This map shows the distribution of heavy oil fields identified in the IHS database. Estimated recoverable reserves are denoted by the symbols. The number of heavy oil fields and estimated recoverable oil are annotated for the US and for the top five countries in Latin America with respect to recoverable heavy oil reserves.

In a high oil price environment, unconventional resources are viewed as important and economically attractive components of future oil supplies. Concerns about energy security have triggered a scramble to secure long-term oil supplies and to improve technologies to produce liquids from a broad scope of so-called unconventional resources.

There are two families of unconventional liquids resources. One family requires refining processes to convert natural gas, coal, biomass, or kerogen in oil shales to liquid fuels. These conversion processes yielded about 1.2 million b/d, about 1.3% of estimated global liquids production capacity in 2007. If current subsidies for biofuels prevail, liquids production from these conversion processes could grow to about 4.6 million b\d, or almost 4% of projected liquids production capacity in 2020. Oil shale is the wildcard in this category. Results of in situ recovery pilot projects in the Tertiary oil shale deposits of western Colorado could determine the viability of these giant (2,000 billion bbl) resources.

The second family of unconventional liquid resources includes the identified, 3,424 billion bbl of in-place “heavy” oil — bitumen resources, an undetermined volume of recoverable oil in shale source rocks like the Bakken shale in the Williston Basin and in other non-traditional tight reservoir rocks.

Defining heavy oil

Heavy oil ranges from 10° to 20° API gravity with viscosity ranging from 10 to 10,000 cp. Extra-heavy oil is less than 10°API gravity with viscosity near 10,000 cp and higher. The term “heavy oil” is used in instances when it is not possible to differentiate volumes of heavy and extra-heavy oil.

Heavy oil resources are widespread and according to the United States Geological Survey are known to occur in 127 basins throughout the world. According to IHS compilations, the Western Hemisphere — with 1,700 billion bbl of in-place bitumen in Canada and 1,300 billion bbl of heavy and extra-heavy oil in Venezuela — is endowed with some 3,277 billion bbl (96%) of the identified heavy oil and bitumen resource base.

The identified heavy oil resource is huge, but there is a catch to the role of these resources in the global oil supply. While in-place “heavy oil” and bitumen resources are about 65% as large as the 5,200 billion bbl of in-place conventional oil resources discovered to date, heavy oil resources currently account for only about 2.5% of global oil production. Unconventional oil recovery is capital and technology intensive and requires a long-term commitment.

Meeting the challenge

The oil supply challenge is clear. Long-term global annual oil demand is expected to increase by about 1.2 million b/d or 1.4% per year. Currently, the petroleum industry must add about 5 million b/d of new production each year to meet projected demand growth while replacing the estimated 4.5% decline in conventional production.

The giant bitumen deposits in Western Canada and extra-heavy oil in Venezuela’s oil sands are projected to add 200,000 to 300,000 b/d of annual production capacity during the next decade. Thus, “heavy oil” is expected to contribute valuable new supplies, but will be challenged to reach 4.6 million b/d or 4% of projected world liquid demand requirements by 2020 — far less than desired with respect to the size of the resource. Moreover, rising costs, shortages of manpower and materials, political uncertainties, environmental regulations, and climate change policies could hinder the attainment of this projection. Nevertheless, large international oil companies and national oil companies have increased their unconventional oil holdings as a means to secure large, long-life oil supplies. They also have increased their research and development (R&D) budgets to develop technologies to boost recoveries from unconventional resources.

Canadian oil sands
Industry experience in producing Western Canada’s bitumen resource can serve as a model for the development of other unconventional liquids resources. The Canadian oil sands are in a difficult operating environment that is distant from established markets and infrastructure.

Operating principles include: adequate R&D to establish economic, social, and environmental baselines for the project; collaboration with all stakeholders on holistic planning across upstream, midstream, and downstream domains; and commitment to continuous process improvement. Through R&D, Canadian oil sands operators have created innovative technologies and processes to overcome significant challenges to their projects. Mine projects honed their materials handling and upgrading processes to reduce costs. Operators with resources too deep to mine developed innovative horizontal drilling with thermal and non-thermal processes to recover their oil.

Energy is a significant cost in oil sands operations so there is an enormous incentive to reduce energy consumption. Steam assisted gravity drainage (SAGD) recovery operations already have reduced natural gas per barrel of oil use by 22% while improving recovery factors by 300% and decreasing water use per barrel of oil by 67%. Promising technologies and operating improvements such as toe-to-heel-air injection, injection of vaporized solvents, and pulse-pressure systems could deliver additional improvements. Operators also have merged their assets to link production to established refineries and markets.

