Canada may become the oil giant of the future

Michael Richardson, Business Times 18 Jan 08;

The National Energy Board predicts that increasing production of oil from oil sands would make Canada the fourth-biggest oil producer in 2015

THE world may be running out of conventional oil, which for more than a century has fuelled our transport and industry. But as the price of this relatively liquid and easy-to-extract crude oil hovers not far from its record high of just over US$100 per barrel, the incentive to exploit vast untapped reserves of heavy oil and oil sands is unleashing a new boom in petroleum production, currently centred on Canada.

Chinese and Western energy giants have announced investments of more than US$100 billion to develop Canadian deposits of oil sands over the next decade.

This resource is a mixture of bitumen, sand, clay and silt found mainly beneath some 140,000 square kilometres of forest in Alberta province.

Canadian oil sands hold an estimated 1.7 trillion barrels of crude oil, second only to Saudi Arabia's conventional oil riches. Worldwide, in countries ranging from the United States, Venezuela and Australia, reserves of heavy oil and oil sands amount to around six trillion barrels.

They could keep the planet's oil-dependent economy going for many more decades until hydrogen or some other clean fuel can take over from petroleum. However, the cost could be very high in terms of environmental damage unless scientists and engineers can find less polluting ways to extracting usable energy from heavy oil and oil sands.

Canada's energy regulator recently lowered its forecast of output growth from the reserves in Alberta amid soaring costs of labour and equipment that are slowing development.

Still, the National Energy Board predicted that increasing production of oil from the sands would make Canada the fourth-biggest oil producer in 2015, after Saudi Arabia, Russia and the US.

It is in seventh position at present. The board projects oil sands output will be 2.8 million barrels per day in 2015, down from its earlier three million barrels. 2007 production is estimated at 1.6 million barrels per day. By 2030, this will rise to 4.15 million barrels per day, comprising 90 per cent of Canada's oil output.

China wants some of this oil to flow its way across the Pacific. But the lion's share is expected to go across the border to the US, the world's biggest oil consumer. Canada supplies around 2.5 million barrels of crude and oil products a day to the US, comprising about 18 per cent of US imported oil.

This makes Canada the largest single source of foreign oil for America and a linchpin of its energy future. US refiners are modifying their facilities to handle the heavy bitumen-based crude from Alberta's oil sands.

With conventional oil prices expected to remain high on the back of rising demand from Asia, the future of the oil sands industry is promising. Some oil sands companies claim they can operate profitably even if the price of conventional oil falls back to US$30 per barrel. But analysts say that new projects may only be profitable at around double this level.

However, the industry causes bad pollution and leaves a mess behind, according to environmental activists. Only a small portion of the Canadian forest will be cleared for open pit oil sand mining.

But extracting oil from the sand generates up to four times more carbon dioxide, the main greenhouse gas warming the planet, than conventional oil drilling and production.

Environmentalists say that the oil sands boom will produce 100 million metric tons of CO2 by 2012. As much as five barrels of water have to be diverted from Alberta's rivers to produce a single barrel of crude from the sands and the process has to be powered by huge amounts of natural gas.

For deeper oil sands reserves, the main method of extraction involves injecting into the ground a high-pressure stream heated by gas to soften the bitumen so that it can be pumped to the surface.

But a promising new system, already tried successfully in one Alberta oil sands mine, injects air into the deposit down a vertical well. When ignited, the heat generated in the reservoir reduces the viscosity of the heavy oil, allowing it to drain into a separate well. From there, it rises to the surface.

Developers claim this system recovers 70-80 per cent of the oil, compared to only 10-40 per cent using other technologies.

Last month, an international team of scientists announced that they had found out how to hasten the natural breakdown by bacteria of oil sands into clean-burning methane, or natural gas, in deeply buried deposits.

Their aim is to move the process out of the laboratory into the field - making something that would occur naturally over millions of years take place in just 10 years or so.

The writer is an energy specialist at the Institute of South East Asian Studies. This is a personal comment