Innovation heads west: Oil sands pick up Canada’s tech slack

Oil sands development to fill void of lagging tech sector

Half a century of fighting over every speck of Alberta’s oil sands now behind them, Canada’s largest heavy-oil producers are now embroiled in another decades-long battle.

Not with each other, but with the technological and environmental realities of their industry. To maintain their social licence to operate in the face of mounting criticism from at home and from abroad over their carbon-intensive production processes, innovation has become their new prime directive.

It might run completely counter to the multibillion-dollar patent lawsuits and top-secret research projects that spring to mind when Canadians think about an ‘innovative’ industry, though it is also built to last longer and aim higher.

“There is an unprecedented amount of R&D dollars flowing into the oil sands ranging from evolutionary to revolutionary,” CIBC World Markets declared in a recent report. “Importantly, we are just starting to see the impact of technology which could still make the oil sands more competitive.”

That report, at least the section buried in the middle of its 200 pages that dealt with innovation, was largely ignored when it was published in mid-August. Such is the reality of an industry where insiders and investors alike focus on production volumes instead of the technological processes that made them possible.

Although it remains largely dispersed and undiscussed, Canadian energy innovation is accelerating to the point where within a single generation, the oil sands could go from being among the world’s most widely criticized resource plays to being among the most admired.

Postmedia News

Postmedia NewsEddy Isaacs is to the oil industry what RIM’s Mike Lazaridis was to the smartphone industry.

The process began in the 1960s, when the original oil sands producers were landing their first leases and Eddy Isaacs was still at the University of Alberta working on his doctorate in organometallic chemistry.

“At the time, although it was a lot of fun to do the work I was doing, we had no concept that the industry would grow as fast as it did,” he recalled during an interview in his office on the 25th floor of a downtown Calgary skyscraper.

Now the chief executive of the Energy and Environmental Solutions division of the government-supported Alberta Innovates organization, Mr. Isaacs is the closest approximation to a Mike Lazaridis-type figure the energy industry has to offer.

His inventions — six patents bear his name — never made any headlines or spawned any companies. Instead, he has spent his career holding positions similar to the one he holds today, straddling the public and private sectors to build an innovation support network that need not rely on a single ‘champion’ player.

He calls it “The Alberta advantage.”

“There is an attitude here of wanting to have partnerships and to get these things to work well together,” he said.

It contrasts directly with the “go-it-alone” mentality of Waterloo or Silicon Valley, where openness and collaboration are four-letter words, but it has a history of producing results. So as national innovation champions continue to rise and Canadians continue to grow disillusioned each time they fall, the country can look west and take solace.

Having large companies willing to put up big money for expensive pilot projects is one element, Mr. Isaacs argues, “but it is also all the companies that provided service, that can read thermal couples way down a hole to drill certain types of wells so a lot of the ingenuity and innovation happened around the industry itself,” he said.

An example: an Imperial Oil Ltd. scientist developed the SAG-D (Steam-Assisted Gravity Drainage) process, which became a common methods of oil sands extraction. But it was the digital reservoir models developed in the early 1980s by far lesser-known CMG Ltd. that helped make its commercial application a reality.

“In the end it is about a cluster,” Mr. Isaacs said. “Those support systems, if they are not available, makes your innovation unsustainable.”

Industry-wide innovation is the only reason why oil sands development is a profitable business today. It was the result of what Philip Cross, former chief economic analyst for Statistics Canada, likes to call “constant, relentless innovation,” the sort that is “always going on in the background.”

Yet because energy sector innovation has been more of a marathon than a sprint, the process can be nearly impossible to see from the outside. At least, it used to be.

Postmedia News

Postmedia NewsA worker at Cenovus’ Christina Lake SAGD operation shows what bitumen looks like after extraction. Emissions here are already comparable to the mid-range of conventional oil production.

Mark Bilozir, director of technology development for Cenovus Energy Inc. says the company “is calling itself, rightly so, a technology company.”

