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* Copyright 2006 by Canada Foundation for Sustainable Development Technology (SDTC). All Copyright Reserved.Published in Canada by SDTC. No part of the SD Business CaseTMmay be produced, reproduced, modified, distributed, sold,published, broadcast, retransmitted, communicated to the public by telecommunication or circulated in any form without the

prior written consent of SDTC, except to the extent that such use is fair dealing for the purpose of research or private study(unpublished, or an insubstantial copy). To request consent please contact SDTC. All insubstantial copies for researchor private study must include this copyright notice.

The SD Business Case is provided "as is" without warranty or representation of any kind. Use of the information provided inthe SD Business Case is at your own risk. SDTC does not make any representation or warranty as to the quality, accuracy,reliability, completeness, or timeliness of the information provided in the SD Business Case.

Sustainable Development Technology Canada, SDTC, SD Business Case and SDTC STARare trade marks of Canada Foundation for Sustainable Development Technology.

Sustainable Development Business Case Report*

Clean Conventional Fuel Oil and GasSD Business CaseVersion 1 November 2006

Oil and Gas

EnergyEfficiency

EnhancedProduction

CO2Capture,Transport,

Storage

Large-ScaleH2Production

Energy Explorationand Production

CleanConventional

Fuel


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Table of Contents

1 Overview : SD Business Case Plan and the SDTC STAR Process..................... 1

1.1 The SD Business Case PLAN........................................................................................................................................................ 1

1.1.1 Primary Audience........................................................................................................................................................... ............. 1

1.1.2 The SDTC STAR Tool................................................................................................................................................................. 2

1.1.3 Sectors to be assessed by theSD Business Case...................................................................................................... 2

Figure 1 : SD Business CaseInvestment Roadmap ............................................................................................................................................ 3

1.1.4 Investment Categories to be Analysed............................................................................................................................ 4

1.1.5 Conclusions Framework........................................................................................................................................................... 4

1.2 The SDTC STAR Process : Data Collection and Analysis....................................................................................... 4

Figure 2 : The SDTC SD Business CaseSTAR Process ........................................................................................................................................... 5

1.2.1 Assessment Descriptions......................................................................................................................................................... 6

Figure 3 : SDTC Funding Support ............................................................................................................................................................................ 7

1.2.2 Output Structure.............................................................................................................................................................. ............ 8

Figure 4 : Sample Technology Plot .......................................................................................................................................................................... 9

1.3 Conclusions and Investment Priorities............................................................................................................................... 11

2 Executive Summary : Oil and Gas.......................................................................................................................... 13

3 Industry Vision and Background.......................................................................................................................... 16

3.1 Upstream Oil and Gas Industry in Canada ...................................................................................................................... 16

Table 1: Reserves and Production ........................................................................................................................................................... .......... 16

Figure 5: Canadian Oil Production Conventional, Oil Sands, and Offshore**................................................................................................... 17

Figure 6: Canadian Natural Gas Production Capacity Canadian Energy Research Institute (CERI) Projection*............................................ 17

3.2 Growing Demand ......................................................................................................................................................................... ......... 18

3.3 Environmental Implications ...................................................................................................................................................... 183.3.1 Air ............................................................................................................................................................... ........................................ 18

Table 2: Canada Upstream Oil and Gas Sector CO2eEmissions Trend ................................................................................................................ 18

Figure 7 : Production Carbon Intensities and Trends*........................................................................................................................................... 19

3.3.2 Land ......................................................................................................................................................... ......................................... 20

Figure 8 : Land Disturbance and Reclamation in the Athabasca Oil Sands Region*........................................................................................... 20

3.3.3 Water........................................................................................................................................................ ......................................... 21


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Figure 9: Cumulative Athabasca River water allocations (for existing, approved and planned oil sands mining operations)*............................... 21

Figure 10 : Future water demands for in-situ oil sands production in Alberta*................................................................................................. 22

4 Needs, Assessment and Analysis.......................................................................................................................... 23

4.1 Focus Technology Areas.................................................................................................................................................................... 23

Table 3 : Performance Targets and Co-Benefits**.................................................................................................................................................. 23

Table 4: Energy Efficiency Technical Matrix ......................................................................................................................................................... 26

Table 4: Energy Efficiency Technical Matrix (continued) .................................................................................................................................... 27

Figure 11: Energy Efficiency Technology Plot ...................................................................................................................................................... 28

Figure 12 : Enhanced Production Technology Plot ............................................................................................................................................... 28

Table 5: Enhanced Production Technical Matrix .................................................................................................................................................. 29

Table 6 : CO2 Capture, Transport, Storage Technical Matrix .................................................................................................................................... 30

Figure 13 : CO2Capture, Transport, and Storage Technology Plot ......................................................................................................................... 31

Table 7 : Large Scale Hydrogen Production Technical Matrix ............................................................................................................................... 32

Figure 14 : Large Scale Hydrogen Production Technology Plot ............................................................................................................................ 32

4.2 Market Assessment ............................................................................................................................................................................. 33

Figure 15: Overall Relative Market Plot (near-term priority technology groups only) ..................................................................................... 33

4.2.1 Market Position........................................................................................................................................................................... 34

4.3 Technology Assessment .................................................................................................................................................................. 34

4.3.1 Technology Plot Data and Ranked Technologies..................................................................................................... 34

Table 8 : Technology Plot Data ............................................................................................................................................................................... 35

Figure 16 : Priority Technology Groups Only ........................................................................................................................................................ 36

4.3.2 Technology Descriptions........................................................................................................................................................ 36

4.4 Sustainability Assessment Report.......................................................................................................................................... 36

4.4.1 Sustainability Assessment for Four Technology Areas ........................................................................................ 37

Table 9: Sustainability Summary for the Four Technology Areas ....................................................................................................................... 37

4.5 Risk Assessment ....................................................................................................................................................... .............................. 38

4.5.1 Technology Area Risks............................................................................................................................................................. 38

Table 10 : Risk Summary ( Technology Areas as a whole not just priority technology group) ...................................................................... 38

4.5.2 Industry Risks............................................................................................................................................................................... 40

Table 11 : Sector Barriers and Risks ..................................................................................................................................................................... .. 40


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5 Conclusions and Investment Priorities....................................................................................................... 41

5.1 Near term............................................................................................................................................................. ......................................... 41

5.1.1 Technology Investments ....................................................................................................................................................... 41

5.1.2 Investment Priorities............................................................................................................................................................... 41

5.1.3 Sustainability Impacts............................................................................................................................................................ 42

5.1.4 Risks........................................................................................................................................................... ........................................ 42

5.2 Long term ............................................................................................................................................................. ....................................... 43

5.2.1 Technology Investments ....................................................................................................................................................... 43

5.2.2 Market....................................................................................................................................................... ....................................... 43

5.2.3 Investment Opportunities ................................................................................................................................................... 43

Table 12 : Sample Long Term Investment Opportunit ies ..................................................................................................................................... 43

5.2.4 Sustainability Impacts............................................................................................................................................................ 44

5.2.5 Risks .......................................................................................................................................................... ........................................ 44

Table 13 : Risks Involved in Long Term Opportunities .......................................................................................................................................... 44

6 Summary .................................................................................................................................................................................... ........... 45

6.1 National Strategy Inputs ................................................................................................................................................................ 45

Table 14: National Strategy Needs and Potential Impacts ................................................................................................................................ 45

6.2 SDTC Investment Priorities............................................................................................................................................................ 46

6.2.1 Funding Allocation......................................................................................................................................................... ........... 46

Figure 17: Preliminary Market Position ............................................................................................................................................................... 46

7 Acknowledgements ............................................................................................................................................................... 48

7.1 SDTC thanks the following contributors............................................................................................................................ 48

8 Endnotes.......................................................................................................................................................... ........................................ 49

8.1 Comprehensive listing of note references....................................................................................................................... 49


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Copyright 2006 by SDTC Sustainable Development Business Case 1

1 Overview : SD Business Case Plan and the SDTC STAR Process

Sustainable Development Technology Canada (SDTC) is a foundation created by the Government of Canada that operates a $550 million fund to support

the development and demonstration of clean technologies solutions that address issues of climate change, clean air, clean water, and clean soil to

deliver environmental, economic and health benefits to Canadians.

