Techno-Economic and Environmental Assessments of Replacing Conventional Fossil Fuels: Oil Sands Industry Case Studies by Jennifer Marie McKellar A thesis submitted in conformity with the requirements for the degree of Doctor of Philosophy Graduate Department of Civil Engineering University of Toronto © Copyright by Jennifer Marie McKellar (2012) Techno-Economic and Environmental Assessments of Replacing Conventional Fossil Fuels: Oil Sands Industry Case Studies Jennifer Marie McKellar Doctor of Philosophy Graduate Department of Civil Engineering University of Toronto 2012 Abstract Conventional fossil fuels are widely used, however there are growing concerns about the security of their supply, volatility in their prices and the environmental impacts of their extraction and use. The objective of this research is to investigate the potential for replacing conventional fuels in various applications, focusing on the Alberta oil sands industry. Such investigations require systems-level approaches able to handle multiple criteria, uncertainty, and the views of multiple stakeholders. To address this need, the following are developed: life cycle assessment (LCA) and life cycle costing models of polygeneration systems; a life cycle-based framework for multi- sectoral resource use decisions; and a method combining LCA and real options analyses to yield environmental and financial insights into projects. These tools are applied to options for utilizing oil sands outputs, both the petroleum resource (bitumen) and by-products of its processing (e.g., asphaltenes, coke), within the oil sands industry and across other sectors. For oil sands on-site use, multiple fuels are assessed for the polygeneration of electricity, steam and hydrogen, in terms of life cycle environmental and financial impacts; asphaltenes gasification with carbon capture and storage (CCS) is the most promising option, able to reduce greenhouse gas (GHG) emissions to 25% of those of current natural gas-based systems. Coke management options are assessed with the life cycle-based framework; the most promising options are ii identified as: Electricity generation in China through integrated gasification combined cycle; and, hydrogen production in Alberta, either for sale or use by the oil sands industry. Without CCS, these options have amortized project values ranging from $21 to $160/t coke. The application of the combined LCA and real options analyses method finds that uncertainty in natural gas and potential carbon prices over time significantly impacts decisions on coke management; the formulated decision tree identifies increases of 29% and 11% in the financial and GHG emissions performance, respectively, of the overall coke management project compared to pursuing the decision identified by the life cycle-based framework. While promising options for replacing conventional fossil fuels are identified through systems-level analyses, there are trade-offs to be made among the financial, risk and environmental criteria. iii Acknowledgments I would like to thank my research supervisor Heather L. MacLean and our collaborator Joule A. Bergerson for all their help and guidance. For their support, I thank Alberta Energy Research Institute, Alberta Innovates – Energy and Environment Solutions, the AUTO21 Network Centre of Excellence, the Carbon Management Canada NCE, industry partners, Natural Resources Canada, Natural Sciences and Engineering Research Council of Canada and the Ontario Graduate Scholarship. I also thank my family for all their encouragement and support during my studies. iv Table of Contents Acknowledgments .......................................................................................................................... iv Table of Contents ............................................................................................................................ v List of Tables ................................................................................................................................. ix List of Figures ................................................................................................................................. x List of Appendices ........................................................................................................................ xii Abbreviations and Acronyms ...................................................................................................... xiii Chapter 1 Introduction .................................................................................................................... 1 1.1 Replacing Conventional Fossil Fuels .................................................................................. 1 1.1.1 Rationale for Replacing Conventional Fossil Fuels ................................................ 1 1.1.2 The Alberta Oil Sands ............................................................................................. 2 1.2 Systems-Level Analyses ..................................................................................................... 4 1.3 Objectives ........................................................................................................................... 5 1.4 Outline ................................................................................................................................. 5 1.5 References ........................................................................................................................... 7 Chapter 2 Literature Review ........................................................................................................... 9 2.1 Conventional Fossil Fuels ................................................................................................... 9 2.1.1 Conventional Crude Oil .......................................................................................... 9 2.1.2 Conventional Natural Gas ..................................................................................... 13 2.1.3 Coal ....................................................................................................................... 16 2.1.4 Replacements for Conventional Fossil Fuels ........................................................ 19 2.2 Oil Sands ........................................................................................................................... 20 2.2.1 Bitumen and Synthetic Crude Oil ......................................................................... 21 2.2.2 Oil Sands Natural Gas Demand ............................................................................ 22 2.2.3 Oil Sands By-Product Coke .................................................................................. 23 v 2.3 Analytical Techniques ...................................................................................................... 24 2.3.1 Life Cycle Assessment and Life Cycle Costing ................................................... 24 2.3.2 Stakeholder Analysis ............................................................................................ 25 2.3.3 Treatment of Uncertainty ...................................................................................... 26 2.3.4 Informing Decision-Making ................................................................................. 28 2.4 Fuel Replacement Case Studies Based on the Oil Sands .................................................. 28 2.4.1 Transportation Fuels from Unconventional Fossil Fuels ...................................... 29 2.4.2 Alternative Fuels for the Oil Sands ....................................................................... 31 2.4.3 Potential Uses for Oil Sands Coke ........................................................................ 32 2.5 References ......................................................................................................................... 33 Chapter 3 A Life Cycle Greenhouse Gas Emissions Perspective on Liquid Fuels from Unconventional Canadian and U.S. Fossil Sources ................................................................. 39 3.1 Abstract ............................................................................................................................. 40 3.2 Introduction ....................................................................................................................... 40 3.3 Unconventional Fossil Sources of Liquid Fuels ............................................................... 41 3.3.1 Oil Sands ............................................................................................................... 43 3.3.2 Oil Shale ................................................................................................................ 44 3.3.3 Coal-to-Liquids ..................................................................................................... 45 3.3.4 Gas-to-Liquids ...................................................................................................... 45 3.4 Life Cycle Assessment of Transportation Fuels ............................................................... 46 3.4.1 Oil Sands ............................................................................................................... 47 3.4.2 Oil Shale ................................................................................................................ 48 3.4.3 Coal-to-Liquids ..................................................................................................... 49 3.4.4 Gas-to-Liquids