His department has a $200-million annual budget to fund more than 140 ongoing projects. One is a new type of well that has successfully been increasing oil recovery rates by more than 10% since it entered testing in 2004, another aims to replace air in the fuel-burning process with pure oxygen; this “oxy-fuel” would create emissions of “almost pure CO2“, up to 99%” of which could be captured in a way that would “significantly reduce the cost of capture, compression and transport to long-term geological storage,” the company said.

The 8-figure research budget is enough to rank Cenovus among Canada’s top 10 R&D spenders, though it still represents a fraction of the $1.4-billion R&D budget RIM had in 2010 or the $2.2-billion Nortel spent on R&D in 2007.

Most of those billions of tech R&D dollars go towards just keeping up — or falling behind less quickly — in most cutthroat technology industries, but energy research tends to be for more productive long-term planning. As well, the numbers only tell one side of the story.

“There is a heavy over-reliance on the spending numbers when people talk about the country’s performance on research,” said Ron Freedman, chief executive of Research Infosource Inc., the Toronto-based firm that annually ranks Canada’s top R&D spenders. “If you’re only looking at the total amount of spending going on, you’re missing half the point. The other half of the equation is the number of companies involved in research.”

There were 116 Canadian companies doing R&D related to oil and gas extraction as of 2010, Research Infosource data shows, compared with just a few smartphone-focused firms.

Employment data represents another misleading metric. Western Canada has historically been home to only a small fraction of the R&D professionals in the country as a whole, yet according to the Innovation Atlas of Canada, the western region has been gaining ground.

Between 2001 and 2007, the number of R&D workers in Canada grew 28% from 115,000 to 147,000. During the same time, the number of those workers living in the west increased by 43%.

Because there is no single ‘champion’ Canadians can idolize, these facts often go unnoticed partially because the energy industry has been famously poor at telling their own story.

“When it comes to this Canadian industry we do lots of good, innovative work but somehow we are not good at messaging,” notes Soheil Asgarpour, president of the Petroleum Technology Alliance of Canada.

Part of the problem is determining who should be doing the messaging. PTAC has conducted more than 350 R&D projects with nearly 60 still ongoing.

In each of them, the goal has been to include as many different industry players as possible — sometimes hundreds — in order to diversify both the cost and the overall risk of failure. While it is clearly an efficient model, the constant flux of sources for financial and human resources can make it difficult to see how quickly progress is accelerating.

Jason Franson for National Post

Jason Franson for National PostScientists at Syncrude Research and Development Centre in Edmonton have quadrupled the number of patentable ideas over the past 15 years.

Shelley Lynes can clarify matters. When she started working at Syncrude Ltd.’s Edmonton-based R&D complex in 2008, dealing with intellectual property took up about half of her time. Today, her title is intellectual property specialist.

Scientists working with the consortium behind Canada’s largest oil sands mining operation have quadrupled the number of patentable ideas (what Syncrude calls “invention disclosures”) they produce since she arrived. Syncrude also receives at least one unsolicited idea from a third party — which can range from academics to “guys in their garages” — every day.

“In the past, in 2008, we might, for the full year, have reviewed 35

[invention disclosures] to consider a patent filing,” Ms. Lynes said.

“Now we’re reviewing 35 to 40 at every [quarterly] meeting. So there is a lot more activity [and] there are a lot more players in the industry as well.”

The collective goal of Canada’s energy innovators — to maximize production and minimize environmental harm — will not be achieved by next quarter or even next year. It will take 15 to 20 years by Mr. Isaacs’ calculations, or an entire generation.

When it is achieved, however, it could forever alter the global balance of energy power.

“The reason we are number three in the world [in terms of the size of our oil and gas reserves] is because our level of recovery is not as high as in other countries,” explained Mr. Asgarpour.

“But if we can get 30% recovery from our bitumen, and current rates are only 10%, based on future and emerging technologies which in my opinion are doable, then Canada alone will have more reserves than the entire Middle East region.”

Can Alberta muster its own innovation army? More on the West’s burgeoning energy technology sector every Tuesday this month as part of FP Executive’s Productive Conversations series all this month

By Jameson Berkow, To view full article on Financial Post Click Here

By |2017-10-20T16:47:59-06:00September 3rd, 2012|PTAC News|0 Comments

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