SDTC is pleased to present this Upstream Oil and Gas Investment Report, which is one in a series on the current state of sustainable development

and future investment priorities in Canada. This report is the result of collaboration from a wide range of stakeholders. It is based on repor ts, studies, and

research findings by various industry associations and government initiatives. We hope you find the information useful, and look forward to working with

you as we further sustainability in Canada.

1.1 The SD Business Case PLAN

SDTC invests in areas where Canada has a strong capability, and where SDTC can provide the most value. To that end, SDTC has developed a

comprehensive evaluation and decision-support process that investigates various technologies, their markets, the needs they address, and the barriers they

must overcome to achieve market success.

TheSD Business Caseis founded on the concept of creating a common vision of market potential, as described by those in the industry. It incorporates

their ideas, expectations and knowledge into a single statement of purpose, so that the outcomes are relevant, pragmatic, and realizable. There aremany different approaches that could be used to analyze individual technologies or economic sub-sectors. Each stakeholder group has unique

challenges and expectations, which are expressed and analyzed to suit their own needs. With this in mind, theSD Business Casehas been developed

to provide a common benchmark for all participants, as well as a consistent and reliable means of comparing technologies in a number of diverse and

expanding areas. TheSD Business Caseserves as a guide to SDTC for future investment priorities as well as a means of collecting non-technology input

that may be useful in policy development.

Work on theSD Business Casecould not have been done without the participation and guidance of opinion leaders and experts throughout the

country. Our philosophy at SDTC is to work with and through others, and we thank all these individuals for their assistance to SDTC and contributions to

the success of the SD Business Case.

1.1.1 Primary Audience

The primary audiences for the SD Business Caseinclude :

Industry Stakeholders to help them identify key sectoral challenges and priority areas for potential future investment, and to assist in

partnering with SDTC.

Canadian Researchers to assist in providing direction and focus for successful future endeavours including indicators of the key challenges to

be addressed in priority technology areas as they enter or exit the development and demonstration stages of the commercialization process.

Relevant Government Departments to provide a comprehensive decision making framework to assist with technology investment

priorities to its key stakeholders and funders. The SD Business Casemay also be used to help identify and manage technological issues that arebeyond SDTCs immediate mandate, as well as non-technical market barriers that can be addressed by other players, policies, funding sources, and

financial instruments.

Other Stakeholders to provide a clear and consistent information base on relevant technology sectors, and an open dialogue on non-

technology issues facing companies in a number of Canadian economic sectors.

SDTC to highlight areas of priority attention for future investment focus and investigation.


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1.1.2 The SDTC STAR Tool

The Sustainable Technology Assessment Roadmap (STAR)is an iterative analytical process that combines data, reports, stakeholder input, and

industry intelligence in a common information platform. It uses a series of criteria selection screens to assess and sort relevant information from a variety

of sources. The output is a series of Investment Reports that highlight key technology investment opportunities for each sector under study.

1.1.3 Sectors to be assessed by theSD Business Case

The overallSD Business Caseproject focuses on seven of Canadas primary economic sectors.1 An illustrated version of the full project and masterroadmap, Figure 1, is provided on p.3 to highlight the selected areas of study.

Energy Exploration & Production including Clean Conventional (oil and gas) and Renewable Fuels (bio-fuels, hydrogen production and

purification). Note that Renewable Electricity and Renewable Fuels are linked as they share a number of technological platforms.

Power Generation including Clean Conventional and Renewable Electricity Generation (wind, solar PV, bio-electricity and stationary

fuel cells).

Energy Utilization improving the effectiveness of the application of current end-use technologies in industrial, commercial and residential

sectors (i.e. improving energy efficiency).

Transportation including Systems Efficiency and Fuel Switching. Also note that Fuel Switching and Renewable Fuels are linked as they share

a number of technological platforms.

Agriculture addressing solid waste or Biomass conversion to Fuels and eliminating air and water contaminants produced by manure.

Forestry and Wood Products addressing development of wood waste recycling technologies to harness energy resource potential, reduce

emissions and improve productivity and profits.

Waste Management addressing the various forms of waste management from municipal (residential and commercial) and primary and

secondary industrial sources.

Note:

Some of these sectors may be covered through work in other sectors. For example, many Agriculture and Forestry technologies are common to

Renewable Fuels in the Energy Exploration and Production Sector.


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Figure 1 : SD Business Case Investment Roadmap

Energy

Exploration &Production

PowerGeneration

Energy

Utilization

CleanConventional

Fuel

RenewableFuel

Oil and Gas

Coal

EnergyEfficiency

Transportation

Agriculture

Forestry

WasteManagement

Economic Sector Technology Sub-sector Segments Products & Processes

Enhanced

Production

CO2 Capture,Transport, Storage

Large-scaleH2 Production

SD Business Case is a trade mark of Canada Foundation for Sustainable Development Technology.



1.1.4 Investment Categories to be Analysed

The SDTCSD Business Caseprovides conclusions in three primary categories of investment opportunities :

Short Term Investment Priorities These are investments that could be made within the next 3-5 years that could have a direct and

positive impact in the next 6-8 years.

Long-Term Investment Priorities These are early stage investments that could be made within the next 3-5 years but where the

environmental impacts are realized over the longer term (greater than 8 years).

National Strategy Impacts Although it is not in SDTCs mandate to advance policy initiatives, over the course of developing the

SD Business Casea number of policy-related enablers and barriers to the development and implementation of sustainable technologies have

been identified. A summary of these issues and their potential impact on Canadas ability to meet its environmental goals is included in the

analysis.

1.1.5 Conclusions Framework

The SD Business Caseprovides a consistent and fully referenced set of recommendations and investment indicators that can be used by stakeholders

to support possible investment opportunit ies and priorities. It does not produce a single number, answer or result as the range of technologies and

the interpretation of their future potential is too large and complex to simplify to a single solution. The output should only be viewed, and can only beunderstood, within the context of the information collected during the business case development process. Contributors to the business case have made

every effort to be as objective, comprehensive and analytical as possible. Although based on rigorous analysis of the best available information, the

SD Business Caseserves only as a guide to future investment priorities; it is not to be used as a definitive tool to accept or reject individual projects or

technologies. Final decisions on whether SDTC will invest will be made by taking into account all relevant conditions and requirements.

1.2 The SDTC STAR Process : Data Collection and Analysis

TheSTARprocess uses a vision-based, needs-driven approach : it begins with an industry vision of where the sector is anticipated to be at some

defined point in the future, and then identifies the most critical requirements that must be satisfied in order to achieve the stated vision. By taking into

account the technological, economic, political, and societal forces that act upon a sector, theSTARprocess can create a reasonably accurate picture of themarket. It can then assess the relative strengths, weaknesses and emerging opportunities of each market sector. Finally, it calculates the gap between the

current state of the sector and the vision, and identifies the specific things that need to be done in order to fill the gap and achieve the vision.

