CALGARY, Alberta (Reuters) - While North America has been gripped by controversy over the Keystone XL pipeline that would ship crude to the United States from the Canadian oil sands, a small Canadian company has been quietly digging in the oil sands of Utah with a secret weapon it thinks may end the environmental argument: citrus.
U.S. Oil Sands Inc says its method will cut the cost and reduce the energy needed to separate oil from sand, lowering the environmental impact. Opponents are far from convinced.
The Calgary-based firm is developing its PR Spring project on a 32,000-acre lease about 280 kilometers (174 miles) southeast of Salt Lake City. It plans to start producing 2,000 barrels per day next year with the potential to reach 10,000 barrels per day.
Its patented technology uses a solvent whose main ingredient is derived from orange and lemon peels. The solvent, it says, can separate tar-like oil deposits, known as bitumen, from sand more efficiently than methods currently used in the Canadian oil sands in northern Alberta.
Solvent technology, although typically petroleum-based, is already gaining ground among Canadian oil sands producers. Major developers such as Cenovus Energy Inc and Imperial Oil Ltd pump it into the ground to liquefy the bitumen deposits, cutting the amount of steam that would otherwise be used to do the job and lowering greenhouse gas emissions.
But U.S. Oil Sands says it has a better way. "We've got a technology that allows you to more efficiently get bitumen out of oil sands," Cameron Todd, chief executive, said in an interview. "We've got a process that works and ... it means you don't have a problem with sludge that's left over and needs to go to a tailings pond."
To separate oil from the sand that encases it, the Canadian company uses citrus-based d-limonene, a widely available industrial chemical found mostly in paint, but also in fragrance and home-cleaning products. Manufactured by a number of suppliers worldwide, it is also touted as an aid to digestion and a weight-loss aid.
Because it uses a solvent rather than the hot-water separation common in Alberta's oil sands region, Todd said Utah's PR Spring project will not need a tailings, or waste-water, pond. The cleaned sand can be immediately returned to the site, letting reclamation and mining take place at the same time.
"The mine never gets any bigger," Todd said. "You just fill in one end and dig out the other. You don't have an oil sands area the size of the city of Calgary."
Construction at the arid site is on schedule, the company said last month. It has spent close to $18 million on preparation and procuring equipment, eyeing the third quarter of next year for completion.
Utah may seem an unlikely choice for a Canadian company looking to start an oil sands mine.
However, the state accounts for the lion's share of U.S. oil sands deposits that the U.S. Geological Survey estimates hold 57 billion barrels of oil, only a fraction of which can ever be recovered.
In contrast, Alberta has 170 billion barrels of recoverable reserves in its Athabasca region. The Utah oil sands have been tapped for other uses such as road asphalt, but not for heavy oil.
Utah has approved PR Spring despite opposition from green groups that say such projects threaten watersheds. In the case of PR Spring, that means the Colorado River, the main source of drinking water for nearly 40 million Americans.
"It's just totally inappropriate," John Weisheit, conservation director for the environmental group Living Rivers. "This has massive consequences to air, water and land."
Living Rivers has already lost one challenge to the project in Utah's courts. Weisheit says more are possible.
Besides legal challenges, U.S. Oil Sands faces other headwinds in its bid to open the first oil sands mine outside Canada.
The project is small by the standards of the oil sands industry in Alberta, where operations costing billions produce 100,000 barrels per day or more. But with size comes economies of scale that are not available to small producers like U.S. Oil Sands.
In addition, while the ability of a solvent to separate bitumen from sand has been proven, some observers question the availability of U.S. Oil Sands’ citrus-based product and the willingness of refiners to accept bitumen that has been mixed with it.
"There are a lot of studies that need to be made on the compatibility of that solvent ... with refineries," said Pedro Pereira Almao, a professor at the University of Calgary who researches bitumen-upgrading technologies.
U.S. Oil Sands’ eyes, however, are on the main chance back home. It wants to prove that its solvent processing technology works and attract the interest of the oil majors that spend billions to develop projects in the Athabasca oil sands.
"We plan to expand our project in Utah and drive it up to 10,000 barrels per day. And then we'll plan to take that as a model and show we can develop that in Alberta," Todd said
Reporting by Scott Haggett; Editing by Peter Galloway