Athabasca Oil Sands
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The Athabasca Oil Sands are a large deposit of oil-rich bitumen located in northern Alberta, Canada. These oil sands consist of a mixture of crude bitumen (a semi-solid form of crude oil), silica sand, clay minerals, and water. The Athabasca deposit is the largest of three oil sands deposits in Alberta, along with the Peace River and Cold Lake deposits. Together, these oil sand deposits cover about 141,000 km² of sparsely populated boreal forest and muskeg (peat bogs). The Athabasca oil sands are named after the Athabasca River which cuts through the heart of the deposit, and traces of the heavy oil are readily observed on the river banks. Historically, the bitumen was used by the indigenous Cree and Dene Aboriginal peoples to waterproof their canoes. The oil deposits are located within the boundaries of Treaty 8, and several First Nations of the area are involved with the sands. The oil sands were first seen by Europeans in 1788.
The key characteristic of the Athabasca deposit is that it is the only one shallow enough to be suitable for surface mining. About 10% of the Athabasca oil sands are covered by less than 75 metres (250 feet) of overburden. The mineable area as defined by the Alberta government covers 37 contiguous townships (about 3400 square kilometres or 1300 square miles) north of the city of Fort McMurray. The overburden consists of 1 to 3 metres of water-logged muskeg on top of 0 to 75 metres of clay and barren sand, while the underlying oil sands are typically 40 to 60 metres thick and sit on top of relatively flat limestone rock. As a result of the easy accessibility, the world's first oil sands mine was started by Great Canadian Oil Sands (now Suncor) back in 1967. The Syncrude mine (the biggest mine in the world) followed in 1978, and the Albian Sands mine (operated by Shell Canada) in 2003. All three of these mines are associated with bitumen upgraders that convert the unusable bitumen into synthetic crude oil for shipment to refineries in Canada and the United States.
The Athabasca oil sands are primarily located in and around the city of Fort McMurray which was still, in the late 1950s, primarily a wilderness outpost of a few hundred people whose main economic activities included fur trapping and salt mining. Since the energy crisis of the 1970s, Fort McMurray has been transformed into a boomtown of 80,000 people struggling to provide services and housing for migrant workers, many of them from Eastern Canada, especially Newfoundland.
Estimated oil reserves
The Alberta Government calculates that about 28 billion cubic metres (174 billion barrels) of crude bitumen are economically recoverable from the three Alberta oil sands areas at current prices using current technology. This is equivalent to about 10% of the estimated 1,700 and 2,500 billion barrels of bitumen in place. . Alberta estimates that the Athabasca deposits alone contain 5.6 billion cubic metres (35 billion barrels) of surface mineable bitumen and 15.6 billion cubic metres (98 billion barrels) of bitumen recoverable by in-situ methods. These estimates of Canada's oil reserves caused some astonishment when they were first published but are now largely accepted by the international community. This volume places Canadian proven oil reserves second in the world behind those of Saudi Arabia.The method of calculating economically recoverable reserves that produced these estimates was adopted because conventional methods of accounting for reserves gave increasingly meaningless numbers. They made it appear that Alberta was running out of oil at a time when rapid increases in oil sands production were more than offsetting declines in conventional oil, and in fact most of Alberta's oil production is now non-conventional oil. Conventional estimates of oil reserves are really calculations of the geological risk of drilling for oil, but in the oil sands there is very little geological risk because they outcrop on the surface and are extremely easy to find. The only risk is economic risk of low oil prices and with the oil price increases of 2004-2006, the economic risk evaporated.
The Alberta estimates in some ways are extremely conservative, since they assume a recovery rate of around 20% of bitumen in place, whereas oil companies using the new steam assisted gravity drainage method of extracting bitumen report that they can recover over 60% with little effort. These much higher recovery rates probably mean that the ultimate production could be several times as high as the already very large government estimates.
At current rates of production, the Athabasca oil sands reserves would last over 400 years. However, they are unlikely to stay that way given the current supply shortage in the world. Assuming that Alberta quadrupled its production of oil, exporting most of it to the United States, the oil sands would last over 100 years. If production increased to the same level as Saudi Arabia, 10 million barrels per day, the life of the resource would be cut to a bit over 40 years. However, it is extremely unlikely that production could be increased to those levels without a huge influx of immigrant workers into northern Alberta. While Alberta will probably be a major player on the world oil market for the next century, it is not expected to replace the Middle East as the main source of American, European and Asian supply.
