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Oil Sands - General

The Alberta oil sands constitute one of the largest energy reserves on the planet. Unlike conventional oil deposits which feature liquid oil captured in porous rock, the oil sands are sand formations with a relatively low content of highly viscous oil.

Where oil flows quite readily out of a conventional oil field once it has been tapped, oil from the oil sands has to be extracted in an industrial process involving a great deal of heat and pressure.

This requires a large amount of energy which is why the oil sands have a far higher level of carbon emissions than do conventional oil production sites.

  • It takes the energy of one barrel of oil to extract and produce 5 barrels of oil.
  • Currently, the average conventional oil field yields 15 to 20 barrels of oil for every barrel of oil consumed in production.
  • In the glory days, oil from the rich Middle East and Texas fields returned 100 barrels for every one input but technology has been unable to keep pace with resource depletion so the energy return on energy investment has fallen to the current 15:1.

The oil sands in Alberta contain approximately 170 billion barrels of accessible oil.

  • This is enough oil to supply the United States requirements for about 23 years.
  • Or Canadian consumption for about 500 years.
  • At the current production rate of 2.5 million barrels per day, the oil sands have a lifespan of 180 years.
  • At a projected rate of 10 million barrels per day, the oil sands life span is under 50 years.
    • That does not take into account future population growth.
    • Or higher levels of energy efficiency.
    • Or the fact that we are exploiting the richest deposits now and all future deposits will take more energy and more work per barrel of oil produced.
  • These are gross oil figures. If one allows for the energy required to extract usable oil from the oil sands, the net figures would be 20% less.

Oil is a non-renewable resource and in effect, oil fields are mines. Like any mine, once the richest body of the ore is depleted, the mine is abandoned. If the mine has been run in an environmentally sound manner, what remains are neutralized tailings overplanted with natural cover which will grow into productive habitat over time.

If sound environmental practices have not been employed, very often the mine remains a site of toxic waste which poisons the environment for decades. Currently, development of the oil sands has resulted in huge tailing ponds which no one has yet been able to render environmentally neutral.

This intractable problem with surface mining has led to the process of "in situ" processing where pipes are drilled into the oil-bearing sand and used to inject heat so the oil can flow and be extracted. This method has vastly less environmental impact than surface mining which is more energy intensive.

Up until mid-2015, in the Canadian grow-forever, quick profit environment, the oil sands were being developed as quickly as possible with no regard for short-term global warming impacts or long-term waste and infrastructure abandonment costs.

Now in 2016, new federal and provincial governments are giving, at least, lip service to climate change concerns. There is also increased global focus on the issue. These factors plus the fall in oil prices, possibly lasting for 3 to 5years, have left future levels of oil sands production hard to predict.

Will the desperation for cash flow of the Alberta economy and government drive them to repeat the boom years when and if the opportunity arises? Perhaps a long-term policy can be adopted.

If so, in a sustainable society, the oil sands would serve as an environmentally neutral small base energy load filling in for renewable energy shortfalls when necessary and would have a productive life span of centuries.


Oil Sands - Advanced

The oil sands in Alberta is the largest energy project in Canada and is certain to be the longest lived mining operation in the country’s history. As such, it needs to be integrated with a national policy focused on environmental sustainability, social progress and fiscal balance.

By definition, the oils sands is a mining operation which means it is a non-renewable resource and therefore development is unsustainable.   However, the way in which the oil sands is developed can lead to a sustainable economy as the energy sector is given time to convert to a renewable energy base.

The 170 billion barrels of harvestable oil in the oil sands would service Canada’s current oil consumption needs for over 2 centuries.   Any population growth would reduce this while the transition to green energy would extend it. Since a sustainable society is under no obligation to burn up its non-renewable resources as quickly as possible, the oil sands could remain a useful resource asset for many centuries.

Despite the size of the resource, it must be recognised that the oil sands is a very expensive source of energy. It is a low grade field where extensive industrial processes must be used to access the oil bearing sand, extract the heavy oil from the sand and further refine it to a suitable commercial grade.

Complex treatment of both the huge amounts of water used (2 barrels water input for every one barrel of oil output) and the sand and landscape revitalization also require large energy inputs.

The challenge of reducing the regional air and water pollution from the oil sands is huge. To this point, long term solutions are not technically feasible and large tailing ponds are currently being used to hold contaminated water.

Even larger is the problem of carbon emissions from the many processes involved in extracting marketable oil from the earth.   Carbon emissions go hand in hand with the energy required to drive the entire process because that energy is fossil fuel based. Carbon capture and storage has been trumpeted as the means to drastically reduce emissions level for both the oil sands and Canada as a whole. However, the science does not exist to do this effectively on a large scale and the costs, both in terms of energy and human effort are extremely high.

The traditional approach to resource development in Canada has been one of very rapid exploitation with the public sector delivering the infrastructure that the private sector has required and then picking up the costs which are involved with the resources end of life process.

Given the size of the oil sands, such an approach will prove disastrous from all public points of view.   Carbon emissions and direct environmental damage are on a massive scale.   The oil sands carbon emissions are second (a distant second) only to mass immigration as the source of Canada’s rising emissions. Ours is the second worst record of any of the Kyoto signatories.

