDVSA. NB Power is suing PDVSA for US$2 billion for breaking a 20-year agreement to supply Orimulsion to its Coleson Cove plant, while an international arbitration court recently accepted a request against PDVSA from Enel for US$200 million. In December 2001, Orifuels Sinoven, S.A. (Sinovensa) was created jointly by China National Petroleum Corporation (CNPC) (40%), PetroChina Fuel Oil Company (30%) and PDVSA (through Bitor) (30%). The partners invested $330 million to develop blocks producing 6.5 Mt/year of Orimulsion by the end of 2004. Construction on the Sinovensa project began in April 2004. On November 2000, CNPC began constructing China's first Orimulsion-fired power plant in Zanjiang city, Guandon Province.

1.3 Known extraction and upgrading technologies, investment and operating costs

1.3.1 Extraction technologies Due to their extremely high viscosity under reservoir conditions, heavy oils and bitumen have very low mobility and ability to flow through porous media. This makes primary in-situ production of these oils very difficult and the recovery rate generally low, less than 10%. Most reservoirs produce with enhanced recovery methods, which allow a higher recovery rate. Most extraction methods are thermal, to reduce the oil viscosity, with steam injection the most common. Others technologies have been proposed, e.g. injection of a diluent (lighter hydrocarbon) or additives (polymer). Horizontal drilling, as introduced in the mid-80s in Canada by the Institut Franais du Ptrole (IFP) and Elf Aquitaine, has the greatest impact on unconventional oil production and is currently used in all recovery methods, both primary and enhanced.

16

Mining Mining tends to be the most economic method of extraction when oil sands are close to the surface (less than 100 metres). Today this technology is only used for Canadian bitumen extraction. First the overburden is removed, then the oil sand is stripped using diggers and shovels. It is then transported to crushers where the ore is sized before the bitumen is extracted. Using cyclo-feeders and froth extraction, the bitumen is separated from the sand and water. The bitumen slurry is then piped to an upgrader where it can be processed into Synthetic Crude Oil (SCO), a high-quality, marketable product. Large scale mining operations allow operators to produce large volumes of SCO over a long period of time. Early total costs (operating expenses, capital expenditure, taxes and royalties) are estimated to have been 35$/b (cf National Energy Board) or more. Substantial cost reductions have been achieved through continual process improvement, but more dramatically through two major innovations in the 1990s. First, there was a move towards replacing the draglines and bucketwheel reclaimers with more flexible, robust and energy efficient trucks and power shovels. Second, hydrotransport systems were introduced to replace the conveyor belts used to transport oil sands to the processing plant. Currently, much attention is being focussed on maintaining stable production by minimising unplanned maintenance, which can significantly reduce production capabilities and increase operating costs. Presently there are no productive oil sand mining and extraction projects that do not include an on-site upgrader. Capital expenditure for ongoing projects varies from 3.5 to 4 $/b and operating expenses from 14 to 16. If we consider only extraction by mining methods, total costs can be estimated to be in the range 9 to 12 $/b. Integrated mining projects use natural gas to produce heat energy and electric power and as a source of hydrogen for hydrotreating during the upgrading process. The required purchase of natural gas is substantial, at approximately 0.75 Mscf per barrel of SCO produced. A 15% change in the price of natural gas results in a change of about 0.5 $/b in SCO cost.

In-situ cold production Cold Heavy Oil Production with Sands (CHOPS) involves the intentional co-production of sand with oil, as it has become apparent that the exclusion of sand results in uneconomic production rates. The main conditions for successful CHOPS are: continuous sand failure (unconsolidated sands), active foamy oil mechanism (sufficient gas in solution), no free water zones in the reservoir and the use of progressive cavity pumps. "Foamy oil" occurs when gas in the oil expands, giving it a foamy aspect as the bubbles are trapped by the oil this happens with solution gas-drive, and enhances recovery. The CHOPS process produces large volumes of sands and other types of fluid waste. Managing this waste is one of the major components of operating costs; therefore, successful minimization of disposal-related costs is critical to overall project economics. Low capital investment and lower operating costs, because steam generation is not required, generally makes cold production more profitable than thermal methods. In fact, costs for cold production are estimated at between 7 and 11 $/b. The drawback is the recovery rate, which is very low, between 5 and 10%. For extra-heavy oils in Venezuela, horizontal wells are used to achieve a comparable production rate to the CHOPS process but without producing sand on the same scale. Generally, lower viscosity is associated with lower rates of sand production. In such cases, the dominant recovery mechanism is foamy oil rather than sand production.

17

Steam Assisted Gravity Drainage (SAGD) SAGD is the most recent and promising steam injection technology. In SAGD, pairs of horizontal wells are drilled, one above the other. The wells are normally five metres apart and can have a 1 000 metre horizontal section. The shallower of the two wells injects low-pressure steam into the reservoir. As the steam moves through the reservoir, it creates a steam chamber which warms the bitumen and reduces its viscosity. The bitumen then flows into the lower of the two wells and is pumped to the surface. SAGD is now favoured by many companies as it requires lower steam pressures and allows continuous rather than intermittent production. Bitumen recovery using SAGD is claimed to be as high as 70%. EnCana was the first to test the concept at its Foster Creek lease. Although commercial SAGD projects have been in operation since 2001, it is still relatively early in the development of this recovery method, and there is considerable scope for modification and improvement, in terms of energy efficiency and recovery rates. The required purchase of natural gas for SAGD is about 1 Mcf per barrel of production and companies are adopting innovative strategies to reduce their exposure to natural gas prices.
SAGD: Steam Assisted Gravity drainage

Overbunden Steam chamber Mobile oil Underbunden

Lege nd : Injector well Producer well

The total estimated cost of SAGD projects is between 10 and 16 $/b.

Cyclic Steam Stimulation (CSS) CSS is a three-stage process: first, high-pressure steam is injected through a vertical well bore for a period of time; second, the reservoir is shut in to soak; and third, the well is put into production. In addition to heating the bitumen, the high pressure steam creates fractures in the formation, thereby improving fluid flow. Production declines until the cycle needs to be repeated. Imperial Oil has employed CSS technology since 1985 to recover oil sand bitumen on a commercial scale in the Cold Lake region. A key focus in a CSS operation is to increase the total recovered bitumen by increasing the quantity recovered in each cycle and/or increasing the number of cycles for which recovery is economical. The steam-oil ratio (SOR) - and therefore the gas costs for steam generation - is typically at its lowest point during early cycles, after which it begins to rise until the point at which bitumen production is no longer economic and the well is abandoned. The required purchase of natural gas for CSS is comparable with that of SAGD at approximately 1 to 1.2 Mcf per barrel of production. The total estimated cost of CSS projects is between 9 and 13 $/b.

18

VAPEXTM Vapour Extraction Process or VAPEXTM is similar in operation to SAGD, except that a solvent such as ethane or butane instead of steam is injected into the reservoir along with a displacement gas, to mobilise the hydrocarbons and move them toward the production well. This offers the cost advantage of not having to install steam-generation facilities or purchase natural gas to produce steam. The method requires no water processing or recycling, offers lower CO2 emissions and can be operated at reservoir temperature with almost no heat loss. According to EnCana, the capital costs are an estimated 75% of those for SAGD and the operating costs an estimated 50% of SAGD. On the negative side, more wells are needed to achieve similar production and recovery rates. The drawback with this process is that the solvent is a high-value product and must be fully recovered following production if the projects are to be economical. Devon Canada Corporation is leading a $30 million consortium (funded 25% by the Alberta Research Institute, 25% by the Canadian federal government and the rest by industry partners) conducting field trials to develop and test VAPEX recovery technology. The pilot is located at the Dover Underground Test facility site in the Athabasca oil sands area near Fort McMurray. The research project, commissioned toward end 2003, is scheduled to last 5 to 10 years. In addition, hybrid steam/solvent processes are currently under development for reservoirs in which steam or solvent processes alone are not suitable. In-situ combustion - THAITM /CAPRI process In-situ combustion recovery methods were tried in heavy-oil and oil-sand settings in the 1970s and 1980s, using vertical wells, but met with little success, primarily because of an inability to control the direction of the fire-front in the reservoir. This generally resulted in a poor production performance and often caused damage to down-hole equipment. New methods include enhancing existing systems, using different types of wells combining horizontals and verticals and different schemes combining production and injection wells. One of these is the Toe to Heel Air injection (THAI) process, a proprietory technology of Canadian Petrobank Energy and Resources Ltd. Petrobank has set up a subsidiary, Whitesands Insitu Ltd., to commercialise THAITM technology. Its first step is to undertake a pilot project to test the process. A field-scale pilot plant is scheduled for Q4 2005 on the Whitesands lease in Alberta. The THAITM process is patented in Canada, the US and Venezuela. THAITM combines a vertical air injection well with a horizontal production well. During the process a combustion front is created, burning part of the oil in the reservoir, which generates heat, reducing the viscosity of the oil and enabling gravity to drain it to the horizontal production well. The combustion front sweeps the oil from the toe to the heel of the horizontal production well, recovering an estimated 80% of the original oil in place and partially upgrading the crude oil in situ. Proponents of the THAI method believe that using a horizontal production well offers better control of the fire-front. The purported advantages of THAITM over SAGD are lower unit-production costs, minimal use of natural gas and fresh water, upgraded in-situ oil quality from 10 to 20API, reduced metal and sulphur content and high recovery rates. These now have to be proven in the field.

19

THAI process (Toe-to-Heel Air injection)

Injector well Combustion front Overbunden Air and water Mobile oil zone cold heavy oil

Producer well

Underbunden

A THAITM variant, CAPRI, uses a standard refinery hydrodesulfurisation (HDS) catalyst in the horizontal well to promote the precipitation of asphaltens and thus upgrade the bitumen in-situ. The patents for this method also belong to Petrobank. The method has not yet been tested in the field.

Summary of extraction technologies Table 7.

Extraction technology Mining (extraction upgrading) Cold production CSS SAGD VAPEXTM THAITM Petrobank CAPRI Petrobank to

Summary of extraction technologies

Operating exp. $/b 13 - 17 57 7- 9 7.5 - 11 50% of SAGD nd nd Recovery rate % 90 5 - 10 20-25 > 60 >60 80 nd Technology maturity Commercial Commercial Commercial Commercial Field testing Field testing -start in 2005 Laboratory testing

Capital exp. $/b 35 24 24 2.5 - 5 75% of SAGD nd nd

1.3.2 Transportation technologies Due to their very high viscosity, extra-heavy crude and bitumen generate extremely high friction in pipes and cause great loss of pressure. Most current and planned solutions for transporting these products consist either in reducing their viscosity by diluting them with a lighter crude, creating an oil emulsion in water, or upgrading on-site before transporting. Other solutions focus on reducing the friction in the pipe instead of modifying the viscosity of the crude. The most common methods are dilution and on-site upgrading.

20

Dilution consists in diluting the heavy crude with a solvent such as condensate, natural gasoline or naphtha. This is the most common transportation technology for extra-heavy oil or bitumen because it is very easy to implement. The drawback is that dilution increases the volume for transport and thus requires larger pipeline capacities - in some case, diluent can represent some 35% of the heavy oil volume. Potential problems are the availability of the diluent and the need to recycle it. In-situ projects in Canada use this method for transportation. In Venezuela, the four strategic associations also use it, and recycle the diluent. On-site conversion is commonly used for heavy crude extracted by mining in Canada. The idea is to partially upgrade the crude to produce good quality (i.e. API degree 20 and above), transportable synthetic crude oil, which can be sold to refineries for further processing into finished products. Another method is to create an emulsion, i.e. the extra-heavy crude or bitumen is suspended in water in the form of droplets stabilized by chemical additives. Production of emulsions as fuel for electric power plants is well known, e.g. by the Bitor company in Venezuela. However, this practice is under pressure on account of the associated flue-gas emission levels and CO2 issues. One solution would be to break the emulsion, but no such process is available, and this would anyway require additional investment in treating and cleaning the used water. Recently research work has appeared on a new method called core-annular flow. The idea is that the water acts as a lubricating layer to absorb the shear stress existing between the walls of the pipe and the viscous oil, reducing the flow resistance to just 1.5 times that of water. This drastically reduces the pressure drop caused by the viscous fluid. The main problem with this technology is that the oil tends to adhere to the wall of the pipeline on contact, restricting and eventually blocking the flow. These problems are exacerbated when the flow in the pipeline has to be stopped for any time. One very new idea for transporting non-conventional oil is the use of a friction-reducing agent in combination with dilution, to optimize the effect. This method is already used for conventional oil but has to be adapted for non-conventional types. In terms of cost and environmental impact, core-annular flow is potentially the cheapest and least polluting transportation method. The other methods all have a fundamental problem: high investment costs for dilution and on-site upgrading, and the extra cost of water separation and treatment for emulsions. 1.3.3 Upgrading technologies Heavy and light crude oil processing gives the same range of refined products but in very different proportions and qualities. Heavy oils produce much greater vacuum residues than lighter ones. These residues have an API degree of between 1 and 5 and very high sulphur and metal content, which do not facilitate their treatment. Several processes exist for converting vacuum residues, either thermal, catalytic or both. Thermal conversion methods are mature technologies but the products obtained are generally of lower quality than those obtained with catalytic processes, e.g. visbreaking and coking. Solvent deasphalting (SDA) is a well-proven process which separates vacuum residues into a low metal/carbon deasphalted oil and a heavy pitch containing most of the contaminants, especially metals. SDA is very attractive to refiners because it enables them to recover a substantial quantity of incremental light feedstock, especially when producing lubricant base oil from vacuum residue, thus increasing refinery yields. Moreover, the pitch can be gasified to meet zero fuel-oil production.

21

Most recent work has therefore concentrated on various types of hydrotreating. This involves reducing the products carbon-to-hydrogen ratio by adding significant amounts of hydrogen, as well as desulphurising and removing nitrogen and heavy metals. These processes usually require specific catalyst combinations and are performed at high pressure. There are three types of reactor technology for hydrotreating: fixed bed, ebullated bed and slurry reactor. - fixed-bed processes were the first to be developed but their application is limited to feeds with high metal contents. - ebullated-bed reactors were first introduced in the 1960s. In this design, hydrogen and oil enter at the bottom of the reactor, expanding the catalyst bed. The catalyst performance can be kept constant because fresh catalyst can be added and part of the aged catalyst withdrawn while the reactor is operating. Recent R&D has led to substantial improvements in the ebullating process. However, all these processes require large amounts of hydrogen, which would have to be specially produced from natural gas, thus causing CO2 emissions. - slurry reactors use a high concentration of finely divided catalyst. This type of technology might allow high conversion rates. No commercial process is currently available. Recent research has focussed on combining different processes to optimise heavy crude conversion. Combinations of hydrotreating and solvent deasphalting are receiving particular attention. Such combinations can be used either in refineries or for on-site partial upgrading. It allows the refiner to obtain a good-quality syncrude which could be used as a feed by a standard refinery, and a dirty heavy asphalt phase which can be recovered as a solid or liquid fuel for IGCC purposes or just for combustion, to generate steam for upstream applications. Another route for upgrading heavy oil is gasification, which involves the conversion by partial oxidation of the feed, liquid or solid, into a synthesis gas in which the major components are H2 and CO. Gasification is a clean, flexible technology already proven on coke and heavy crude. It is now receiving global interest as a result of IGCC, in which gasification can process low-value refinery streams and generate power with the lowest SOx and NOx of any liquid/solid feed technology. One major concern will, in future, be the substantial CO2 emissions produced by such processes. The capital cost of IGCC has fallen by 50% in ten years. However, the oxygen-production stage is still costly and much research is being done to improve air separation and integrate this stage of the process with the partial oxidation in a single-step reactor.