As a result of these innovations, Canada boosted its bitumen production from about 210 million bbl in 2000 to a little more than 460 million bbl in 2007. An unrisked IHS projection that assumes all projects will proceed as planned indicates maximum potential bitumen production of 4 million b/d of oil by 2015.

Mining projects and subsurface thermal recovery such as SAGD would contribute equal shares of the production by 2015 under this scenario. There is upside potential to boosting Canadian oil sands production, but manpower, capital, material, and policy constraints make it difficult for industry to increase annual production by more than about 200,000 b/d per year.

Heavy oil

Venezuela’s Orinoco heavy oil belt (the Faja) is the largest known extra-heavy oil deposit with established 1,300 billion bbl of oil in place and some 272 billion bbl of identified technically recoverable resource. This Cretaceous heavy oil belt extends into Colombia, Ecuador, and Peru, where almost 30 billion bbl of additional resource has been identified. Other important heavy oil resources include 104 billion bbl in the US, 16 billion bbl in Brazil, and 15 billion bbl in Mexico. These resources provide important opportunities to boost oil supplies and energy security in the Western Hemisphere.

Venezuelan extra-heavy oil production grew from about 220,000 b/d in 2000 to about 660,000 b/d in 2005. In 2005, PdVSA announced plans to accelerate development of its heavy oil production with targeted annual production increases of 200,000 b/d with the objective to reach 1.9 million b/d by 2012. Venezuela’s February 2007 decree and actions to impose joint venture structures and minimum 60% PDVSA ownership in the four strategic associations in the heavy oil belt led to the exit of ExxonMobil and ConocoPhillips from their projects and disrupted some operations.

The October 2007 negotiation model allows joint venture companies in the Orinoco oil belt to export the upgraded crude they produce. The realization that rising costs plus shortages of materials and manpower could result in critical construction delays in upgrading plants, though, led to a change in strategy. PdVSA dropped its Orimulsion and bitumen production in favor of exporting a blended heavy oil product.

China National Petroleum Corp. (CNPC) also spearheaded an initiative to ramp up production of extra-heavy oil, which will be blended with lighter oil for export without upgrading to China. This focus on heavy oil will allow CNPC to establish cash flow that eventually will be invested in recovery technologies and upgraders to reach the 300,000 b/d production objective.

It appears that Faja production has recovered to 2005 levels and is increasing in 2008, but overall production growth may not exceed 100,000 b/d unless leading edge technologies are introduced from Canada.

Other Western Hemisphere opportunities

Borehole data identify 2004 fields worldwide with net 153 billion bbl of 2P recoverable heavy oil (Figure 2). More than half of the fields and two-thirds of recoverable oil are in the US and Latin America. These identified fields and associated heavy oil fairways are attracting substantial E&P investment.

To slow oil production decline, Colombia boosted its heavy oil production from 31,688 bbl in 2002 to 97,517 bbl in 2007. Colombia’s National Hydrocarbon Agency (ANH) recently announced it had received commitments of US $505 million from invited bidders to perform on technical evaluation agreements on eight blocks in the Eastern Zone heavy crude belt of the Llanos Basin. In Ecuador, the Ministry of Energy and Mines signed an agreement with Ivanhoe Energy to produce and upgrade heavy oil from Block 20, which contains the Pungarayacu field with estimated 315 million bbl of recoverable oil. The project, using Ivanhoe’s patented heavy oil upgrading technology, is to produce 100,000 b/d. Three blocks with heavy oil developments in Peru’s Maranon Basin are targeted to reach 250,000 b/d by 2015. Operators are collaborating on pipelines to transport diluent to the projects and to move upgraded oil to the coast for export. In Mexico, Pemex is considering options to increase production from the giant Chicontepec heavy oil complex to offset declining production from the Cantarell field. Offshore heavy oil developments also are under way. Petrobras pioneered deepwater heavy oil production in its initial phase 60,000 b/d project at the Jubarte field in the northern Campos basin. To the north, the Premier of Newfoundland and Labrador recently announced an agreement whereby a consortium will develop the estimated 580 million bbl Hebron heavy oil field in the Jeanne d’Arc Basin.

These projects characterize the increasing activities to expand heavy oil production in the Western Hemisphere.

Even though oil prices have slumped, the need to establish secure and affordable hydrocarbon supplies for the Western Hemisphere have not gone away. Giant heavy oil and other unconventional liquids resources have been difficult to tap, but industry is demonstrating its ability to unlock these resources through innovative technologies and continuous process improvements. Identified large heavy oil resources are attractive because they are known, they deliver stable, long-life production, and they offer a large upside potential from new technologies.

The expanding development of heavy oil resources demonstrates that heavy oil and unconventional liquids resources must be included as vital components for long-term energy supply and energy security considerations.

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