Alberta’s Oil Sands: Source of Crude and National Pride

Located in the heart of Canada’s West, the province of Alberta continues to hit national records with its robust and booming economy, low unemployment, nonstop influx of skilled workers and promising livelihood perspectives.

Blessed with 170 billion barrels of economically recoverable petroleum reserves, the second largest in the world after Saudi Arabia, Alberta effectively runs the engine of the country’s energy sector with three-quarters of Canada’s crude oil and 74 percent of its natural gas extracted in 2010.

This source of provincial muscle, commonly known as the oil sands, lies in the northern part of Alberta and combines three main deposits: Athabasca, Cold Lake and Peace River. Taken together, these oil sands underlie an area of 142,200 km², which is bigger than the state of New York. In 2010, the area relinquished 1.5 million barrels of crude production per day. According to the forecast of the Energy Resources Conservation Board, that number can be more than doubled by 2020 if global economic and political trends stay current.

What are the trends? First and foremost, the world needs oil and will stay thirsty for it for many years to come. The notion of renewable energy becomes increasingly popular in civic discourse, and governments are being urged to pledge politically correct commitments. However, with all due courtesy swept to the public, they realize that a costly alternative to fossil
fuels is likely to prevail in the future.

The world’s unsettled economic reality still bears traces of the lingering global recession and does not leave much room for maneuvering. It requires satisfying a growing demand for
energy hic et nunc, and the only way to do that is to get more crude oil.

Certainly, there are many places in the world rich in hydrocarbons. Though, upon a closer view, it proves that not all of them are capable of meeting the customers’ needs. Investors
want not just a cost-effective access to crude, but are seeking sustainability of the resource base and the predictability of its owners.

According to Ron Liepert, the provincial minister of energy, Alberta is the best place in this regard, coming out of the recession with unprecedented economic growth and activity.

“Now more than ever the world needs secure, reliable sources of energy from regions with stable governments, transparent democracies and attractive fiscal regimes. Alberta’s continued growth and prosperity rests on our ability to integrate energy production with environmental sustainability. Alberta is a secure environmentally responsible major energy supplier to the world,” assures the minister. His confidence seems well-founded. Last year, oil and gas companies purchased the land in Alberta for the record amount of $2.5 billion. Capital spending in 2011 also hit the impressive $16 billion level, reflecting the strong intention of key industry players to expand their presence in the oil sands.

Mining

One of the largest actors that extract bitumen there is Syncrude. The Syncrude Project is a joint venture set by Canadian Oil Sands Limited, Imperial Oil Resources, Mocal Energy Limited, Murphy Oil Company Ltd., Nexen Oil Sands Partnership, Sinopec Oil Sands Partnership and Suncor Energy Oil and Gas Partnership.

It operates on the Athabasca deposit and utilizes traditional production technology, known as mining. As soon as bitumen deposits become too deep and, accordingly, difficult to reach,
mining will be losing its commercial value. Nevertheless, for the time being this technology brings up 1.210 million barrels of oil sands crude per day.

Through surface mining, extraction and upgrading, Syncrude has come up with 107 million barrels of sweet crude oil in 2010. The current corporate strategy envisions expansion
of the Mildred Lake/Aurora North Mines with a view to reach a record 407,000 bpd level in bitumen production.

However, production output is not the only thing Syncrude cares about. The company argues it does everything possible to reduce its footprint on the environment and to help strip the
oil sands’ reputation off the stubborn tar stains. Recycling 85 percent of the water used, bringing air quality almost close to the standard, managing tailing ponds and reclaiming mine lands require investments in the billions, and Syncrude has been bearing that cost. It has completely reclaimed 3,500 hectares with another 1,000 ready for vegetation, and became the first in the industry to receive a government certificate for reclaimed land.

In-Situ

Another oil sands’ dinosaur is Cenovus Energy. This Calgary-based company doesn’t use trucks and shovels to scratch the surface and get the crude. In Foster Creek, Christina Lake and Pelican Lake projects in northeastern Alberta, Cenovus applies the so-called in-situ technology, where steam-assisted gravity drainage (SAGD) makes the bitumen soften in reservoir and ready to be pumped to the surface. According to government statistics in 2011, oil sands in-situ projects produced up to 0.875 million barrels of crude per day.

Senovus Energy plans to use SAGD in its three upcoming oil sands endeavours, with initial production capacity at 90,000 bpd, 130,000 bpd and 180,000 bpd respectively. The projects are settled for about a 40-year life each and are in a take-off position, waiting for approval from the government and regulators.

In-situ is obviously more advanced both in terms of its capacity to extract more crude from deeper horizons and in terms of its lesser environmental impact in comparison with open mining. SAGD technology consumes less water, leaves no tail ponds and doesn’t require mass land reclamation.

Nevertheless, according to a study presented by the Pembina Institute, a Calgary-based environmental watchdog, the main negative impact of this technology is air pollution. Compared to mining, SAGD projects more than double the carbon dioxide and other gas emissions due to the intense use of steam and the enormous energy required to generate it and pump underground.

Carbon Capture and Storage

The oil sands crude producers see a solution to the greenhouse gas problem in another technological advancement called Carbon Capture and Storage (CCS). The favourable geology of Alberta’s lands makes it feasible to capture CO2 from large stationary sources such as power plants, upgraders, etc. and inject it into deep underground reservoirs carefully selected for safe long-term storage.

That’s exactly what Shell Canada is going to do on its oil sands project sites. Having one of the biggest bitumen upgraders in Alberta and the intention to commence a second one there, Shell is really focused on engaging CCS to reduce the negative ecological consequences of its production cycle.

Last year, Shell had signed agreements with the governments of Alberta and Canada to secure the $865 million in funding for its CCS Quest Project. The Quest Project will capture and permanently store more than one million tons of carbon dioxide per year from its Scotford Upgrader near Edmonton.

According to the company’s executives, with CO2 injection to be started in 2015, the Quest Project would be the first application of CCS technology for the oil sands upgrading operations. It would allow to significantly reduce the carbon footprint of Shell’s activity in Alberta and help accumulate knowledge to get other CCS projects up and running more quickly.

Taken together, these changes can infuse optimism into all parties interested in the oil sands development and contribute to a positive perception of the Wilde Rose Country, which is proudly called “Canadian Texas.”