Alberta's Tar Sands

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    For entire article seehttp://peakoil.com/article806.html


    Article appeared in the Toronto Star - www.thestar.com - Sunday, July 25, 2004



    JOHN SPEARS
    BUSINESS REPORTER

    FORT McMURRAY, Alta.—The odds are good, and growing better, that your next tank of gas is mixed up in the sticky black sand of a monster truck pounding along the banks of the Athabasca River.

    As Len Hale points out, the truck is so massive — it carries 360 tonnes — you can see a wave forming in the soft dirt in front of each tire as the truck rolls across the ground, deforming the earth as it goes.

    Hale is general manager of Suncor Energy Inc.'s Millennium Mine in the Athabasca oil sands of northern Alberta.

    The sands lie at the junction of Canada's energy future.

    They're a huge source of energy in their own right.

    The flow of synthetic crude out of the oil sands today now exceeds that of conventional crude from Alberta's conventional southern oil fields. In theory, their capacity is second only to the oil fields of Saudi Arabia.

    This year, the tar sands are projected to produce just over one million barrels a day on average — nearly equal to the 1.1 million barrels produced by conventional means.

    The reason there's such a push to develop the oil sands is that easy-to-produce conventional oil is becoming scarcer.

    By 2015, conventional production is projected to drop more than 40 per cent, to 600,000 barrels a day, while production from the sands will more than double to 2.6 million barrels.

    (Atlantic Canada production is currently 420,000 barrels a day, climbing by 100,000 barrels next year when the White Rose field off Newfoundland comes into production.)

    But the tar sands are a more complex energy proposition than a conventional field, in which oil trapped in porous rock is simply pumped to the surface.

    The sands are not just a source of energy; they're also a voracious consumer of energy in the form of natural gas — and in that capacity are competing with homeowners and industrial gas users who use natural gas both for heat and as a source of chemicals for products ranging from fertilizer to plastics.

    As both a source and a consumer of fossil fuels, the sands also are a big source of greenhouse gases, pushing Canada away from its goals of cutting emissions.

    Ontario electricity users have a reason to keep an eye on the oil sands, too. As the province moves to shut down its coal-fired electricity generators, much of the power formerly generated by coal is likely to come from natural gas, tying the electricity sector more closely to the complex energy equation of the tar sands.


    No one has a conclusive theory about how the oil got into the sands, which stretch in a band across northern Alberta.

    And for years, no one knew how to make money getting it out. At some levels, it's not that difficult. Pour some hot water onto some oil sand in a jar, shake it up and the oily water will float to the top while the sand settles to the bottom.

    Doing it on a commercial scale — and then upgrading the heavy, black oil known in the trade as bitumen into the usable products you can pour into your car's gas tank or crankcase — is more of a trick.

    Assembling the billions of dollars needed to build the massive mining and refining facilities that have now sprouted around Fort McMurray is another. Oil sands mega-projects have had a nasty habit of going over budget.

    But here they are, now scarring huge swaths of the forest and muskeg around Fort McMurray.

    The three biggest integrated operations, combining large-scale mining with on-site upgrading operations:

    Syncrude, currently pumping 230,000 barrels of crude a day.

    Suncor, producing 233,000 barrels of crude a day.

    And the newest kid on the block, the Athabasca Oil Sands Project a partnership of Shell Canada, Chevron Canada and Western Sands L.P.

    But a host of smaller operations are also busy sucking oil from the sands and sending it to other companies for upgrading into usable products.

    And south of Fort McMurray, a joint effort of OPTI Canada Inc. and Nexen Petroleum Canada, is on the verge of starting a project that will use the oil sands' own energy to power the extraction and upgrading processes.

    Why the stampede to the oil sands? It's not just in Canada that cheap, conventional oil is becoming scarcer.

    The markets' recent flirtation with oil at $40 (U.S.) a barrel has raised questions about over-all worldwide supplies.

    Serious oil analysts are questioning the state of world oil supplies for the longer term.

    One of the most prominent has been Matthew Simmons, who heads U.S. investment banking firm Simmons & Co. International, which specializes in the oil industry.

    Simmons warns that the days of easy oil have come to an end.

    The world floats for the most part on a pool of Saudi Arabian oil, Simmons argues in a presentation he has made widely to oil industry audiences. It is the Middle East, and especially the Saudis, who have the capacity to increase or decrease production to match world demand.

    Saudi production rests on five huge oil fields, but one — the Ghawar field — is responsible for up to 60 per cent of Saudi production. It alone produces 5 million barrels a day — about double Canada's total production from all sources.

    But Simmons questions the reliability of Saudi reserve estimates, which he says have not been sufficiently scrutinized by third parties. And he wonders whether the Arabian super-giant fields are nearing the down-slope of their productivity.

    Moreover, no new super-giants have been found — in Saudi Arabia or anywhere else in the world — since the 1950s, he points out.

    Half a dozen OPEC nations, including Saudi Arabia, mysteriously boosted their "proven reserves" in the late 1980s by 50 per cent or more, Simmons notes. Skeptical observers at the time labelled them "paper barrels." More recently, he says, they have been regarded as "possibly conservative" numbers. Simmons now labels the estimates of Saudi reserves as "fuzzy," because in his view there hasn't been a rigorous third-party review of the estimates. That's dangerous in a world where demand for oil continues to grow.

    "Can oil output double?" he queries. "Can it safely stay flat? Might all five key (Saudi) fields soon enter rapid decline?

    "Without any data, nobody really knows."

    Simmons pleads for a "new era of energy transparency" so at least the world knows where it stands. And in case the outlook is grimmer than we've been led to believe: "We need to begin creating a new form of energy to replace some portion of oil and gas use."

    Not everyone agrees, of course.

    Energy economist G.C. Watkins of the University of Aberdeen argues in a recent paper that the world's ultimate reserves are unknowable, because new science and technology can open up new supplies.

    Reserves fall when companies believe the return they'll get on exploring for new supplies doesn't justify the expense. Reserves are dictated by economics, not geology.

    Since the OPEC oil embargo of 1973 brought the idea of an energy shortage into public consciousness, Watkins notes, world oil reserves have doubled while production continues to increase.

    But Simmons is not alone in his darker outlook.
     

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