22

The following table lists the technologies described above and their licensors. Table 8.
Process Hydrogen addition Catalytic hydroprocessing using HDS catalysts Ebullating bed catalyst Chevron, UOP, Exxon, Axens, Chiyoda, Shell, Showa Shell Sekiyu KK, Idemitsu Kosan, Cosmo Oil, University of Tokyo HRI/Texaco, ABB Lummus, Crest/Oxy, R&D/BP PetroCanada/SNC-Lavalin, VEBA, UOP, Imperial, Alberta Research Council, CANMET, NRCan, PDVSA/INTEVEP, NRIPR and Niigata Engineering, Idemitsu & M.W. Kellogg, Asahi Chemical Industry, Nippon Mining, and Chiyoda, Nikko Consulting & Engineering Axens, University of Utah, Gulf (Chevron), Allied ABB Lummus Crest, Axens Toyo Engineering & Mitsui Chemical, Kurehc, Fuji Oil and Chiyoda, Stone & Webster Engineering/Total, Shell, Exxon, Texaco/ABB Lummus Crest, UOP, Kellogg, Axens, Engelhard, BARCO Exxon, ABB Lummus Crest, Kellogg, UOP, Koo Oil, Conoco, Foster Wheeler, Lurgi, Lurgi and Exxon, HRI, Osaka Gas, Fuji Oil/Fuji Standard Research, Kobe Steel, Koa Oil, Idemitsu, Nippon Mining, Hitachi, Kashima Oil, and RAROP Shell, Texaco, Noell NRCan Kellogg (formerly Kerr-McGee), Wheeler, UOP, Cosmo Oil Axens, Foster

Residual upgrading technologies and licensors

Licensors

Thermal Slurry hydroprocessing

Non-catalytic hydrovisbreaking Carbon rejection Visbreaking Steam cracking

Coking

Gasification Flash pyrolysis Separation Solvent deasphalting

1.4 CO2 emissions and other environmental issues With oil sand development in Alberta poised to enter a period of unprecedented growth and expansion, operators face a number of environmental issues and challenges. Recent hearings on oil sand development saw climate change and greenhouse gas emissions top the list of environmental concerns, along with other significant issues such as other emissions, boreal forest disturbance and water conservation. 1.4.1 Atmospheric emissions Oil-sand operations emit large amounts of carbon dioxide (CO2) and some methane (CH4). These belong to the heat-trapping "greenhouse" gases (GHG) that effect the global climate. Other atmospheric emissions from oil sands include: SO2, NOx, H2S, CO, volatile organic compounds (VOCs), O3, polycyclic aromatic hydrocarbons (PAH), particulate matter (PM), reduced sulphur compounds (SCc) and other trace air contaminants.

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The government of Canada released the Climate Change Plan for Canada in November 2002. It includes oil-sand producers in the category of Large Industrial Emitters (companies emitting 8 000 tonnes of CO2 equivalent or more per year). This category includes both the upstream and downstream oil and gas sectors, electricity generation, mining and manufacturing, e.g. cement plants and iron and steel mills. Collectively, the Large Industrial Emitters are expected to produce about half of Canada's total GHG emissions by 2010. In Alberta, the Provincial Government has developed its own GHG-reduction program. Its goal is to reduce by 2020 GHGs relative to the province's GDP by 50% from 1990 levels. According to a recent IFP study1, CO2 emissions from the bitumen-production process are estimated to be 26 g/MJ, i.e. twice as much as for conventional oils. Emissions from cold production of extra-heavy oil in Venezuela are put at about 21 g/MJ. Considerable efforts have been made by the Canadian oil-sand industry in the last few years to reduce energy consumption and thereby GHG emissions. For example: - Shell successfully redesigned its original 1997 plans for the Athabasca Oil Sands project, reducing emissions by 64% when it commenced operation in 2002. It also estimated, in a 1999 feasibility study, that it could half emissions from this project by 2010 through a mix of reduced energy consumption, improved energy efficiency and offset measures, such as reafforestation projects. - between 1988 and 1999, Syncrude, the world largest producer of crude from oil sands, cut CO2 emissions per barrel of oil produced by 26% and claims it can improve that to 42% by 2008. Furthermore, the oil-sand industry has been actively dealing with emissions by using low NOx burners, sour water treaters and flue gas desulphurisation. Alternative fuels are also being considered. A switch from natural gas to other fuel sources could include low sulphur coal. That would be likely to lead to the deployment of technologies for the capture, transport and storage of CO2. Coal gasification technology is being developed but has yet to be made economic. Coal-bed methane and the combustion of the heavier bitumen products are also being considered as alternatives, although these fuels also have high emissions. Nuclear power has also been discussed. 1.4.2 Water use and conservation While both mining and in-situ bitumen operations use large volumes of water, most of it can be recycled. Process water is the lifeblood of an oil-sand operation; its quality can have a significant impact on extraction performance, tailings management, reclamation performance and plant integrity. The primary challenge as regards process water is that no large-scale water treatment facilities exist near the oil sands. As a result, process water is recycled, which ultimately reduces process efficiency. Water requirements for oil-sands projects range from 2.5 units to 4 units of water for each unit of bitumen produced. Moreover, the in-situ process has the detrimental effect of removing water permanently from the hydro-geological cycle. The net permanent loss for SAGD and in-situ operations is estimated at 1 barrel of water for every barrel of oil recovered (water is used to fill the space left when oil is removed). For mining operations, the main water-related issues are muskeg drainage, overburden and formation dewatering and diversion of water flow. Water that remains with the oil and sand slurry after the bitumen extraction is disposed of as mine tailings, which are usually stored in large ponds until they can be used to begin filling the mined-out pits.

fuel production sectors), Georgia Plouchard, ref 55 949 - April 2001.

* "valuation des missions de CO2 des filires nergtiques conventionnelles et non-conventionnelles de production de carburants partir des ressources fossiles" (Evaluation of CO2 emissions from conventional and non-conventional fossil

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Water use and conservation are important issues in oil sand development and there have been several initiatives to develop new technologies and integrated approaches to water conservation. For example: - oil-sand mine operators in the Fort MacMurray region are looking at ways to coordinate water withdrawals and jointly manage water, to minimise impacts on the Athabasca River. - Suncor is conducting a company-wide assessment of water use in all regions in which it operates, to evaluate opportunities for reducing the amount of water used by its operations. Other methods include: developing a non-thermal, in-situ recovery method, using solvents to assist in the extraction of bitumen, which could reduce the need for water; treating water from basal aquifers for use in the extraction process; re-injecting used water into basal water sands; recapturing and recycling water from mine tailings.

Regulatory and policy initiatives are being implemented to improve the efficient industrial use of water. With this may come plans to implement a fee for water use, which would be likely to encourage water conservation and improved efficiency in water allocations. Charging could put additional financial pressures on the oil-sand industry. 1.4.3 Tailings and by-products Tailings management The current method for recovering bitumen from oil sands - surface mining -generates large volumes of fluid waste called fine tailings. These are a complex system of clays, minerals and organics. Because of their extremely slow rate of consolidation, settling basins or tailings ponds must be constructed to last indefinitely and must be protected against erosion, breaching and foundation creep. After about six years, the consolidated tailings, consisting of a mixture of coarse tailings, thickened tailings and gypsum, are deposited in mined-out pits. The principal environmental threats from tailings ponds are the migration of pollutants through the groundwater system and the risk of leaks to the surrounding soil and surface water. Despite technological advances, the scale of the problem is daunting and current production trends indicate that the volume of fine-tailings ponds produced by Suncor and Syncrude alone will exceed one billion cubic metres by 2020. Numerous collaborative studies between industry and researchers have been undertaken to increase knowledge of tailings disposal and reclamation. The research focuses on accelerating the consolidation of fine tailings, detoxifying tailings pond water and reprocessing fine tailings. There have been some technological advances in the clean-up and reclamation of fine tailings. Two methods being developed are bioremediation, in which bacteria and nutrients are used to treat the tailings ponds, and electrocoagulation, in which electrical current is used to separate the amorphous solids from fine tailings. A process has been developed by the National Research Council of Canada (NRC) to treat fine tailings and recover potentially valuable by-products such as residual bitumen, heavy metal minerals and amorphous solids that may be suitable as fertiliser. This process also improves the dewatering and consolidation behaviour of fine tailings and has succeeded in recovering over 60% of the original water for recycling. Another avenue being investigated is the co-production of minerals and metals (aluminium, titanium and others) from fine tailings.

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By-products By-products currently produced from oil-sand and/or extra-heavy oil operations include: elemental sulphur, coke, gypsum and ammonium sulphate from flue gas desulphurisation units and brine concentrate from water-treatment facilities. There are options for the commercial sale, disposal and managed release of these by-products into the environment, all of which have various risks and benefits. For example, the Sincor project in Venezuela produces 6 000 t/d of coke which is exported and used in cement plants. Considerable research effort is being focused on these by-products, particularly the management of sulphur.

Sulphur Bitumen contains on average 4.8% sulphur. By 2030, sulphur recovery during the bitumen-production process in the expanded oil sands region could generate as much as 10 Mt of sulphur per year. Today, the Sincor project in Venezuela produces 900 t/d of sulphur. Currently, producers either stockpile the converted elemental sulphur or ship the by-product for use in manufacturing fertilisers or road asphalt. A study to determine if sulphur can be safely buried underground is currently under way on behalf of Alberta Sulphur Research Ltd. The use of caverns in salt deposits is also being considered for both waste sulphur and produced sand. 1.5 Main inputs for the database and model The quantitative model provided for tar-sand and extra-heavy oils will include a database of the resources and a technical and economic analysis of the technologies used for the production of syncrude or bitumen blend. The database will include lists of the following: countries with in-place resources, including recovery rates and recoverable volumes; known production projects, either already producing or to be developed, including production data up to 2015, operator name, investment needed, production type and saleable product specifications in terms of API and percentage sulphur content; production technologies, including recovery rates, capital expenditure, operating expenses and gas volumes required to produce steam, where relevant.

1.6 Main References The economics of oil definitions: the case of Canada's oil sands - Douglas B. Reynolds, OPEC Review, Volume 29, Issue 1, March 2005. Pipeline Transportation of Heavy Oils: a Strategic, Economic and Technological Challenge - A. Saniere, I. Hnaut and J.F. Argillier - Oil & Gas Science and Technology - Rev. IFP, Vol. 59 (2004), Issue 5, pp 455-466. Canada's Oil Sands: Opportunities and Challenges to 2015 Canadian National Energy Board, May 2004

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Update on competitiveness of non-conventional oil - Second joint IEA/OPEC Workshop on Oil Investment Prospects, David Knapp , Energy Intelligence Group, April 2004 Oil sands technology roadmap: unlocking the potential - Alberta Chamber of Resources, January 2004. The Strategic and Economic Value of Exploiting Heavy Crude - A.Saniere - Revue de l'Energie, Issue 552, December 2003 (in French) Comparing Venezuelan and Canadian Heavy Oil and Tar Sands - Canadian International Petroleum Conference Paper 2001-061, M.B.Dusseault, 2001. Heavy Oil Resources and In-situ Production: Present and Future N. Alazard, C. Gadelle, G. Renard and A. Thouvay-Saniere, IEA/IFP Symposium Heavy and extra-heavy oils: a challenge for the 21st century, Sept. 1999. Internet sites: Alberta Department of Energy, Canadian Energy Research Institute, World Energy Council, US Energy Information Administration, various company websites.

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2 Oil shale
Oil shales are sedimentary rocks containing a high proportion of organic matter such as seaweed. Since the process of transformation for oil shale was not completed, it is rich in kerogen, making it a potential source of energy. The kerogen can be converted into synthetic oil or gas by processing. The synthetic oil produced from the kerogen is usually called shale oil. A deposit of oil shale with economic potential is usually one that is at or near enough to the surface to be developed by open-cast or conventional underground mining or by in-situ methods. 2.1 Evaluation of resources in place and recoverability Relatively little is known about many deposits of oil shale and much exploratory drilling and analytical work still needs to be done. Earlier attempts to determine the size of world oil-shale resources were based on few facts, and estimates of the resources were, at best, a guess. The situation today is not much better, although information has been published in the past decade or two, notably concerning deposits in Australia, Canada, Estonia, Israel and the United States. The numbers reported in this section should be regarded as conservative estimates. It will in any case focus on the larger deposits of oil shale that are being mined or have the best potential for development because of their size and grade. The table below summarises "rich" resources, i.e. deposits which yield at least 40 litres of shale oil per ton of oil shale. The identified oil shale volumes in place are estimated at some 7 000 billion tonnes. Estimates of their oil content vary between 2 600 and 4 400 Bb. About 70% of these resources are concentrated in the Green River Formation in the USA and 14% in Russia. The other main locations are Zaire (100 Bb), Brazil (82 Bb) and Italy (73 Bb). No data exist on recovery rates. These largely depend on the depth of the deposit and the pyrolysis process used. The details of the resources are given in the table below:

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Table 9.
Area/country Africa Egypt Madagascar Morocco South Africa Zaire Europe Austria Bulgaria Estonia France Germany Hungary Italy Luxembourg Poland Spain Sweden United Kingdom Far East Australia Myanmar China Mongolia New Zealand Thailand FSU Kazakhstan Russia Latin America Argentina Brazil Chile Middle East Armenia Israel Jordan Turkey North America Canada United States TOTAL

Worldwide oil contained in oil shale

Oil contained in in-place oil shale Mt 23 317 5 700 32 53 381 130 100 000 109 092 8 125 16 286 7 000 2 000 56 73 000 675 48 280 6 114 3 500 56 443 31729 2 000 16 000 294 19 6 401 450 168 2 837 447 331 82 421 400 82 000 21 40 462 305 4 000 34 172 1 985 2 133 469 15 241 2 118 228 3 031 298 410 278 305 758 2 192 303 566 6 120 44 550 5 242 284 11 794 57 11 734 3 39 170 400 38 770 8 344 4 807 286 2 290 42 3 916 15 775 1 18 2 494 1 002 286 8 10 446 97 7 40 875 501 816 5 8 167 19 14 310

Oil contained in in-place oil shale Mb 159 243

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2.2 Worldwide production and exploitation projects 2.2.1 Worldwide oil shale and synthetic oil production There are still only a few countries utilising this resource. Under the pressure of competition, oil shale production has ceased in Canada, Scotland, Sweden, France, Australia (where it restarted in 1999), Romania and South Africa, and has not taken off in the USA, Belarus, Jordan and Morocco. Today 6 countries are producing oil shale, the largest producer being Estonia which represented 69% of the 2003 output (see table below). Table 10. Worldwide oil shale extraction
Country Estonia Australia Brazil China Germany Russia Extracted oil shale in Mt/year 12.3 (2003) 2.1 (2003) 2.1 (2000) 1.5 (2000) 0.5 (2000) 0.05 (2003) Comment 80% used as direct fuel for power generation 20% used for synthetic oil production Shale oil production: Stuart project, Stage 1. Demonstration plant. 2/3 used as direct fuel for power generation, 1/3 processed to produce synthetic oil. Fuel for power generation in the Rohrbach cement works.

