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Roaring Dinosaurs

Roaring Dinosaurs

February 5th, 2006  · stk

Alberta, Canada soil holds the largest oil deposit in the world. As high oil prices dominate World markets, activity in the northern part of Alberta has reached a frenzied state. So great are the profits, that Alberta has given each resident a cheque for $400 - a one time rebate.

Prosperous Alberta: A Fist-full of Petro Dollars

There's been long lines at local banks, as many Albertans wait to deposit their one-time, $400 resource rebate (AKA prosperity check). Our family's portion totaled $1200. Even pint-sized Alex was counted as a whole Albertan and rebated accordingly. We may be paying more at the pump for gasoline, but these checks more than makes up the difference. It's a great time to be Albertan. ;)

The checks are part of this year's Provincial surplus, which is mainly due to high prices for oil and gas, upon which Alberta collects royalties. The surplus was anticipated in September and firmed up in November. Consummated just two weeks ago, our checks arrived just in time for tax season, it seems. Local businesses have been vying for a slice of the windfall, running television ads and many are offering twice face value, if you use your rebate check at their store.

Water cooler talk is centered on what everyone will do with their windfall and most, it seems, plan on spending it. We've squirreled ours away, for the ironic purpose of a move out of the Province and back to British Columbia.

For an informative video on the Alberta oil sands, Alberta's rise in power, the impact this will have for Canada (and the World) ... read on ...

Tyrannosaurus Ralph

With the price of oil hovering in the mid-$60's, the oil-rich Province of Alberta has become suddenly wealthy and powerful. The Premier, Ralph Klein, decided to 'give back' roughly a third of this year's budgetary surplus, in the form of a one-time rebate to Alberta residents. The program disbursed $1.4 billion dollars and cost about $10 million (less than 1%) to administer.

As long as energy prices remain high, Alberta stands to collect a windfall of royalties and taxes on non-renewable resources. Alberta already boasts zero Provincial debt, comparatively low taxes and a budget surplus. During 2004-2005, Alberta took in $9.74 billion dollars in non-renewable energy royalties and that number will likely continue to grow.

The 2005 budget surplus is estimated to be approximately $6 billion dollars, though the exact amount won't be available until the final audit in June. Alberta is familiar with the boom and bust related to the oil industry (been there, done that). So they took a third of this years surplus and smartly invested it, so that it will generate future revenues. Another third went to Provencial projects (e.g., building new schools, health centers and roadways).

Not everyone in Canada happy about Alberta's future, or the rebate checks, especially those living in the east. An Ottawa, Ontario-based satire website called "The Hammer", calls the prosperity checks "Screw You, Rest of Canada Cheques", offering a hypothetical check series that Alberta's Premier, Ralph Klein, might have used.

Tremors in Ottawa, Ripples Around the World

2005 marked the beginning of an interesting era for Alberta, one which will it will likely affect the balance of power in Canada, and maybe, the rest of the World.

[Alberta Oil Sand] gives Canada the ability to supply all of North America for the next 50 years without touching a drop of imported oil.

Energy has become a global obsession in recent years, fueled by explosive growth in Asia and America's desire to drive bigger and bigger gas-guzzling vehicles. Instability in the Middle East only exacerbates the situation for everyone, not withstanding the high cost of transportation of refined products to the United States. Alberta holds the key, as Paul Chastko, author of "Developing Alberta's Oil Sands" wrote, "It gives Canada the ability to supply all of North America for the next 50 years without touching a drop of imported oil."

The impact for Canada will be huge, as it puts Alberta clearly in the driver's seat with respect to it's own economic and political future. Canada now needs Alberta much more than Alberta needs Canada. And in an already politically divisive country, Alberta is poised to further shift the balance of power and wealth westward, away from Quebec and Ottawa.

The impact on the World stage will likely be significant, as well, though in Washington D.C., Canada is still largely regarded as a fringe player in World politics. But in a petroleum hungry World, power will likely be wielded by pointing gas nozzles, rather than guns. George Bush has been pushing to ensure America's "energy security" and looks toward the Alberta Oil Sands as a key component of his plan for a reliable, stable flow of petroleum into the U.S. Canada's importance to the United States cannot be understated. Canada's petroleum is close, located in a friendly, stable country and doesn't require shipping via vulnerable, ocean-going tankers.

But the U.S. isn't the only country wooing Alberta for its petroleum. China, that vast economic communist bear is just waking up and has a voracious appetite for energy. Venuzuela has broken ties with the U.S. and is, instead, shipping oil to China. China is investing roughly $2 billion to build a pipeline from Alberta, across the Canadian Rockies, to British Columbia, so that it may tanker Albertan oil in an attempt to satsify its energy needs.

Meanwhile, the U.S. continues to set record highs for the consumption of petroleum. In December of last year, roughly 22.156 million barrels of petroleum were consumed. Imports account for over 60% of the petroleum used by Americans and already, Canada provides more petroleum products to America than any other country. U.S. consumption shows no sign of abating and estimates put consumption in the year 2015 at roughly 24 million barrels per day.