The lists of needs are applied to each technology area, where they are rated against a set of economic (i.e. cost relative to conventional sources at time of

market entry) and environmental criteria specific to SDTCs mandate. Since some of the issues surrounding the successful commercialization of emerging

technologies are non-technical in nature (i.e. policy-related issues), theSTARprocess captures and prioritizes them to create a complete investment

picture for integration into the final Investment Report.

The above process is repeated for each area of study, until a complete picture of the market emerges to the satisfaction of SDTC and the key

market stakeholders.


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Figure 2 : The SDTCSD Business CaseSTAR Process

Industry Vision

SDTC SOIsStakeholder Input Market Data Reports & Studies

Industry Entrepreneurs

Government Depts. & Agencies

Financial Community

NGOs

NeedsAssessment

Non-TechnicalTechnical

Information Input

Market Sustainability Technology

Detailed Analysis

MarketSustainability

Technology

InvestmentReport

Academia

1. Input :The STAR process starts of with a vision-based,needs-driven approach: it begins with an

industry vision of where the sector is anticipatedto be at some defined point in the future, andthen identifies the most c ritical requirements thatmust be satisfied in order to achieve thestated vision.

2. Assessment :By taking into account the technological, economic,political, and societal forces that act upon a sector, theSTAR process can create a reasonably accurate pictureof the market. It can then assess the relative strengths,weaknesses and emerging opportunities of eachmarket sector. Finally, it calculates the gap between

the current state of the sector and the vision, andidentifies the specific things that need to be done inorder to fill the gap and achieve the vision.

3. Analysis :The lists of needs are applied to each technology area,where they are rated against a set of economic (i.e. costrelative to conventional sources at time of market entry)and environmental criteria specific to SDTC's mandate.

4. Report :Since some of the issues surrounding the successful

commercialization of emerging technologies are non-technicalin nature (i.e. policy-related issues), the STAR process capturesand prioritizes them to create a complete investment picture forintegration into the final Investment Report.

The above process is repeated for each area of study, until a complete picture of the market emerges to the satisfaction of SDTC and the key market stakeholders.

SDTC STAR is a trade mark of Canada Foundation for Sustainable Development Technology.



1.2.1 Assessment Descriptions

Once the market vision has been accepted, the economic sectors and their associated technologies are assessed through the following four screens :

1.2.1.1 Market

This focuses on the ability of the market to carry the emerging technologies that are currently at the development and demonstration stages. It identifies

what needs to be done in order to maximize the application and acceptance of the technology, with a focus on financial and economic performance.

The main components of the assessment are;

General Market Description an overview of the sector under consideration, with a comparison to conventional or competing sectors.

Market Potential an indication of the immediate growth potential for the sector under consideration. The data is drawn from industry

literature and stakeholder feedback, and shows the theoretical and realizable potential as well as equipment installed costs (where

available). Using linear extrapolation, it then estimates the anticipated potential over the next three to five years. Due to the rapidly evolving

nature of emerging markets, it is necessary to conduct this assessment a number of times as conditions change. The primary purpose is to

understand the gap between todays situation and the vision for each sub-sector. This helps to determine the required rate of innovative

developments and the amount and timing of capital placements.

There are three Market Assessment criteria used in theSTARprocess;

Stage of Investment An assigned value (on a scale of 1-10) that takes into account market barriers, the amount of time expected for the

technology to achieve full commercialization, market infrastructure issues and impediments, and current state of codes, standards and regulations.

Economic Efficiency An assigned value (on a scale of 1-10) that takes into account technology spin-off potential, product replicability and

scale-up potential, market size and dynamics, competitiveness, pricing and financing, and export potential.

Emissions Reduction Potential A calculated value of the difference in GHG emissions between conventional technologies and the alternative

technologies within the sub-sectors under consideration. It is shown in megatonnes of carbon dioxide equivalent (MtCO2e) and is the amount of

CO2eexpected to be reduced or displaced within the next three to five years as a consequence of commercializing the subject technologies. Notethat GHG is a proxy used as a general indicator of emissions reductions as, for most technologies, there is a positive correlation between GHG

and other air emissions. Exceptions (such as the inverse relationship with NOxassociated with combustion-based technologies) are noted

where applicable.

The Market Assessment is conducted from the perspective of SDTCs mandate, which is to support the development and demonstration of emerging

sustainable technologies in Canada at critical stages in the development cycle. Specifically, SDTC is focused on those technologies that are between

prototype development and market-ready product stages. The size and span of the blocks in Figure 3 are indicative of the relative timing and amount of

funding from various sources.

1.2.1.2 Technology

This concentrates on the technologies that need to be brought to market in order to achieve the stated vision. There are 15 fundamental ranking criteria,

which are weighted and rolled up into two principal impact criteria :

Economic Impact : The developmental and financial issues related to a specific technology that can/will influence sector growth, technological

inter-dependencies, infrastructure improvement, and the cost of environmental improvement; and

Environmental Impac t : The magnitude of the emissions reduction potential, reductions of regional environmental pollutants, the life cycle

emission returns, and the time at which these emissions reductions are most likely to occur.


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Figure 3 : SDTC Funding Support

R & D

FundementalResearch

ProductPrototype

Development

SDTC

SDTC BRIDGES THE

FUNDING GAP

Demonstration Market-readyProducts

MarketEntry

COMMERCIALIZATION

Angel Investors

Venture Capital

Governments

Industry

Banks

SDTCs Mandate:The Market Assessment is conducted from the perspective of SDTCs mandate, which is to support the development and demonstration of emerging

sustainable technologies in Canada at critical stages in the development cycle. Specifically, SDTC is focused on those technologies that are between

prototype development and market-ready product stages. The size and span of the above blocks are indicative of the relative timing and amount of

funding from various sources.

1.2.1.3 Sustainability

This section describes the impact that these technologies are likely to have on individuals, communities and regions. Each technology group is evaluated

in terms of its potential impact in three key areas :

Economic current investment capital, company and job creation, productivity impacts;

Environmental impacts on wildlife, air (GHG and regional pollution emissions), water and land; and

Societal health and safety, training and education, and aesthetics and property value impacts.

1.2.1.4 Risk

This outlines the potential risks associated with the development and implementation of the technology, and are divided into three criteria :

Development Risk will the technology work as intended?

Financial Risk is there enough private capital to fully commercialize the technology and will it be financially viable once commercialized?

Market Risk is there sufficient market demand and infrastructure to support the technology?



1.2.2 Output Structure

There are five categories in the output : Vision and Needs, Market Assessment, Technology Assessment, Sustainability Assessment, and Risk Assessment.

TheSTARprocess combines the results from these Assessments to develop the investment report conclusions.

1.2.2.1 Vision and Needs

Vision Statements are derived from the industry, typically through industry association-published statements. The statement is reviewed by key industry

stakeholders, who check for accuracy and realistic potential. The purpose is to provide focus for further discussions and analysis within the STARprocess.In the case of the upstream oil and gas industry, vision is production or output driven and measured in barrels/day or Nm3/day or MCF/day. In turn, this

production driven vision translates into environmental impacts such as GHG emissions, water and land usage under a business as usual scenario.

Typically, there are gaps between the actual current production capability and the envisioned target. The magnitude of any such gaps is the primary

driver behind the analysis that follows. For example, if the gap is very small, and the target easily achievable within the near term, then proportionally

fewer resources are applied to examine ways to bridge that gap. If, however, the gap is very large (as is often the case), then a considerable amount of

time and resources are applied to help determine the best course of action to minimize the gap. In these cases, therefore, the industry must consider and

apply more aggressive and/or effective means of achieving that target. Emerging sustainable technologies are a part of the solution, and could assist

in achieving the targets set by the vision. It is also notable from this example that, without efficiency or technology improvements, significant capital

investment would be required to achieve the target.