The Venezuelan Orinoco tar sands site may contain more oil sands than Athabasca (see tar sands article). However, while the Orinoco deposits are less viscous and more easily produced using conventional techniques (the Venezuelan government prefers to call them "extra-heavy oil"), they are too deep to access by surface mining.
Economics
Despite the large reserves, the cost of extracting the oil from the sand has historically made production of the oil sands unprofitable - the cost of selling the extracted crude would not cover the direct costs of recovery; labour to mine the sands and fuel to extract the crude.In mid-2006, the National Energy Board of Canada estimated the operating cost of a new mining operation in the Athabasca oil sands to be $9 to $12 per barrel, while the cost of an in-situ SAGD operation (using dual horizontal wells) would be $10 to $14 per barrel. This compares to operating costs for conventional oil wells which can range from less than $1 per barrel in Iraq and Saudi Arabia to $6 and up in the United States and Canada.
In addition, the capital cost of the equipment, such as the huge machines required to mine the sands and the dump trucks used to haul it to processing make capital costs a major consideration in starting production. The NEB estimates that capital costs raise the total cost of production to $18 to $20 per barrel for a new mining operation and $18 to $22 per barrel for a SAGD operation. This does not include the cost of upgrading the crude bitumen to synthetic crude oil, which makes the final costs $36 to $40 per barrel for a new mining operation.
Therefore, although high crude prices make the cost of production very attractive, sudden drops in price leaves producers unable to recover their enormous capital costs - although the companies are well financed and can tolerate long periods of low prices since the capital has already been spent and they can almost always cover incremental operating costs.
However, the development of commercial production is made easier by the fact that exploration costs are virtually nil. Such costs are a major factor when assessing the economics of drilling in a traditional oil field. The location of the oil deposits in the tar sands are well known and an estimate of recovery costs can usually be made easily. Most important, the oil sands are in a politically stable area and companies can be sure their expensive assets will not be confiscated by a national government or become involved in a war or revolution.
As a result of the Oil price increases of 2004-2006, the economics of oil sands have improved dramatically. At a world price of $50 per barrel, the NEB estimates an integrated mining operation would make a rate return of 16 to 23 percent, while a SAGD operation would return 16 to 27 percent. Prices in 2006 have been considerably higher than that. As a result, capital expenditures in the oil sands announced for the period 2006 to 2015 exceed $100 billion, which is twice the amount projected as recently as 2004. However, due to an acute labor shortage which has developed in Alberta, it is not likely that all these projects can be completed.
At present the area around Fort McMurray, Alberta, has benefited the most from the increased interest in the oil sands. However, although jobs are plentiful, housing is in short supply and expensive. People seeking work often arrive in the area without arranging accommodation, driving up the price of temporary accommodation. In addition, the area is isolated, and there is pressure on the government of Alberta to improve road links to the communities. Although there once was rail service, it no longer exists.
Alberta as a whole is adjusting less well to the development of the oil sands. Although production has added to the province's overall economy and the royalties paid to government has assured a healthy budget surplus, there is increasing pressure on the provincial government to improve services to what is a very remote area. Even without the oil sands, increases in oil prices would have provided a great benefit to the province without any increased costs other than those that regularly arise with an influx of population and full employment.