Only three countries are processing oil shale to produce synthetic oil: Estonia (8000 b/d), Australia (4 500 b/d) and China (1 600 b/d). Total production of synthetic oil amounted to about 14 100 b/d in 2003, some 0.02% of world oil production. 2.2.2 Present and future production projects Estonia Estonia is today the largest producer of oil shale with an output of 12.3 Mt in 2003. 80% of the extracted shale is burnt in two power stations: the 1 400-MW Baltic Thermal Power Station and the 1 600-MW Estonian Thermal Power Station. 20% is processed to produce shale oil. In 2004 shale-oil production in Estonia was about 3 000 b/d. Oil shale is an essential source of energy for the country as it covers 60% of Estonia's primary energy needs and 90% of its electricity production. Permanent mining began in 1918 and has continued to the present day, with capacity (both underground and open-cast mining) increasing as demand rose. By 1955, oil-shale output had reached 7 million tonnes and was mainly used as power station/chemical plant fuel and in the production of cement. The opening of the Baltic Thermal Power Station in 1965, followed in 1973 by the Estonian Thermal Power Station, again boosted production and by 1980 the figure had risen to 31.35 million tonnes. In 1981, the opening of a nuclear power station in the Leningrad district of Russia signalled the beginning of the decline in Estonian oil shale production. No longer were vast quantities required for power generation and the export of electricity. The decline lasted until 1995, with some small annual increases thereafter. The Estonian government has taken the first steps towards privatising the oil-shale industry and is beginning to tackle the air and water pollution problems caused by nearly a century of oil shale processing.

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In February 2000, a $300 000 agreement for scientific and technology cooperation on oil shale research and utilisation was signed by former U.S. Secretary of Energy Bill Richardson and the Estonian Minister of Economic Affairs Mikhel Prnoja (see the section on the USA below). One private Estonian chemical company, the Viru Keemia Grupp (VKG), plans to construct a new $220-240 million oil-shale processing project between 2005 and 2009, to take advantage of markets for shale oil and high-value chemical by-products. The proposed plant will have annual production of 4 million barrels of liquid fuels (naphtha and distillate), 120 million cubic meters of fuel gas and 12 000 tons of high value chemical compounds including phenols, cresols and xylenols and alkylresocinols.

Brazil In 2000, Brazil was the second largest oil shale producer, with 2.1 million tonnes extracted and 2 100b/d of shale oil produced. At least nine occurrences of oil shale have been reported in different parts of Brazil. Of these, two deposits have received the most interest: one in the Paraiba Valley in the State of Sao Paulo, north-east of the city of Sao Paulo, and the other in the Irati Formation, a widespread unit in the southern part of the country. The Brazilian oil-shale resource base is one of the largest in the world and was first exploited in the late nineteenth century in the State of Bahia. In 1935, shale oil was produced at a small plant in So Mateus do Sul (Irati Formation) in the State of Paran and in 1950, following government support, a plant capable of producing 10 000 b/d of shale oil was proposed for Trememb, So Paulo. Following the formation of Petrobras in 1953, the company developed the Petrosix process for shale transformation. Concentrating its operations on the So Mateus do Sul reservoir (Irati Formation), the company brought a pilot plant into operation in 1982. It was designed for oil shale characterisation, retorting tests and developing data for the economic evaluation of new commercial plants. A 6-foot (internal diameter) retort demonstration plant followed in 1984 and is being used to optimise the Petrosix technology. A 2 200 (nominal) t/d, 18-foot semi-works retort (the Irati Profile Plant), originally brought on line in 1972, began operating on a limited commercial scale in 1981 and a further commercial plant was brought into service in December 1991. Together the two commercial plants process some 7 800 tonnes of bituminous shale daily. The retort process (Petrosix), where the shale undergoes pyrolysis, yields a nominal daily output of 3 870 barrels of shale oil, 120 tonnes of fuel gas, 45 tonnes of liquefied shale gas and 75 tonnes of sulphur.

Australia Production from oil shale deposits in south-eastern Australia began in the 1860s, coming to end in the early 1950s when government funding ceased. Between 1865 and 1952 some 4 million tonnes of oil shale were processed. During the 1970s and early 1980s, a modern exploration programme was undertaken by two Australian companies, Southern Pacific Petroleum and Central Pacific Mineral (SPP/CPM). The aim was to find high-quality oil-shale deposits amenable to open-pit mining operations. The programme was successful in finding a number of oil shale deposits of commercial significance along the coast of Queensland, among them the Stuart deposit. It has a total in-situ shale-oil resource of 2.6 Bb and the decision was taken to exploit it. The Stuart project has been planned in three stages and is based on ATP Technology (see the production technologies section below):

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Stage 1 is a fully integrated mining and upgrading operation, similar in many respects to the Canadian oil sand mining projects. Capital investment was $260 million. According to SPP, the successful performance of the ATP at the stage 1 plant has demonstrated its technical viability, economic potential and environmental sustainability. The next phase of development is the $375 million (2002 $) stage 2 plant, a x4 commercial-sized scale up of Stage 1. It will process up to 23 500 t/d of shale to produce 15 500 b/d of raw shale oil at operating costs of between $9/b and $11/b. It should be running in 2006. The full commercial plant, stage 3, will utilise multiple stage-2 ATP modules to achieve production of up to 200 000 b/d. This plant will produce light, sweet "bottomless" synthetic crude (48API, 0.01% S). Several different plant sizes have been studied. However, a baseline design incorporating 13 ATP modules and producing 157 000b/d of synthetic crude is projected to cost $ 3.5 to $4 billion (2002 $) and have operating costs of 7.5 to 8.5 $/b after full project implementation is completed. Once established, the commercial plant could produce 200 000 b/d for more than 30 years with no production decline. Table 11. Australian Stuart Project - phased development
Timing Oil shale (t/d) Oil products (b/d) Raw shale oil, ATP process Op.expenses ($/b) Stage 1 Demonstration module 2003 6 000 4 500 42 API; 0.4% S n.d. Stage 2 commercial developments 2006 23 500 15 500 42 API; 0.4% S 9 to 11 Stage 3 Full commercial 2009-2012 380 000 200 000 48 API; 0.01% S 7.5 to 8.5

To meet the needs of the market, further processing and upgrading of the raw oil is necessary prior to sale. In the Stuart project, this is done at the plant site in an upgrading section which produces two saleable products:

Table 12. Australian Stuart Project - saleable products

API Gravity Sulphur Markets Use % Production Ultra low-sulphur naphtha 65 <1 ppm Australia Petrol, Diesel, Jet 55 - 60% Light fuel oil 27 0.4% Asia/Australia Fuel oil 40 - 45%

Stuart is today the worlds biggest project producing oil from oil shale. If stage 2 is completed, Australia will become the biggest producer of shale oil, surpassing Estonia. China About 1.5 million tonnes of oil shale is extracted annually in China from the Fushun deposit. Two thirds of this is consumed directly as fuel for power generation, the residue being used in the manufacture of cement. The remaining third is processed to produce shale oil. China produces about 1 600 b/d of shale oil.

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China's principal resources of oil shale are those at Fushun and Maoming. The first commercial production of shale oil in China began at Fushun in 1930 with the construction of refinery No 1. Fushun refinery No 2 began production in 1954. Production of shale oil at Maoming began in 1963. The three refineries switched from shale oil to cheaper crude oil, but sixty new retorts were put in place in the 1990s by the Fushun Bureau of Mines and 20 additional retorts were added in 1998. This led to restored production of about 90 000 t/y of shale oil from Fushun by 2002. Today, rapid increases in demand for petroleum and rising world oil prices are sparking additional interest in expanding China's oil shale industry, including the addition of larger-scale retorts and advanced retorting technologies to increase output and reduce environmental impact.

Germany 0.5 Mt/y of oil shale is produced for use at the Rohrbach cement works in Dotternhausen, southern Germany, where it is consumed directly as a fuel for power generation, the residue being used in the manufacture of cement.

Russia More than 80 deposits of oil shale have been identified in Russia. The Leningrad Oblast deposits, across the border from those in Estonia, have been exploited. Annual output is estimated to be about 2 millions tonnes, most of which is exported to the Baltic power station in Narva, Estonia. It seems that production ceased in 2000. The exploitation of Volga Basin shales, which have a higher content of sulphur and ash, began in the 1930s. Although the use of such shale as a power-station fuel has been abandoned owing to environmental pollution concerns, a small processing plant may still be operating at Syzran, with a throughput of less than 50 000 tonnes of shale per annum. 2.2.3 Past production projects USA The US has by far the largest in-place shale-oil resources, but shale oil is not currently being produced there. Numerous deposits of oil shale are found in the United States. The two most important are the Green River Formation in Colorado, Wyoming and Utah (Eocene age) and the black shales in the eastern United States (Devonian-Mississippian age). Other deposits occur in Nevada, Montana, Alaska and elsewhere but these are either too small, too low-grade or have not yet been well explored. Most investigations have focused on the Green River and Devonian deposits. Oil shale development had always been on a small scale but the project that was to represent the greatest development of the shale deposits was begun immediately after World War 2 in 1946. Processing plants had been small and the cost of production high. It was not until the US had become a net oil importer, together with the oil crises of 1973 and 1979, that interest in oil shale was reawakened. In the 1970s, ways to maximise domestic oil supplies were devised and oil shale fields were opened up for commercial production. Oil companies performed investigations, and leases were obtained and consolidated, but one by one these organisations gave up their oil shale interests. Unocal was the last to do so in 1991. Its oil shale plant was the last major project in the Green River Formation. The average rate of production in the last months of operation was about 875 tons of shale oil per day.

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In 1997, Shell tested in-situ heating on its Mahogany property but deferred further work for economic reasons. In 2000, it returned to Mahogany with an expanded research plan for in-situ heating technology -this was still on-going in 2004. In February 2000, the US signed a $300 000 agreement with Estonia for scientific and technology cooperation on oil shale research and utilisation. This three-year program brought together major private investment and scientific and technical abilities to identify commercially-viable processes for producing high-value products from Estonian and U.S. oil shale, and to carry out related research and development. In 2004, the US Department of Energys Office of Naval Petroleum and Oil Shale Reserves initiated a study of the strategic significance of America's oil shale resources. Generally speaking, current concerns over rising world oil demand and energy independence seem to be reawakening US interest in oil shale.

Israel The largest deposit (Rotem Yamin) has shale beds with a thickness of 35-80 m, yielding 60-71 litres of oil per tonne. Generally speaking, Israeli oil shales are relatively low in heating value and oil yield and high in sulphur content, compared with other major deposits. A pilot power plant fuelled by oil shale has been technically proven in the Negev region on the Rotem-Yamin deposit. Annual production of oil shale averaged 0.45 million tonnes in 1996 but the plant is now closed.

Morocco Morocco has very substantial oil shale reserves but to date they have not been exploited. During the early 1980s, Shell and the Moroccan public company ONAREP conducted research into the exploitation of the oil-shale reserves at Tarfaya, and an experimental shale-processing plant was constructed at another major deposit (Timahdit). At the beginning of 1986, however, it was decided to postpone shale exploitation at both sites and undertake a limited programme of laboratory and pilot-plant research.

Jordan Jordanian shale has an exceptionally high sulphur content (up to 9% by weight of organic content). The reserves are exploitable by open-cast mining and are easily accessible. The Jordanian Ministry of Energy and Mineral Resources (MEMR) has been in talks for several years with a number of companies on reaching an acceptable agreement for constructing a shale-fired private power station and for producing shale oil by retorting. International companies have been invited to carry out feasibility studies and submit their offers to the MEMR. Suncor of Canada has conducted limited exploration in the Lajjun area, Southwest of Amman. During 1999 the company was engaged in discussions with the MEMR on the possible development of an oil-shale extraction facility. The eventual exploitation of what is Jordan's only substantial fossil fuel resource to produce liquid fuel and/or electricity, together with chemical and building materials, would be favoured by three factors: the high organic-matter content, the suitability of the deposits for surface-mining and their location near potential consumers (phosphate mines, potash and cement works). One problem to be faced is that of water availability; surface water for oil shale operations is scarce in Jordan; therefore, ground water will need to be tapped. Further assessment is needed of the potential ground water supplies available in Jordan for the oil shale industry.

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Sweden The Cambrian alum shales of Sweden have been known for over 350 years as a source of potassium aluminium sulphate. Before and during WWII, alum shale was retorted for its oil but production ceased in 1966 owing to the availability of cheaper supplies of petroleum. During this period, about 50 million tons of shale was mined at Kinnekulle in Vstergtland and at Nrke.

Canada Oil shales occur throughout the country, with the best known and most explored deposits being those in the provinces of Nova Scotia and New Brunswick (Alberta). In Nova Scotia, two deposits have been exploited in the past: in 1852-1859, 1865 and 1929-1930. In New Brunswick, the AtlanticRichfield Company (ARCO) conducted drilling tests in 1967-68 and more exploration drilling was carried out by Canadian Occidental Petroleum Ltd in 1976. Investigations have been conducted into retorting and direct combustion of New Brunswick shale, including some experimental processing in 1988 at the Petrobras plant in Brazil. Interest has been shown in the New Brunswick deposits for the potential they might offer for reducing sulphur emissions by co-combustion of carbonate-rich shale residue with high-sulphur coal in power stations. 2.3 Known production technologies and the pyrolysis process At present, about 69% of world oil shale production is used for the generation of electricity and heat, about 6% for cement production and 25%, principally of higher yield, for obtaining shale oil which can be upgraded into jet fuel, gasoline, light fuel, bitumen, coke, phenols and other products. There are two ways of exploiting oil shale: - direct combustion: oil shale is directly burnt to provide thermal energy or electricity; - pyrolysis: the oil contained in the shale is extracted or the organic matter converted into gas or ethylene components. These technologies are less mature than the earlier ones and, while many processes exist, none of them are at the commercial stage. The front-end (surface and shaft mining, etc.) and tail-end (product upgrading) of the process involve relatively mature technologies that are in use in other well-established industries. Surface retorting technologies are less mature. Pyrolysis can also be carried out in-situ, i.e. directly in the formation; very few technologies of this type exist. 2.3.1 Surface pyrolysis The aim of pyrolysis is to extract the oil contained in the shale or transform the organic matter into gas or ethylene components. Many process exist, the one receiving the most favourable attention today being the Alberta-Taciuk Processor (ATP). The Alberta-Taciuk Processor (ATP) ATP technology was developed initially for the Alberta oil sands. In 1986, tests were made in Calgary by the Australian Southern Pacific Petroleum (SPP) to adapt and test this technology for the Stuart oil shale deposit (Australia). The Stuart project, which today is the biggest in terms of shale oil production, is based on ATP technology.

