Asphalt and bitumen play part in Husky's multi-year plan

By Geoff Lee

June 1, 2017 12:00 AM

Potential asphalt refinery expansion and growing thermal bitumen production in the Lloydminster region will play a key role in the outcome of Husky Energy’s new five-year plan.
Husky aims to grow funds from operations with an annual rate of return of nine per cent per year by 2021, as outlined during their Investor Day in Toronto on May 30.
Husky’s strategy focuses on growing its integrated Canada-U.S. upstream and downstream corridor, including Lloydminster operations and offshore production in the Asia Pacific and Atlantic regions.
Both businesses have strong prospects to generate increased free cash flow over the five-year plan, with built-in measures to mitigate volatility.
The bottom line will be helped locally by boosting heavy oil volumes in Lloyd by an additional 40,000 barrels per day over that period.
Production growth will come from the ongoing construction of the 10,000 bpd Rush Lake 2 thermal and three thermals, to be built at Dee Valley, Spruce Lake North and Spruce Lake Central, with a combined design output of 30,000 bpd.
Husky has identified at least 14 additional Lloyd thermal developments for potential advancement.
The company’s total thermal bitumen production, including volumes at Tucker near Cold Lake and Sunrise Energy north of Fort McMurray and Lloyd, is currently 120,000 bpd.
“Over the next five years, we’re going to grow this another 50 per cent, hence adding another 60,000 barrels per day,”  said Andrew Dahlin,  senior vice president of heavy oil.
“About two thirds of our heavy oil production is now being generated by thermal technology.”
These projects are physically integrated with Husky’s downstream business, which provides for increased margin capture, secured U.S. market access, and free cash flow growth.
Supporting the growth of thermal bitumen is Husky’s 70 per cent weighting of natural gas, from its Western Canada resources production focused in Alberta.
The gas provides a supply and natural hedge for Husky’s energy requirements at its thermal projects and refineries.
A decision on doubling asphalt refinery capacity by 30,000 bpd in Lloydminster will be made in 2018, with the construction cost estimated between $700-900 million.
“The engineering on the project is well underway, and we’ll be taking a final investment decision next year, but the metrics look pretty compelling,” said Jeff Rinker, vice-president of downstream value chain.
Rinker said asphalt margins have been strong for a lot of years, generally in the order of about $20 a barrel.
Husky produces about four per cent of the asphalt produced in North America, with market conditions favourable to expanding capacity to 60,000 bpd.
“We are confident we can place the increased production in the North American market,” said Rinker.
“Our asphalt has a natural cost advantage in that the Lloydminster feedstock is of such high quality that it requires less additives to convert it into performance-grade asphalt.”
He said depending on Husky’s board and regulatory approvals, the company looks to begin construction next year and be ramped up to full capacity by 2021.
“We will realize capital cost efficiencies by building the new asphalt unit within the available land of the Lloydminster complex,” said Rinker.
The site plans from a project open house held earlier this year in Lloydminster locate the expansion near the ethanol plant at the Husky upgrader.
The expansion of Lloyd’s asphalt production capacity by 30,000 bpd would increase overall heavy crude refining capacity in Lloydminster from 110,000 bpd to 140,000 bpd.
Husky is expecting total production to grow by nearly 5 per cent per year, from about 320,000 to 335,000 barrels of oil equivalent per day (boe/day) in 2017 to 390,000 to 400,000 boe/day in 2021.
The company is piloting or planning to use a variety of new technologies to increase production and oil recovery, and to lower costs.
These methods include solvent injection and non-condensate gas injection and CO2 capture and injection, currently used in the Lloyd region.
Husky also expects to lower its operating costs by 17 per cent over the period, as a result of ongoing investments in lower-cost, longer-life production, led by Lloyd bitumen thermals.
In the next five years, the company expects improved downstream margins from increased heavy oil processing capacity, expanded asphalt capacity in Lloydminster, and product sales flexibility.

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