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Written by Olivier Ludwig  |

November 12, 2010

Candice Beaumont: Oil Sands Could ‘Delay’ Peak Oil

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The managing director of L Investments explains how heavy oil could be the oil market's game-changer.

 

Light, sweet crude may get all the press, but increasingly, the energy markets have looked to heavy oil—or denser, less viscous crude than the current WTI standard—to stave off the impending peak oil supply crunch.

In fact, crude from the oil sands and other "heavy oil" deposits could make all the difference, says Candice Beaumont, manager of L Investments. Beaumont is also a financial consultant for Genoil, an emerging heavy oil technology firm (and one of L Investments' portfolio companies). She is a member of the Independent Petroleum Association of America.

At the recent Inside Commodities conference, Oliver Ludwig briefly interviewed Beaumont about the fundamentals for oil sands production, including how heavy oil is obtained, whether heavy oil "counts" in the peak oil debate, and just how much different increased oil sands production would make anyway.

 

Ludwig: What's the factor that constrains heavy oil? Is it the technology of bringing it out of the ground? Why isn't it being pursued more aggressively?

Beaumont: I think in 2008, when we had the financial crisis, a lot of the heavy oil projects, like those up in Canada, went into financial trouble. A lot of these companies had their projects put on hold, due to the financing market. It's very capital-intensive to do a heavy oil project, to build an upgrader; it's billions of dollars. So that's a huge capital barrier to entry to getting these projects going.

So, since 2008, we haven't seen an infusion of capital come back into the market, which is why production has been slow.

Ludwig: Is it a refining issue, also?

Beaumont: No, not really. Refiners can have their processes converted, like Valero, which has been converting all their refineries to process heavy oil. So the refineries have started to convert over so that they can process heavy oil.

Ludwig: Valero is the gold standard, right? They are making gold out of manure, so to speak, as a business model.

Beaumont: Exactly.

Ludwig: When we say "heavy oil," are we talking strictly oil sands, or are there other categories?

Beaumont: Well, there are oil sands and, of course, there are other grades of oil that are heavier or lighter than oil sands. So, there's heavy oil that has the 10 API [gravity] oil, which is much easier to produce, and then there's the 2 API [gravity] oil, which is very heavy, very difficult to produce. But it can be done.

Ludwig: Do they use naphtha? What do they do?

Beaumont: They use SAGD, which is steam-assisted gravity drilling.

Ludwig: Which is natural gas fired, right?

Beaumont: Basically, unless you can use gasification; then you can reuse the energy and don't need as much natural gas. A lot of the heavy oil projects have started to use gasification; it's like recycling, where you reuse the hydrogen and you don't need natural gas.

Ludwig: I read that there's some concern that this use is actually creating imbalances in Canadian natural gas imports, because so much of [the natural gas] has been diverted to the oil sands projects up there in Alberta. Is it significant enough to make a dent in the natural gas output coming from Canada as well?

Beaumont: It's a moving target.

Ludwig: If oil sands were produced as aggressively as theoretically possible, would that production make a meaningful difference to delay the onset of peak oil?

Beaumont: Definitely. We are still going to have peak oil at some point, but it would delay it. So, right now we have about 400 million barrels of light oil, we have about 14 years of production. So, with 900 billion barrels of light oil that is recoverable currently, if we can get that production online, it gives another 30 or 40 years. So, it just puts that whole peak oil problem way out there in the future rather than in our generation. It's helpful.