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The ATP consists essentially of a horizontal rotating vessel containing two concentric kilns through most of its length. The inner kiln has two sealed compartments for pre-heating and retorting the shale. The outer kiln provides a combustion zone for the petroleum coke on the shale and a conduit for the combusted shale to move in an opposite direction down the length of the kiln to transfer heat to the incoming shale. The raw shale oil produced from the ATP, which is in the form of a vapour, would constitute a relatively light "sweet" crude with a 42API gravity, 0.4 wt% sulphur and 1.0 wt% nitrogen. Further processing and upgrading of this crude is necessary before it is ready for the market. The Viru Keemia Grupp (VKG), a private Estonian chemical company, plans to construct a new $220240 million oil-shale processing project between 2005 and 2009 to take advantage of markets for shale oil and high-value chemical by-products. VKG has selected ATP technology, citing its environmental benefits as a major factor in this decision. These include: the capacity to keep emissions below EU limits; spent shale with total organic carbon of less than 3%, and zero water emissions.

Petrosix Vertical-shaft Retort This production process was developed by the Brazilian national oil company Petrobras in 1957-58. In 1972, the Irati prototype plant started operating. It confirms the technical feasibility of the PETROSIX process, tests equipment and collects basic data for industrial plant design. The consolidation process for PETROSIX technology was completed in December 1991 when the Industrial Module came fully online. The Petrosix 11-m vertical-shaft Gas Combustion Retort (GCR) used in Brazil is the world's largest surface pyrolysis reactor for oil shale. It was designed by Cameron Engineers, who also designed and built the Paraho GCR.

Union B - Unocal The retort developed by Unocal was used in the USA where it was the longest lived, produced the most shale oil (4.5 million barrels between 1980 and 1991), and received the most significant technological evaluation. This retort consists of a vertical refractory-lined vessel. It operates on a downward gas-flow principle and the shale is moved upward by a unique charging mechanism usually referred to as a "rock pump". Heat is supplied by combustion of the organic matter remaining on the retorted oil shale and is transferred to the oil shale by direct gas-to-solids exchange. The oil is condensed on the cool incoming shale and flows over it to an outlet at the bottom of the retort. The process does not require cooling water.

TOSCO II The Colony Development Operation (Arco, Sohio, the Oil Shale Company (TOSCO) and the Cleveland Cliffs Iron Company) operated projects in USA from the mid-1960s to 1972 using the TOSCO 2 retort. This process employed a rotary-type kiln utilising ceramic balls heated in external equipment to accomplish retorting. Shale reduced to one-half inch size or smaller is preheated and pneumatically conveyed through a vertical pipe by flue gases from the ball-heating furnace. The preheated shale then enters the rotary retorting kiln with the heated pellets, where it is brought to a retorting temperature of 500C by conductive and radiant heat exchange with the balls. Passage of the kiln discharge over a trommel screen permits recovery of the balls from the spent shale for reheating and recycling. The spent materials are then routed to disposal.

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Paraho In the US, the New Paraho Corporation (now Synthetic Technology Inc.) has developed a very successful and economic process for converting oil shale to a more durable, easier-to-use and less costly road asphalt binder, while simultaneously producing a by-product that can be used as a naphtha feedstock. The Paraho retorting process is typical of vertical-shaft retorts in which crushed shale with the fines removed descends through the retort under the influence of gravity. Zones for each step in processing the shale are maintained by managing gas flow in the retort. The retort can be operated in direct or indirect combustion mode. The indirect combustion mode burns process gas in a separate furnace and hot gases carry heat to the retort.

Lurgi-Ruhrgas The Lurgi-Ruhrgas technology developed in Germany features a lift pipe in which residual carbon is burned off spent, hot, solid feedstock to provide process heat. Burned feedstock is carried to the retort for solid-to-solid heat transfer to the raw feedstock. It has been successfully tested for processing Green River oil shale in USA.

Kiviter retort In Estonia, two commercial retorts are producing about 5 500 b/d. Oil shale lumps (> 25 mm) are fed into the top of the retorts and retorted by a cross-flow of combusted retort gas recycled from production. These retorts operate relatively trouble-free and have been modified a number of times during their operation, starting in the 1960s.

Galoter retort Two such retorts are operated by Eesti Energia in Estonia. The design is that of the hot-solids-recycling rotary kiln. These are newer retorts than the Kiviter one, built in the early 1980s, and can handle oil shale fines. 2.3.2 In-situ pyrolysis In-situ recovery technologies are one of two approaches, modified or true in-situ. Modified in-situ first creates a void space, either through mining and blasting, or direct blasting, followed by ignition of a direct combustion retort in the rubblised shale. True in-situ recovers oil without first disturbing the beds to create void spaces. The major advances in in-situ processing are found in a new true in-situ process developed by the Shell Oil Company.

In-Situ Conversion Process (ICP) - Shell Oil Co. In 2004 in Colorado, Shell tested a proprietary in-situ conversion process (ICP) that uses subsurface heaters to slowly convert kerogen to high yields of high-quality oil and hydrocarbon gases. ICP significantly reduces (and in some case eliminates) the environmental impacts resulting from previous shale-oil recovery methods. The process involves no open-pit or subsurface mining, creates no leftover piles of tailings, avoids potential ground-water contaminants associated with combustion and minimises unwanted by-products and water use. Shell believes its technology could be profitable at 25$/b, once steady-state production is reached. It claims that the shale oil produced has 38 API, 1 wt% nitrogen and 0.5 wt% sulphur.

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2.3.3 Summary of pyrolysis process The table below summarises the commercialisation stage of the pyrolysis processes described above, the countries in which they are being or have been applied and, where known, the company that developed them. Table 13. Pyrolysis processes, including commercialisation stage
Process Surface process ATP Petrosix Union B TOSCO II Paraho Lurgi-Ruhrgas Kiviter Galoter Thermal solution process In-situ process Shell ICP Country/company Laboratory Field testing Demonstration plant X X X X X X X X X

Canada, Australia Brazil/ Petrobras USA/Uncocal USA USA Germany Estonia Estonia USA/Colorado School of Mines USA/Shell

2.4 Environmental issues 2.4.1 CO2 emissions - from oil well to petrol tank A recent IFP study2 puts total CO2 emissions for oil-shale production (from well to petrol tank) at some 62 g/MJ, i.e. five times higher than for conventional oil. At the Stuart plant in Australia, SPP reduces greenhouse gas emissions through a reforestation plan. SPP claims that reforestation can reduce carbon output from the production and use of oil from shale to levels comparable to or less than those of conventional oil. 2.4.2 Air quality Retorting involves heating the source rock, embedded with kerogen, to temperatures of between 450 and 550C. Heating carbonate rock to these temperatures generates not only kerogen oil, but also SOx, NOx, CO2, particulate matter, water vapour and hydrocarbons. There is also a risk of other hazardous trace materials being released into the atmosphere, such as polynuclear aromatic organic matter.

"valuation des missions de CO2 des filires nergtiques conventionnelles et non-conventionnelles de production de carburants partir des ressources fossiles" (Evaluation of CO2 emissions from conventional and non-conventional fossil fuel production sectors), Georgia Plouchard, ref 55 949 - April 2001.

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2.4.3 Water quality Controls are required to protect surface and ground water from contamination by (i) runoff from mining and retorting operations (ii) treatment facilities for products (iii) other waste waters and particularly (iv) retorted shale waste piles, leachate from which contains heavy metals. For in-situ processes, controls are required to check that no reinjected water or contaminants from underground burning enter aquifers. In conjunction with its development of ICP, Shell has developed an environmental barrier system called a freeze wall to isolate the in-situ process from local groundwater. A freeze wall is created by freezing groundwater occurring in natural fractures in the rock into a ring wall surrounding the area to be pyrolysed. This barrier protects the groundwater from contamination by products liberated from the kerogen while at the same time keeping water out of the area being heated. Once pyrolysis is completed, the remaining rock within the freeze wall is flushed with water and steam to remove any remaining hydrocarbons and to recover heat from the spent reservoir. Heat from the steam can be used to generate additional electric power. Once the area has been sufficiently cleaned, the freeze wall can be allowed to melt and groundwater can flow through this area once more. 2.4.4 Spent shale disposal Surface retorts generate significant quantities of spent shale. Many major retort processes from the 1980s era were constrained by inefficiencies that restricted the ability to convert all of the kerogen into oil and gases. As a result, significant coke was deposited on the spent shale, making solid waste from these earlier designs unsuitable for direct landfilling. Numerous technological advances have improved the efficiency, reducing residual carbon content. Satisfactory disposal and reclamation has been achieved with the later generation technologies. Use of spent shale in cement manufacture is practised in Estonia and Germany and has been demonstrated in the US. Other uses in road beds or construction materials also offer potential for reducing or eliminating disposal costs. Processing shales in surface facilities causes spent shale to increase in volume by as much as thirty percent, primarily because of the void space created by crushing and size reduction. As such, the disposal area needed for the spent shale exceeds the original capacity of the geological formation from which it is extracted, whether this be deep underground mines or open-pit surface mines. This issue does not apply to true in-situ processes.

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2.5 Main inputs for the database and model The quantitative model provided for oil shale will include a database of the resources and a technical and economic analysis of the technologies used for the production of syncrude and bitumen blend. The database will include: - a list of countries with in-place oil volumes contained in oil shale. - a list of countries with extracted oil shale volumes (if relevant), synthetic oil produced and, if known, saleable product specifications in terms of API and sulphur content; - costs for the mine operations. 2.6 Main References Geology and resources of some world oil-shale deposits J.R. Dyni, Oil Shale, 2003, Vol. 20, No 3, pp 193-252. Strategic Significance of America's Oil Shale Resource - Office of Deputy Assistant Secretary for Petroleum Reserves; Office of Naval Petroleum and Oil Shale Reserves, US Department of Energy March 2004. "Les schistes bitumineux" N. Alazard, 1991, IFP report 39 374 ( in French only). Internet sites: USGS, DOE, World Energy Council, Southern Pacific Petroleum, Petrobras.

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3 World GTL Prospects

3.1. Background GTL (Gas to Liquids) is a technology for converting natural gas to petroleum products (mainly diesel, kerosene, naphtha and waxes). The earliest applications took place in Germany during the Second World War, to produce motor fuel. In 1955, South Africa then initiated a vast program to produce motor fuels from coal. The first GTL unit using gas was built in 1991 by Mossgas (now Petro SA), based on Sasols SPD (Slurry Phase Distillate) process. Today, South Africas Sasol is the world leader in Fischer-Tropsch technology, and South Africa is the foremost producer of FT synthesis fuel in the world (nearly 200 000 barrels per day (b/d), including coal-based units. Shell was the first to build a commercial plant outside South Africa, putting a GTL plant on stream in 1993 at Bintulu in Malaysia, with a capacity of 14 500 b/d. This plant was the fruit of research conducted in the 1950s on gasification technology (SGD - Shell Gasification Process), originally aiming to process heavy cuts from refining. In the 1970s, Shell focused on Fischer-Tropsch synthesis, developing a pilot plant in the early 1980s, with full-scale tests in Malaysia. This unit was shut down between 1997 and 2000 due to an accident with the air separation unit (ASU), an accident unrelated to the SMDS (Shell Middle Distillate Synthesis) process. The last four years have seen a real take-off in this industry, with large numbers of pilot plants being built. This was the case for two US companies specialising in GTL, Rentech and Syntroleum. Also worth mentioning are the plants built by BP, ExxonMobil, ConocoPhillips and Statoil. In 2004 in South Africa, Statoil commissioned a semi-commercial plant producing 1 000 b/d in a joint venture with Petro SA. 3.2 Technical and economic background These various achievements have culminated in a technology that can be considered operational, although its technical and economic viability remains to be demonstrated with large scale units. Economically, the context is favourable: - high crude oil prices, likely to remain above 25/30 $/b in future; - the (declared) unit cost of GTL technology has dropped sharply: from over 50 000 $/b/d to about 25/35 000 $/b/d, with some operators targeting a figure under 20 000 $/b/d. In these circumstances, the profitability of these installations largely depends on the cost of gas, which must be around 0.5/1 $/Mbtu (5 to 10 $/b product equivalent) if a production cost of lower than 20/25 $/b is to be attained. This represents a big difference from refining - unit investment is substantially lower (10/15 000 $/b), allowing scope for higher raw material costs (crude oil). GTL is therefore ideally suited to countries enjoying sufficiently low resource-access costs to avoid compromising the profitability of these units. Certain specific or strategic factors could also ultimately favour this technology. High diesel production costs (e.g. some regions in Russia) or a desire to reduce oil dependence (e.g. Australia, United States) are some of the arguments volunteered in support of GTL.

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On the whole, therefore, GTL is an available technology, even if its large-scale reliability remains to be demonstrated, and it is economically profitable at a sufficiently low raw material price and a minimum crude oil price of between 15 and 25 $/b (based on assumed investment costs of 25/35 000 $/b/d and an assumed gas price of 0.5/1 $/Mbtu). Estimated production cost of FT diesel (for unit investment of 25 to 35 000 $/b/d) Capital expend.: Operat. expenses: Natural gas: Total Cost: 9 to 13 $/b 4 to 5 $/b 4 to 10 $/b (or 0.5 to 1 $/MBtu) 17 to 28 $/b

Minimum crude oil price necessary for a 10% return: 14 to 23 $/b

(Base: diesel price/crude price ratio = 1.2)

For more details on the technology, refer to "Annex 1 - Overview of the FT GTL Process Chain"

3.3 Countries with GTL potential

3.3.1 Analysis by country Provided natural gas prices are relatively low, the main candidates are basically the major gas producers in the Middle East (e.g. Qatar, Iran), Africa (e.g. Nigeria, Algeria) and Asia (e.g. Indonesia, Australia). Apart from cost, the second prerequisite is reserves: a 10 000 b/d unit requires 0.8 to 1 billion m3/year (Bcm/year) of gas or 20 to 25 Bcm (0.7 to 0.9 trillion cubic feet or Tcf) over the plant lifetime (25 years). By way of comparison, an LNG (liquefied natural gas) unit with a 5.4 Bcm (4 Mt/year) capacity liquefaction train requires 135 Bcm (4.8 Tcf) over 25 years. These quantities correspond to the needs of a 50 000 b/d GTL unit. The ability to have projects of under 50 000 b/d thus make it feasible to develop relatively small fields, which is not the case for LNG. What is more, at between 50 000 and 100 000 b/d, the reserves necessary to supply a GTL unit are similar to those needed for 1 to 2 liquefaction trains, which points to possible competition between the two alternatives. To obtain an idea of the theoretical potential for large units, a selection was made on the following basis: 1st step: Selection of potential candidates: 1. Countries with over 200 Bcm of proven reserves or four times the minimum required for a 20 000 b/d plant (20 000 b/d of GTL capacity requires 2 Bcm per year of production or 50 Bcm over 25 years). 2. Countries with a reserves-to-production ratio of over 25 years. 3. Countries self-sufficient in or exporting gas.

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2nd step: Number of theoretical units per country: The 2nd table shows the number of 50 000 b/d units that could theoretically be developed in each of the countries. This figure is calculated by considering proven reserves and the amount of gas consumed in 25 years, on the basis of current non-GTL production. The remaining proven reserves thus indicate the ability to develop units without disturbing production over 25 years. (Calculation basis: a 50 000 b/d plant consumes about 130 Bcm over 25 years).

