Many oil companies are aggressively seeking heavy oil as an upcoming energy resource as the world’s energy demand increases. With continued improvements in technology, this once costly source of energy is becoming a viable source of energy. It is estimated that the U.S. has a total of approximately 104 billion barrels of heavy oil and natural bitumen compared to a total of only 22 billion barrels of conventional crude oil (McMahon, 2013). Of the 154 deposits with more than 50 million barrels in the U.S. heavy oil, excluding Alaska, 121 of these deposits are located in California found within several basins (Herron. & King, 2004). With exception of Alaska’s Prudhoe Bay Field, the U.S. has not made any major oil discoveries in the last 40 years. Foreign market still accounts for 60% of the U.S. oil consumption and only one-third of oil consumed in the U.S. comes from domestic reservoirs (Herron. & King, 2004). The largest domestic deposits of heavy oil are in Alaska, Utah, and California.
The remaining conventional oil reserve in Alaska currently stand at 4 billion barrels, but Alaskan resource of heavy oil in a single field, the Kuparuk River deposits is 19 billion barrels (Suslak, 2012). Additional, large part of the oil reserve at Kuparuk River lies close to Alyeska oil pipeline and Prudhoe Bay oil fields allowing for easy transportation with essentially no further environmental impact. Natural bitumen reservoirs accounts for high percentage of heavy oil resource in Utah. It is estimated that the multiple reserve in the Tar Sand deposits contain more than 22 billion barrels of bitumen. Utah has a total of more than 32 billion barrels, none of which is being commercially developed now. The discovery of heavy oil in California was made in the turn of the previous century and currently constitutes approximately half of crude oil production in the state. Significant infrastructure to access heavy oil is already in place owing to the ongoing production in more than 200 reservoirs (Suslak, 2012).
Delek U.S. chance to invest in heavy oil
According to International Energy Agency (IEA), the projected radical shift in global energy balance of power will put the U.S. as the world’s largest oil producer by 2020 (McMahon, 2013). The U.S. has world’s largest heavy oil reserve, but few of these deposits have been developed extensively. Advancement in technology could spur mining of heavy oil found in the U.S. Delek U.S. take advantage of technological advancements to pursue heavy oil that has been left idle in the U.S. over the last 40 years. The urgent demand for light oils and strict environmental protection laws makes it important for refineries to convert heavy oils into lighter and more efficient products. The U.S. Department of Energy (DOE) has introduced new technology for upgrading heavy oils into safer products that can be accepted at refineries (McMahon, 2013). The traditional methods of upgrading heavy oils have hindered the development of the U.S. oil sands because they are expensive and cumbersome. This new technology will reduce operational cost and make the investment profitable.
Currently, drilling new well takes five days to drill and is relatively cheap at a total cost of $550 million to $750 million (Jones, 2003). Another advantage for investing in heavy oil is that the U.S. has large oil in requiring low primary recovery factors. Additionally, Delek U.S. can conduct operations in these reserves year-round with exception of spring break-up.
References:
Herron, E. H. & King, S.D. (2004). Heavy oil as the key to U.S. energy security. Petroleum Equities Inc. Retrieved from http://www.petroleumequities.com/cgi-bin/site.cgi?p=energysecurity.html&t=5
Jones, N. (2003). Can heavy oil avert an energy crisis? New Scientist Archive, 179(2406), 11.
McMahon, J. (2013, April 10). Keystone aside, U.S. eyes its own tar sands. Forbes. Retrieved from http://www.forbes.com/sites/jeffmcmahon/2013/04/10/keystone-aside-u-s-eyes-its-own-tar-sands/
Suslak, N. (2012, November 21). The U.S. is expected to become the world's top oil producer by the end of the decade, and investment opportunities abound.CNN Money Fortune. Retrieved from http://finance.fortune.cnn.com/2012/11/21/oil-investments/
