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Canada Helps Create an Oil Sands World

Alberta is showing the way for nations with similar reserves. Brace for a global 'age of tough oil.'

By Geoff Dembicki, 9 Sep 2010, TheTyee.ca

Map of unconventional oil reserves

Modified from 'Oil Sands of the World: Their Origin, Occurrence and Exploitation' by Paul L. Russell and UNITAR Heavy Oil & Oil Sands database.

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Efforts to develop oil sands in Alberta are serving as a model for many other nations eager to exploit similar reserves within their borders.

Huge unconventional fuel reserves -- extra heavy crude, oil sands and oil shale -- lie untapped across the globe. These resources emit much more carbon than regular oil, causing green groups to call them climate killers. So far, only a small fraction of the planet's unconventional oil has been tapped. Most countries lack the necessary capital, technology and expertise.

But Canada is helping to change that. The Alberta oil sands -- where sludgy bitumen is mined or steamed from the ground, then cooked or diluted with chemicals -- have become an unconventional oil extraction classroom.

Energy companies from around the world are learning valuable lessons in the northern muskeg. They're now eyeing reserves in Africa, Europe, Latin America, the U.S. and the Middle East. Some operations have begun producing. Others could start shortly.

Pushing the trend is a growing consensus that conventional sources of fossil fuels will become increasingly scarcer. World leaders are already failing to curb fossil fuel demand. Coming years will likely see more cars on roads every year combusting dirtier and dirtier fuel.

"Time is critical," reads a recent report from Friends of the Earth Europe, an international green group. "Unconventional oil resources are about to go global."

Era of high carbon fuels?

This May, that group released a dire warning about the planet's energy future, one virtually ignored by Canadian media.

Large-scale unconventional oil operations have so far been confined to Alberta's oil sands. But the industry is now poised for global expansion. That trend risks "tipping the world over the brink in terms of climate change," the Friends of the Earth report claimed.

Oil can be divided into two general categories. Conventional crude -- like that bubbling from the ground in the Beverly Hillbillies -- is still the mainstay of the world economy. Production from existing fields, though, could decline nearly 50 per cent by 2020, according to the International Energy Agency (IEA).

Unconventional crude is generally heavier, thicker and more difficult to extract. The resource must undergo an intensive refining process before it can flow smoothly in pipelines. All this emits a lot of carbon.

Take Alberta's oil sands. Extracting, refining and combusting a barrel of oil from there produces 82 per cent more greenhouse gases than conventional crude, the U.S. Environmental Protection Agency recently estimated.

By 2020, total carbon emissions from the Alberta oil sands could be nearly two times those now released by New York City.

Alberta is home to the world's second largest proven oil reserves, yet produces only a small fraction of total planetary supply. Most other unconventional deposits lie untapped.

That could change rapidly in coming decades. The IEA estimates high-carbon oil sands, oil shale and extra heavy crude will account for 11 per cent of global oil production by 2030.

"The problem is that the public is not informed about it," Friends of the Earth Europe campaigner Darek Urbaniak told The Tyee. "Our decision makers are not informing them."

Kuwait, China seek Albertan expertise

This June, Kuwait Oil Co. set up a lavish booth at Calgary's annual Global Petroleum Show. The state-owned energy firm had no product or service to pitch. It came merely to network, intent on learning "new technologies and techniques" for extracting unconventional oil.

"We thought the good practice is to be close to the champion, or the leaders in this area," a senior company engineer, Bader Al-Matar, told the Canadian Press.

Production from Kuwait's conventional oil fields -- which comprise about nine per cent of global reserves -- is set to decline. The country is now eyeing carbon-intensive heavy crude. It hopes to someday produce 270,000 barrels a day, but has little hands-on expertise.

Kuwait is talking potential partnerships with major oil sands producers Royal Dutch Shell, Total SA and ExxonMobil.

The oil-rich emirate isn't the only country looking for Canadian know-how. Trinidad and Tobago could have anywhere from 900 million to two billion barrels of oil sands-type crude. Its former energy minister was keen to follow the Alberta extraction model.

Chinese wealth funds and state-owned firms have pumped billions of dollars into Alberta oil sands projects over the past year.

The communist country presents a familiar story: dwindling conventional fields, soaring energy demand and untapped heavy oil reserves. Some analysts suspect recent Chinese investment is partly about education.

