ALBERTA IN SITU BITUMEN PROJECTS HIT $5B--PROBLEMS SEEN

The cost of in situ bitumen recovery projects proposed or under way in Alberta, Canada, has climbed to almost $5 billion resulting in construction bottlenecks, according to G. Brunka of Bantrel Inc. He spoke at the Heavy Oil Conference, Full Steam Ahead, held in Calgary, Alberta, Canada, in December 2000. Brunka lists the projects under construction or proposed, as shown in Table 1, and finds an aggregated construction cost of $4.77 billion. The projected growth in bitumen production is shown in Figure 1.

Table 1

Figure 1

Because of the similarity of all these projects, there has developed an overlap in demand for like equipment between the heavy oil or bitumen projects and other industries. As a result, equipment cost escalation is occurring. In the meantime, mergers of supplier companies have reduced the size of the supplier base. Brunka cites evidence of increasing equipment costs and longer delivery times. Some projects are also running into supplier and sub-supplier issues concerning product quality and delivery schedules. The overlap in construction schedules of the major in situ projects with construction schedules for other types of projects is shown in Figure 2.

Figure 2

The sheer magnitude of these projects generates problems for them individually. The bigger equipment needed can limit the number of suppliers who can respond to requests for quotations. The more water needed, the bigger the demand for water treatment expertise and equipment. A limited diluent supply may constrain the amount of bitumen that can be shipped by 2005. These factors create challenges for the construction trades, says Brunka:

• The available workforce with skilled experience is aging.
• The labor pool in general has limited experience.
• There will be shortages of specific tradesmen in the peak construction period of 2001-2003.

To mitigate the situation, Brunka recommends:

• Recognition of current realities when estimating costs and schedules
• Avoiding optimistic estimates--understanding the probabilities
• Ability to adapt schedule to changing labor and materials availability
• Buy early, take nothing for granted
• Adopt Supplier of Choice agreements
• Develop simpler specifications and vendor standards

Brunka concludes that the execution of heavy oil projects during the next 3 years will pose some unique challenges. Effective mitigation of these challenges will require a disciplined approach, but within a flexible framework.