The oil price collapse of 1986 put development of a vast petroleum resource -- heavy and extra heavy oils -- on hold. But as oil prices increase the long-term economic outlook is favorable oil industry experts said. Estimated potential world reserves of extra heavy oils exceed 500 billion barrels of which more than half are located in Venezuela Juan Chacin Guzman President of Petroleos de Venezuela told the World Petroleum Congress. And this virtually unused resource represents a prime example of the need to invest in technology to ensure tomorrows energy future he added. Venezuela had to reduce heavy crude oil output in favor of light oils because of economics and a very limited market. Not many refineries have been upgraded to process the heavy oils. Improved technology has the potential for reducing the capital investment and operating costs of typical heavy oil development projects by 30 pct or more Gordon Willmon VP and general manager oil sands and coal department Esso Resources Canada Ltd said at the World Petroleum Congress. Crude oil prices fell under 10 dlrs dlrs a barrel last summer as OPEC members increased production to gain market share but have since risen to around 18 dlrs because the OPEC production/pricing agreement is basically in tact. Willmon said light and medium crude oils currently supply 90 pct of world oil demand yet they account for less than 25 pct of remaining petroleum resources. So future demand increasingly will be met from the various forms of heavy oil Willmon said. Heavy crude oil resources include extra-heavy oil/tar sand natural bituminous sands and oil shales (in sedimentary rock). Willmon cited major factors that will make heavy oil development economical including real and stable growth in crude oil prices favorable fiscal terms and improved technology. He said he expects all pieces of the puzzle to fit together. But he cautioned that the short-term outlook is very sensitive to crude oil prices. And he said the most important factor in development of heavy oils is the recovery of the price of crude. Willmon said the price of light crude must be about eight dlrs higher than heavy crude before there is an incentive for an oil company to upgrade its refinery to process heavy oil. He said the current price differential is only about five dlrs a barrel. Willmon indicated that a benchmark crude oil price above 20 dlrs would be ideal. But he said currently under study are a broad range of high potential cost-effective technologies for resources recovery transportation and upgrading of heavy oils which would permit commercial development despite a lower crude oil price outlook. Willmon said these technologies included enhanced recovery by steam injection and oil-and-water emulsion to reduce the viscocity of the heavy oils so they can flow easily through a pipeline. He said such technologies may substantially reduce current captial investment and operating costs. But he emphasized that innovative technology alone may not encourage new investment that oil prices need to show a meaningful and sustained recovery. Most of the expenses associated with heavy oils production is fixed operating costs as in an oil sands project rather than in exploration according to Robert Smith Senior VP Operations &lt;Syncrude Canada Ltd>. While exploration costs for conventional crude oil range from four to nine dlrs a barrel discovery costs for synthetic crude from oil sands are nearly zero because the location and nature of the deposit are known according to Smith. But the remote location of oil sands deposits mean that everything required to build and operate the plant must come from outside the area. Willmon also said Public policy could best help by providing financial support to offset the high cost of technology developmemt which would help generate projects that could survive even at low oil prices for extended periods of time. U.S. Energy Secretary John Herrington said The Reagan Administration is firmly committed without equivocation to continuing our efforts to improve conditions and incentives in the marketplace that will spur oil and gas exploration and development.
ENERGY/HEAVY OILS