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Table 14.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46

First step - countries with over 200 Bcm of proven reserves or four times the minimum for a 20 000 b/d plant Selection Countries Reserves Bcm Ratio R/P > 20 Self-suffi LNG exporters Other R/P years ciency? 46 475 79 Y Y Russia Russia 26 100 333 Y Y Iran Iran 25 768 703 Y Y Qatar Qatar 6 340 111 Y Y Saudi Arabia Saudi Arabia 5 620 148 Y Y Abu-Dhabi Abu-Dhabi 5 350 9 N United States 4 523 50 Y Y Algeria Algeria 4 500 132 Y Y Nigeria Nigeria 4 163 101 Y Y Venezuela Venezuela 3 833 64 Y Y Norway Norway 3 800 50 Y Y Indonesia Indonesia 3 550 93 Y Y Australia Australia 3 109 787 Y Y Iraq Iraq 2 900 57 Y Y Turkmenistan Turkmenistan 2 390 41 Y Y Malaysia Malaysia 1 900 164 Y Y Kazakhstan Kazakhstan 1 850 32 Y Y Uzbekistan Uzbekistan 1 660 8 N Canada 1 616 22 N Netherlands 1 560 51 Y N China 1 557 58 Y Y Egypt Egypt 1 557 140 Y Y Kuwait Kuwait 1 370 106 Y Y Azerbaijan Azerbaijan 1 314 167 Y Y Libya Libya 1 111 10 N United Kingdom 1 100 60 Y N Ukraine 946 54 Y Y Oman Oman 797 17 N Mexico 790 162 Y Y Bolivia Bolivia 764 18 N Argentina 750 32 Y Y Pakistan Pakistan 645 25 Y N India 558 32 Y Y Trinidad Trinidad 479 1261 Y Y Yemen Yemen 464 47 Y Y Bangladesh Bangladesh 428 3891 Y Y PN Guinea PNG 370 76 Y Y Angola Angola 360 18 N Thailand 356 34 Y Y Brunei Brunei Romania Sharjah Myanmar Peru Germany Syria Brazil 322 289 287 255 254 241 229 24 28 39 472 11 36 19 N Y Y Y N Y N Y Y Y Y Sharjah Myanmar Peru Syria

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Table 15. Second step - GTL potential by country

Selected LNG export Russia Iran Qatar Saudi Arabia Abu-Dhabi Algeria Nigeria Venezuela Norway Indonesia Australia Iraq Turkmenistan Malaysia Kazakhstan Uzbekistan Egypt Kuwait Azerbaijan Libya Oman Bolivia Pakistan Trinidad Yemen Bangladesh PN Guinea Angola Brunei Sharjah Myanmar Peru Syria TOTAL countries Others Proven Production 25 years of Remaining reserves 2002 2002 production proven (Bcm) (Bcm) (Bcm) reserves 46 475 608 15 195 31 280 26 100 91 2 275 23 825 25 768 34 858 24 911 6 340 60 1 501 4 840 5 620 38 948 4 673 4 523 89 2 222 2 301 4 500 35 870 3 630 4 163 37 937 3 227 3 833 73 1 822 2 011 3 800 80 2 001 1 799 3 550 39 970 2 580 3 109 4 89 3 020 2 900 54 1 338 1 563 2 390 53 1 320 1 070 1 900 13 314 1 586 1 850 58 1 460 390 1 557 31 784 773 1 557 10 243 1 315 1 370 13 326 1 044 1 314 8 198 1 116 946 19 465 481 790 7 167 623 750 26 659 91 558 19 480 78 479 0 10 469 464 11 278 187 428 0 3 425 370 8 210 160 356 11 278 79 289 9 213 77 287 9 220 67 255 1 24 231 241 7 185 56 50 000 b/d units 250 191 199 39 37 18 29 26 16 14 21 24 13 9 13 3 6 11 8 9 4 5 0 0 4 1 3 1 0 0 0 2 0 956

This calculation shows that a total of more than 900 units is conceivable, representing 45 Mb/d clearly a theoretical figure that depends on the actual possibility of aggregating different fields to have at least 130 Bcm (4.5 Tcf) of reserves and to supply a 50 000 b/d plant for 25 years. In any event, the calculation underscores the significant existing potential, constrained only by access to gas resources, and shows that considerations of reserve availability will not pose an obstacle to GTL development.

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3.3.2 Analysis by field A more detailed analysis by field helps refine this overall result. The fields for this analysis have been selected on the following basis: total proven reserves above 50 Bcm, enabling 25 years of supply to a 25 000 b/d (minimum ) GTL plant, located in geographic areas where the price of natural gas is likely to be lower than 1 $/Mbtu. Europe, North America and the CIS have therefore been discarded. There appear to be 340 such fields with over 50 Bcm of gas, representing a total of more than 100 000 Bcm, enough to develop nearly 50 Mb/d. Note that 70% of this potential is located in the Middle East, where 35 Mb/d are theoretically possible. Table 16. GTL potential based on fields of over 50 Bcm
Fields >50 Bcm 114 82 59 62 23 340 Total Bcm 78 843 10 762 8 578 8 737 4 390 111 309 GTL Mb/d 35.2 4.8 3.8 3.9 2.0 49.7

Middle East SE Asia S. America Africa Australasia World Total

Analysis by field size (see tables below) shows that those over 200 Bcm (69 in total) account for the biggest potential, with a total of 37 Mb/d, including 31 Mb/d in the Middle East and 1 to 1.8 Mb/d in other areas. Smaller fields only represent a potential of 12 Mb/d. This final analysis also demonstrates the relatively large potential existing across the world. The actual development of this potential will thus primarily depend on the main end market concerned, i.e. the diesel market. However, operators current approach is rather to launch GTL projects to upgrade gas for export (e.g. Qatar, Nigeria and Algeria). Ultimately a more selective strategy is likely to be necessary, depending on the degree of saturation in the end market.

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Table 17. GTL potential based on fields of 50 to 100 Bcm, e.g. 25 000 b/d - 50 000 b/d
No of fields 50 - 100 Bcm 33 54 35 45 10 177 Total Bcm 2 634 3 823 2 605 3 285 878 13 225 GTL Mb/d 1.2 1.7 1.2 1.5 0.4 5.9

Middle East SE Asia South Am. Africa Australasia World Total

Table 18.

GTL potential based on fields of 100 to 200 Bcm, e.g. 50 000 b/d - 100 000 b/d No of fields Total Bcm GTL Mb/d 100 - 200 Bcm Middle East 41 6 259 2.8 SE Asia 21 3 427 1.5 South Am. 13 2 124 0.9 Africa 12 1 515 0.7 Australasia 7 1 133 0.5 World Total 94 14 457 6.5

Table 19. GTL potential based on fields of over 200 Bcm e.g. potential production of 100

000 b/d

No of fields > 200 Bcm Middle East SE Asia South Am. Africa Australasia World Total 40 7 11 5 6 69

Total Bcm 69 950 3 512 3 849 3 936 2 379 83 626

GTL Mb/d 31.2 1.6 1.7 1.8 1.1 37,3

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3.4 Projects under development, planned or announced Projects currently under development or on the drawing board represent a total figure of over 1 million b/d, including 800 000 b/d in Qatar. Three of these, together representing 138 000 b/d, are expected to be commissioned before 2010: - Sasols Oryx GTL project in Qatar, capacity 34 000 b/d, is scheduled for 2006. An extension of 68 000 b/d is planned in 2009, - the SasolChevron Escravos GTL project in Nigeria with the same capacity, scheduled for 2007/08, - Shells Pearl GTL project in Qatar, capacity 70 000 b/d, announced for 2009 (doubling the planned capacity). The other projects are less advanced and commissioning before 2010 appears unlikely. It should also be observed that some projects in Qatar (SasolChevron 2, ConocoPhilips and Marathon) have been delayed by Qatar Petroleum in order to manage the countrys gas resources more efficiently. The situation after 2010 is therefore uncertain and will depend particularly on the technical and commercial success of the first three projects. The following projects could be launched: extension of Oryx GTL - 68 000 b/d; extension of Pearl GTL - 70 000 b/d; one or two of the three projects delayed in Qatar - 150/300 000 b/d; one or two projects of 34 000 b/d, e.g. in Australia and/or Algeria - 34/68 000 b/d.

These possible projects represent a total potential of between 330 and 500 000 b/d. Including existing projects to date (138 000 b/d), the total in 2015/20 would be between 470 and 640 000 b/d. These orders of magnitude are not too far from the prospects announced by the main two operators: SasolChevron aims to build 500 000 b/d in 2013 and Shell was planning in 2003 to build four plants of 75 000 b/d, representing a total of 800 000 b/d for these two companies. The IEA estimates a total of 0.4 Mb/d in 2010, 1.5 Mb/d in 2020 and 2.3 Mb/d in 2030. A study conducted by the energy commission in California in 2004 suggested a figure of 140 000 b/d in 2010 and 550 000 b/d in 2015. On the whole, totals of 0.1 to 0.2 Mb/d in 2010 and 0.4 to 1 Mb/d in 2015/2020 appear to be realistic, in phase with announced projects and consistent with other estimates.

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Table 20. Main GTL projects in 2005

Country / project Qatar / Oryx GTL Nigeria / Escravos GTL Qatar / Pearl GTL Total under development Qatar / Oryx GTL 2 Qatar / Pearl GTL 2 Qatar Qatar Qatar Qatar Companies Sasol / QP Sasol Chevron / NNPC Shell / QP Capacity b/d 34 000 34 000 70 000 138 000 Sasol / QP Shell / QP ExxonMobil Sasol Chevron / QP ConocoPhilips Marathon (Syntroleum) + 68 000 + 70 000 154 000 130 000 160 000 120 000 702 000 34 000 10 000 20 000 20 000 36 000 120 000 960 000 802 000 ? ? 7 ? ? ? 2009 2011 2011 2010 + 2009 + ?+ MoU FEED LoI LoI LoI LoI Investment G$ 0.9 1.7 5 Upstream & Unit Commissioning date 2006 2007/8 2009 Status Construction EPC FEED

Total possible Australia Sasol Chevron Bolivia / GTL Rentech + Bolivia partners Nigeria / Aje Syntroleum / Field Sovereign PN Guinea Syntroleum / Oil Search Algeria ? Total potential TOTAL Qatar

? ? ? ? ?

? ? ? ? ?

Negotiations Negotiations Negotiations Negotiations Bid

MoU : Memorandum of Understanding ; LoI : Letter of Intent ; FEED : Front-end Engineering Design; EPC : Engineering Procurement Construction.

Remark: These projects do not include relatively small units (10/20 000 b/d) planned by certain operators and still in the initial stages from the commercial standpoint. Syntroleum, for example, has a strategy of developing small fields (1/3 Tcf), estimating a total of 400 undeveloped fields of this size, of which 40 (1800 Bcm or 63 Tcf) offer favourable conditions for GTL. Potential production from these fields amounts to 700 000 b/d. The countries concerned are: Africa: Angola, Cameroon, Congo, Ivory Coast, Gabon, Mauritania; Asia: Bangladesh, Malaysia, Myanmar, Philippines; Ex-USSR: Azerbaijan, Kazakhstan, Turkmenistan; Middle East.

Syntroleum is also considering a barge-mounted alternative, particularly in Nigeria (design under way for a barge producing 20 000 b/d). It has identified 41 projects (99 Tcf), involving the installation of 78 barges producing 1.4 Mb/d.

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3.5 End-market trends (diesel) Between 70 and 80% of GTL production is intended for the transport market in the form of ultra-clean diesel. As an illustration, the FT diesel produced in Malaysia by Shell is proposed in the form of a 30% blend with conventional diesel to improve performance. As well as diesel, FT units also produce naphtha (petrochemical feedstock), kerosene and waxes. This market, which is relatively difficult to evaluate, was estimated at about 14 Mb/d in 2003 with an annual growth rate of about 3%, i.e. an extra 0.4/0.6 Mb/d each year. Assuming a market share of 10 to 30% of additional demand (+ 0.5 Mb/d/year), therefore, the GTL plants would represent 50 to 150 000 b/d of installed capacity each year. In 10 years, total capacity would reach 0.5 to 1.5 Mb/d. This rough calculation tends to corroborate the production estimates made for the projects.

3.6 Gas-to-liquids and CO2 3.6.1 International action on greenhouse gases International action to reduce global emissions of greenhouse gases is undertaken through the United Nations Framework Convention on Climate Change (UNFCC). The UNFCC was signed by 155 countries at the 1992 'Earth Summit' in Rio de Janeiro and came into force in 1994 after ratification by 50 countries. A national government becomes a party to the convention by ratifying it. The ultimate objective of the Framework Convention was: "to achieve stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system". The implementation of the convention is shaped by the Conference of the Parties (COP) which convenes at regular intervals. The third Conference of the Parties (COP-3) was held in Kyoto, Japan in December 1997 and was where the parties debated and adopted the Kyoto Protocol. The main features of the Kyoto Protocol were that it called on the developed countries to reduce their greenhouse gas emissions by an average of 5.2% below 1990 levels by a five year commitment period, 2008 to 2012. In recognition of their different circumstances, countries agreed different reduction targets. For example, the European Union agreed an 8 per cent reduction, while Norway and Australia were actually allowed to increase their emissions by 1 and 8 per cent respectively, relative to their 1990 levels

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3.6.2 Kyoto Protocol implementation The Kyoto Protocol was designed to set the international legal framework and regulatory convention for administering and managing greenhouse gas reduction efforts. Under the terms of the protocol, parties with legally binding obligations may meet them by applying three flexible mechanisms: Joint Implementation (JI), Clean Development Mechanism (CDM), and International Emissions Trading (IET). These mechanisms were created by the protocol to enable governments to meet part of their greenhouse gas reduction commitments by developing emission-reduction projects in other countries. Joint Implementation - an Annex-I country (or an entity within an Annex-I country) can receive emission-reductions units (ERUs) generated by emission-reduction projects in another Annex-I country. ERUs can be transferred by direct sale or as a return on investment in eligible projects. Clean Development - non-Annex I parties can create certified emissions reductions (CERs) by developing projects that reduce net emissions of greenhouse gases. Annex-I parties (both governments and private entities) can help to finance these projects and purchase the resulting credits as a means of meeting their own reduction commitments. International Emissions Trading - Annex-I parties may trade their emission allowances with other Annex-I parties. The aim is to improve the overall flexibility and economic efficiency of emissions cuts.

Source : IEAGreen

3.6.3 "Well-to-wheel" analysis The results of such analysis in terms of energy consumption and CO2 equivalent (CO2eq) emissions for the different diesel systems are shown in Figures 4.5 and 4.6, which differentiate between fuel production (well to tank) and fuel consumption on board a vehicle (tank to wheel). To simplify the analysis, the low values of the well-to-tank section have been compiled with the low values of the tank-to-wheel section (i.e. associated with Light Vehicle 2). The same method is used for the high values. The results are all indexed against those for conventional 50 PPM sulphur diesel, which are defined as 100.

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Low/high difference
180 160 140 Energy 120 consum. 100 80 60 40 20 Refinery GTL base case GTL with GTL with CO2 capture power generation

tank to wheel well to tank

Figure : Energy consumption from well to wheel of a vehicle run on FT diesel compared with conventional refinery diesel (50 PPM S). Consumption of conventional refinery diesel is 100.