1.2.2.2 Market Assessment

The Market Assessment output data is presented in a Circle Chart, with Stage of Investmenton the X-axis, Economic Efficiencyon the Y-axis, and

Emissions Reduction Potentialon the Z-axis.

Circle Location In general, plots that show in the upper right-hand corner are considered attractive because they have high Economic Efficiency

and are at the optimumStage of Investment from SDTCs perspective. Conversely, anything in the lower left-hand corner is considered less

attractive from an investment perspective.

Circle Size The size of each circle represents the magnitude of the emissionsdifference between the base case and the alternative case. Note

that Greenhouse Gases (expressed in CO2e) have been used as a proxy for all air-related emissions. In instances where there is a negative

correlation amongst CO2eand other forms of emissions (for example NOx acts inversely to CO2ein many combustion processes), these will be

noted in the model or in the actual technology as it is evaluated. The next point to note is the base case used for comparison. The alternative can

produce more or less emissions than the conventional technology, depending on where in the value chain that the analysis is conducted. For

example, theproductionof a new fuel can create more emissions than theproductionof the conventional fuel it is to replace, but the utilization

of that new fuel may create fewer emissions than the utilizationof the conventional fuel. As such, lifecycle analyses are conducted to help draw

appropriate investment conclusions. When examining a new technology or process, the lifecycle analysis helps determine whether or not it is a

beneficial area of investment. The individual process steps help determine where further improvements can best be made.

Circle Colour In general, each circle represents a different sub-sector and is identified by a unique colour in order to distinguish them on

the plot. The colour red is used exclusively to indicate negative reductions (i.e. anything in red represents a net increasein emissions relative

to the baseline that it is being compared to). This can occur when the emissions created by the production using the new technology, process,

or feedstock exceed the emissions created from the production using the baseline process or feedstock, resulting in a negative emission

reduction. However, this condition may be reversed during the utilization phase resulting in overall beneficial lifecycle emissions reductions.

Production vs. Utilization In some cases, the STARprocess includes two circle graphs or bar charts for each type of technology being

examined. The inner circle (or first bar chart) represents production or upstream emissions, and is determined by calculating the difference

between the GHG emissions created through the production using the baseline technology or process and the production using the new


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technology. The outer circle (or right-hand bar char t) represents utilization or downstream emissions, and is determined by calculating the

difference between the GHG emissions caused by the utilization of the baseline technology and the utilization of the new technology. Although

utilization is not the focus of this report, it is included here in order to place the entire fuel life cycle into proper context.

Because of the variation in emission creation from one stage of the value chain to another, it is important to understand the exact location of the topic

under consideration in the value chain.

It is important to note that no investment can be placed without examining the full lifecycle cost and environmental impact, including how the inputs

may change over time, and how the production efficiency and technologies will change over time.

By plotting the outcomes in this way it is possible to get an overall snapshot of the position and potential of each sub-sector relative to one another.

It should be noted that many of the emerging technologies have the capacity to also reduce regional pollutants (Clean Air) and other environmental

impacts (Clean Water and Land) : this information is captured within the tool, but is not illustrated separately on the market plot. Separate plots can be

generated for these environmental aspects.

1.2.2.3 Technology Assessment

This assessment focuses on the technology plot position of each technology area. The position of each plot is the result of the numerical ranking of

the individual technological assessments. Each technology is mapped on a scatter graph, with Economic Impacton the X-axis and EnvironmentalImpacton the Y-axis.

Figure 4 : Sample Technology Plot

Economic Impacts

LOW

HIGH

HIGH

MEDIUM

MEDIUM

EnvironmentalImpacts


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Land Impacts:Some technologies occupy significant amounts of land while others could use sizeable land resources. This section examines land

use issues, and provides a brief comparison of each.

Wildlife Impacts:Sustainable technologies, while for the most part benign, could have some negative impacts on local wildlife. Such impacts

are noted and compared where applicable.

Societal Impact

From a sustainability perspective, technologies must not only be environmentally benign but must also address the educational, job growth, and propertyvalue needs that can arise as a result of their use. Impact on individuals and communities are also assessed in the following areas :

Health & Safety Impacts: The health and safety of local residences could possibly be affected by emerging technologies. While these impacts

are not expected to be large, they are nonetheless identified where applicable.

Training & Education Impacts: While there may be common training and education requirements across the sub-sectors analyzed, the design,

installation and operational complexity of each specific system would be assessed individually.

Aesthetics & Property Value Impacts: There are concerns (both perceived and real) that accompany the potential installation of some

technologies. Where applicable, these issues are identified.

1.2.2.5 Risk Assessment

Each of the selected sub-sectors must manage various associated levels and types of risks throughout the course of becoming fully commercialized. There

are two main types of risk considered : the non-technology related risks which are dependent upon polit ical, financial and regulatory issues that may

directly or indirectly influence the technology, and the technology-related risks that include developmental, financial, and market risks, as described below

Developmental Risks :The probability that the technology will work as designed and as intended. Developmental risk is highest in the earliest

stages of technology development.

Financial Risks:The probability that the technology will perform to the point where it is financially viable, and that there will be sufficient

private funding available to see it through to commercialization.

Market Risks:The probability that there is sufficient demand for the technology and that market infrastructure can support the introduction and

ongoing use of the technology.

1.3 Conclusions and Investment Priorities

TheSTARprocess concludes by combining the results from the Vision and Needs, Market, Technology and Sustainability Assessments, and divides them

into short and long term priorities and strategic impacts.

Short-Term Investment Priorities

These are investments that could be made within the next three to five years that could have a direct and positive impact on the environment.

Long-Term Investment Priorities

These are early stage investments that could be made within the next three to five years but that would aid Canada in meeting its longer-term,

emissions-reductions objectives. SDTC recognizes that the investments must be made now in order to produce results in the future.



National Strategy Impacts

A summary is created outlining the potential impact that the investments may have on Canadas national strategy to meet its climate change and

sustainable development commitments.

The successful emergence of sustainable technologies in Canada will be largely dependant upon the resolution of a range of non-technical

issues. These issues, when combined with the technology issues and opportunities, could have a profound impact on the direction of Canadas

national strategy.

Important Notes to the Reader:

While these conclusions indicate areas to place emphasis, SDTC recognizes that it is not possible to anticipate all new technologies and their

impacts, and new technologies in areas or sectors not on the list are not excluded from consideration.

The output of the Roadmap process is not a single digit, answer or result. It is a series of indicators that support a set of possible investment

opportunities, which can only be viewed within the context of the information provided. The final investment decision must still be made by

accounting for all possible and relevant conditions and requirements, as viewed by the final decision-maker. The contributors to the Roadmap

process have made every effort to be as objective, comprehensive and analytical as possible.

The numeric ratings used in the assessment process are relative; they are not absolute. For example, the Time to Market rating is based on ascale of one to ten; it does not indicate the actual number of years to get to market. This approach is necessary to overcome the wide range of

qualifiers associated with each projection made by industry and government. The one to ten scale provides a common benchmark approach.

Unless otherwise stated, the term market refers to the set of sub sectors under examination as a direct result of a scoping exercise to determine

an appropriate breadth of coverage. It does not refer to an entire market.

Emerging Technologies that have not been included within any current sector assessment may be considered in future upgrades and published

releases. SDTC will receive and evaluate opportunities in all areas falling within the SDTC mandate. However, where there is insufficient material

or interest identified, no assessment priority will be assigned to the STARtool.


