Another golden opportunity for Canada’s oil and gas industry
by Margret Kopala

Published by the Ottawa Citizen, December 6, 2003

In a development destined to make Canada an energy superpower, the United States has indicated interest in Alberta’s vast Athabasca tar sands oil deposits, whose estimated capacity can supply North America’s oil needs for generations.

National Post columnist Claudia Cattaneo reported this week that U.S. Energy Secretary Spencer Abraham wants to decrease U.S. dependence on Middle East oil sources in favour of Canadian sources. Given the situation in Iraq and Saudi Arabia, the continued growth in U.S. demand for oil imports and this summer’s blackout that left much of the American northeast sweltering in the dark, it is hardly surprising that overhauling its energy strategy should become a priority. Looking to hydrogen as one alternative fuel source, Abraham specified a second approach, namely that “… we don’t become totally (oil) independent, but we shift a substantial amount of our (oil) trading relationships to Canada.”

“It changes the face of petroleum geopolitics,” says Murray Smith, Alberta’s minister of Energy. “It’s the culmination of 16 months of shining investment and consumer light on Alberta’s energy reserves.”

Alberta sends up to 300,000 barrels a day to eastern Canada from a number of sources, but at 1.1 million barrels, the U.S. is its No. 1 customer. The big achievement of recent months was Alberta proving the existence of reserves beyond current exports and to have those quantities registered, Smith says. “We showed the Americans there was a safe, reliable, firm supply of oil right next door. On May 7, we received a letter from Spencer Abraham confirming 176 billion barrels.”

Abraham has his eye on Athabasca and with good cause. The Athabasca tar sands have reserves second in size to Saudi Arabia, roughly the equivalent of Kuwait’s. Tar sands development began as a prescient gleam in the eye of Ernest Manning when he was premier of Alberta in the 1950s. He helped launch a research project to extract oil from the oozing, sticky sands north of Edmonton. Today, from a land mass about the size of Florida and South Carolina combined, Suncor Energy Inc., along with Syncrude, Shell, BP, Conoco, Phillips and others extract 740,000 barrels (or half a Skydome) of crude oil a day, with twice that amount projected for 2010.

Developing the technology to harvest, convert and transport the tar sands oil wasn’t easy or inexpensive. Consisting of bitumen and other forms of heavy oil, the petroleum is buried in sand deposits that require a special refining process to be converted into something usable. Some is close to the surface and, through a forced steam process, is easier to extract. The rest isn’t. Refining it also produces more sulphur dioxide, carbon dioxide and other greenhouse gases than production and refining of conventional oil.

Allowing for a modest recovery rate, the tar sands total reserves are estimated at 176 billion to 271 billion barrels. If extraction methods can be found to get at the deeper stuff, the estimates rise to as much as 2.5 trillion barrels. For the 20-year period between 1996 and 2016, some $87 billion in capital projects around tar sands development have been announced. All this positions Canada as an oil superpower, rivalling OPEC.

Needless to say, the oil companies operating throughout the Athabasca region are multibillion-dollar operations with ancillary interests such as pipelines, holding plants, refineries and whole towns such as Fort McMurray (where property prices are skyrocketing) seconded to their needs. Canada is already the world’s ninth-largest exporter of oil and the second-largest (after Russia) exporter of gas. Energy at $40 billion per year is the No. 1 investment product and, at $60 billion per year, the No. 1export product. So Spencer Abraham’s statement is nothing less than stunning both for Canada’s oil industry and for Canada’s trading relationship with the United States.

It means that the oil giants will have to make even bigger investments. New technologies, new capital and more labour will be needed, as well as better access to the U.S. market. New projects will use more eastern Canadian steel. Financial incentives, new trade agreements, new industrial regulations — after Kyoto, a Canada Protocol? — to take environmental concerns into account — all may be necessary. Where to start? A hand extended across the wheat fields by Paul Martin’s new energy minister, in a first-tier portfolio, is clearly in order.

Margret Kopala writes weekly on western perspectives.

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