The GTL systems have significantly higher energy consumption than conventional diesel production, an estimated 40% to 70% in this example. The gain obtained onboard the vehicle (tank-to-wheel) is too small to offset the energy losses incurred in FT diesel production.

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CO2eq emissions from well to wheel of a vehicle run on FT diesel compared with conventional refinery diesel (50 PPM S). Consumption of conventional refinery diesel is 100.
140 120 100 80 CO2 eq 60 40 20 Refinery GTL base GTL with GTL with power CO2 case generation capture

low / high difference "tank-to-wheel" "well-to-tank"

The addition of the combustion phase on board the vehicle narrows the gap in terms of CO2 emissions previously observed between the different fuel production systems. This is because the main cause of CO2 emissions from all carbon-based transport fuels is combustion in the vehicle engine. The share of CO2eq emissions caused by combustion ranges from 65% to 90%, depending on the case considered. The GTL base case and with power generation thus produce between 11% and 30% more emissions than the conventional system?. Capturing CO2eq at the GTL plant considerably reduces the excess of emissions compared with conventional diesel, making them equivalent to or even lower (by 8% in the best-case scenario) than those produced by the conventional system. 3.6.4 Impact of Kyoto on GTL development During the next 10 years, the impact of the Kyoto Protocol on GTL development could be very limited. GTL plants will be developed in non-Annex I countries which have no CO2 limits. In the longer term (2020 and beyond), CO2 sequestration could be the solution for limiting CO2 emissions from GTL units. It should, however, be noted that, based on "well-to-wheel" assessment, CO2 emissions from vehicles typically represent 80% of total emissions. Reducing CO2 emissions from GTL plants will therefore have a limited impact on the overall picture. Nevertheless, CO2 sequestration will keep emissions from these plants to levels similar to those of traditional methods (refineries). Initial estimates have put costs at around 3/4 $/b, which is not so expensive as to limit GTL development by 2020.

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3.7 Conclusion - GTL development potential Apart from the Petro SA units in South Africa (22 500 b/d) and the Shell plant (14 500 b/d) in Malaysia, both built in the early 1990s (1991 and 1993 respectively), no other commercial plants have yet been commissioned. However, technological advances and energy market factors (crude oil prices, oil dependence of OECD countries, etc.) have revived interest in this technology. Three units representing a total of 138 000 b/d should be installed before 2010: two in Qatar (Sasol, Shell) and one in Nigeria (Sasol). The planned extensions to these units and the development of an additional 3-4 units in Qatar, Algeria and Australia would boost the total to between 0.5 and 1 Mb/d? in 2015/20. These figures are consistent with: - gas resources available at relatively low cost, particularly in the LNG-exporting countries, - projections made by operators and various bodies (IEA, California Commission, etc.), - growth forecasts for the diesel market, the main outlet for GTL. Table 21. Possible GTL trend based on several sources
Mb/d Sasol/Shell units Projects IEA California Commission Synthesis 2010 0.14 0.4 0.14 0.1 / 0.2 2015/20 0.8 0.5 / 0.6 1 / 1.5 0.55 0.5 / 1 2030

2.4

Note also that a total of 1 to 2 Mb/d requires 80 to 200 Bcm of gas, representing less than 8% of current world gas consumption (2 620 Bcm in 2003) and less than 4% of the figure projected for 2030 (4 800 Bcm according to the IEA). The impact on the gas market is thus relatively slight and raises no major problems of supply. A total of 0.5 to 1 Mb/d is thus conceivable by 2015/20, representing between 9 and 20 GTL plants of 50 000 b/d each, built at a rate of 1 or 2 plants a year. Apart from Qatar - the ideal candidate given the size of its gas reserves - many LNG-exporting countries have expressed an interest in this option, which would enable them to diversify in terms of outlets (diesel market) and utilisation (price). It is therefore likely that the new large-scale units (50 000 b/d +) will be commissioned in these countries. This scenario would only be jeopardised by technical or commercial problems with the first units announced from 2006. Another factor is the CO2 balance (throughout the chain), which is relatively unfavourable compared with conventional refining. This could impact negatively on the development of this system, or on costs, if CO2 sequestration becomes mandatory. Finally, a depressed oil market with prices below 25 $/b would also hinder the development of these units. However, such prices, while occasionally conceivable over relatively short periods, now seem unlikely for many years to come. 3.8 Main inputs for the database and model The quantitative model provided for GTL will include a database of the resources and a technical and economic analysis of the technologies used for producing liquids from natural gas.

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The database will include: a list of countries with GTL potential, based on their natural gas resources and facilitating their selection based on other parameters (oil and diesel demand, etc.), typical output figures for the various GTL production technologies, broken down into production of diesel, kerosene and naphtha, product specifications, an evaluation of CO2 emission volumes for a typical GTL plant.

The GTL module will compute a cost per barrel of oil products (middle distillates, naphtha) obtained using CTL technology, based on a set of endogenous and exogenous variables: natural gas price, investment cost and operating expenses, tax on CO2 emissions or cost of preventing CO2 emissions.

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3.9 Main References Gas To Fuels and Chemicals: From Technology To Market 2003 Edition, Beicip / Franlab, IFP Colin Birch / Guy Maisonnier; Gas To Liquids Fischer Tropsch: Quel Avenir? Guy Maisonnier, Revue de lEnergie March-April 2005; BP Statistical Review of World Energy 2005 June 2005; Reserves by field and country - IHS Group / Petroconsultants SA; World Energy Outlook 2004 Edition - International Energy Agency; Internet sites : Sasol, Shell, Rentech, Syntroleum.

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4 Coal to liquids
Coal is a solid with high carbon content but hydrogen content of typically 5% and never more than 6%. In comparison with liquid fuels it is inconvenient to handle and unsuited to some applications. In particular, it cannot be used directly to fuel the internal combustion engines and turbines that dominate transportation infrastructure worldwide. Transportation fuels are mainly derived from crude oil, which has about twice the hydrogen content of coal. The hydrogen content of these fuels varies from about 12.5% in some gasolines to 14.5% in aviation turbine fuels. For coal to replace them, it must be converted to liquids with similar hydrogen content. This can be achieved either by removing carbon or by adding hydrogen, either directly or indirectly. The first approach is known as carbonisation or pyrolysis and the second as liquefaction. Liquid fuels have long been produced from coal. As the cost of converting coal into useful liquid fuels is higher than the cost of refining crude oil, it is relative price of the raw feedstocks that has provided the main incentive to pursue the technology. The major exceptions resulted from the isolation of a country from reliable, secure sources of crude oil. Germany produced substantial amounts of coalderived fuels during the Second World War, as did embargoed South Africa between the mid-1950s and 1980s. With demand for oil products continuing to grow, and oil stocks becoming depleted, there will come a time when demand begins to exceed supply. Coal liquefaction is an alternative source, and is backed by large recoverable coal reserves globally. These reserves are indeed significantly greater than for other fossil fuels. 4.1 Evaluation of worldwide coal reserves World reserves of coal are enormous and, compared with oil and natural gas, widely dispersed. According to most recent estimates, economically recoverable coal reserves are close to one trillion tonnes. The world's proven reserve base represents about 164 years of production at current rates. Almost half the world's reserves are located in OECD countries, and concerns over coal supply security are less important than for oil and gas. BPs Statistical Review of World Energy 2005 puts current proven coal reserves at 909.1 billion tonnes (according to World Energy Council figures). This includes anthracite, bituminous and subbituminous coal and lignite. Classification of coal is based on quality: coking coal is coal with a quality that allows the production of coke suitable to support a blast-furnace charge. Other coals are classified according to their calorific value, bituminous coal and anthracite have the highest calorific value, greater than 23 865 kJ/kg on an ash-free but moist basis, sub-bituminous coal has a calorific value of between 23 865 kJ/kg and 17 435 kJ/kg, lignite/brown coal has the lowest calorific value of the three categories, less than 17 435 kJ/kg.

However, the factor that could prevent coal continuing to supply a considerable portion of global primary energy needs (more than 65% of power generation) or, particularly, being used to produce fuels, is not the size of the resource base. Rather it is the development of adequate production facilities and infrastructure.

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Table 22. Worldwide proven coal reserves at end 2004 (million tonnes)
Area and country USA Canada Mexico North America Brazil Colombia Venezuela Others South & Central America Bulgaria Czech Republic France Germany Greece Hungary Kazakhstan Poland Romania Russian Federation Spain Turkey Ukraine United Kingdom Others Europe & Eurasia Area and country South Africa Zimbabwe Other Africa Middle East Africa & Middle East Australia China India Indonesia Japan New Zealand North Korea Pakistan South Korea Thailand Vietnam Others Asia Pacific TOTAL Anthracite and bituminous 111 338 3 471 860 115 669 6 230 479 992 7 701 4 2 094 15 183 198 28 151 14 000 22 49 088 200 278 16 274 220 1 529 112 256 Anthracite and bituminous 48 750 502 910 419 50 581 38 600 62 200 90 085 740 359 33 300 150 97 192 564 478 771 Sub-bituminous and lignite 135 305 3 107 351 138 763 10 113 381 1 698 12 192 2 183 3 458 6 556 3 900 3 159 3 128 472 107 922 330 3 908 17 879 21 944 174 839 Sub-bituminous and lignite 174 174 39 900 52 300 2 360 4 228 538 300 3 050 80 1 354 215 104 325 430 293 Total 246 643 6 578 1211 254 432 10 113 6 611 479 2 690 19 893 2 187 5 552 15 6 739 3 900 3 357 31 279 14 000 494 157 010 530 4 186 34 153 220 23 473 287 095 Total 48 750 502 1 084 419 50 755 78 500 114 500 92 445 4 968 359 571 600 3 050 80 1 354 150 312 296 889 909 064 Share of total 27.1% 0.7% 0.1% 28.0% 1.1% 0.7% 0.1% 0.3% 2.2% 0.2% 0.6% (1) 0.7% 0.4% 0.4% 3.4% 1.5% 0.1% 17.3% 0.1% 0.5% 3.8% (1) 2.6% 36.1% Share of total 5.4% 0.1% 0.1% (1) 5.6% 8.6% 12.6% 10.2% 0.5% (1) 0.1% 0.1% 0.3% (1) 0.1% (1) (1) 32.7% 100.0% R/P ratio 245 100 135 235 (2) 120 53 (2) 290 84 90 17 32 55 240 360 87 16 (2) 26 87 424 9 341 242 R/P ratio 201 154 490 399 204 215 59 229 38 268 115 21 (2) 25 67 6 34 101 164

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Notes : - proven reserves of coal - generally taken to be those quantities that geological and engineering information indicates with reasonable certainty can be recovered in the future from known deposits under existing economic and operating conditions. - reserves/Production (R/P) ratio - if the reserves remaining at the end of the year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to continue at that level. - (1) Less than 0.05%. - (2) More than 500 years. - source of reserves data: BP Statistical Review of World Energy 2005 - World Energy Council.

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Table 23. Worldwide coal reserves at end 1999 Proven amount in place (million tonnes) Area and country Anthracite and Sub-bituminous and Total bituminous lignite USA 250 482 207 021 457 503 Canada 4 609 4 114 8 723 North America Argentina 4 8 050 8 054 Brazil 17 051 17 051 Chile 64 91 155 Venezuela 1 308 1 308 S. & C. America 341 340 1 Austria 45 41 4 Croatia 9 811 2 580 7 231 Czech Republic 274 114 160 France 122 000 78 000 44 000 Germany 1 996 19 83 13 Hungary 75 75 Italy 1 406 1 406 Netherlands 55 55 Norway 64 500 13 600 50 900 Poland 3 492 3 491 1 Romania 659 659 Slovenia 2 160 860 1 300 Spain 4 4 Sweden 6 489 6 061 428 Turkey 45 538 23 839 21 699 Ukraine Europe & Eurasia South Africa 115 515 115 515 Swaziland 567 567 Africa & M. East Australia 62 240 44 520 106 760 Japan 8 265 8 265 New Zealand 45 2 673 2 718 3 775 Pakistan 3 775 423 Philippines 423 South Korea 100 100 Taiwan, China 132 132 Thailand 1 391 1 391 Asia Pacific
Notes: the data on resources are those reported by WEC Member Committees in 2000/2001. They thus constitute a sample, reflecting the information available in particular countries: they should not be considered as complete, or necessarily representative of the situation in each region. For this reason, regional and global aggregates have not been computed source: World Energy Council

4.2 Known production technologies, investment and operating costs Coal may be used to produce liquid fuels suitable for transportation applications by removal of carbon or addition of hydrogen, either directly or indirectly. The first approach is carbonisation or pyrolysis and the second is liquefaction. As the cost of converting coal into liquid fuels is higher than the cost of refining crude oil, it is the relative price of the raw feedstocks that provide the main incentive to pursue the technology.

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Significant coal liquefaction R&D was started up in the early 1970s, particularly in the USA, the UK and Japan, in response to various oil price shocks. Since the 1980s, development has largely been put on hold, except in South Africa. Here, with large reserves of coal but no oil or gas, trade embargoes over three decades to the mid-1980s drove large-scale application. Up to 60% of transportation fuel requirements have been met from coal. Many different "direct" processes have been developed, but most are closely related. Common features are the dissolution of a high proportion of coal in a solvent at elevated temperature and pressure, followed by hydrocracking of the dissolved coal with hydrogen gas (H2) and catalyst. Direct liquefaction is the most efficient route currently available. Liquid yields in excess of 70% by weight of the dry, mineral-matter-free coal feed have been demonstrated. These processes have generally been developed to process-development-unit or pilot-plant scale, although no demonstration or commercialscale plants have yet been built. The only operating process for the "indirect" liquefaction of coal is South Africa's Sasol process, which has three plants in operation. The main unit operation specific to indirect liquefaction is the synthesis reaction step. The majority of recent work has therefore concentrated on developing improved catalysts. Underground coal gasification is another possible technology that could convert coal into synthesis gas and liquid fuels. However, this is a non-mature technology and many hurdles need to be overcome before any project can go ahead. Lower oil prices between 1985 and 1999 saw interest in coal liquefaction for producing transportation fuels decline. But with higher oil prices since 2000 and particularly since 2004, renewed interest in this technology is emerging, especially in China. 4.2.1 Carbonisation and pyrolysis High-temperature carbonisation is the oldest route for producing liquids from coal. Hydrocarbon liquid is predominantly a by-product of coke-making. The low yields (< 5%) of liquid product and relatively high upgrading costs mean that traditional high-temperature carbonisation is not an option for producing liquid fuels on a commercial basis. Mild pyrolysis is also a carbonisation technology, but with less severe operating conditions. It involves heating the coal to a temperature in the range 450-650C. Liquid yields are higher than for high-temperature carbonisation, but are still no more than 15-20% at most. The main product is a char with a reduced hydrogen and heteroatom content. The US has developed this process for upgrading low-rank sub-bituminous coals and lignite. At least one process has been developed to a semicommercial scale. A higher yield of liquids can be obtained by rapid pyrolysis. This process operates at temperatures up to 1 200C. It is designed to produce chemical feedstocks rather than liquid fuels and the process economics are likely to be highly unfavourable for production of liquid fuels. The disadvantage of all pyrolysis and carbonisation processes is that the liquids produced are still of low quality and require, as a minimum, additional treatment to remove solid contaminants and water. For the raw products to be used unblended, or in transport fuels, they require even more treatment. It has not been successfully demonstrated to date that these processes can be economically viable.

