North West Upgrading recently was granted regulatory approval to build a bitumen upgrading refinery in Alberta, Canada’s Industrial Heartland Area. It will use a “clean upgrading process” to reduce the company’s environmental impact and provide economic benefits for its clients.

Premier Business Partners:

Cessco Fabrication & Engineering Voice Construction Ltd. IPS Services SNC Lavalin

In September, the Alberta Energy and Utilities Board granted North West Upgrading (NWU) regulatory approval for a three-phase project to construct and operate a bitumen upgrading refinery in Alberta, Canada’s Industrial Heartland (AIH) area. The AIH has been touted as a strategic growth hub for oil sands players looking to succeed in the midstream sector because of its close proximity to pipelines and other existing infrastructure.

Founded in 2004 by management, including President and CEO Robert Pearce, NWU plans to convert bitumen blend feedstock into ultra-low sulphur diesel, diluent, vacuum gas oil and butane.

It will use a “clean upgrading process,” which it says has both environmental and economical benefits. This, Pearce adds, will put the Calgary, Alberta-based company well ahead of its competition, as proposed federal greenhouse gas regulations seek to reduce Canada’s total emissions to 80 percent of their 2006 levels by 2020.

In an interview with Exploration + Processing, Pearce discusses how his background in the oil sands industry provoked him to establish NWU and how its unique business plan sets the company apart from other upgraders in the industry.

The development stage isn’t always easy, he adds. Trudging through the time-consuming regulatory process can be frustrating, but with a well-experienced team, success is just around the corner.

Exploration + Processing: How was North West Upgrading started?

Robert Pearce: The idea came from looking ahead to the big increases in bitumen production expecting to come out of Alberta’s oil sands. Bitumen is a low-value and low-quality material that needs upgrading. We knew that and said, “Here’s a great opportunity to come in as a mid-stream processor on behalf of companies not interested in doing their own processing.”

E+P: You have a background in production. Has that helped?

RP: I was the treasurer at PanCanadian Energy, which merged with Alberta Energy in 2002 to form EnCana. When I was at PanCanadian, I was involved in some of our heavy oil business activities and looking at a need for upgrading from a producer’s perspective. Coming from a production background, I was quite aware of the need to have upgrading in order to add value to this heavy oil production.

E+P: Because Canadian bitumen is largely hydrogen deficient, North West has selected hydrocracking technology to upgrade the bitumen to ultra-low sulphur diesel or as a diluent. Can you elaborate?

RP: Pretty close to half of what we will make is ultra-low-sulphur diesel, which is in high and growing demand in North America, as well as globally. The majority of the remainder is diluent, a high-value product that’s also in short supply here in Alberta because of significant growth in bitumen production. We’re either recycling or remanufacturing additional diluent and that is tremendously valuable in this marketplace.

E+P: Canada is tightening its rules on C02 emissions. How is the company addressing that?

RP: Within our process, we’re able to capture about two-thirds of the C02 that we make in total, and it’s a very pure form. It is “capture ready” and what that means is we can take that pure form of C02 and apply it to other purposes.

The primary purpose in Alberta is it can be reinjected into certain oil reservoirs and be used for additional oil recovery. We have an arrangement in place whereby we’ll take two-thirds of our C02 from phase one of production and use it for enhanced oil recovery projects. This not only increases oil production from these older reservoirs, but permanently sequesters or puts away the C02. This allows us to eliminate our greenhouse gas penalties while receiving valuable C02 credits from the government.

E+P: How would you describe your position in the industry?

RP: One word to describe it is “unique.” Most of the large producers are, in fact, integrated.
They have their own upgrading and refining solution for their bitumen production. We offer an independent upgrading service to those smaller to mid-sized players that don’t plan [to have] their own upgrading or downstream solution. Also, we’re moving to this higher-value product slate. There are other upgraders out there, but they stop short of producing products like ultra-low sulphur diesel.

E+P: Who do you consider to be your biggest competition?

RP: Competition for us is a wide swath. In a sense, it’s the competing upgrading and refining expansions that are potentially occurring in the United States. You could have bitumen producers shipping their raw material by pipeline to existing refineries that are expanding their capacities in the U.S. But we have what we think is the right business model and the right business to be in. It’s an essential infrastructure asset; we provide a very important downstream solution to these bitumen producers.

We have what we consider an optimal process, which adds a lot of value. We distinguish ourselves by having a greenhouse gas solution. We are able, with the number of suitable reservoirs available in Alberta, to put the CO2 down hole, and we think that’s a tremendous advantage in dealing with CO2 on a proactive basis. Plus, the location is ideal. We’re right in the center of Alberta’s Industrial Heartland Area, so that means there are lots of opportunities for synergies between industrial plants.

E+P: As a development-stage company, can you discuss your growth plan?

RP: For us, our growth plan for the next 10 years is pretty clearly laid out. Right now, we’re in the process of business development, which means we’re seeking out processing clients. We need to raise the $4 billion-plus of capital required to build phase one of our project. Phase one is about 77,000 barrels per day of input and output products, so that’s the challenge we face. Once [that’s done], we have to seek regulatory approval to build two more equal-sized phases.

E+P: Is that a frustrating endeavor?

RP: In terms of the timing, we’ve been working on this for over three years and it really is a marathon. It’s taken spending hundreds of millions of dollars to get to this stage of development, including procuring long-lead time equipment. It’s a long regulatory process. It takes about three years to get through that and it’s another three to four years for construction, so it really is a marathon type of business development that we’re in.

However, we have a clear vision of the benefits of this type of development – not only for the local community and province, but for the marketplace. And it is a busy environment out there, so things are just taking longer than expected. It can be frustrating, but it’s part of the environment that we happen to be operating in right now.