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CO2Capture, Transport and Storage: This area is focused on the capture, transport, and storage of CO2after it is produced as a means to prevent

GHG emissions from being released into the atmosphere (permanence of CO2storage not yet confirmed) from the oil and gas industry. The technology

involves removing CO2from large concentrated sources and storing it in geological reservoirs (the most probable location for Canada is in the Western

Canadian Sedimentary Basin). This technology area focuses on the non-productive storage of CO2, while the use of captured CO2in EOR and EGR is

covered under Enhanced Production.

Large Scale Hydrogen Production: This area addresses the need for large volumes of hydrogen used in the upgrading of bitumen from the oil

sands and desulphurization, with a primary focus on promising technologies which can yield GHG and air emission reductions over the current industry

standard of using Steam Methane Reforming (SMR) for hydrogen generation. Examples would include advanced SMR, and, in the longer term, the

gasification of coal or oil sands residue provided that it is integrated with CO 2capture and storage or use..

From the results of the analysis conducted to identify investment priorities for upstream oil and gas development and demonstration projects, the energy

efficiency technology area received the highest ranking for near term investment potential. It has advanced the furthest, and has the fewest barriers to

market entry. Due to synergistic benefits, some of the promising technologies identified in the other three technology areas are also included as priority

technologies in the energy efficiency area, which reinforces the energyefficiency area as a priority for SDTC investments. Energy efficiency

technologies are fundamental technologies, rather than end-of-pipe technologies, and throughout the course of the SDTC Roadmap assessments, the

fundamental technologies typically emerge as being the most sustainable and ultimately most cost effective. It is also judged to have the most near term

impact on emissions from all segments of the upstream oil and gas segment.

Based on the technologies reviewed, the following technologies represent possible near term priorities for SDTC investments.

Energy Efficiency

Oil Sands (In-situ) Improved technologies for the production of steam and heated solvents that reduce energy costs and greenhouse gas

(GHG) emissions through improved burner/boiler designs, cleaner burning of bitumen, and novel exothermic processes

Oil Sands (In-situ) Improved technologies for steam assisted gravity drainage (SAGD) (e.g. lower steam pressures for SAGD)

Oil Sands (In-situ) Bio-upgrading of heavy oils at low temperatures and low pressure conditions, with increased selectivity in the types of

bonds affected, thereby increasing energy efficiency and reducing GHG emissions

Oil Sands (Mining) Mining based technology improvements in the operation of the primary separation vessel (PSV), which reduce sensitivity

to process temperature (Temp of >35 deg. C required), thereby reducing high energy needs

Oil Sands (Mining) Mining based technology processes that greatly reduce net water usage (and consequently, energy usage). The tar sands

combine is one example.

Oil Sands (In-situ/Mining) Improved steam methane reforming (SMR) to improve efficiency (emerging ideas include : pressurized fireboxes,

helium-heated reformers, electrically heated reformers, molten bath reforming and integrated hydrogen separation reforming)

Enhanced Production

Conventional Oil/Oil Sands (In-Situ) CO2enhanced oil recovery (EOR)

Oil Sands (In-situ) Improved technologies for SAGD (e.g. Lower steam pressures for SAGD)

Oil Sands (In-situ) Solvent process (e.g. enhanced vapour extraction ( VAPEX))

Oil Sands (In-situ) Hybrid thermal/solvent processes (e.g. Solvent-assisted SAGD, Steam Assisted Gas Push (SAGP))

Gas CO2enhanced gas recovery (EGR)


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CO2 Capture, Transport and Storage

Improved CO2capture methods chemical (e.g. amine) and physical solvent adsorption (post-combustion separation)

Improved CO2capture methods membrane and cryogenic separation (post-combustion separation)

Improved CO2capture methods hybrid membrane/amine processes

Large Scale Hydrogen Production

Improved SMR to improve efficiency (e.g. emerging examples include : pressurized fireboxes, helium-heated reformers, electrically heatedreformers, molten bath reforming and integrated hydrogen separation reforming)

A sample of longer term investment opportunities are also identified in this report. In particular, the CO2Capture, Transport, and Storage technology area

is seen as an attractive longer term investment opportunity. CO2Capture, Transport and Storage does hold tremendous potential for GHG reduction, as

the capacity of geological sites in Alberta is estimated to exceed 60,000 megatonnes, which would theoretically be sufficient for Albertas emissions in

the foreseeable future. However, there remain longer-term development issues, including issues of social acceptance of storage as a permanent solution,

lack of a CO2transport infrastructure, hazards associated with long distance transport through populated areas, and the need to reduce the cost of CO2

capture technologies. There are a limited number of CO2monitoring projects being applied in Canada (e.g. the Weyburn, Saskatchewan CO2/Enhanced

Oil Recovery flooding project), and additional large scale demonstration projects are needed to overcome some of the barriers with this technology

area. Another longer term investment opportunity for the Large Scale Hydrogen Production technology area is gasification. The gasification of coal oroil sands residue is considered to hold the greatest promise as an alternative hydrogen source.3 Indeed, advanced gasification technologies coupled with

poly-generation are being developed to the point of being close to commercialization. It is important to note however, that without CO2capture and

storage, gasification will increase CO2emissions, compared to the current SMR technology, and thus it is not considered to be a near term opportunity for

SDTC investment.4 Both SMR and gasification technologies can produce highly concentrated streams of CO2which could be captured for CO2storage or

CO2EOR or EGR.

SDTC has allocated $50M over its funding lifetime to the Oil and Gas industry for new technologies at the development or demonstration stage that

provide environmental and economic benefits to Canada. As of 2006 SDTC has committed more than half of this allocation ($27M) to 8 upstream oil

and gas related projects, and an additional $6.2M in two enabling technologies with direct benefits to the oil and gas industry. Given the typically large

infrastructure and capital requirements for technology development in this industry, SDTC must be selective in its investments and this report will beused as a guide to set priorities. SDTC will place emphasis on, and give preference to, projects which address all three areas of sustainability (land, air and

water). These projects typically have more efficient overall processes, making them the economic preference for the operator as well.



3 Industry Vision and Background

The SDTC Roadmap process assesses the breadth and depth of each economic sector to the extent that each sub-sector and segment thereof is analysed

in terms of market position, technological development requirements, sustainability characteristics, and risk. This section characterizes the upstream oil

and gas industry or segment.

For the purposes of this Investment Report, the upstream oil and gas industry is represented by the following four key technical or business divisions

within the Energy sector :

Conventional Oil Production;

Heavy Oil Extraction & Upgrading;

Oil Sands In-situ and Surface Mining, Extraction and Upgrading; and

Sweet and Sour Gas Production and Processing

By some definitions, gas transmission and distribution is also included in the upstream oil and gas industry. 5 However, the literature sources reviewed did

not identify significant new technology opportunities for emission reductions in gas transmission and distribution. Consequently, emphasis was placed on

the above four emission reduction opportunity areas in this Investment Report.

