Buyer Of Ivanhoe’s Partial Upgrading Technology Hopes To Build Demonstration Plant

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A tiny British-based company that acquired Ivanhoe Energy Inc.’s partial upgrading technology hopes to build a commercial demonstration plant if an oilsands partner will pay for it.

Ivanhoe’s partial upgrading technology went through the early development stages, but the Vancouver-based startup couldn’t raise the large investment needed for a commercial oilsands project. After oil prices collapsed, the company was unable to reach a restructuring agreement with its creditors and was declared bankrupt (DOB, June 3, 2015).

Almost a year ago FluidOil Limited said it had acquired the intellectual property of Ivanhoe (DOB, April 4, 2016).

FluidOil was started in Venezuela by a Norwegian who designed a short-residence-time coker. On pilot tests, the technology converted Canadian and Venezuelan heavy crudes to an oil of more than 20 degrees API gravity, says Charlie Parker, FluidOil’s current president.

How the two differ

Parker says FluidOil’s and Ivanhoe’s technologies are nearly identical “mechanically,” but from a process, or chemical-reaction, standpoint, they differ significantly in some ways.

FluidOil’s process goes a step further by removing olefins to produce a crude that refiners prefer, says Parker.

“[Ivanhoe’s] technology, in our minds, was just a fast-residence-time coker,” he says. “They basically took coke out in a very short residence time and gave you a nice little upgrade and left you with a slightly olefinic product.”

Unlike the Ivanhoe process, FluidOil’s technology, like most upgrading processes, uses hydrogen to remove the olefins. “Our technology provides hydrogen into that reaction, and also provides a far more violent reaction,” Parker explains.

But wouldn’t hydrogen make the process more expensive? And isn’t cutting costs the goal of partial upgrading—transporting bitumen more cheaply by eliminating diluent and diluent-related infrastructure?

Parker insists partial upgrading can still be economic even if it uses hydrogen—because FluidOil is simply using hydrogen to remove olefins, not to fully upgrade the bitumen to a light crude, and also because FluidOil doesn’t need methane to make hydrogen.

Most upgrading and refining operations extract hydrogen from methane through a process called steam methane reforming. FluidOil’s process doesn’t use methane. “We get our hydrogen from steam. And that’s the absolutely critical part,” says Parker.

He claims: “And that’s why we’re so excited about this. Because we can take the Ivanhoe technology ... and just subtly change it so we can get a far, far better product out of it.”

So if FluidOil’s process could already do the trick, why buy the Ivanhoe technology?

Parker says what FluidOil was mainly buying was millions of dollars worth of engineering work Ivanhoe had already completed.

“We’re a very small business. We’ve spent about $12 million developing the technology over 12 years,” he says. “So that’s not a lot of capital.”

FluidOil believes Ivanhoe spent much more. For example, the Canadian firm had already completed a front-end engineering and design (FEED) package for a 20,000-bbl-a-day plant. Parker says his company can use “90 per cent of” this.

The British startup also got Ivanhoe’s pilot plant in San Antonio, Texas which Parker says is being re-commissioned. “We’re probably spending about $60,000 to change it to our technology.”

Ivanhoe’s upgrading process was called Heavy-to-Light, or HTL. FluidOil’s was called Viscositor. The hybrid of both, which is to be tested at the Texas plant in the coming months, is called VHTL.

Demonstration plant

After the hybrid FluidOil/Ivanhoe process has been tested at the San Antonio facility, the next step will be to build a small commercial demonstration plant in the Alberta oilsands region.

FluidOil says it is working with a large oilsands producer which it hopes will pay for construction and operation of the commercial demonstration plant. Parker says he can’t identify the oilsands operator, citing a confidentiality agreement.

“We’re in the middle of the engineering for that right now,” he told the Bulletin in a recent interview, referring to preliminary work being done ahead of the oilsands partner’s decision on whether to proceed with the demonstration plant.

Parker is optimistic because it would be a relatively small project.

“We aren’t trying to build a massive plant,” he said. “This isn’t a commercial plant. This is going to be 1,000 bbls a day probably, and it might be 2,000.”

Ed Johnson, a former British investment banker who started his career as a production engineer in heavy oil, said he has known Parker since their university days more than two decades ago. Johnson said he has been familiar with FluidOil’s technology since 2012.

Dealing with a heavy oil producer in Albania, Johnson said he would sometimes pitch FluidOil’s technology as a possible way to cut diluent or transportation costs, but he always had to wrestle with the misconception that the ultimate goal is to produce a crude that would fetch a higher price at the refinery.

“That’s not your game,” Johnson said in a phone interview. “You’re not trying to upgrade the oil to sell the oil for more money. You’re trying to upgrade to knock out a bunch of costs.”

He added: “The problem with heavy oil is not what you can sell it for. It is how you get it to where you can sell it.”

When oil prices were at $100 a bbl, the cost associated with diluent—by some estimates more than $10 a bbl—was less of an issue. With prices at half that level, more attention is being focused on potential solutions like partial upgrading.

But technology vendors have been promoting partial upgrading processes since last century. At least a dozen proprietary processes are currently available. To date, no large-scale commercial project has been built. So what about FluidOil’s process?

“I have seen it work and I know it does work,” said Johnson, who acknowledged the real test will be economic, not technical.

“It’s not actually a question of: Can you make the technology work? It’s: Can you make the technology work at a price that works?”

He added: “Partial upgrading is definitely a solution that makes sense—as long as you understand you’re not trying to improve the value of the oil, you’re just trying to make it easy to move it around.”