Resource Development Council

Alberta’s oil sands could hold the key to U.S. energy security

Two energy realities face the United States in the 21st century: worldwide demand for energy is forecasted to grow 50 percent by 2030 and fossil fuels will continue to be the dominant energy source, accounting for over two-thirds of global consumption decades from now.

Canada is positioned to play a major role in supplying the U.S. and other energyhungry nations with the fuels they need to power their economies. Th e western province of Alberta ranks second only to Saudi Arabia in proven energy reserves. Most of these reserves are found in the oil sands.

Until recently, Alberta’s northern oil sands near Fort McMurray were considered too remote, too diffi cult to extract, and too expensive to produce. However, new technology and higher oil prices have transformed these massive deposits into economically viable fi elds that may hold the key to North American energy security.

Developing this resource, however, has released a wave of controversy and concerns about the environmental impacts of development on such a large scale. The oil sands are receiving international scrutiny as governments consider adopting climate change regulations and treaties. Th e Alberta government and industry are well aware of the strong opinions in the U.S. and around the world on development of the oil sands and understand that energy resources must be produced in a responsible manner.

RDC Deputy Director Carl Portman recently visited the oil sands with Commissioner Larry Hartig of the Alaska Department of Environmental Conservation and 30 others from western states to learn about the oil sands, what they mean for U.S. energy security, and the steps Alberta and industry are taking to mitigate impacts.

The visitors were exposed to Alberta’s vision for developing one of the world’s largest deposits of oil. They also learned about legislation and policies that protect water, air, land, and ecosystems in the oil sands region.

Canada is the top supplier of oil to the U.S., supplying more than 2.4 million barrels per day. Of this, more than 1.3 million barrels of crude oil comes from the oil sands. Canada’s oil reserves are the second largest in the world. Of 178 billion barrels in reserves, 97 percent are located in the oil sands.

The resource

Alberta contains the largest concentration of oil sands in the world. Three major areas in the province contain approximately 1.7 trillion barrels of bitumen in place. Proven measures indicate there are 173 billion barrels of recoverable oil in the sands. However, technological breakthroughs could increase the reserve base to more than 500 billion barrels, putting Canada above Saudi Arabia in oil reserves. In 2008, production reached nearly 1.5 million barrels a day through 87 producing oil sands projects in Alberta. By 2020, production could increase to 2.5 to 3 million barrels per day.

In comparison, North Slope production has fallen to 650,000 barrels per day from a peak of 2.1 million barrels in the late 1980s. Alaska production is expected to fall more than six percent annually over the next several years before stabilizing, then falling sharply in the latter part of this decade. A U.S. Department of Energy report estimates the ultimate recoverable oil reserves on the North Slope to be 22.2 billion barrels, including reserves from existing fields as well as undiscovered resources. Offshore in the Chukchi and Beaufort Seas, the Minerals Management Service estimates there is up to an additional 27 billion barrels of oil.

The government of Alberta owns the oil sands resource, while industry purchases the right to explore for, extract and develop the resource. Industry pays royalties back to Alberta and in recent years the province has collected approximately $2.4 billion annually in royalties from oil sands production.

From oil sands to consumer

Oil sands are a mixture of bitumen, sand, water, and clay. Bitumen is a heavy type of petroleum that will not flow unless it is heated or diluted. At room temperature it acts much like cold molasses. Because it does not flow like conventional crude oil, it must be mined or heated underground before it can be recovered for processing.

Bitumen is recovered in two ways. For oil sands near the surface, about 500,000 tons are mined each day using huge mechanized shovels with buckets that hold 100 tons. The ore is transported in some of the world’s largest trucks, carrying 400 tons per load, to crushers and sizers, which break up the ore for delivery to the extraction plant. At this facility, the sand is mixed with warm water to separate the bitumen and prepare it for upgrading. The tailings (water, clay, and sand) are pumped to holding ponds where they are treated and prepared for reclamation.

For oil sands further beneath the surface, extraction occurs by in-situ methods. The most common separates the bitumen from the sand underground using steam to heat it to a point that allows it to be pumped by a well to the surface. In-situ processes have a much smaller surface footprint, as they use about 15 percent of land disturbed by mining and do not produce tailing ponds. Approximately 80 percent of Alberta’s recoverable oil sands will be extracted through in-situ production.In the in-situ process, the recovered bitumen is sent by pipeline to the upgrading facility. The process does not require extraction as separation occurs in the ground.

During the upgrading process, the bitumen is heated and sent to drums where excess carbon is removed. The superheated hydrocarbon vapors are sent to facilities called fractionators where vapor condenses into naphtha, kerosene, and gas oil. These products are then blended into synthetic crude oil and diesel fuel. The synthetic oil is then shipped by pipeline to refineries throughout North America where it is further processed to produce a range of consumer and industrial products.

