“The oil sands that we’re accessing in the Fort McMurray area are going to be a key part in America’s oil supply [in the future],” CEO Jack Crawford (seated) says.

Premier Business Partners:

GE Oil & Gas c/o OMD Marsh Canada Co.

The Canadian Association of Petroleum Producers forecasts that more than 2 million barrels of daily heavy oil/bitumen production will be added over the next decade, requiring oil pipeline additions. Calgary, Alberta-based Altex Energy is up for the challenge. It plans to build a heavy oil/bitumen pipeline system that will stretch 2,270 miles from northern Alberta to the U.S. Gulf Coast.

The project was announced in October 2005, shortly after the company was established. CEO Jack Crawford and most of Altex’s management team have experience in this line of work. They were responsible for the development of the $5 billion Alliance pipeline project, which transports natural gas from northeastern British Columbia and northwestern Alberta through Saskatchewan, North Dakota, Minnesota and Iowa to its terminus near Chicago. After the Alliance pipeline began operations, the men left the company to start their own, this time focusing on heavy oil and bitumen production.

“The Alliance pipeline was built to deal with a specific situation and to connect a specific producing region with a major consuming area hub,” Crawford says. “In essence, that solved an issue. What we’re doing on the oil side is very much parallel in that we’re going to a key producing region near Fort McMurray, Alberta, and taking the heavy oil to a very key refining area, which is the U.S. Gulf Coast.

“It’s a huge project. There is no question the scope and scale are significant. If we were building it today the cost would be $5.3 billion, and since we’re going to build it a few years out, it’s probably going to be more than that. That means your relationships with pipe and pump suppliers and contractors are going to be important. Also, a significant effort will be involved in getting the regulatory permits required to build the project.”

In the meantime, Altex is concentrating on securing capital by setting up contracts with shippers that will sign a long-term agreement to move the product through the pipeline system for 15 to 20 years. The shippers will be the oil companies and the contracts will facilitate project financing on the project, Crawford adds.

“Most people will acknowledge that this heavy oil production can be sustained for 25 to 40 years, so it’s much easier for someone to know that they’ve got that supply behind it, whereas a conventional oil well’s reservoir will quite likely be depleted in a much shorter period of time,” he says. “So it lends itself to long-term contracts and that’s what we’ve focused on and are getting to the end of that process right now. Then, we will commence regulatory applications and move to construction.”

Efficient Technologies
The company’s mission is to apply its technologies to help achieve the lowest total transport cost for its contracted shippers. It predicts that its Batch Interfaced Reduction Agent (BIRDA) and Thermo Liquid Enhanced Viscosity Reduction (Thermo-LEVR) technologies will reduce in-transit inventory costs by one-half to two-thirds. Crawford says the technologies were developed in-house with the assistance of the laboratory staff and facilities of the Schulich School of Engineering at the University of Calgary.

BIRDA segregates different batches of bitumen, which will reduce the mixing of adjacent products in the pipeline or interface. Thermo-LEVR combines heat with the proprietary diluant to reduce the viscosity of the product and make it thinner and easier to pump.

“Because the diluant is more efficient, you need less of it,” Crawford explains. “The objective is to move more bitumen but less diluant. As long as you can move less diluant, you can move more bitumen and that fundamentally improves the shipper’s economics.”

With this system in place, Altex expects to have an initial system capacity of 425,000 barrels per day. In time, it expects to expand that number to a million barrels a day. “We have utilized a lot of the easier-to-produce reserves, which are primarily light oil,” Crawford says. “The supply is gradually shifting away from lighter or WTI [West Texas Intermediate] to a heavier oil. You’re finding refineries adapting to that market, and they’re making modifications in their refineries to handle this heavier oil.

“The place that’s probably made the most of those modifications towards refining heavy oil is the Gulf Coast, and that’s why it’s the target market for our pipeline. Allied with that is the fact that the U.S., in general, has become more concerned with its oil supply. It is a large importer of oil and generally Canada is perceived as a friendly and secure trading partner. We think that the oil sands that we’re accessing in the Fort McMurray area are going to be a key part in America’s oil supply as we go forward in the future.”