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The Canadian oil sands will not save us

Jerome a Paris, European Tribune
Canadian oil sands have been touted as the big hope of the oil industry, and if you look at reserve statistics, Canada is now presented as having the second largest reserves around, thanks to the Albert oil sands: [Graph]

so we don’t need the Saudis anymore, right?


…Even the most optimistic scenarios do not expect Canadia oil sands to represent more than 5% of global oil production in 2020. And these optimistic scenarios keep on bumping against unexpected (to some) obstacles.

I’ve pointed out repeatedly that the transformation of oil sands into usable liquids requires lots of energy and lots of water, not to mention lots of other inputs, including engineers that need to be trained, housed, paid and have kids that need to be schooled. Thus the price of the useful “barrel of oil equivalent” keeps on rising as the cost of all these inputs keeps on going up. Some of that (housing costs, local infrastructure) can be attributed to growing pains, but the rest (energy, water, equipment, trained workforce) are structural problems that will ensure that the industry will never be more than barely profitable, as its costs roughly mirror oil prices – quite simply because the thermodynamics are not great (if you need half a barrel of oil, in addition to other inputs, to produce one barrel of usable oil, that puts a very real damper on your profitability).

…To sum it up:

* Canada does have a lot of oil in the form of oil sands;

* that oil is pretty expensive to produce – indeed, its price increases with that of oil itself, and it has very real environmental consequences locally;

* even in the most optimistic scenarios, oil sands will only be able to provide a small portion of world oil production (les than 5% of world output, or less than a quarter of US demand), making them welcome, but by no means sufficient to ensure North American self-sufficiency.
(X July 2006)
Also posted at Daily Kos.
Related from Past Peak: Oil Sands Production Costs Skyrocket.

EnCana’s Protti stresses increase in refining capacity as Canadian oil supplies grow
(video and transcript)
OnPoint, E&E TV
With Canada as the main foreign supplier of energy to the United States, the Canadian tar sands are quickly becoming a popular source of oil. During today’s OnPoint, Gerry Protti, executive vice president of corporate relations for EnCana Corp. discusses challenges facing his company as they try to steadily increase production in the oil sands. He talks about the large-scale effort to improve emissions reducing technologies and discusses the Canadian government’s focus on supply development.
(10 July 2006)
An exercise in public relations. -BA

Some oilsands projects could end up shelved
Rising costs to blame

Jon Harding, Financial Post
CALGARY – Concerns about rising costs related to oilsands development in Alberta have been building for months, but a warning issued by Western Oil Sands Inc. is the first tangible evidence some projects and expansions might have trouble getting off the drawing board.

The partner in the joint-venture Athabasca Oil Sands Project (AOSP) said this week the cost to build a first expansion phase has soared 50% since last fall, when project operator Shell Canada Ltd. more than doubled an initial investment forecast to $7.3-billion.

Western Oil Sands’ statement would therefore bump the project’s price tag toward $11-billion, a figure operator Shell Canada, with a 60% stake in the ASOP, did not refute yesterday at a major oilsands conference in Calgary hosted by TD Newcrest.

Gary Aitken, director of equity research at Bissett Investment Management, said Western Oil Sands and Shell sent the sector and investors a loud signal.

“I think that perhaps there is some cautioning going on,” Mr. Aitken said, adding it’s likely that projects among the nearly $100-billion worth of investment planned for the oilsands over the next 10 years will be delayed rather than scuttled altogether.
(7 July 2006)

Cost of Athabasca could hit $20-billion

DavieEbner, The Globe and Mail
CALGARY — Costs to expand Shell Canada Ltd.’s Athabasca Oil Sands Project have soared 50 per cent in just one year, which means the roughly $7.3-billion price tag for the first phase could rise towards $11-billion.

The cost of the full three-stage expansion, pegged at about $13.5-billion last year, now might come in at more than $20-billion.

“Intense demand for construction labour, material and supplies . . . have resulted in unprecedented increases in capital costs. This demand is further intensified in Alberta by the development of multiple oil sands projects,” said Western Oil Sands Inc. in a press release late yesterday. Western, along with Chevron Corp., is a minority partner in Shell’s Athabasca operation.

The announcement is the loudest statement yet that development in the oil sands north of Fort McMurray in northeastern Alberta is coming unhinged and that the demand for steel and workers is reaching untenable levels.

The news came hours after the price of crude oil reached a record close of $75.19 (U.S.), up a third from about $53 a year ago — a steep gain that has fuelled inflation throughout the energy business around the world.

Pressure in the oil sands also means that initial production from the Athabasca expansion won’t occur until 2010, Western Oil Sands said, a year behind schedule.

Shell said the expansion plan has “great potential” but senior vice-president Brian Straub added, “In this heated marketplace, cost and schedule control is the top priority.”

Every player with an oil sands project in the planning stage — including the world’s largest energy companies such as Exxon Mobil Corp. — is feeling the bite, and those involved say some proposals won’t hit their targets.
(7 July 2006)

Oilsands: Alberta’s gravy train
Area hosts ‘single largest hydrocarbon deposit on the Earth’

Stephen Maher, Chronicle Herald
NORTH OF FORT McMURRAY — The sand is heavy, dark and gooey in your hand. It smells of oil. If you rub it between your fingers, it stains them brown, and you can only get the stain out by scrubbing hard with soap and water.

This is oilsand — the stuff that has built a boom town in the bush and muskeg four hours north of Edmonton. It is the stuff that pumps billions of dollars into Alberta’s economy every year and draws tens of thousands of people from across the country and around the world. It puts that gleam in Ralph Klein’s eye. It puts diamonds on fingers, fine wine down throats and Ferraris in driveways.

Every day, they make a million barrels of oil up here — enough to meet half of Canada’s energy needs, although most of it goes south to the United States.

The scale is what you don’t understand until you come here.

Alberta’s oilsands cover an area three times the size of Nova Scotia. There are an estimated 1.7 to 2.5 trillion barrels of oil in the sand here, seven to 10 times more oil than is in Saudi Arabia’s proven reserves.
(9 July 2006)

Canada’s oilsands rush hits the buffers

Bernard Simon, Financial Times
Politicians seldom balk at a company offering their area a multi-billion dollar investment.

But the regional municipality that includes the Alberta town of Fort McMurray will tell regulators this month that its over-stretched services cannot cope with a planned C$6bn (£2.9bn) expansion of Suncor Energy’s nearby oilsands operation.

Fort McMurray is at the centre of one of north America’s most frenzied resource booms since the Klondike gold rush of 1897.

The bitumen-like deposits – estimated to contain more oil than anywhere but Saudi Arabia – have drawn oil giants and investors from around the world.

According to the Canadian Association of Petroleum Producers (CAPP), a total of C$60bn is earmarked for new extraction and processing projects over the next five years.

House prices in Fort McMurray are higher than Toronto or Vancouver. The roads and schools are struggling to keep up with a population that has doubled to 60,000 in the past decade, and is expected to hit 100,000 by 2010.

Like the municipality, the oilsands industry is discovering the downside of a boom. Excitement over the spiralling oil price has given way to frustration over shortages of labour and equipment and soaring costs. The stampede has also driven up land prices for new oilsands projects.

To make matters worse, the gap between the price of light crude oil and the heavy product yielded by the oilsands has widened from about $6 a barrel a few years ago to $17 now.
(10 July 2006)