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 Alberta oil sands:
so we don't need the Saudis anymore, right?
Canada's oilsands rush hits the buffers
The bitumen-like deposits - estimated to contain more oil than anywhere but Saudi Arabia - have drawn oil giants and investors from around the world.
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.
Not long ago, most projects were viable at prices of $25-$35 a barrel. Now, says Doug Leggate, analyst at Citigroup in New York, "a lot of oilsands projects don't look particularly compelling if you look below $50". A growing list of companies are now coming to the same conclusion. Last week, Royal Dutch Shell and its partners said they were reviewing the economics of the first phase of a planned C$13.5bn expansion of their Athabasca project.
Western Oil Sands, with a 20 per cent stake, said the budget for the first phase could be 50 per cent up on last year's C$7.2bn estimate. The project includes expansions to a mine and an upgrader that converts bitumen into heavy crude. (...)
The bottlenecks and cost pressures have prompted CAPP to include a "constrained development case" for the first time this year in its production forecast.
The association estimates that total western Canadian oil output will grow from 2.2m barrels a day in 2005 to 4.7m b/d in 2020. But if the bottlenecks continue, output would hit only 3.9m b/d.
The association hopes to ease the labour shortage with looser visa rules for temporary workers and more apprenticeship programmes. In the meantime, says Greg Stringham, a vice-president of CAPP , the shortage "is acting as a natural governor on the pace of development".
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).
The Oil Drum has had a very enlightening series on oil sands which you can find starting here.
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.
The only solution to our energy crisis is on the demand side: we must use LESS. It's possible, it's smart, and it will create local jobs. So what are we waiting for?