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4.2.2 Direct liquefaction Technology Direct liquefaction processes aim to add hydrogen to the organic structure of the coal, breaking it down only as far as is necessary to produce distillable liquids. Many different processes have been developed, but most are closely related in terms of underlying reaction chemistry. Common features are the dissolution of a high proportion of coal in a solvent at elevated temperature and pressure, followed by the hydrocracking of the dissolved coal with H2 and catalyst.
LPG (10%) Naphtha (20-30%) Diesel (60-70%)

Coal
Solvent

Slurry mixing

Hydrogenation reaction
H2

Coal liquids

Upgrading & Separation

Direct liquefaction is the most efficient route currently available. Liquid yields in excess of 70% by weight of the dry, mineral-matter-free coal feed have been demonstrated for some processes in favourable circumstances. The liquid products from direct liquefaction processes are of much higher quality than those from pyrolysis processes and can be used unblended for most stationary fuel applications. However, they require further upgrading before they can be used directly as transportation fuels. This upgrading utilises standard petroleum industry techniques, allowing the products from a liquefaction plant to be blended into the feedstock streams of a petroleum refinery.

Companies developing liquefaction Direct liquefaction processes can be divided into two main groups, depending on whether the initial dissolution of the coal is separated from the conversion of the dissolved coal into distillable products: - a single-stage direct liquefaction process produces distillates via a primary reactor or a train of reactors in series. Such processes may include an integrated on-line hydrotreating reactor, which is intended to upgrade the primary distillates without directly increasing the overall conversion. - a two-stage direct liquefaction process is designed to produce distillate products via two reactors or reactor trains in series. The primary function of the first stage is coal dissolution and is operated either without a catalyst or with only a low-activity disposable catalyst. The heavy coal liquids produced are hydrotreated in the second stage in the presence of a high-activity catalyst to produce additional distillate. Some processes were designed specifically to co-process coal with petroleum-derived oils and these may fall into either group. Also, coal-liquefaction processes from both groups have been adapted for co-processing.

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Table 24. Companies developing direct liquefaction technologies

Type of Process name process Single-stage - Kohleoel - NEDOL - H-Coal - Exxon Donor Solvent (EDS) - SRC-I and II - Imhausen high-pressure - Conoco zinc chloride Two-stage - Catalytic Two-Stage Liquefaction (CTSL) - Liquid Solvent Extraction (LSE) - Brown Coal Liquefaction (BCL) - Consol Synthetic Fuel (CSF) - Lummus ITSL - Chevron Coal Liquefaction (CCLP) - Kerr-Mc-Gee ITSL - Mitsubishi Solvolysis - Pyrosol - Amoco CC-TSL - Supercritical Gas Extraction (SGE) - HTI - CANMET AOSTRA - Alberta Research Council - Lummus Crest - MITI Mark I - MITI Mark II - the Cherry P Process - Solvolysis - Mobil - Pyrosol - Chevron - Rheinbraun - TUC - UOP Slurry-catalysed ARC Lummus Crest Company Ruhrkohle NEDO HRI (now HTI) Exxon Gulf Oil Conoco US DOE and HRI (now HTI) British Coal Corp. NEDO Consolidation Coal Co. Lummus Crest Chevron Kerr-Mc-Gee Mitsubishi Heavy Industries Saarbergwerke Amoco British Coal Corp. HTI Country Germany Japan USA USA USA Germany USA USA UK Japan USA USA USA USA Japan Germany USA UK USA Canada Canada USA Japan Japan Japan Japan USA Germany USA Germany Germany USA No more development No more development Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Licence for 1st China CTL project No more development No more development Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Abandoned Phase of development Feasibility study for China in 1997 Feasibility study for China in 1997 Basis of CTSL process Abandoned

Coprocessing

No more development Abandoned

Osaka Gas Co. Mitsubishi Heavy Industries Mobil Saarbergwerke Chevron Technical University of Clausthal UOP

Economics Currently, direct coal liquefaction investment costs are estimated to be about $60 000 per daily barrel (bbl/d) in the US for output of 20 000 bbl/d of liquid fuels, and 12 000 tonnes per day (t/d) of coal feed. The required selling price of the liquid fuels would be around $35/bbl, or in the range $2530/bbl on a crude-oil-equivalent basis.

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Table 25. Direct coal liquefaction - economics

Direct Coal Liquefaction Coal feed (t/d) Liquid fuel production (bbl/d) Investment cost ($/bbl/d) Liquid fuel selling price ($/bbl) Crude oil price equivalent ($/bbl) US 12 000 20 000 60 000 35 25-30 China 12 000 20 000 45 000 24 15-20

In China, the estimated capital cost of the 20 000 bbl/d direct-liquefaction coal plant's first phase is $800 million and the required selling price of the liquid fuels is estimated to be $24/bbl, or $15-20/bbl on a crude-oil-equivalent basis. Lower labour and equipment costs in China result in a required capital investment of about $45 000/bbl/d, compared to $60 000/bbl/d in the US. If these cost estimates prove accurate, the cost of fuel produced will be lower than the cost of imports, given the current high price of crude oil on world markets. 4.2.3 Indirect liquefaction Technology The unit operation specific to indirect liquefaction is synthesis reaction, and a consensus has developed that slurry-phase fluidised-bed reactors are the preferable technology for this. Most recent work in the field has therefore concentrated on developing improved catalysts, which need not be specific to a particular process. Synthesis-reaction technologies have applications outside coal liquefaction, in particular converting natural gas to liquids (GTL). All these processes involve the preliminary partial oxidation or steam reforming of natural gas to produce synthesis gas. Indirect liquefaction involves, as a first step, the complete breakdown of the coal structure by gasification with steam. The composition of the gasification products is then adjusted to give the required mixture of H2 and CO, and to remove sulphur-containing catalyst poisons. The resulting synthesis gas is reacted over a catalyst at relatively low pressure and temperature using the FischerTropsch (FT) reaction. The products may be paraffins, olefinic hydrocarbons or alcohols (particularly methanol), depending on the catalyst selected and the reaction conditions used.

Coal

Gasification
Steam O2 CO+H2

FischerTropsch process

Upgrading & Separation

Naphtha (20-30%) Kerosene (25-35%) Diesel (35-45%) Fuel oil (0-5%)

For more details on the technology, refer to "Annex 1 - Overview of the FT GTL Process Chain"

Companies developing gasification Currently, there seem to be 13 possible gasification technologies available, of which 4 seem the most viable: GE (Texaco), E-Gas (ConocoPhillips), GSP (Future Energy) and SCGP (Shell Coal Gasification Process, Shell).

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Table 26. Companies developing gasification technologies

Process type and name Moving Bed Lurgi BGL Fluid Bed ABB PFBC HTW (Winkler) KRW KBR U-Gas Entrained Flow GE (Texaco) E-Gas (ConocoPhillips) GSP (Future Energy) Koppers-Totzek Shell SCGP Other Alchemix Scale Demonstration Commercial 1931 Development of above 1980s 1956 1998 1996-2005 1980s 1940s 1978 1975 1950s 1978 Test rig 2003 1936 1958 Proven products Power Chemicals Yes Small scale Yes Yes Commercial references Large 2

1985 1960s Dormant since 2001 Demo. only 1980s 1950 1996 1980s 1950s 1993 Small scale planned for 2005

Yes Yes Yes Yes No Yes Yes Yes No Yes No

No Yes No No Yes Yes No Yes Ammonia only Yes No

5 5 One None Large Large 2 2-3 Large 3 None

The only commercial-scale coal-liquefaction process currently in operation is the indirect Sasol process in South Africa. Sasol produces gasoline, diesel fuel and a wide range of chemical feedstocks and waxes from three plants. Table 27. Companies developing indirect liquefaction technologies
Process name Sasol Process Company Sasol Country South Africa Phase of development 3 units at Sasolburg and Secunda (South Africa) producing 150 000 barrels/day of liquid fuels Collaboration with Shenhua (China) for CTL projects One 12 500-barrels/day unit in operation in New Zealand for the sole production of methanol One 12 500-barrels/day unit in operation in Malaysia Process considered in many GTL projects Collaboration with Shenhua (China) for CTL projects

Mobil MTG (Methanol-togasoline) Process Shell SMDS Process

Mobil

USA

Shell

USA

Natural gas indirect liquefaction processes developed by Mobil and Shell are the only two to have been put into commercial-scale operation. Others have been tested only at pilot-plant scale, including processes from BP-Kvaerner, Exxon and Syntroleum Corporation, all similar to the Shell (or Sasol) process except for their use of different and proprietary catalysts.

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Economics According to Sasol, the investment costs for indirect coal liquefaction are 1.5 to 2 times higher than for GTL although, with low-cost coal, operating costs may be comparable. With GTL investment costs of between $25 000 and 35 000/bbl/d of finished fuel products, costs for indirect CTL would be in the range $50-000-70 000/bbl/d. A recent Rentech study puts the capital cost of indirect coal liquefaction at $67 000/bbl/d for a production rate of 20 000 bbl/d liquid fuels and 100 MW power in the US, and 15 000 t/d of coal feed. The required selling price of the liquid fuels would be around $40/bbl, or in the range $29-34/bbl on a crude-oil-equivalent basis. In China, where labour and equipment costs are lower, the investment cost would be $50 000/bbl/d and the crude-oil-equivalent price $19-24/bbl. Table 28. Indirect coal liquefaction - economics
Indirect Coal Liquefaction Coal feed (t/d) Liquid fuel production (bbl/d) Power generation (MW) Investment ($/bbl/d) Liquid fuel selling price ($/bbl) Crude-oil price equivalent ($/bbl) US 15 000 20 000 200 67 000 40 29-34 China 15 000 20 000 200 50 000 28 19-24

4.2.4 Underground gasification Underground coal gasification (UCG) involves the gasification of coal in the coal seam so the gas can be utilised for electricity generation or conversion into liquid fuels and chemical feedstocks. The coal reacts with oxygen (or air) and steam to produce a combustible gas of low/medium calorific value. The concept is simple but controlling the reaction and producing a consistent gas quality under a variety of geological and coal conditions has been difficult. The basic concept (see figure), involves two boreholes, one for the injection of oxidants and the other for the removal of the product gas. The oxidants react with coal in a set of gasification and pyrolysis reactions to form carbon monoxide, hydrogen, methane, carbon dioxide and a variety of minor constituents. The resulting synthesis gas, as in the indirect coal liquefaction process, can be reacted over a catalyst at relatively low pressure and temperature using the FT reaction to produce liquid fuels.

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Basic configuration for UCG

This technology presents hurdles that need to be overcome, the key ones being the economic viability of this technology compared with other, cleaner fossil fuel technologies, and environmental concerns. Major concerns include uncontrolled combustion, escape of pollutants, groundwater contamination and subsidence. Technical solutions to these problems are being developed and will have to be effectively demonstrated. In short, underground coal gasification is a non-mature technology whose deployment will be determined by an assessment of its commercial viability, taking into account the planning hurdles that would need to be overcome before any project can go ahead.

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4.3 Existing plants and future projects 4.3.1 Existing Plants The only commercial-scale coal liquefaction process currently in operation is the indirect Sasol process in South Africa. Sasol produces gasoline, diesel fuel and a wide range of chemical feedstocks and waxes from three plants. The first plant, Sasol 1, was built at Sasolburg in South Africa in the mid-1950s with a capacity of about 6 000 bbl/d of gasoline. The much larger Sasol 2 and 3 plants were completed at Secunda in 1980 and 1982 respectively. They were each designed to produce 50 000 bbl/d of gasoline, together with substantial quantities of other products for use as chemical feedstocks, by processing 30 000 tonnes/day (t/d) of coal. Sasols total liquid fuel production is currently about 7.5 million t/y (150 000 bbl/d). 4.3.2 Future projects The commercial viability of coal liquefaction depends on the overall economics of the process. This depends on the availability of significant quantities of poor-quality, low-cost coal and the unavailability or relatively high cost of oil (and gas).

Chinese projects Coal-rich and oil-poor, China is developing coal liquefaction as an alternative source of liquid fuels to ensure energy security. Shenhua Group Corporation, China's largest coal producer, is developing the Shenhua direct liquefaction process which combines elements of German, Japanese, and, primarily, American technologies with its own innovations to construct the world's first commercial direct liquefaction facility in Chinas Autonomous Region of Inner Mongolia. By 2007, the first train is expected to be making about 1 million t/y of oil products including gasoline and diesel. Shortly thereafter, the plan is to expand the plants capacity to 3.2 million t/y, including 2.15 million t/y of diesel, 500 000 t/y of gasoline, 310 000 t/y of liquefied petroleum gas and 240 000 t/y of benzene and xylene. Eventually the plant's capacity should rise to 5 million t/y. By 2010, Shenhua's total CTL production capacity is expected to rise to 10 million t/y, including a world-scale methanol and methanol-derivatives plant. An additional 10 million t/y CTL capacity should be added by 2015, including 2.5-3.3 million t/y of methanol intermediate for production of polyolefins and acetic acid. And a further 10 million t/y capacity is planned by 2020, giving a total direct CTL capacity of 30 million t/y. China is also constructing two indirect coal liquefaction plants. In 2004, the Chinese government gave Shenhua responsibility for developing an indirect coal liquefaction plant in the Shaanxi Province, and the Ningxia Coal Mining Group Corporation is responsible for another plant in the Ningxia Hui Autonomous Region. Both plants will utilize the Sasol or Shell technology developed in South Africa. Gasification-based CTL projects are initially planned to be developed in two phases, each of 3 million t/y. But China's indirect CTL capacity should eventually more than double to 15 million t/y. Upcoming CTL projects in China will add at least 40 million t/y worth of liquid fuel production capacity by 2020.

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US projects The US is an active player in indirect CTL, with ongoing efforts by the DOE (Department of Energy), Syntroleum and Rentech. The DOE is funding a clean-coal research project with Syntroleum and Integrated Concepts & Research Corp (ICRC) which it claims is a "precursor to an eventual commercial-scale CTL plant to be built in an as-yet-undetermined coal-producing state". The project will see Syntroleum and ICRC evaluate commercially-available coal-gasification and synthesis-gas cleanup technologies, and will seek to integrate these technologies with a cobalt-based FT process as a precursor to a commercial CTL plant in the US. Rentech recently studied a mine-mouth CTL plant at Power River Basin in Wyoming. According to the company, the optimal plant is an FT facility with seven dry-feed gasifiers and a once-through process flow to produce 12 000 b/d of FT fuels and 120 megawatts of net power. Despite active research, no commercial-scale plant is planned in the US at this moment in time.