Tar Baby, Tar Baby, There in the Sand

Alberta Oil Sands

For a quick video tour of the oil sands, use the video on the right.

(Aficionados will recognize TinTin in "The Land of Black Gold") :D

Mind the propaganda (it's a Shell Oil Video)

North of Edmonton by a couple of hundred kilometers is Ft. McMurray (AKA "Ft. McMoney"). Around that booming town lies what is arguably, the largest petroleum deposit anywhere in the World - literally an ocean of oil-saturated sands that cover an area larger than Florida (or New Brunswick), approximately 54,000 square miles. Currently, about a million barrels of oil per day are being extracted from the sands, but that number will only go up. Estimates put the ultimate recovery at more than 150 billion barrels, but improved technologies could push the yield closer to 300 billion, more oil reserves than even Saudi Arabia has (260 billion barrels).

Yet, this "oil field" is different from most, because the petroleum products are mined, rather than pumped to the surface via conventional drilling techniques. So unique is it, that even a geoscience consultant doesn't list it in the top 21 oil fields of the World.

The tar sands (or "oil sands") are a mixture of sand, bitumen (a black, asphalt-like oil), mineral-rich clays and water. In its raw form, bitumen is as thick as molasses. The sands must be mined and processed info, in order to extract the oil and make it useful and transportable by pipeline. It takes approximately two tons of oil sand to make one barrel of oil. Most of the sand is buried 150 feet or more, below muskeg and overburden, which must be removed.

Historically, large, open-pit mining techniques are used to extract the oil-rich sand. Some of these pits are 3 miles wide and over 200 feet deep. Giant electric shovels dig up the precious dirt and load them into the World's largest trucks. 24 hours a day, these 3-story monsters carry oil sands to nearby processing plants. Each truck costs approximately $5 million dollars and can carry 400 tons of oil sands. At today's prices, that's approximately $12,000 dollars.

What's it like to drive one of these beasts?

America's "60 Minutes" news team asked this question of a driver, Jim Locke, during their Jan 22 2005 segment on the tar sands.

[Driving a truck] is like going upstairs in my house, sitting on my bed and driving the house downtown.

At the processing plants, the soil is ground down and mixed with hot water and the extraction of oil, from the sand, begins. Another, newer method, involves mixing the sand with water to make a slurry, then piping is many kilometers to the processing plant. As the sand slurry flows through the pipe, it is broken down and the bitumen separation process is facilitated, enroute. Another advantage of this newer method is that piping the slurry is less expensive than conveyor belts and that the oil sands can be processed at lower temperatures.

Some of the sands lie deeper than is practical to mine and there are a variety of in-situ techniques that are utilized to extract the bitumen. Most involve steam, requiring much heat and water.

New technologies are being researched every day and many billions of dollars are pouring into the region, as many different companies develop their leaseholdings.

Though the money paid by the U.S. may be green, it's not a color that many conservationists associate with the tar sand extraction. Many hectares of land will be removed and put back, to extract this hot commodity. Concerns regarding the damage to the local environment, despite re-seeding efforts, is just one issue that is raised. Ottawa is determined to slash greenhouse gas emissions, under the Kyoto Protocol, which has many oil company executives nervous. Initially, some companies said that projects would no longer be viable, but with oil prices as high as they have been, many feel that they can cope with the costs necessary to reduce emissions (it takes a lot of natural gas to heat the in-situ processes and bitumen extraction).

Either way ... the tar sands are a huge engineering and political endeavor. With current production at just over a million barrels per day, tar sand production accounts for nearly 40% of Canada's total oil production. That number will only grow, as more processing plants come on line.

Update: Uncontrolled Growth?

The acclaimed CBC show "The Nature of Things with David Suzuki", produced a show titled "When Less is More", in 2003. The show tells the story of the Mikisew Cree First Nation's fight for a moratorium on oil sands development. At the time, oil was $30 a barrel and oil sands production was anticipated to be 2MM bbls/day in 20 years.

When it aired in Canada (March 31st, 2006 & again on Aug 13th, 2006) oil prices were in the mid $70's USD per barrel and production projected to increase to 5MM bbls/day in 20 years. The pace of expansion has increased and there is growing concern that the result will be an environmental disaster.

The Province of Alberta generates more GHGs than any other province and in 2003, oil sands production generated 23 million tons of carbon dioxide. The concern is meeting Canada's Kyoto Protocol commitment of reducing emissions, nationally, by 240 million tons per year, when the oil sands production is on target to double its emission to nearly 10% of Canada's total.

That's not all. It takes a tremendous amount of water (2-4 barrels for every barrel of oil produced) and fossil fuel to extract the oil from the bitumen-rich sands. At current rates the oil sands will eventually consume more natural gas than is needed to heat every home in Canada. The concern is that it will deplete natural gas reserves and leave Canada in a natural gas crisis. The expansion is also on target for consuming fully half of the surface water of the Athabasca River and its tributaries, and leaving behind vast tailings ponds and upsetting a fragile ecosystem.