"What they would want to do is buy in with a partner that explains the technology to them," University of Calgary business professor Bob Schulz told The Tyee.

"They would send their engineers over here to figure out what we're doing in Canada, then go back to China and try to implement the Canadian technology on the Chinese fields."

Venezuela's heavy oil the 'biggest prize'

This July, Venezuelan President Hugo Chavez announced his country could soon have the biggest certified crude oil reserves on the planet. Governments regularly survey their energy deposits. A new study will likely wrap up this fall.

But Venezuela's reserves -- even if they do prove to be the world's largest -- are by no means easy to extract. Most untapped crude there is a thick substance comparable to Alberta bitumen. It must be heavily refined and diluted with chemicals before it can flow through pipelines.

"The most obvious environmental issue," reads the recent Friends of the Earth report, "is the sheer size of the deposits being explored, which will mean the release of huge amounts of [greenhouse gases] into the atmosphere."

Right now, Venezuela's unconventional reserves are not being developed at anywhere near the same scale as Alberta's. Many analysts blame the Chavez government, which nationalized much of the oil industry in recent years.

The state oil company, PDVSA, has been accused of mismanagement. And most American oil companies -- with the exception of Chevron, a major Alberta oil sands player -- refuse to invest in Venezuela.

"As long as this government is in charge, you run the risk of the rules of the game changing in the middle of the game," said Jorge Pinon, a research fellow with Miami's Florida International University and former oil company executive.

There's little doubt in his mind, though, that someday the country will become an unconventional oil superpower.

"Venezuela is the biggest prize out there," Pinon told The Tyee. "You and I know that conventional reserves throughout the world are declining -- and the world's appetite for oil continues to be there."

The new oil sands frontier

Scattered across the globe are many smaller, still tantalizing prizes. The African island nation of Madagascar -- considered one of Earth's most biodiverse regions -- may hold nearly 11 billion barrels of oil sands-type crude.

Production has so far been minimal. But Houston-based Madagascar Oil and Alberta oil sands player Total are actively appraising two fields. If deemed commercially feasible, the resource will likely be developed via open pit mines and deep steam injections. (The latter is a process pioneered over 30 years ago in Alberta).

In 2008, Italian energy giant ENI signed agreements with Republic of Congo leaders to explore for bitumen in the country's southern regions.

And Shell -- which operates a massive oil sands mine north of Fort McMurray -- partnered in 2007 with a Russian oil firm to develop unconventional reserves in Tatarstan.

Further on the energy horizon, oil shale development in Jordan, Morocco and the United States could add trillions of barrels to global fossil fuel reserves. But the process -- whereby a substance called kerogen is blasted from solid rock, then heated at high temperatures -- is extremely costly, water dependant and carbon-intensive.

Green groups regularly lambast the Alberta government for the speed, scale and environmental impact of oil sands development.

"In countries with weaker political and environmental governance frameworks," reads the Friends of the Earth report, "the consequences of [unconventional oil] expansion are likely to be devastating."

'Age of tough oil'

This February, U.S. military planners flagged declining oil supplies as a top security threat. The predictions came in a report on international security trends, prepared by the Joint Forces Command.

It estimated global energy demand will rise nearly 50 per cent over the next 20 years. Unless production keeps pace -- which the report deemed unlikely -- a "severe energy crunch is inevitable."

That could have major consequences, none good. Planners warned of future military conflicts in Africa and elsewhere, protracted recessions and even total state collapse.

"One should not forget," the report stated ominously, "that the Great Depression spawned a number of totalitarian regimes that sought economic prosperity for their nations by ruthless conquest."

But here's the conundrum: meeting energy demands won't necessarily improve global security. In past decades, most oil came from large, shallow reservoirs -- it merely had to be pumped out of the ground.

We've now entered what Michael Klare, a professor of peace and world security studies at Hampshire College, terms the "age of tough oil." The world's energy increasingly comes from difficult geological formations (Alberta), unstable dictatorships (Sudan) and deep offshore reserves (Gulf of Mexico).

"All of these remaining options present cost problems, political problems and environmental problems," Klare told The Tyee.

Ultimately, he argues, countries will have to switch to more renewable forms of energy. But the transition will be rough.

"It's probably going to take more disasters like the one in the Gulf of Mexico and higher costs," Klare said. "We'll need greater efforts by political leaders to educate the public about these risks."  [Tyee]

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