Canada’s Oil Sands: A World of Value

In his newly-released book, Black Bonanza: the Race to Secure North America’s Energy Future, noted historian and publisher Alastair Sweeny sees Canada’s vast oil sands resource as a calming, stabilizing force in the world. It’s a force that offers “energy security and a bridge between petroleum- based economies and alternative energy sources,” Sweeny states.

Oilsands

The oil sands certainly have the size and endurance to do just that. The total amount of Canadian bitumen in the ground has been estimated at 1.7 trillion barrels, of which 174 billion—second- largest reserves in the world—are considered recoverable, based on current economics and technology. At today’s production rate of around 1.8 million barrels per day, that’s a 264-year supply. Even if production doubles, as predicted, that horizon is still well over a century. Also, unlike conventional crude, there’s essentially no exploration risk as oil sands reservoirs are already well-known. In fact, when European explorers first arrived, aboriginal peoples in the area had been using bitumen to seal their canoes for thousands of years.

Total Oil Input

Canada’s oil sands fully represent 46% of the world’s oil reserves that are not state-owned or state-controlled. They currently represent two-thirds
of Alberta’s and about one-half of Canada’s total oil output. They’re economically significant: oil sands’ operations directly employ around 14,000; 1,500 are aboriginals. In addition, these employment figures don’t even include construction jobs, which at their peak, can add 30,000 workers to the total.
The nation’s 140,200 square km of oil sands are in three main deposits – the Athabasca (largest), Peace River and Cold Lake areas in Alberta and part of Saskatchewan. In parts of the Western Canadian Sedimentary Basin, oil sands deposits underlie oil and gas bearing formations and angle more deeply underground towards the Rocky Mountains.

Easy To Understand

It’s not a complex resource to understand: individual grains of sand are surrounded by a layer of water and a bitumen film and that complicates extraction and processing. The tarry bitumen needs to be separated and upgraded before refining; it contains heavier hydrocarbon compounds, sulphur compounds and metals compared to conventional crude.

Methods of Oil Sands

Two main methods of producing oil sands are open-pit mining and in situ. Mining is economical where deposits are within 75 metres of the surface. Large shovels scoop 100 tonnes of oil sand at a time into trucks holding 400 tonnes each, which take it to crushers, where large clumps are broken down. The mixture is then thinned with water and transported to a plant that separates the bitumen. It then goes directly to an upgrader, or in the near future, will be diluted and transported through long-distance pipelines to US Midwest or Gulf Coast refineries or to the Far East.

Around two tonnes of oilsands are needed to produce one barrel of 34 API crude oil—ready for most refineries. Mining recovers 90+ percent of crude in a deposit, but it’s a common myth that this is the main method of recovery. Far from it; just 20 percent are recoverable through open-pit mining. The rest is too deep.

Where deposits go deeper than 75 metres, operators turn to in situ methods which extract anywhere from 25 to 75 percent. Most in situ operations (see table) use steam-assisted gravity drainage or SAGD: pumping steam underground through a horizontal well to liquefy the bitumen which is pumped to the surface through a second well. An advantage of in situ is minimal surface disturbance because modern directional drilling enables 20 or so wells from a single pad. About 54 projects currently employ SAGD.
One innovative company, Petrobank Energy, has perfected an in situ method that doesn’t require steam. Called THAI, or Toe to Heel Air Injection, it’s basically an underground burn front propelled by injected air.

As the front progresses, bitumen ahead of it liquefies and is collected by a series of horizontal tubes below. Other companies are developing novel techniques like solvent processing, Enhanced Recovery Electro-Thermal Dynamic Stripping, N-SOLV and Vapor Exchange. In fact, the University of Calgary is experimenting with genuinely cutting-edge recovery methods like using natural microorganisms to speed up natural processes of oil and gas formation to recover energy as natural gas or hydrogen rather than heavy oil, a virtually emission-free production.

Oil Prices

Generally, oil prices above US $50 per barrel are needed for oil sands projects to be profitable, but a dependable rule of thumb is impossible. Numerous factors enter the decision equation like exchange rates, labour and equipment costs and bottlenecks, natural gas prices, royalty regimes, bitumen and crude price differentials and others: this figure can be $75 or more for new projects whereas some existing projects may be profitable above $30. Indeed, Shell recently announced any oil sands expansions will require an oil price of $70 to $75. These figures can’t be compared directly with conventional production either; conventional producers must continually invest hundreds of millions to explore for and replace reserves as they are produced. Oil sands producers are at least spared this expense.

Canada’s oil sands are increasingly coming under world criticism from environmentalists, some of it greatly exaggerated. Because production is energy-intensive – transporting, processing, upgrading- more greenhouse gases are emitted. Open pit mines disturb large areas of land, but regulations require reclamation of the landscape. Large amounts of water are used in open-pit mining for oil separation and in situ operations to generate steam, but 90 percent of it is recycled and reused. Open-pit mining operations produce large tailings ponds which are unsightly and hazardous to wildlife, but new regulations and new research are minimizing their impact.

Through various ownership and partnership arrangements, Suncor Energy, Imperial Oil, Shell, Canadian Oil Sands Limited, ConocoPhillips, EnCana (Cenovus), Devon Energy, Chevron, Marathon and Nexen accounted for 70 percent of the region’s 2009 production total. The industry invests considerable capital and operating expenditures each year. From the cost of around C$7 billion in 2001, the Oil Sands Developers Group now forecasts C$31 billion will be spent in 2010 when production is expected to top two million barrels per day. About 40% of the 2010 outlay will be for capital investments alone.

The oil sands have been called the world’s largest industrial project, and because of their scale, companies often need to look beyond Alberta’s and Canada’s borders for supply. A sampling of such is China supplies compressors and pumping equipment; Korea and India provide heat exchangers and pressure vessels; Venezuela and Argentina have tubular products; Japan provides cable shovels, hydrocrackers and dump trucks; and Sudan, China and Mexico contribute skilled workers.

The town of Fort McMurray has been at the centre of frenzied growth. From a population of just over 40,000 in 2000, projections this year are to top 75,000—creating intense pressures on housing and infrastructure. It’s needed to meet demands of current production of about 1.8 million barrels per day. Also, it’s growing; a further 0.6 million of capacity is under construction; 1.86 million has received regulatory approval for the period 2013 – 2021; and another 1.63 million is under review.

The majority of new bitumen production will be shipped to US refiners in the Midwest and Gulf of Mexico. Two new pipeline systems are under construction to carry up to 1.5 million barrels of diluted bitumen per day into the US: TransCanada’s Keystone system, in which 435,000 barrels per day is expected to commence in June; Enbridge’s Alberta Clipper line is running 450,000 barrels a day to Superior, Wisconsin. In future, some may ship to the Far East if proposals by Enbridge and Kinder Morgan go ahead. Few Canadian refineries are built with upgraders to accept raw bitumen. With world petroleum demand not expected to diminish for the next decade, Canada’s oil sands offer a secure and long-term source.