The scale of the surface mining and tailings ponds covering hundreds of square kilometers is unparalleled on this planet.   How these unexploded environmental bombs will be defused is not known at the moment. Who will pay for it is very well known. It will be the public, the tax payer.

The oils sands is a very low margin oil development where costs of the product are very high compared to the selling price. Funds to deal with the full environmental costs simply cannot be built into the selling price at the current time. Out of the $90 selling price, oil sands developers are spending are spending approximately 15 cents per barrel on environmental costs. Yet their profit level is currently very low and possibly negative.   In order to be profitable and cover the full cost of assuring environmental neutrality, the selling price for a barrel of oil sands oil will have to be far higher; possibly in excess of $150.

Like any mineral resource, the richness (oil content per cubic metre) of the oil sands varies from area to area.   Both costs and yields will be different. Typically, the richest ore bodies are developed first while higher cost areas are left for later.   If this pattern holds for the oil sands, then we can expect the energy required to extract a barrel of oil will increase over time exacerbating all of the environmental issues.   On the other side of the equation are the advances in technology which will make production more efficient over time.

Development requires workers and workers require houses, schools communities and transportation and power networks. Infrastructure is expensive to build and maintain.

In a rapid growth, boom town feeding frenzy infrastructure badly lags growth and speculators push up living costs so the higher wages earned by workers are largely eaten away. Governments scramble to build infrastructure and incur heavy debt in doing so.

The best way to approach the development of the oil sands would have been to slowly ramp up production on the lowest cost ore bodies to assure the greatest margins which would have much better supported environmental balance and infrastructure construction.   Higher incomes, which must always be a core government goal, would have been preserved for the workers by lower housing costs. Large numbers of foreign workers would not be necessary to keep wages low.

A much smaller number of workers and generations of their offspring would be employed in stable, high paying jobs and live in healthy communities for the long term. Government and personal debt would be minimized and no wind down of the communities would have to be contemplated for centuries.

As it is, the rapid development has left the oil sands region with an infrastructure and housing shortage and environmental and fiscal debt buildups. If development continues in this direction, oil output will be very high for several decades and by mid-century, the large workforce and massive infrastructure will be facing the end of production as the resource plays out. Just like any other mining town.   The difference here is scale.

Rapid development of high production facilities requires very large infrastructure expenditures and guarantees a short production life of the resource. At the end of the production cycle, infrastructure will still be very large as will the population but the source of income to support these communities will no longer exist.  

A gradual buildup towards a low, stable output with a resource life of centuries will yield a completely different debt profile because there won’t be any public debt and personal debt will be minimized. Environmental degradation will be minimized as a much smaller level of emissions is spread out over a much longer period of time.

Canada can replay the mining town boom-bust cycle or it can transition to responsible governance for the welfare of all in the long term.

 

Oil of Last Resort

To fully appreciate how expensive and marginal the oil sands are, please look at this graph from Rystad Research. It shows the comparative extraction costs for major oil plays. Environmental costs are not built into this chart.

A long slow process of development would be much better suited to a resource such as the oil sands. Price fluctuations when there is still excess capacity in the world oil system will whipsaw the oil sands, Alberta and much of Canada if we proceed too quickly and try and bite off too much. Clearly we have done so already and the period of time oil remains under $60 a barrel will determine how severe the penalty is for going all-in and very early on a low quality resource play.

Rystad Reseach Oil Sands Chart


Oil Sands - Reference

Subject MatterSource

Oil sands pollution levels may have been underestimated
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CBC News

An Examination of Alberta Labour Markets

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U of Alberta

Two other studies since 2010 have shown increased levels of mercury in the oil-sands region
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The Globe and Mail

Labour market for oil sands

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Joseph Marchand

Labour Market Information and Careers in Oil and Gas programs

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PHRC

Canada?s Marine Oil Spill Preparedness and Response: An Assessment - See more at: http://www.robynallan.com/#sthash.wguunc08.dpuf

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Roby Nallan

Economic Impacts of Staged Development of Oil Sands Projects in Alberta 2010 - 2035

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CERI

Measuring the land disturbance, air quality, water use, greenhouse gas emissions, and tailings production associated with each barrel of bitumen production

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Pembina
Interactive Graph: Barrels of Oil Sands Oil
Motion Graph: Oil Sands Life Expectancy
Impact Index

Oil Sands

Total Oil Sands Production as % of Total USA Oil Consumption Impact

14%
Total Oil Sands Production as a percentage
  • Total Oil Sands Production as % of Total USA Oil Consumption 14%
  • Total US daily consumption in barrels per day14,600,000
  • Total American Oil Imports in barrels per day7,500,000
  • Total American Oil production in barrels per day7,100,000
  • Total Oil Sands Oil production in barrels per day2,000,000
Not really an Impact Index but more of an indicator of the relative scale of energy sources for the USA which will not become energy independent on the basis of tight or fracked oil production.  Note Canadian oil consumption is about 800,000 barrels per day.

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