Husky mulls nuclear option in oil sands
DAVID EBNER
Monday, January 08, 2007
CALGARY — Nuclear power is one of the alternatives to natural gas being considered by Husky Energy Inc. to fuel its proposed 200,000-barrel-a-day oil sands project called Sunrise.
Husky is the second major company after Total SA of France to openly discuss nuclear as an option for the oil sands. Last summer, a Calgary company called Energy Alberta Corp. began to market the nuclear option to oil sands companies in a partnership with Atomic Energy of Canada Ltd.
Husky is working on Sunrise's engineering plans, and the major push is to reduce reliance on expensive natural gas to power the generation of steam. Steam would be injected into wells at Sunrise to recover raw bitumen from below ground because the oil is too deep to be mined.
While nuclear is an idea on Husky's table, the chief executive officer isn't sure the timing is right.
“[Nuclear] is workable but it depends on government,” John Lau, Husky CEO, said in an interview in the company's boardroom Monday. “In Alberta, once you talk about nuclear, people tend to put their antennae up.
“Whether it's the right time or the wrong time, I still don't know. You have to be very cautious about nuclear. We even talked about nuclear 10 years ago and then we stopped.”
Politicians in Alberta had been vehemently against nuclear power, but last year former premier Ralph Klein said it had to be considered. In December, federal Natural Resources Minister Gary Lunn said nuclear in the oil sands is a matter of when, not if, adding it could “play a very significant role.... I'm very, very keen.”
More immediate options to reduce Husky's reliance on natural gas include burning part of the bitumen extracted to power the whole process, similar to the strategy chosen by Nexen Inc. and OPTI Canada Inc. The partners are using OPTI technology to cut gas usage at their Long Lake project, which begins operations this year.
Mr. Lau is worried about the price and availability of gas if the oil sands expand as predicted. “If everybody uses gas, where does that gas come from?” he said. “That is one of the major areas that we are looking for front-end engineering, what fuel we are going to use, and what technology we are going to use.”
A decision on technology is slowing the Sunrise project somewhat, he said. Husky had said first production at Sunrise would happen in the 2010-12 window, a time frame Mr. Lau now sets at 2012-15.
Husky wants to have front-end engineering completed this year, as well as a decision on where to process the bitumen. The company has held talks with refiners in the United States including Marathon Oil Corp., and last year it was close to buying a stake in the large Lyondell refinery in Texas. Another partner could be BP PLC's Chicago refinery.
Husky may also still build a facility in Alberta, though Mr. Lau has questioned the costs to do so.
Last October, EnCana Corp. signed a deal with ConocoPhillips Co. to move bitumen to the United States for upgrading and refining.
On the East Coast, Husky is in talks with the Newfoundland government to expand production at the White Rose offshore project to 140,000 barrels a day and “maybe even more” from an official level of 100,000. The operation has already hit peak rates of 125,000. Husky has made two discoveries around White Rose from which it believes it could extract an additional 190 million barrels of oil — almost doubling the initial reserves.
The company also has several trillion cubic feet of natural gas at White Rose and is waiting for Newfoundland to publish rules on taxes and royalties. Mr. Lau said he'd be willing to let the government become an equity partner in a gas project in exchange for other breaks such as lower taxes.
“Everything is possible,” he said. “If they reduce one thing, we can talk about the other thing.”
Mr. Lau, 64, has been CEO of Husky since 1993. A year ago, Husky hired Robert Peabody as chief operating officer, suggesting to many observers Mr. Lau was set to retire, but Monday Mr. Lau said he was not planning to retire this year, adding that succession is a board of directors decision and no fixed timeline has been set.
The company has enjoyed tremendous success under Mr. Lau's direction, with stock of Husky outpacing most of its large rivals over the past year, as well as the past three and five years.
Sale of the company, which is majority owned by billionaire Li Ka-shing of Hong Kong and his Hutchison Whampoa Ltd. conglomerate, has been the subject of rumours for years. Mr. Li last August said he in fact might increase his stake, adding that while he had been approached by potential buyers, he had no plans to sell.
“I can only repeat that,” Mr. Lau said. “I cannot make a sale, he's the one. I feel Husky's doing so well. Year after year, we increase shareholder value. Where is he going to reinvest his money?”
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