The Fort Hills oil sands project 90 km north of Fort McMurray, AB, has been in the works for over a decade, but on Oct. 31 the partners announced that they will commit $13.5 billion to building it with a start-up date set for the end of 2017.
The costs – as well as the profits – will be shared by the joint venture partners Suncor Energy (40.8%), Total E&P Canada (39.2%) and Teck Resources. Suncor is the project builder and operator by virtue of its many decades of experience in the Alberta oil sands.
We first heard about Fort Hills in 2002 when the first phase start-up date of 2005 was announced. Construction was to have cost $2 billion. Output was optimistically planned to double by 2008 to 190,000 bbl/day with the completion of phase two.
CMJ wrote its first detailed article about Fort Hills in the June 2006 issue, when we spoke at length with Teck about its participation. By that time the cost of building an operation with an output of 100,000 bbl/day had jumped to $5 billion, and a 2010 start-up was expected. Expansion, again to 190,000 bbl/day, was estimated to cost another $5 billion.
For a project that was having trouble getting the full go-ahead, it just kept getting bigger. By 2007 a 140,000 bbl/day phase one would need a $14.1 billion commitment. First production would have been 2011. And the second phase expansion to 280,000 bbl/day carried a $12.1 billion price tag.
Then came the financial meltdown of 2008. The partners announced that they would delay a final decision on Fort Hills. With an estimated 4.4 billion bbl of bitumen in the ground, work slowed until 2011 when Suncor and Total struck an agreement and word leaked out that production could begin as early as 2015.
When the project stalled again, few were surprised.
Meanwhile, behind the scenes Suncor was pouring over the costs and the many lessons to be learned from other oil sands projects. Having completed $20 billion in oil sands projects in the past four years – all of which came in under budget – the company is confident it can bring in the Fort Hills project without cost overruns.
During construction the number of workers in camp on site will be between 5,000 and 5,500. By spreading the work more evenly during the timeline, there will be no ballooning back end costs. There will be some fluctuations in labour demand and the capital spending will rise and fall, but there will be no need to throw indiscriminate amounts of money at Fort Hills to meet the start-up deadline. Suncor added that construction will require 47,000 person years of work, 21,000 of which will be sourced in Alberta.
The permanent workforce of about 2,500 people will fly in and out of the site. A smaller permanent camp can be another cost saving.
Mining will be a conventional truck and shovel operation with the bitumen extracted in multiple, parallel process trains. This will ensure high reliability and throughput for the plant. A paraffinic froth treatment step will be added to produce a marketable bitumen product. No new upgrader is to be built. Instead, the partners will be free to further treat the oil in their own or other upgraders.
Suncor’s innovative TRO™ technology will be applied to the tailings management facility. This will allow more timely reclamation of the ponds as the mature fine tails can be settled and keeps the project footprint smaller.
The numbers for the Fort Hills project were determined using a conservative price of $50 to $60 per barrel of bitumen. There is much profit to be made even at that price as operating costs are estimated at $20 to $24 per barrel. At the target output of 180,000 bbl/day, 365 days/year the potential is staggering. Now multiply that by at least 50 years of operation using a 3.3 billion bbl resource, and the scope of Fort Hills is gigantic – for Alberta and for Canada.
Even at a pre-production capital cost of $13.5 billion, the price of the Fort Hills project could look like a bargain 50 years from now.