Generating Hot Air: Nuclear Plant Considered for Oil Sands

Abstract: Canadian oilsands operators are worried about rising demand and prices for natural gas, resulting in nuclear power proponents advocating a plant for northern Alberta. The potential solution, with its environmental, technical, and economic challenges, is not the right answer for a serious problem.

Analysis: Not all of the hare-brained ideas come from the fertile imaginations of Bugs Bunny's creators.

News that a C$35,000 study is examining the pros and cons of building a nuclear power plant in northern Alberta to generate steam and electricity for in situ oilsands operations seems like something that belongs in a TV cartoon. The idea is particularly ludicrous considering the flawed history of the Canadian nuclear industry.

A serious problem prompted the study: There is a seemingly endless appetite for the natural gas needed to extract oil from the sticky mixture of oil and sand. The possible solution, an untried technology with some major environmental issues, is about as appropriate as Libya recently taking over as chair of the United Nations Human Rights Commission.

The nuclear option, which should be a real deterrent to investment in the unconventional oil resource, surfaced this week at a conference in Calgary, Alberta.

"Nuclear doesn't create any greenhouse gas emissions, so that's a positive," David Bock, vice president at Atomic Energy of Canada Ltd. (AECL), told reporters. "On pure economic terms, we should be able to make a decent case. On environmental terms, we can make a strong case."

A report from the Canadian Energy Research Institute (CERI), expected to be completed next month, should indicate whether Bock is right or if, unlike Bill Clinton in his youth, he had inhaled mind-altering substances. CERI, an independent think tank, was commissioned by AECL to determine whether it's feasible for oilsands operators to use nuclear energy rather than natural gas to extract tar-like bitumen from deeper deposits.

About 75 percent of Alberta's bitumen reserves, an estimated 245 billion barrels, are buried too deep for surface mining since they are more than 75 meters (roughly 250 feet) underground. Most analysts, companies, and politicians have been counting on some variation of steam injection - where gas is burned to inject steam underground, thus making it easier to pump the gooey slate to surface - to exploit these reserves.

If the most optimistic projections come true, oilsands will account for 90 percent of increased oil output in this province in the coming decades because of a multibillion-dollar boom (an estimated C$11 billion was poured into the oilsands in the last couple of years). Alberta could produce close to four million barrels per day of bitumen and by 2025, up from the current level of nearly one million barrels per day.

Quadrupling bitumen production would suck up just about every gas molecule the province could produce - obviously something that won't happen given competition for the most environmentally friendly hydrocarbon from power generators, utilities, and petrochemical companies.

Give the governments and petroleum companies in Canada credit for thinking outside the box. However, proposing a nuclear plant for the oilsands raises questions about whether Bugs and other Warner Brothers characters obtained jobs as consultants.

The fuzzy thinking was evidenced when Alberta's energy minister endorsed the idea but suggested building the plant in neighboring Saskatchewan, which would destroy the economics for steam generation. Officials in the sparsely populated province, proving they are no fools, quickly declined the offer. The reluctance by Saskatchewan to touch the proposal with a 100-foot pole shows an awareness of numerous economic and environmental problems associated with this potential solution.

The history of nuclear plants in Canada is an ugly one, full of expensive cost overruns and a blemished generation performance. The best example comes from the province of Ontario, where the provincial government in the 1960s and 1970s embarked on an ambitious program that eventually saddled taxpayers with more than C$20 billion of debt. The Darlington power complex, for example, ran up bills of C$14 billion by the time its fourth unit began generating electricity in 1993 - a "mere" C$11.6 billion over the original budget.

In addition to costing almost more money than Bill Gates is worth, the operating record of Ontario's nuclear facilities has been less than stellar. Ontario Hydro has spent more than C$1.25 billion overhauling four reactors at Pickering A that were taken offline in 1997 and were supposed to return to service in 1999. The utility warned last year that three of the nonfunctioning units, despite the huge sums already spent, might yet be scrapped because of serious maintenance and operational problems.

Given the black eye it has suffered in Ontario, it's not surprising that AECL is more than willing to dust off an idea first raised in the 1970s. A federal corporation responsible for the sale of nuclear power plants that use the Candu reactor, AECL has only made three sales since 1996.

And despite years of lobbying, AECL has yet to find a buyer for its next generation of reactors, which are supposed to be smaller and cheaper to build. But it's a fine line between leading edge and bleeding edge, and it's pretty likely that the final bill for the new technology will bear only passing resemblance to AECL's original predictions.

Another problem would be the size of the nuclear plant. Several thermal projects, with total volumes of around 150,000 barrels per day, would be needed to consume the steam and electricity generated by the reactor complex.

The Canadian National Energy Board recently estimated maximum economic spending on the oilsands at C$3.5 billion annually because of constraints on labor and material. There's no way that several in situ projects could come onstream simultaneously. This means either the plant's capabilities will be underutilized or producers will have to invest money and wait several years until the necessary critical mass is reached and they get some return on their investment. Neither option is good from an economic viewpoint, and the chance of the latter scenario coming true is highly unlikely.

In addition to technical and economic challenges, nuclear plants are hardly a favorite of people concerned with the environment, because of major worries surrounding the transportation and disposal of spent fuel rods (aside from concerns about a meltdown). While the U.S. has spent years and billions of dollars working on a nuclear waste disposal site at Yucca Mountain, Nevada, Canada has not embarked on a similar process and remains far behind. Greenpeace, the Sierra Legal Defense Fund, and other similar organizations are sure to use this issue in regulatory and legal procedures to delay or derail plans for any nuclear power station in this country, whether it's in northern Alberta or elsewhere.

Certainly, there are alternatives available to oilsands players other than supporting a multibillion-dollar nuclear plant in the arboreal forests of northern Alberta.

Suncor Energy, for example, is looking at making synthetic gas from the coke produced by its current oilsands facility. The concept, in an early stage, could be part of its Voyageur expansion, which is expected to boost the company's bitumen output to around 500,000 barrels per day by 2012.

Nexen Inc. and partner Opti Canada are counting on combining commercially available hydrocracking and gasification technologies to synthesize gas at their proposed C$2.3 billion Long Lake, Alberta oilsands project. The companies expect gas prices to remain high so they will have a competitive advantage when their 60,0000-barrel-per-day plant begins operations in 2006 or 2007.

These technologies, plus more research into ways of lowering the steam-to-oil ratio for thermal oilsands projects, show there are much more practical options to solving gas supply and price problems for Alberta's unconventional oil industry than considering nuclear power. Even Daffy Duck can figure that out.

Associte Editor: Robin Beckwith

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