Projects in rest of world Coal could provide a secure domestic source of liquid fuels in energy-poor countries with large coal reserves, provided environmental concerns were addressed. But the risks associated with low crude-oil price cycles and the high capital cost make government incentives and support essential. Obstacles include capital formation, environmental pollution (greenhouse gases), mining and permit issues and negative public perceptions of coal use. The benefits are security of supply, low operating costs and the opportunity to use the indirect process for polygeneration. To sum up, no commercial-scale plant is currently planned in the rest of the world, although countries with large coal reserves and/or oil-dependent countries, such as India and to a lesser extent Australia, South Africa and Ukraine, could be interested in these technologies. 4.4 CO2 emissions an evaluation of In a liquefaction plant, coal is the only energy input providing feedstock to reactors and utilities, and the products are finished transport fuels. Single- and two-stage direct liquefaction schemes have thermal efficiencies (defined as the percentage of the calorific value of the input fuel that is in the finished products) in the range 60-70%, with lower values usually caused by low-grade coal feeds which take up to 5% of the coal's energy to drive off its moisture. However, the only processes currently under consideration with multiple reactors are expected to give 65-70% to finished fuels. 67% is thus a fair average figure for direct liquefaction. Indirect liquefaction of coal is much less efficient, Sasol 1 being only 37%. However, Sasol 2 and 3 are said to be much better, perhaps in the mid-50s. Pyrolysis is even less efficient because the solid product is only equivalent to coal, thus the thermal efficiency of the finished transport fuels from the net coal input is likely to be 45% at most. However, in pyrolysis, the liquids are merely by-products of a solid fuel upgrading process. For the purposes of calculating the CO2 impact of liquefaction, standard bituminous coal and crude oil can be used (see table below), each of which may be used to generate transport fuels. The crude oil in the table is similar to that marketed as heavy fuel oil.

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Table 29. Standard bituminous coal and crude oil

Standard fuels Carbon (%) Hydrogen (%) Oxygen (%) Nitrogen and sulphur (%) Net calorific value (MWh/tonne) Bituminous coal 86 5.5 6.0 2.5 9.66 Crude oil 86.1 11.8 2.1 11.49

Refineries with the necessary thermal or catalytic crackers have claimed thermal efficiencies of 9394% when allowance is made for electrical power generation. Thus an efficiency of 90% may be assumed for a hypothetical refinery producing only transport fuel. The standard coal may be converted to the standard crude oil, by direct and indirect liquefaction, at thermal efficiencies of 75% and 61% respectively, with all the carbon in the coal not ending up in the crude oil but rather converted to CO2. For direct or indirect liquefaction this amounts to 1.84 tonnes or 3.00 tonnes CO2/tonne crude. Even at 100% thermal efficiency, there is some CO2 produced because of the release of 0.06 tonnes of hydrogen from coal. In refining crude oil to finished fuels there would be a further 0.32 tonnes CO2/tonne of crude oil processed, giving 10.31 MWh of calorific value in the finished products. In all, about 7-10 times as much CO2 is emitted in converting coal to transport fuels, when compared with crude oil. For direct or indirect liquefaction this amounts to 2.16 tonnes or 3.32 tonnes CO2/tonne of finished transport fuels.

4.5 Main inputs for the database and model The quantitative model provided for CTL will include a database of the resources and a technical and economic analysis of the technologies used for the production of liquids from coal. The database will include: - a list of countries with CTL potential, based on their coal resources and facilitating their selection based on other parameters (oil and diesel demand, etc.), - typical output figures for the various CTL production technologies, broken down into diesel, kerosene and naphtha, product specifications, - CO2 emission volumes for each type of CTL technology. The CTL module will be similar to the GTL module. The available quantities of coal for CTL exploitation will be predefined by applying a set of criteria to existing coal reserves. Only a portion of the reserves of countries possessing huge coal resources will be considered to be candidates for CTL. As in the GTL module, the CTL module will compute a cost per barrel of oil products (middle distillates, naphtha) obtained using CTL technology, based on a set of endogenous and exogenous variables: - local price of coal, - investment cost and operating expenses, - tax on CO2 emissions or cost of preventing CO2 emissions. Production will be limited only by the predefined available resources.

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4.6 Main References "BP Statistical Review Of World Energy 2005", BP, June 2005. "Survey of Energy Resources", World Energy Council, 2001. "Coal Liquefaction Technology Status Report", Department of Trade and Industry, October 1999. "Direct Coal Liquefaction, Where and When", Presentation by John Duddy and Jim MacArthur, Axens North America, Inc., at the EFI Members Conference, February 6-8 2005. "Gasification of Solid and Liquid Fuels for Power Generation - Technology Status Report", Department of Trade and Industry, December 1998. "The Economic Viability of an FT Facility Using PRB Coals", Presentation by Rentech, Inc. at the Wyoming Governor's Office and the Wyoming Business Council, April 14 2005. "Coal-to-liquids: A Business View", Presentation by John Sichinga, Sasol Synfuels International, at the EFI Members Conference, February 6-9 2005. "Present Status and Prospects Of China Shenhua Coal-To-Liquid Projects", Presentation by Ren XiangKun, China Shenhua Coal Liquefaction Corp., at the 2nd Forum on Coal-To-Liquid & Gasification technology & Investments, March 17-18 2005.

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Annex I - Overview of the FT GTL Process Chain

The FT GTL process chain consists of a number of elemental processing steps each of which is important and necessary for the final production of synthetic liquids. While the FT reaction can be regarded as the "heart" of the FT GTL process chain, i.e. the most important event, it is not the most capital- or utilities-intensive step. Reducing capital or utilities input for this step would not, therefore, significantly reduce the overall capital investment or utilities consumption of an FT GTL project. However, any appreciable improvement in FT performance - in terms of conversion, selectivity and catalyst life - would certainly have the effect of significantly improving overall production revenue and catalyst consumption costs for GTL projects.

1/ The Elemental Steps in the FT GTL Chain The three main elemental steps in the FT GTL process chain are depicted in the block flow diagram below: Figure - Block Flow Diagram

F T G T L P r o c e s s C h a in
P u rg e g a s

Sy yn nG Ga as s S
N a tu ra l Gas S te a m , a ir o r o x y g e n

F.T .T.. F

H.C .C..II H
S y n th e tic H y d ro c a r b o n s

W a te r

The elemental steps, in processing sequence, are: synthesis gas generation (SynGas), FT synthesis reaction (the "heart") and Hydro-Cracking Isomerisation (HCI), including product fractionation. All three steps present unique technological challenges within the FT GTL chain and their integration with the utilities "backbone" of the overall project presents an opportunity for significant cost reduction. 1.1 Syngas - first elemental step The first elemental step in the GTL process chain is the conversion of natural gas to synthesis gas, commonly abbreviated to "syngas". Syngas is composed of hydrogen (H2), carbon monoxide (CO) and carbon dioxide (CO2) molecules in an appropriate ratio of H2/CO. For an efficient cobalt-catalyst FT GTL scheme, a H2/CO ratio of slightly over 2.0 is required. Today, syngas can be made by various commercial technologies with or without air or oxygen, technologies well known in the industry for hydrogen, ammonia and methanol production.

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1.2 FT - second elemental step In the second elemental step, once an appropriate syngas composition is achieved, H2 and CO molecules react in an exothermic catalytic manner to make -CH2- alkyl radicals and water molecules. 2 H2 + CO ========= - CH2 + H2O + Heat

Some of the water molecules formed react exothermically with excess CO in the feed (the water-shift reaction, catalysed by iron) to make H2 and CO2 as follows: CO + H2O ========= H2 + CO2 + Heat (shift reaction)

More importantly, the -CH2- radicals formed by the first reaction immediately combine in an isothermally-controlled iron- or cobalt-based catalytic environment to make various straight, chainlength synthetic olefin and/or paraffin hydrocarbon cuts via a chain-reaction mechanism similar to polymerisation. The overall reactions can thus be presented as follows: n ( 2 H2 + CO ) ========= CnH2n + n H2O + Heat (iron catalyst) (cobalt catalyst)

(2n+1) H2 + n CO ======== CnH2n+2 + n H2O + Heat

More shift reaction takes place with the iron than with the cobalt catalyst. This factor has repercussions for the composition tolerance of the synthesis gas for each catalyst, as will be explained later. Some of the straight-chain hydrocarbon cuts, especially when an iron catalyst is used, have alpha-position olefin endings, making them valuable intermediates for synthetic detergents. In a cobalt-catalyst reaction system with an H2/CO ratio slightly above 2.0, however, most are saturated normal paraffin hydrocarbons CnH2n+2, ranging from ethane to C80H162. A high intrinsic selectivity to C5 and heavier liquids, peaking in the range C10 to C20 (i.e. 180 to 360C diesel boiling range) is highly desirable. One much-discussed and hoped-for breakthrough is a chain-limiting catalyst. 1.3 HCI - third elemental step The longer straight-chain paraffin hydrocarbons, e.g. over C20, are pure solid paraffin waxes at room temperature. These waxes can have a premium value in a limited market (Shell has made profits from FT waxes in Bintulu Malaysia). In most cases, however, to obtain an optimum slate of premium products with increased production revenue, the heavier waxy paraffin hydrocarbons need to be upgraded in the third elemental step by mild (moderate pressure) catalytic hydrocracking, to make cuts with a shorter chain length and lower boiling point. These correspond to traditional refinery transportation fuels such as diesel and kerosene. Catalytic hydro-processing luckily induces an isomerisation of the normal straight chains, creating more branched isomers and thus imparting the desired lower pour point and higher viscosity index for the upgraded product slate. Nevertheless, the inherent high purity of the synthetic hydrocarbons - no sulphur, nitrogen, metals nor aromatics - is the most important attribute of FT GTL products. This, together with a cetane number of up to 75 for the diesel cut, gives a significant potential price premium over traditional refinery diesel, which is already under pressure today to meet ultra-low sulphur specifications, not to mention higher cetane numbers.

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2/ FT GTL Project Alliances With FT GTLs projects daunting in terms of both investment capital outlay and commercial risk, many projects are planned as joint ventures. Moreover, since maintaining expertise in the range of technologies required for such projects is beyond the means, or indeed business needs, of most individual companies, alliances are a common way of securing the full range of services needed. Exceptions are Shell, ExxonMobil and ConocoPhillips, who seemingly possess the three elemental step technologies required to mount their own FT GTL projects. Table 2.11 summarises the current situation regarding full-scope suppliers, joint ventures and alliances, with the main supplier of each FT technology ranked in alphabetical order. Some alliances and joint ventures may exist for a specific FT GTL project which are different than those shown, and those in the table will most likely change in coming years. Summary of FT GTL full-scope suppliers, joint ventures and alliances
FT Technology Supplier BP ConocoPhillips ExxonMobil Rentech Sasol Shell Statoil Syntroleum Synthesis Gas Technology Supplier Davy Process Technology ConocoPhillips ExxonMobil Chevron Haldor Topsoe Shell no alliance known Syntroleum ASU Supplier not required no alliance known no alliance known no alliance known Air Liquide no alliance known no alliance known not required Hydrocracking Technology Supplier no alliance known ConocoPhillips ExxonMobil no alliance known Chevron Shell no alliance known no alliance known Feed Engineering Contractor no alliance known no alliance known no alliance known Jacobs Foster Wheeler KBR & JGC TechnipCoflexip no alliance known Status

pilot pilot/demo pilot/demo pilot/demo commercial commercial pilot/demo end 2003 pilot/demo

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3/ Areas for Further Development and Study Besides the technical development work being undertaken for each of the three elemental steps in the FT GTL process, more development and study effort is planned on processes, utilities and project integration. Much can be gained from project studies undertaken jointly by a potential FT GTL project operator, technology supplier and possible engineering contractor. Many combinations of proven synthesis gas and hydro-processing technologies together with less proven FT synthesis technologies have already been studied by key players at project-engineering level to assess the technical integrity of proposed FT GTL schemes. Many of the non-confidential results of such generic studies have been reported in the trade press. Technical feasibility is therefore no longer a challenge; nor is the availability of licensed technology for potential FT GTL projects. The FT GTL challenge is economic and the key criterion is commercial return. The FT-GTL-specific all-inclusive investment costs still being reported today are often double the per-BPSD product cost of a refinery investment. As well as efforts to reduce costs at the synthesis-gas generation stage, overall capital costs can be brought down greatly by creating a more intensive material flow and integrating the heat produced by the elemental processing steps with the "utilities backbone" of an FT GTL process. Other ways to curb costs include using the FT-generated synthetic water to generate steam, making beneficial use of the nitrogen by-product from the ASU, making better use of the FT purge gases, and more intensive recycling of CO2. And further consideration is needed of how intelligent use can be made of the possible excess energy co-produced by the FT GTL process. The idea of integrating FT-GTL and LNG projects supplied from the same gas resources makes a lot of sense and merits further study. While the FT GTL process produces excess energy, LNG plants always consume large amounts of it. The two processes can share the same infrastructure, export jetty and utilities "backbone", with specific cost savings for each. The synergies generated by such integration need to be clearly quantified and further developed. At the product end, similar synergies can be achieved between the FT GTL process and an energy-intensive petrochemical refinery. The FT GTL product slate could in such cases be judiciously tweaked to favour certain speciality intermediate petrochemical products (i.e. LAB feed). Further development studies into this possibility could be worthwhile. Finally, there is a need for more feasibility and project-type studies, to expand knowledge in this field. Such studies should be commissioned on a fee-paying basis, since this will guarantee complete accuracy and objective, meaningful conclusions. There is no reason why a specific, all-inclusive investment at a level below that of a refinery cannot be a viable proposition in the near future, without necessarily requiring a technology step change or major breakthrough. It may well be achieved by exploiting the opportunities for synergy and combining innovative engineering with judiciously chosen, state-of-the-art technologies, optimally integrated into a lean utilities "backbone" and infrastructure. Source: Gas To Fuels & Chemicals: From Technology to Market - 2003 Edition - Beicip/IFP

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Annex 2 Non-conventional fuel sources in the POLES model

The non-conventional fuel sources described in the report - tar sand, heavy oil, GTL and CTL - will be incorporated into the POLES model in two different ways: - the non-conventional fuels and tar sand will provide synthetic crude oils which will be a combination of the five typical crude oils (Brent, Arabian light, Arabian heavy, Forcados and condensate) used as input for the refining model (OURSE model). Thus, this source increases the 'conventional' crude oil supply for the refineries. - GTL and CTL technologies provide automotive fuels which can be either directly used or blended in the gasoline and diesel oil pools in the refineries. The model will allow for both possibilities. The following figure gives an overview of these non-conventional fuel supply in the Vensim model (lower right corner of the figure). The non-conventional crude oils are added to the crude oil supply. The GTL and CTL automotive fuels are introduced into the supply of ?oil products?. Non-conventinal fuel supply in POLES

The non-conventional fuel supply will be mainly determined for each country (or regional area) by: - processing capacties and associated processing costs, - the market prices of the other fuels and crude oil - CO2 restrictions and taxes.

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Processing capacities will be the sum of existing capacities, investments for which a decision as been taken (for the next few years) and other investments. In the Vensim model, these other investments will be based on economic criteria i.e. the projects profitability. As there are many uncertainties in this activity, the model should encompass different behaviour, such as : - myopic versus perfect foresight regarding e.g. crude oil prices. - low or high risk aversion on the part of the companies The information on current projects (pp8-9 for oil sands; p13 for extra-heavy oils; pp31-33 for oil shale; p52 for GTL and p73 for CTL) will be used to assess the economic behaviour of the companies by econometric analysis based on panel data. However, investment could also be driven by political decision (search for energy independence by a given country).

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