BP and Husky Energy to Invest $2.5 Billion in Toledo Refinery in Oregon, Ohio

BP has announced that it intends to upgrade its Oregon, Ohio facility, referred to as the Toledo Refinery, to process oil produced in the Canadian oil sands. In addition, BP will acquire a half-share in the Sunrise field in Alberta, Canada operated by Husky Energy, a Canadian-based energy company headquartered in Calgary, Alberta. BP and Husky Energy will form a joint venture, with Husky Energy acquiring a half share in BP's Oregon, Ohio oil refinery.

Oil sands are deposits of heavy, black and viscous oil, called bitumen that requires extensive processing to convert it into an upgraded crude oil for use in refineries to produce gasoline and diesel fuels. According to the Alberta government, Alberta has one of the world's two largest sources of bitumen. However, the oil sands are primarily composed of mineral matter. Bitumen makes up only about 10-12 percent of the actual oil sands.

Unlike crude oil, oil sands are actually mined rather than pumped from the ground, and the bitumen must then be separated from the surrounding sand and water. In the past, extracting oil from the oil sands has been deemed too expensive. However, in light of the rising costs of crude oil, production in the oil sands is now profitable. Nevertheless, because bitumen must be mined and has the potential to damage land, air, water, forests, and the climate, environmental groups like Greenpeace Canada are calling on all oil production from the oil sands to be stopped.

In its natural state, bitumen is too thick to flow. However, a process known as Steam Assisted Gravity Drainage (SAGD) will be used to extract the bitumen from the oil sands. Steam is injected into a well below the oil sands to heat the bitumen above it, causing the bitumen to drain under the pull of gravity into a lower production well. The bitumen is then produced through a wellbore to the surface.

According to a BP press report, BP and Husky expect to be producing bitumen in 2012, building to 200,000 barrels of oil a day by the end of 2020 with a 40-year production plateau. To meet expected output, the current refinery capacity in Toledo, Ohio is expected to be increased from 155,000 barrels per day to 170,000 barrels per day. Husky Energy reports that it will have first call on up to 50 percent of the Toledo refinery capacity for its share of the Sunrise oil field's bitumen production.

Sources:

Alberta Energy, "What is Oil Sands," Alberta Government.

www.bp.com, "BP Enters Canadian Oil Sands with Husky Energy," BP Public Relations.

www.greenpeace.org, "Stop the Tar Sands," Greenpeace Cananda.

www.huskyenergy.ca, "Husky Energy and BP Announce Integrated Oil Sands Joint Development," Husky Energy.

U.S. Government, "International Energy Outlook 2007," Energy Information Administration.