Global conventional oil and natural gas reserves are on the decline. As a result, non-conventional resource plays, such as Alberta's oil sands, are experiencing heightened global interest. Bitumen extraction and upgrading is an energy intensive process. This article focuses on gasification as a fuel alternative to natural gas for oil sands operation, reviewing current trends in oil sands reserves, energy requirements, the gasification technology and carbon dioxide (CO2) emissions. A supply cost methodology is employed to analyze the outlook of lower natural gas consumption and higher emission penalties for oil sands projects that integrate gasification.

The results of the supply cost analysis illustrate that an integrated oil sands extraction, upgrading and gasification project is less susceptible to operating cost pressures amidst rising natural gas prices due to its lower natural gas requirements. However, without means to mitigate CO2 emissions, the supply cost approach indicates that federal offset penalties of CAD 60 per tonne erode any benefit associated with the decreased natural gas use.

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