Further Reading

  1. Oil Sands Watch (Sustainable Energy Solutions)
  2. Digging a Carbon Hole for Canada (Will Oil Sands be a White Elephant in a post-Kyoto World?)
  3. David Suzuki Foundation (Finding Ways to Live in Balance with the Natural World)
  4. Environment Canada (Information on Greenhouse Gas Sources and Sinks)

The Bitumen Upgrading Process back

Most refineries in Canada (and elsewhere) are designed to process light and medium-weight crude oils. Canada's increasing production of heavy oil and bitumen has created a problem: How to deliver these products to refineries in a form they can deal with?

A common solution is to refine these heavy hydrocarbon compounds into a synthetic crude, a product similar to sweet, light crude oil. That refining process is called "upgrading" and is a term synonymous with tar sands, oil sands or bitumen.

Upgrading involves using temperature, pressure and catalysts to break up the complex hydrocarbon chains and reorganizing them. Bitumen is rich in carbon, but poor in hydrogen and often contains other undesirable elements like sulphur and nitrogen. The upgrade process removes carbon and adds hydrogen, replacing unwanted sulphur and nitrogen.

Upgrading is done in four main processes: Coking removes carbon and breaks the large, complex hydrocarbon chains into smaller pieces; Distillation sorts the mixtures of hydrocarbon molecules into like-sized components; Catalytic Conversion help transform hydrocarbon chains into more valuable forms; and Hydro-treating removes sulphur and nitrogen, replacing them with hydrogen.

The resulting project is synthetic crude oil, which is then shipped via underground pipelines to refineries across North America, to be further refined into jet fuel, gasoline & other petroleum products.

Further Reading

  1. Bitumen Updrading (Dr. Murray Gray, University of Alberta)
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1.flag Evan Parry Comment
12/14/07
I thought Id just be looking at pictures of trucks instead i got lesson n the enviroment and politics of this huge project and the impact it has on the community and world around us i enjoyed reading the aricles on this website.
2.flag Joan Scott Comment
01/09/08
Found your info very informing. Was looking for good Canadian Oil Sands company I could invest in because I believe oil will just keep going up. Check out my website to start getting healthy because Health comes before Wealth. Look forward to hearing a reply. Sincerely, Joan in Ontario, Canada.
3.flag stk Comment
01/09/08
Joan - Happy New Year!

Here's an MSN Finance article that talks about 5 closed-end mutual funds that target the oil sands. Pick one of them (or invest in the individual stocks of some of the companies that are listed in the article).

That should get you started. (PS - While I respect your right to think Himalayan Goji Juice is the best thing going, our blog isn't the place to advertise it.) ;)
4.flag Randy Johnson Comment
03/23/08
I have been involved in building many of the trucks used in the tar sand removal. This is one of the harshest inviroments for these monster trucks to operate in. Extreme cold affects the strength of the steel. I was suprised to learn that China has a hand in building a pipeline while we buy our oil from another country. Strange world we live in.
5.flag Tom Comment
04/24/08
I was looking for Dinosaur related sites, when this one popped up in the search engine. Really interesting read! Is Alberta still getting rebate checks? I wish Indiana was oil rich. Our Governor just sold off the rights to our toll road as a way to generate cash to repair our roads, so our future is being sold off just to break even.

Anyways, a very interesting read, not at all what I started out looking for!
6.flag stk Comment
04/24/08
Tom - The Internet is like that, eh? Glad you found it interesting.

The Alberta rebate checks were a one-off (haven't issued them again, to my knowledge). Kinda like the $300 checks that President Bush is using as an "economic recovery aide" thing.

Mitch Daniels is robbing from Peter to pay Paul, but it looks like a trend. (Last year Chicago got $1.8 billion dollars for its Skyway, a 7.8-mile, elevated highway conneting Dan Ryan Expressway with the Indiana Toll Road.)

Where will it end? (Maybe the U.S. Presidency could be leased to foreigners?) :-/
7.flag hersh Comment
12/29/08
Surprised to see how some of the biases lead to wrong conclusions-- there are technologies out there to address every pollution/eco-damage issue mentioned by Pembina. Economics is not a constraint-- willingness is. But, as citizens, we can drive willingness. Why carp and complain, why not actively influence policy?
8.flag stk Comment
12/29/08
Hersh - LOL ... where is the "carping and complaining" and "bias"? The article merely provides facts and some concerns. Readers are left to their own conclusions, with links to further information.

Do you have links to sites that "actively influence policy"? Readers might find them useful.

In this way, you would be contributing, rather than carping and complaining, which serves only to reveal your bias: namely, that economics isn't a factor, the "solution" to every environmental problem Pembina mentions is ... *appropriate intake of breath and drum roll* ... technology. :roll: