| 12/17/2007 - Buried Treasure: the solution to North America's energy problem? |
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By Laura Gibson Time Magazine calls them “Canada’s biggest buried treasure”. The Oxford Club Investment Director avers, “Canada’s oil sands are easily the world’s most exciting energy story”.1 And Bob Simon of CBS’s 60 Minutes informed a delighted audience that “the reserves are so vast…that they will help solve America’s energy needs for the next century”.2 It seems everyone thinks the Alberta oil sands are going to save us from a peak oil crisis… At first glance, the statistics do seem compelling: the oil sands are the biggest known reserve of oil in the world with an estimated 2.5 trillion barrels of oil trapped within them.3 This makes Canada second only to Saudi Arabia in terms of global oil reserves.4 It has also secured Canada’s position as number one supplier of energy to the US. This of course benefits the US as well as Canada since the world’s other large oil exporters, Iran, Nigeria, Venezuela, Saudi Arabia and Russia, are increasingly perceived as “…nations that represent tyranny, corruption or instability” by US citizens.5 Rather than being forced to spend billions of dollars investing in developing a more extensive domestic energy plan, the US can now look northwards to a sympathetic neighbour to satisfy its oil thirst.6  Image Source: CAPP (2007) Canadian Oil Sands Outlook Equally, the financial implications for Canada are superficially attractive: the Federal Government will receive $123 billion of its total revenues from the oil sands; 44% of Canadian employment generated by the oil sands will be outside Alberta; and the oil sands will account for nearly 30% of the economic impact of GDP outside Alberta.7 According to the Canadian Association of Petroleum Producers, CAPP, oil sands reserves will sustain production of 2.5 million barrels per day for the next 200 years.8 How much does it cost to get the oil out of the sands? In the Athabasca region, simply picking up soil from beneath your feet allows you to hold oil. Yet, this apparent abundance of oil on the surface is misleading. The oil, when it is extracted is attached to each grain of sand by a thin film of water and the sands are only 10-12% bitumen, mixed in with clay and other substances. Separating the bitumen from the sands involves a great deal more work than scooping the sands from the surface. At present, oil companies rely on a combination of surface mining and in-situ processes to take the oil from the ground. Some indication of the difficulties entailed with mining are highlighted by the fact that two tons of oil sands have to be dug up to procure one barrel of oil. In-situ extraction basically involves injecting steam or other solvents into the sands deposit to loosen the thick bitumen, which in turn allows it to be drawn to the surface. The advantage with this method is that it permits recovery of bitumen from sands much deeper in the Earth. These complex procedures previously kept extraction costs so high that oil projects in the sands were financially untenable. But, as we edge closer to $100/barrel prices, this obstacle has fallen by the wayside. And technological innovations are driving the costs down further, which makes the projects appear more affordable. Coupled with the lower extraction costs and higher oil prices are the apparent benefits of employment opportunities, royalties and improved GDP that the oil sands projects will facilitate. Economically, extracting oil from the sands now seems very profitable. However, the oil in the sands is not the same as the oil and natural gas flowing from the Western Sedimentary Basin, and the fact that it is harder to extract, makes it more sensitive to market prices, which raises the spectre of another bust.9 For the current boom to continue, the oil sands companies need wider markets and an improved infrastructure to support these developments, which take time and involve further costs. Several pipeline projects are proposed to deliver oil to these new markets in the next five to ten years.10 China has also expressed interest in the oil sands projects, to the aggravation of the US. Another factor to consider is the rising cost of natural gas, which is fundamental for the oil sands extraction processes. And we have to question the logic of using natural gas, a cleaner burning hydrocarbon, to produce bitumen oil, which produces far higher quantities of greenhouse gases when it burns. This may become an increasingly pertinent issue if the ongoing UN Climate Change conferences result in strict carbon emission cuts. What are the other environmental implications? The environmental impact that the oil sand projects are having has evoked responses that range from accepting it as a “huge challenge”11 to calling it “environmental Armageddon”.12 Oil sands companies are required by law to minimize contamination of, and damage to, the environment. For example, reclaimed land must be restored so that it is “…as productive or more productive than it was before it was mined” and water used for extraction is not discharged back into the ecosystem.13 These requirements seem promising. However, the laws are far from binding and in many case oil sands companies are able to get away with doing little to compensate for their impact. While the law requires that water contaminated during the extraction process cannot be pumped back into the Athabasca River, this belies the fact that extracting the water in the first place is causing further problems to diminishing flow levels. The oil sands projects require 2-6 barrels of water (mostly non-recoverable) to produce one barrel of oil and, as water extraction is expected to triple over the next ten years, by 2020, oil sands operations could be using half of the river’s low winter flow.14 This will cause environmental destruction to the river system. The contaminated water that cannot be returned to the river is siphoned off into tailing ponds that are rapidly growing in size. In theory, these huge toxic lakes will not seep into the surrounding land and make their way back into the water system. However, reports from First Nations communities along the Athabasca River suggest otherwise. Elders from these communities describe how "The river used to be blue. Now it's brown. Nobody can fish or drink from it”.15 And the Social impact? These environmental changes have a direct social impact on First Nations groups, as well as other communities in the area. First Nations communities have benefited financially from the oil sands projects but many have also experienced disruption to their traditional way of life. More alarming, is the abnormally high rates of rare cancers that Native residents of Fort Chipewyan, a village of 1,200 on the shores of Lake Athabasca, have experienced since the oil companies started mining the area.16 At Wood Buffalo and Fort McMurray, residents are concerned that inadequate housing and sewage systems will not be able to serve the growing number of labourers entering the area. There has also been a marked increase in crime and substance abuse. The Pembina Institute refers to the falling Genuine Progress Indicator, which takes into account social, environmental and economic indicators, to indicate how conditions in the area are diminishing, even if the GDP is rising.17  Image source: The Pembina Institute (2006) Measuring Progress in Alberta: The Genuine Progress Indicator And, of course, if we continue to burn GHG emitting fuels to produce fuels that emit even greater quantities of GHGs and contribute further to climate change, the social, economic and environmental impacts will be felt by all North America and beyond. What next? So, what should we do? Clearly we need a longer-term solution to the North American energy question and the oil sands projects are perhaps sounding less sustainable at this point. The Canada West Foundation asserts that it is “…not the presence of the oil sands projects that are disruptive… but rather the size, scope and speed at which these projects are proceeding”.18 The Pembina Institute offers further recommendations, including: making the oil sands projects carbon neutral by 2020; ensuring responsible use of the oil and a transition to sustainable energy for North America; tighter environmental restrictions on the oil companies to protect the region; and the establishment of an equitable fiscal regime.19 Either way, it seems prudent to continue searching for other energy sources for North America, rather than relying wholly on the oil sands for the future. 1Alex Green ‘Alberta Oil Sands: Investing In the Oil Reserve 8 Times Bigger Than Saudi Arabia’, Investment U (issue 574, 23 Aug 2006) Available at: http://www.investmentu.com/IUEL/2006/20060823.html |