Oil Sands Production
The Athabasca oil sands first came to the attention of European fur traders in 1719 when Wa-pa-su, a Cree trader, brought a sample of the oil sands to the Hudson's Bay Company post at Fort Churchill. In 1778, fur trader Peter Pond became the first white man to see the outcroppings along the Athabasca River and he noted that the native people used it to waterproof their canoes. In 1883, C. Hoffman of the Geological Survey of Canada tried separating the bitumen from oil sand with the use of water, and reported that it separated readily. However, it was nearly a century before extracting it became commercially viable.Commercial production of oil from the Athabasca oil sands began in 1967, when Great Canadian Oil Sands (now Suncor) opened its first mine, producing 30,000 barrels per day of synthetic crude oil. Development was inhibited by declining world oil prices, and the second mine, operated by the Syncrude consortium, did not begin operating until 1978, after the 1973 oil crisis sparked investor interest. However, the price of oil subsided afterwards, and although the 1979 energy crisis caused oil prices to peak again, introduction of the National Energy Program by Pierre Trudeau caused the oil companies and the Alberta government under Premier Peter Lougheed to pull the plug on new developments. Once more, prices declined to very low levels, causing considerable retrenchment in the oil industry, and the third mine, operated by Shell Canada, did not begin operating until 2003. However, with Oil price increases of 2004-2006, the existing mines have been greatly expanded and new ones are being planned.
According to the Alberta Energy and Utilities Board, production of crude bitumen in the Athabasca oil sands was as follows:
| 2005 Production | m3/day | bbl/day |
|---|---|---|
| Suncor Mine | 31,000 | 195,000 |
| Syncrude Mine | 41,700 | 262,000 |
| Shell Canada Mine | 26,800 | 169,000 |
| In Situ Projects | 21,300 | 134,000 |
| TOTAL | 120,800 | 760,000 |
This was despite a major fire at the Suncor operation, a major turnaround at Syncrude, and operational problems at the Shell operation. Combined oil production in all three Alberta oil sands areas was 169,100 m3/day or 1,065,000 barrels per day
With planned projects coming on stream, by 2010 oil sands production is projected to reach 2 million barrels per day or about two thirds of Canadian production. By 2015 Canadian oil production may reach 4 million barrels per day, of which only 15% will be conventional crude oil, and, assuming continued high oil prices, by 2025 Canadian oil production may exceed that of the United States.
Extraction of oil
See main article on Oil sands extractionThe original process of extraction used at the oil sands was developed by Dr. Karl Clark, working with the Research Council of Alberta in the 1920s. Historically (since the 1960's), the oil sands have been mined in huge open pit mines and extracted from the sand by variations of the Clark water-based extraction process, which separates aerated bitumen from the other oil sand components in gravity settling vessels. More recently, new in-situ methods have been developed to extract bitumen from deep deposits by injecting steam to heat the sands and reduce the bitumen viscosity so that it can be pumped out like conventional crude oil.
The standard extraction process also requires huge amounts of natural gas. Currently, the oil sands industry uses about 4% percent of the Western Canada Sedimentary Basin natural gas production. By 2015, this may increase by a factor of 2.5 times.[link]
According to the National Energy Board, it requires about 0.4 Mcf of natural gas to produce one barrel of synthetic crude oil, which is the energy equivalent of 6 Mcf of gas, so the process produces a substantial net gain in energy. That being the case, it is likely that in the short term exports of natural gas to the United States will be reduced to provide fuel to the oil sands plants. In the long term, however, oil upgraders will likely turn to bitumen gasification to generate their own fuel. In much the same way the bitumen can be converted into synthetic crude oil, it can also be converted to synthetic natural gas.
In-situ extraction on a commercial scale is just beginning. A project nearing completion, the Long Lake Project, is designed to provide its own fuel, by on-site cracking of the bitumen mined. It is supposed to start extracting bitumen in 2006, and "upgrading" of bitumen to liquid oil in 2007, producing 60,000 bbl/day of usable oil. If it works, the natural gas problem becomes less of an issue and the problem of disposing of tailings disappears.
Geopolitical importance
The Athabasca Oil Sands are now featured prominently in international trade talks, with energy rivals China and the United States both negotiating with Canada for a bigger share of the oil sands' rapidly increasing output. Output at the oil sands is expected to quadruple between 2005 and 2015, reaching 4 million bbl/day, increasing their political and economic importance. Although most of the oil sands production is currently exported to the Unites States, that could change.An agreement has been signed between PetroChina and Enbridge to build a 400,000 barrel-per-day pipeline from Edmonton, Alberta to the west-coast port of Kitimat, British Columbia to export synthetic crude oil from the oil sands to China and elsewhere in the Pacific, plus a 150,000 bpd pipeline running the other way to import condensate to dilute the bitumen so it will flow. Sinopec, China's largest refining and chemical company, and China National Petroleum Corporation have bought or are planning to buy shares in major oil sands development.