3.1 Upstream Oil and Gas Industry in CanadaBased on higher oil and gas prices, the oil and gas industry represents close to a $100 billion-a-year segment within the Energy Exploration and

Production economic sector and provides direct and indirect jobs for hundreds of thousands of Canadians. 6 Oil and natural gas companies operate in 12

of 13 Canadian provinces and territories, with much of the crude oil and natural gas production concentrated in the Western Canada Sedimentary Basin

(WCSB).7,8 The WCSB is a major North American hydrocarbon producer spanning across Alberta and into some parts of Saskatchewan, British Columbia,

Manitoba, the Yukon and the Nor thwest Territories.9 In 2003, the WCSB comprised 87% of Canadas crude oil and 97% of its natural gas production.10

The largest growth in the industry in terms of production is in the oi l sands. In 2006, oil sands production is expected to account for approximately half of

total western Canadian oil production, and by 2020, it may reach 85% of production. 11

Canada is one of the top countries in the world for oil reserves, second only to Saudi Arabia. The estimates for Canadian reserves for conventional oil, oilsands, and gas are as follows :

Table 1: Reserves and Production

Indicator Remaining Potential Reserves

(2005)bRemaining Proven

Reserves

(2005)b

Production

(2004)a

Conventional Oil Production 20 billion barrels 4.8 billion barrels 1,410,000 barrels per day

Oil Sands Production 315billion barrels 174 billion barrelsc 1,064,000 barrels per day

Natural Gas Production 223 trillion cubic feet 41 trillion cubic feet 17 billion cubic feet per day

a CAPP Nov 2005 Release on Reserve & 2004 Production Estimates

b EUB ST98-2006:Albertas Energy Reserves 2005 and Supply/Demand Outlook 2006-2015

c Oil Sands Fever The Environmental Implications of Canadas Oil Sands Rush.Dan Woynillowicz et al.The Pembina Institute.November 2005.


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Canada is currently the worlds 3rdlargest natural gas producer and the worlds 9thlargest crude oil producer.12 The historical and future split between oil

sands production and conventional oil production is illustrated in Figure 5 . As shown, oil sands production is projected to account for an increasing share

of total oil production.

Figure 5: Canadian Oil Production Conventional, Oil Sands, and Offshore **

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

Thousand

BarrelsPerDay

1980 1985 1990 1995 2000 2005 2010 2015

Source:CAPP

Oil Sands Growth:

2004 = 1 million b/d

2015 = 2.7 million b/d

Offshore

Oil Sands *

WCSB Conventional Oil

*

Actual Forecast

** Canadian Association of Petroleum Producers,20 05. Presentation by Greg Stringham.March 2005

The forecast Canadian natural gas production capacity by region is shown in Figure 6. Natural gas from Hibernia and coal/coal bed methane is expected

to increase which will help to offset declining production and reserve in Western Canada.

Figure 6: Canadian Natural Gas Production Capacity Canadian Energy Research Institute (CERI) Projection*

Source:

Canadian

Energy

Research

Institute

0

1

2

3

4

5

6

7

8

9

10

2002 2005 2008 2011 2014 2017 2020

Productive

capacity

(Tcfperyear)

BC Offshore

Nova Scotia

Natural gasfrom coal/CBM

North

Newfoundland

Western CanadaSedimentary Basin

* Canadian Association of Petroleum Producers,2005. Presentation by Greg Stringham.March 2005



3.2 Growing Demand

Based on estimates from the International Energy Agency, world crude oil consumption is forecast to grow 50% above 2000 levels by 2020.13 The

National Energy Board predicts that Canadas crude oil requirements will increase by at least 20 per cent by 2025.14 North American natural gas demand

is forecast to grow by 35 per cent above 2000 levels by as early as 2010. 15 As the Canadian and global demand for oil continues to grow, and with

current oil prices at over US$60/barrel in 2006, many oil sands projects which were previously not viable are now attractive for investment. This creates an

increasingly pressing need to address the environmental implications of the industry, as the oil sands production involves more energy-intensive practices

than in conventional oil production. If not addressed, environmental impacts are expected to grow from the increasing production levels, as well as fromthe shift from conventional oil to oil sands production.

3.3 Environmental Implications

The overall increasing environmental impact of the upstream oil and gas segment creates significant challenges to the concept of sustainable development

within the Oil and Gas industry. Some of these challenges can be addressed through technological improvements, and the four focus technology areas are

geared to assist in reducing at least some of the environmental impacts, particularly with respect to GHG and other air pollutant emissions.

3.3.1 Air

Greenhouse Gases

As of 2002, upstream oil and gas produced approximately 115 megatonnes per year of GHG emissions. The total GHG emissions in Canada in 2002 was

719 megatonnes. Thus, the upstream oil and gas industry represents approximately 16% of all of Canadas emissions. 16

Table 2 highlights the emissions from upstream oil and natural gas production and estimated changing trends to 2010, based on industrys vision of

production forecast shown in figures 5 and 6. The increase in GHGs from oi l sands production and decreasing emissions from conventional oil production

is consistent with the increasing shift to oil sands projects. Oil sands production is predicted to have the most significant environmental impacts in the

future due to the resource-intensive extraction processes and the increasing oil sands production rates.

Table 2: Canada Upstream Oil and Gas Sector CO2eEmissions Trend

CO2eGHG Emissions2002

(Megatonnes)

Forecast CO2eGHG Emissions2010

(Megatonnes)

Annual Growth Rated

Conventional Oil Production 41 a 30 a -3.0 %

Oil Sand Production 23 a 50 a 15.0 %

Natural Gas Production 51 b 50 b -0.2 %

Total 115 c 130 e 2.0 %

Fugitive Emissions 50 c

Total Exclusive of Fugitive Emissions 65 c

a. Source:Figure 2.5,Greenhouse Gas Emissions,Oil Sands Technology Roadmap,January 2004, Pg.16.b. Natural Gas = Total Conventional Oil Oil Sands

c. Source:Environment Canada Canadas 2003 Greenhouse Gas Inventory., Fuel Combustion, Process,and Fugitive Sources.

d. Linear growth.Rounded.

e. Rough estimate only. Based on Fig.4 CO2Capture Technologies and Oppor tunities in Canada,Strawman Document for CO2Capture and Storage Technolog y Roadmap, 18-19 Se ptember 2003 Ro admap Workshop,

Natural Resources Canada.Fig.4 CO2Capture Technologies and Opportunities in Canada.Strawman Document for CO2Capture and Storage Technology Roadmap.1 8-19 S eptember 2003 Roadmap Workshop.

Natural Resources Canada.Fig.4 numbers:1997 Total:100.5 Mt/year CO2e.2010 Total:121.2 Mt/year CO2e.

2002 Total:108.5 Mt/year CO2e (by interpolation).

Actual 2002 numbers:2002 Total = 115 Mt/year CO2e(Ref:Environment Canada) Difference b/t Fig.4 2002 CO2eand Actual CO2e= 6%

Therefore,as an estimate,increase Fig.4 2010 CO2projection by 6%, to approximately 130 Mt/year.


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When considering the life cycle emissions from oil and gas products (production and consumer end-use), the upstream oil and gas industry accounts

for roughly 20% of total oil and gas related emissions in Canada. 17 This report is focused on addressing those 20% of GHG emissions from upstream oil

and gas, and not the downstream consumer end-use of the fuel. Specifically, this report attempts to identify priority technologies or applications for SDTC

investment that may help reduce the forecast GHG emissions from a business as usual scenario. As illustrated in theTable 3 Performance Targets and

Co-benefits (page 23), clean technology development has the potential to provide the wedge in reducing GHG emissions.

It is also informative to consider the carbon intensities by segments and the forecast trend to 2020. Figure 7 shows the estimated intensities in 2000 and

the forecast short term (ST) and long term (LT) trends. It indicates an overall increasing trend in carbon intensities due to more enhanced recovery, lower

quality resources and alternate sources of hydrogen being more carbon intensive than natural gas.

Figure 7 : Production Carbon Intensities and Trends*

Production Carbon Intensities (PCI t/m3OE) and Trends

(Ref: CAPP #2005-0011 based on 2000)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

PCI(tCO2eq/m3OE

)

PCI CH4

PCI CO2

ST-LT

ST-LT

Light MediumCrude Oil SweetGas Cold Heavy& Bitumen Thermal Heavy& Bitumen Bitumen Mining /Upgrade (95)SourGas

* Dan Woynillowicz et al. Oil Sands Fever - The Environmental Implications of Canadas Oil Sands Rush. The Pembina Institute. November 2005.