Environmental issues

The Canadian oil sands have been a target of environmental groups for years, but Alberta is working hard to prove that environmental protection and economic development can occur at the same time. The provincial government has passed legislation and implemented policies involving land reclamation, water use, air quality, and ecosystem health. Current production
methods mean that more energy is needed to extract oil from the sands compared to conventional oil. But the gap is closing with technology, reducing the energy and environmental impact of oil sands recovery.

Yet the perception of oil sands development is one of massive emissions nd land disturbance. In reality, the oil sands account for less than five percent of Canada’s greenhouse gas emissions and less than one-tenth of one percent of total global emissions.

Overall, the oil sands carbon footprint is only about 5 to 15 percent higher than most crude imports consumed in the U.S. On a “wells-to-wheels” basis, the life cycle emissions from oil sands crude are comparable to the average imported crude oil consumed in the U.S. In the case of Venezuelan crude, Canadian oil sands crude is actually less carbon intensive.

With regard to land disturbance, the potentially mineable area in the oil sands represents only a small fraction of the boreal forest, where the sands are located. In more than 40 years of oil sands mining, only one-hundredth of one percent of the Canadian boreal forest has been disturbed. This disturbance is equivalent to an area approximately the size of the Kennedy Space Center in Florida. Meanwhile, strict reclamation standards require the land to be able to support a range of activities similar to its previous use before oil sands development. Work is underway to return disturbed land to a natural state and companies have planted more than 7.5 million seedlings toward their reclamation efforts.

In 2007, Alberta became the first in North America to legislate mandatory greenhouse gas reductions for large industrial facilities. Carbon dioxide emissions have been reduced by 45 percent per barrel of oil since 1990.

In 2008, the Alberta government laid out a new climate change plan for the province. The plan’s target is to reduce greenhouse gas emissions 50 percent from expected levels by 2050 and will lower emissions to an equivalent of 14 percent below 2005 levels. The plan recognizes that emissions will rise in the short term until 2020, but as new technology is employed, emissions will fall. By 2050, Alberta’s climate change plan will reduce projected emissions by 200 million tons, which is the equivalent of taking 42 million vehicles off the road each year. So far, industry has reduced emissions by 2.6 million tons, equivalent to taking 550,000 cars off the road.

Carbon capture and storage, energy conservation, and greening energy production are keys to the reduction plan. Carbon capture and storage, which is at the heart of the plan, is a process that captures carbon dioxide emissions and stores them in geological formations deep inside the earth. The same unique geology that developed the abundance of hydrocarbons in Alberta also makes it ideally suited to permanently store carbon dioxide.

In July 2008, Alberta committed $2 billion to kick-start carbon capture and storage projects in Alberta, and wide-scale implementation is anticipated as technology advances. Up to five million tons of carbon dioxide per year is expected to be captured and permanently stored by 2015. Meanwhile, industry is contributing more than $40 million into a research fund to advance technology and reduce emissions.

Politics & energy security

Some western states such as California are pondering measures to penalize Alberta’s crude under a low-carbon fuel standard, including threats to ban imports of crude from the oil sands. The Canadians strongly object to such barriers, warning they would amount to unjustifiable discrimination against Alberta energy. Provincial government officials insist that attacks on the oil sands have been wildly exaggerated by people and groups who have their own agenda.

The Alberta government has been hosting delegations from across the U.S. to get the
message out about the enormous economic and energy potential of the oil sands, as well
as the major steps government and industry are taking to responsibly develop the resource. They emphasize there is no need to make a choice between energy development in the oil sands and the environment.

If the U.S. rejects oil sands energy, the Canadians are prepared to send their oil to other nations like China, which has everincreasing interest in oil sands projects.

With its enormous potential, the oil sands are a geopolitical game-changer for both Canada and the U.S. The recoverable reserves alone are enough to supply every drop of oil the U.S. needs for the next 23 years – if the sands could be fully developed over that period of time, which is not practical. However, when combined with new potential production from the OCS and Alaska, the oil sands could free America from its reliance on oil imports from overseas. Strategically, the sands could hold the key to North American energy security, providing a
safe, stable, secure supply of energy.

Economically, every dollar invested in the oil sands creates about $9 worth of economic activity globally. Over the next five years, oil sands production could create an estimated 343,000 new jobs in the U.S. Oil sands demand for American goods and services could contribute $34 billion to the U.S. Gross Domestic Product in 2015 and up to $42 billion by 2025.

In 2007, industry invested $16 billion in oil sands projects. Since 2000, $87 billion has been invested in developing the sands.

Given the strides Alberta and industry have made in oil sands development and the major efforts underway to further mitigate environmental impacts, Canadians point out that it would defy reason for the U.S. to block or limit energy from the oil sands, when the nation is so heavily reliant on imports from overseas.

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