Not to be outdone, India has announced plans to invest $1 billion in the Athabasca Oil Sands in 2006. As many as four different Indian companies are involved.
Indigenous peoples of the area
Indigenous peoples of the area include the Fort McKay First Nation and the Fort McMurray First Nation. The oil sands themselves are located within the boundaries of Treaty 8, signed in 1899. The Fort McKay First Nation has formed several companies to service the oil sands industry, and will be developing a mine on their territory[link]. However, support within the First Nation for such development is not unanimous.Environmental impacts
The open-pit mining of the Athabasca oils sands destroys the boreal forest, the bogs, the rivers as well as the natural landscape. The Alberta mining industry believes that the boreal forest will eventually colonize the reclaimed lands, yet 30 years after the opening of the first open pit mine in the region no land is considered by the Alberta Government as having been "restored."Furthermore, for every barrel of synthetic oil produced in Alberta, more than 80 kg of greenhouse gases are released into the atmosphere and between 2 and 4 barrels of waste water are dumped into tailing ponds that have flooded about 50 km² of forest and bogs. The forecast growth in synthetic oil production in Alberta also threatens Canada's international commitments. In ratifying the Kyoto Protocol, Canada agreed to reduce, by 2012, its greenhouse gas emissions by 6% with respect to the reference year (1990). In 2002, Canada's total greenhouse gas emissions had increased by 24% since 1990. In 2006, Canada declared this target to be unattainable, a declaration likely related to historically unprecedented oil prices, the resulting development of the Athabasca resource and the huge impact of this move on total national emissions.
Oil sand companies
The two largest oil sands mining operations are run by Syncrude Canada Limited and Suncor Energy. Albian Sands is a smaller project owned by Shell Canada.Major producing or planned developments in the Athabasca Oil Sands include the following [projects]:
- Suncor Energy's Steepbank and millennium mines currently produce 263,000 barrels per day and its Firebag in-situ project produces 35,000 bpd. It intends to spend $3.2 billion to expand its mining operations to 400,000 bpd and its in-situ production to 140,000 bpd by 2008.
- Syncrude's Mildred Lake and Aurora mines currently produce 250,000 bpd. It intends to spend $8 billion to expand them to 350,000 bpd during 2006.
- Shell Canada currently operated its Muskeg River mine producing 155,000 bpd and the Scotford Upgrader at Fort Saskatchewan, Alberta. Shell intends to open its new Jackpine mine and expand total production to 500,000 bpd over the next few years.
- Nexen's in-situ Long Lake SAGD project is on schedule to produce 70,000 bpd by late 2007, with plans to expand it to 240,000 bpd over the next 10 years.
- CNRL's $8 billion Horizon in-situ project is planned to produce 110,000 bpd on startup in 2008 and grow to 300,000 bpd by 2010.
- Imperial Oil's $5 to $8 billion Kearle mine is projected to start construction in 2008 and produce 100,000 bpd by 2010. Imperial also operates a 160,000 bpd in-situ operation in the Cold Lake oil sands region.
- SynEnCo Energy and SinoCanada Petroleum Corp., a subsidiary of Sinopec, China's largest oil refiner, have agreed to create the $3.5 billion Northern Lights mine, projected to produce 100,000 bpd by 2009.
See also
References
External links
- Hugh McCullum, Fuelling Fortress America: A Report on the Athabasca Tar Sands and U.S. Demands for Canada's Energy (The Parkland Institute)--[Executive Summary][Download report]
- [Oil Sands History] - Syncrude Canada
- [Oil Sands Discovery Centre] - Fort McMurray Tourism
- [The Trillion-Barrel Tar Pit] - Article from December 2004 Wired.
- [Oil Sands Review] - Sister publication to Oilweek Magazine
- [Alberta's Oil Sands] - Alberta Department of Energy
- [Alberta's Reserves 2005 and Supply/Demand Outlook 2006-2015] - Alberta Energy and Utilities Board
- [Canada's Oil Sands - Opportunities and Challenges to 2015: An Update - June 2006] - National Energy Board of Canada
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