Criteria Air Contaminants

In addition to greenhouse gases, criteria air contaminants (CACs) are a class of pollutants emitted by the upstream oil and gas segment. CACs typically

include nitrogen oxides (NOx), sulphur dioxide (SO2), volatile organic compounds (VOCs) and particulate matter (PM). CACs are air pollutants which can

cause health problems and contribute to smog issues. In addition, some CACs (NOxand SO2) are acid forming pollutants and contribute to acid rain issues

Emissions of CACs are expected to rise dramatically, particularly as a result of the approved and planned oil sands projects. Compared to conventional oilproduction, oil sands production generates more than 2 times the NOxand SO2per barrel of oil, due to the more energy-intensive extraction processes

involved.18 The Athabasca oil sands region (the largest of the three major oil sands deposits in Alberta),is the approved scenario for the oil sands which

consists of three operating mines and three additional mines in various stages of progress. 19 Based on estimates by computer modelling, the NOxand

SO2levels for this region under the approved scenario are expected to exceed the Alberta and international World Health Organization guidelines.20 Any

additional planned projects would contribute to further increases in levels.21



3.3.2 Land

Oil sands production is widely recognized as the area within the upstream oil and gas industry that is expected to have the most land impact in the

future. Of the total 185 billion barrels of proven reserves in Canada, 174 billion (94%) barrels are located in the oil sands. The oil sands deposits are

largely located in Alberta, and concentrated in three deposits : Athabasca, Cold Lake, and Peace River. 22 The three oil sands deposits span approximately

149,000 square kilometres in area and are largely located beneath Albertas northern boreal forest. 23 This diverse forest contains wetlands, provides

habitat to a wide range of wildlife species, and also serves to regulate climate. 24 The development of the oil sands in the boreal forest will create

significant challenges for forest conservation and reclamation. As such, accelerated land reclamation is an opportunity area for SDTC technologyinvestment. The scale of the planned disturbance in the Athabasca oil sands region (the largest oil sands deposit) is projected to have a cumulative land

disturbance of 2,000 square kilometres.25 This footprint is equivalent to approximately 5 times the size of Edmonton.26 Figure 8 shows the breakdown of

current, approved and planned land disturbances.

Figure 8 : Land Disturbance and Reclamation in the Athabasca Oil Sands Region*

0.0 56.3

330.6

950.4

2000.0

0.0

500.0

1000.0

1500.0

2000.0

2500.0

Areaofland

disturbed

byoilsandsoperations

(square

kilometres)

Certified as

Reclaimed

Area Under

Reclamation

Current

Disturbance

Approved

Disturbance

Planned

Disturbance

(not approved)

* Dan Woynillowicz et al. Oil Sands Fever - The Environmental Implications of Canadas Oil Sands Rush. The Pembina Institute. November 2005.


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3.3.3 Water

Water usage presents another challenge for upstream oil and gas, and is one of the key sustainability issues for the industry in Alber ta. Upstream oil and

gas in Alberta has been allocated over 7% of all water allocations, and approximately 37% of fresh groundwater allocations. 27 Much of this water usage

is required for the oil sands mining production where two to four barrels of new make-up water are required for every barrel of oil produced. In 2005,

the total water allocation for oil sands mines was 359 million m3which is equivalent to approximately twice the volume used by the City of Calgary

annually.28 Although actual water usage by this sector is currently less than the volume allocated, in the absence of technologies which are able to

significantly reduce water usage, the water demand from oil sands mining projects is projected to reach 490 million m

3

per year, as shown in Figure 9.

Figure 9: Cumulative Athabasca River water allocations (for existing, approved and planned oil sands mining operations)*

Existing Projects Existing + Approved Projects Existing + Approved + Planned Projects

0

100

200

300

400

500

600

Cubic

Metres(Millions)

* Dan Woynillowicz et al. Oil Sands Fever - The Environmental Implications of Canadas Oil Sands Rush.The Pembina Institute.November 2005.

The Alberta Chamber of Resources considers water use to be one of the top four challenges for oil sands mining operations.29Water demands are high,

and of the water used, only approximately 10% of the water taken from the Athabasca River (one of the major water sources for the oil sands) is returned

to the river. 30 The remaining water is either used or directed to tailings settling ponds, where the wastewater requires additional proper management .

Oil sands in-situ production requires water for the SAGD operations; however, much of the water used for the steam extraction process can be

recycled. In-situ projects can typically recycle more than 90% of the water31and, as a result, the net water consumption for in-situ production is

considerably smaller than for the oil sands mining operations. The current and future water demands for the in-situ oil sands developments are illustrated

in Figure 9. Due to the increasing production levels, surface water and groundwater usage for in-situ oil sands production is expected to double from

2004 to 2020.32


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4 Needs, Assessment and Analysis

4.1 Focus Technology Areas

A needs analysis was conducted with industry stakeholders, to identify the key issues and needs of the upstream oil and gas segment. The assessment

addresses political, economic, social, and technical issues of the industry. Although the focus of SDTC is on technology, it was important to identify the

other key issues for the sector as they have implications for the prioritization of technology development and the subsequent market uptake. In addition,

available industry publications (see list in Endnotes) were reviewed to ensure that the needs assessment generally correlated to similar reports publishedby leading industry organizations such as the Alberta Chamber of Commerce, the Canadian Association of Petroleum Producers, Petroleum Technology

Alliance Canada, and non-profit policy research organizations such as the Pembina Institute.

Based on the needs assessment and technologies identified, focus technology groupings or application areas for upstream oil and gas were established

through two industry stakeholder consultation sessions (one in November 2004 and a follow-up session in June 2005), a web search, and review of

approximately 50 documents and articles including proprietary SDTC information data base. Interviews were also held with senior oil and gas industry

representatives. The use of technology groupings was necessitated by the broad number of individual technologies identified which made it impractical

to assess each individual technology using the STARprocess.

Each technology area was examined for its potential to reduce GHGs from each of the industry segments identified in Table 3. This assessment is based

on an analysis of specific promising technologies which apply or fall into each area. In some cases, technologies with broad applications were included

in more than one of the four technology areas, as the areas are not mutually exclusive. Experts projected the potential impact of new technologies

in each of these four Product/Process application areas as applicable to the four key business or technical divisions in the upstream oil and gas

industry. The estimates were calculated in terms of percentage of GHG emissions from each segment that can likely be addressed by the application of

technologies identified.

Table 3: Performance Targets and Co-Benefits**

Industry

Segments

Alberta GHG Emissions (CO2e Megatonnes) Performance Targets and Co-Benefits

Without

Additional

TechnologyDevelopment

With CHTF

Recommended

TechnologyDevelopment

1990 1997 2010* 2020* 2010* 2020*

Power 40.0 48.0 49.0 54.0 46.0 28.0 Near zero emissions of sulphur, nitrogen oxides,particulates, mercury, trace elements and organics.

40-50% reduction in CO2emissions by efficiencyimprovements, near 100% reduction with carbonmanagement and storage.

Minimal/Zero water contamination and removal from thenatural cycles.

Maximized solid waste usage.

Full and effective site remediation and reclamation Low thermal signatures.

Bitumen 3.7 6.1 12.3 19.6 10.4 9.8

Oil Sands 9.5 11.7 21.8 33.1 21.1 16.6

Natural Gas 18.0 25.7 30.6 32.8 27.0 16.0

Conventional 6.3 6.9 6.0 5.3 5.0 4.0

Heavy Oil 4.0 6.7 5.2. 4.2 5.0 3.0

Pipelines 2.2 4.2 3.8 4.0 3.5 2.0

Totals 83.7 109.3 131.7 153.0 119.0 79.4

* Estimated

** CHTF stands for Cleaner Hydrocarbons Technology Futures Group



The four Product or Process application areas are :

Energy Efficiency : This area is comprised of technologies related to reducing energy demand and improving production efficiency, or reducing

the energy input per unit of oil or natural gas produced. The primary focus is on promising technologies which can also yield significant GHG

emission reduction benefits for the industry. Examples include : improved technologies for the production of steam and heated solvents that

reduce energy costs and GHG emissions through improved burner/boiler designs; cleaner burning of bitumen, and novel exothermic processes;

lower steam pressures for steam assisted gravity drainage (SAGD); etc.

Enhanced Production : This area is focused on promising technologies which can increase production from past, present and future oil andgas production sites, at a decreased CO2emission intensity. Examples of enhanced production methods include enhanced oil recovery (EOR)

using CO2and other gases/solvents, enhanced gas recovery (EGR) using CO2and other gases, solvent extraction techniques, and hybrid steam/

solvent extraction methods. The most promising technologies also overlap with the energy efficiency technology area, and all identified targeted

technologies in this category have the potential to reduce GHG emissions on a per unit of production basis.

CO2Capture, Transport and Storage37: This area is focused on the capture, transport, and storage of CO2after it is produced as a means

to prevent GHGs from being emitted into the atmosphere (permanence of CO2storage not yet confirmed) from the oil and gas industry. The

technology involves removing CO2from large concentrated sources (e.g., SMR, gasification, fossil fuel electricity generation) and storing it

in geological reservoirs (the most probable location for Canada is in the WCSB itself). Most CO2capture technologies themselves are not

new; however, advancements in the technologies are required to drive down capture costs. Based on the method of CO2removal, capturetechnologies can be broadly classified into the following categories : 1) chemical/physical solvent scrubbing; 2) adsorption; 3) cryogenic; and 4)

membranes. CO2transportation can involve pipelines, tank trucks, etc. Pipeline transportation is considered to be a largely established technical

capability, as it builds on the extensive capability already present in the sector. 38 However, social risk of transportation in highly populated areas

still needs to be assessed and appropriately addressed. This technology area focuses on the non-productive storage of CO2, while the use of CO2in

EOR and EGR is covered under Enhanced Production. Monitoring and verification is included in this technology area, because of the specific need

to verify the permanence of CO2storage.

Large Scale Hydrogen Production: This area addresses the need for large volumes of hydrogen used in the upgrading of bitumen from the oil

sands and desulphurization, with a primary focus on promising technologies which can yield GHG emission reductions over the current industry

standard of using Steam Methane Reforming (SMR) for hydrogen generation. SMR requires significant quantities of natural gas, and has beenthe favoured technology based on historically low natural gas prices. With increasing pressures on natural gas prices over recent years, industry

is already implementing other solutions which will reduce its dependency on natural gas for hydrogen. The gasification of coal or oil sands

residue is considered to hold the greatest promise as an alternative hydrogen source.39 However, without CO2storage, gasification will increase

CO2emissions, compared to the SMR process.40 Fortunately, both SMR and gasification technologies produce highly concentrated streams of CO2

which, provided barriers for storage are removed, could be captured for CO2non-productive storage or CO2EOR or EGR.

Specific technologies identified for each of the four Product/ Process application areas are listed in Tables 4, 5, 6 and 7. It is stressed that the technologies

identified in these tables are those which have not yet been commercialized, or technologies that could benefit from technical advancements to achieve

widespread commercialization. This is a representative list of technologies, based on a number of literature sources and is not considered to be all

inclusive.41 It is a dynamic list which is expected to evolve as technological innovation advances.

The identified priority technologies were used in the Market, Technology, and Sustainability portions of the STAR Tool analysis. The identification of priority

technologies in each area was necessary to simplify the vast range of technologies emerging and their various associated timeframes. In general, a focus

was placed on near term potential for reducing environmental impacts.


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To determine the priority technologies in each area, each of the technologies was ranked on the following criteria :

its stage of development; and

consistency with SDTCs mandate and investment criteria.

The technologies with the highest ranking (identified as priorities in Tables 4 through 7 of the report) were grouped in each Product/ Process technology

area. These technology groups were used for the remainder of the model assessment. The other cited technologies are worthy of consideration by other

funding organizations or agencies that support an earlier stage in the innovation chain than SDTC. SDTC will continue to monitor the development of

these other technologies to determine their readiness for SDTC support in development/demonstration.

SMR technology improvements would contribute to both Energy Efficiency and Large Scale Hydrogen Production technical areas. Although SMR does

not address the need for alternative large scale hydrogen technology due to declining natural gas reserves and increasing gas prices, SMR will remain

a significant process in the near term and there is room for process improvement. Furthermore, SMR produces a concentrated form of CO2which may

be suitable for eventual capture and potential future CO2storage.42 Gasification could be an investment priority for the longer term; however, it must be

coupled with CO2storage to reduce GHG emissions.



Table 4: Energy Efficiency Technical Matrix

RankingPriority

Order

Technologies Time frame to

demostration/

field projects

Disruptive

Potential

Priority

Technologies

(for SDTC)

Stage of

Development

(1-10)

SDTC Mandate

(1-10)

Total

OIL SANDS IN SITU Improved technologies for the productionof Steam and Heated Solvents that reduce energy costs and GHG

emissions through improved burner/boiler designs, cleaner burningof bitumen, and novel exothermic processes

2005-2012 No High 7 8 15 1

Improved Steam Methane Reforming of natural gas to improveefficiency (emerging ideas include:pressurized fireboxes, helium-heated reformers, electrically heated reformers, molten bathreforming and integrated hydrogen separation reforming)

2005 2012 No High 7 8 15 1

OIL SANDS IN SITU Improved technologies for SAGD(e.g.Lower steam pressures for SAGD)

2010 2015 No High 7 8 15 1

OIL SANDS Mining based technology improvements in theoperation of the primary separation step (PSV) reducing sensitivity toprocess temperature (T>35 deg.C reqd), thereby reducing the highenergy need

2005 2012 No High 7 7 14 2

OIL SANDS IN SITU (Extraction and Upgrading)

Bio-upgrading of heavy oils at low temperatures and low pressureconditions, with increased selectivity in the types of bonds affected,thereby increasing energy efficiency and reducing GHG emissions

2005 2012 No Medium 7 7 142

OIL SANDS Mining based technology process which greatlyreduce net water usage and consequently, energy usage, e.g.tarsands combine

2005 2012 Yes Medium 7 6 13 3

CONVENTIONAL OIL/GAS High efficiency immersion heaters (e.g.PTAC project: Improving Fire Tube Immersion Heater Efficiency)

2005 2008 No Medium 7 4 11

OIL SANDS IN SITU (Extraction and Upgrading)More energy efficient methods to separate feed components basedon phase incompatibilities induced by using selective solvents at ornear supercritical conditions to lower energy requirements

2015 beyond No Low 2 4 6

OIL SANDS IN SITU (Extraction and Upgrading)Technology process using low temperature catalysts that promotecarbon-carbon bond breaking, to reduce energy requirements andenergy losses and increase liquid yield

2015 beyond No Medium 2 8 10

OIL SANDS IN SITU (Extraction and Upgrading)Off-gas purification technology (e.g.membranes) that uses the sametemperatures and pressures as those employed in upgrading orconversion processes, thereby reducing costs and increasing energyefficiency

2015 beyond No Medium 2 7 9

OIL SANDS Mining based bitumen separation technology processthat is more efficient and reduces bitumen losses to water andtailings

2015 2030 No Low 2 4 6

See Figure 11 for related technology plot


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