US, China battle for Canada's underground

Robert Collier
San Francisco Chronicle
March 24, 2005

COMMENT: Amazing article from San Francisco, claiming the oil from Canada's oil sands for America, acknowledging that the primary reason for the Mackenzie Gas Pipeline is to provide gas to cook the oil out of the sands, and ending up brandishing a fist at Chinese intentions to claim some of that oil for China.

First Nations rights may disappear like bugs under US jackboots if they get in the way of moving Canadian oil to US markets. - Arthur Caldicott

Some tribes oppose pipeline to tap land rich in oil reserves

While Congress debates whether to allow oil and gas drilling in Alaska's Arctic National Wildlife Refuge, a similar battle with much higher stakes is under way in northwest Canada.

The $6 billion Mackenzie Pipeline project would open the Canadian Arctic for natural gas drilling and send the gas 800 miles south down the Mackenzie River Valley to Alberta. There, much of this fuel would be used to throttle up production in a huge but hard-to-tap supply of petroleum dispersed in underground gravel formations. These so-called oil sands hold petroleum reserves that are second in size only to Saudi Arabia's, and analysts say they could supply a large portion of U.S. energy needs for decades to come.

But the project has sparked opposition from some native tribal groups, which call it a federal grab of their ancestral lands, and from environmentalists, who say it would churn out greenhouse gases linked to global warming.

It is a fight that is likely to forever set the course for Canada's vast and empty north. The project is full of continental superlatives -- North America's richest oil patch, its biggest construction project since the Alaska pipeline in the 1970s, its largest strip-mining operation.

"By far the most important thing for North America are those oil sands in Canada," said Robert Esser, director of oil and gas resources at Cambridge Energy Research Associates in New York. "It's nice we're going to have access to (the Alaska refuge), but there are a lot of unknown questions there. We have no idea whether there is oil or gas or how much. In the oil sands, we know the reserves are huge, much larger than in Alaska."

The Canadian government, which calls the project an economic necessity, is not required to seek approval from Parliament in Ottawa. Pipeline construction is expected to start in early 2007, with gas flowing two years later.

In Alaska, by contrast, congressional authorization is required to develop the wildlife refuge. Last week's Senate vote to allow drilling will be followed by several more months of legislative maneuvering and, if the plan is approved, about eight years of preparation before oil begins to be pumped.

Despite its bright prospects, Canada's pipeline could still be stopped in its tracks by opposition from one of the region's native tribes, which are known in Canada as First Nations.

The Deh Cho First Nation, a tribe of about 4,200 people who occupy the southern third of the pipeline route, has filed suit in federal court in Vancouver, British Columbia, to block the project. Unlike tribes of the northern Mackenzie Valley that have settled their land disputes with the government and support the pipeline, the Deh Cho are holding out for autonomous powers in their area. Until a deal is reached on the land dispute, the government lacks legal authority for a pipeline right of way, the tribe insists.

"What we see today is Canada not living up to its obligations," said Noeline Villebrun, national chief of the Dene, the parent federation of Mackenzie Valley tribes. "If Canada hopes to settle the claims, then the Deh Cho have to see their rights being accommodated."

The Deh Cho won a round last week, when a federal judge ordered the government to release briefing notes, minutes, draft plans, correspondence and other documents related to planning for the pipeline project.

Contained in the oil sands are vast quantities of so-called bitumen, or super-heavy oil, underneath an area of northern Alberta as big as Florida. One extraction process is similar to strip mining, in which sand is scooped out and cooked at high heat to extract the sludge. Another process pumps steam into the underground deposits, dissolving the bitumen and allowing it to be piped to the surface. Under both methods, the resulting goo is refined into commercial grades of crude oil and piped to customers, mostly in the western United States. About 2 tons of sand have to be dug up, heated and processed to make a single 42-gallon barrel of oil.

The crucial ingredient in this process is natural gas. Although other fuels have been used to cook the oil sands, such as coal and the bitumen itself, none works as well as gas. Production of gas from long-established fields in Alberta is expected to decline in coming years, and because demand for gas is rising fast, expansion of the oil sands will require new supplies.

The nearest major source is in three well-explored yet untapped gas fields in the delta of the Mackenzie River on the shore of the Arctic Ocean. If the pipeline is built, gas from the delta can be funneled down to Alberta, where it will connect with the province's pipeline system to reach the oil sands.

With international oil prices soaring over $50 per barrel and likely to remain high for years to come, the oil sands are a bonanza in the making. The oil sands are estimated to contain 174 billion barrels of oil, second only to Saudi Arabia's 260 billion barrels.

In contrast, the Arctic National Wildlife Refuge contains only about 10 billion barrels. The Energy Department predicts output there will reach a peak of about 1 million barrels per day within a few years after the estimated 2015 start, and will decline gradually thereafter.

Companies such as ChevronTexaco, Shell, Exxon Mobil, Petro-Canada and Suncor Energy have made multibillion-dollar investments in the oil sands in recent years, raising total production to about 1 million barrels per day. If sufficient natural gas is available to cook the sludge, output from the oil sands is expected to reach 2 million barrels per day by 2010, rising to 3 million by 2020 and as much as 5 million for many decades to come.

"Imagine Saudi-type production levels just north of the U.S. border in a friendly country," said Roland George, an Alberta analyst with Purvin & Gertz, an oil industry consulting firm in Houston.

But environmentalists say the process of burning large amounts of energy just to get more energy is reckless. "The oil sands are the world's dirtiest source of oil," said Stephen Hazell, director of the Sierra Club of Canada's campaign against the Mackenzie pipeline.

The oil sands expansion is expected to increase Canada's emissions of greenhouse gases by as much as 12 percent of the country's total allotment under the Kyoto Protocol, making it almost impossible for the government to meet its commitments for reducing emissions, Hazell said.

The economic potential of the pipeline project has been a powerful lure for many of the region's Natives. Poverty is rampant in the ramshackle Native villages that dot the boreal forest. Unemployment can be as high as 50 percent.

"People need jobs, and although we're not sure the pipeline won't just hire outsiders from down south, there are a lot of people here who are really hopeful," Villebrun said.

Three tribes in the Mackenzie Valley have allied themselves with the oil and gas companies behind the pipeline project. The Sahtu Dene, Gwichin and Inuvialuit, which settled their federal land claims in the 1990s, hold a one- third stake in the pipeline project along with its corporate parents: Exxon Mobil, Shell and ConocoPhillips.

Although it supports the Mackenzie pipeline, the Gwichin tribe, whose 7, 000 members live on both sides of the Alaska-Canada border, oppose oil development in Alaska. Its leaders have long been active participants in U.S. environmentalists' lobbying campaigns in Washington against drilling in the wildlife refuge because the area is the main summer calving ground of migrating caribou herds that are a major source of the tribe's food supply.

"By destroying that one area in (the refuge), they will ultimately destroy the caribou," said Joe Linklater, chief of the Gwichin First Nation in Yukon Territory, who traveled to Washington earlier this month to lobby against the Alaska refuge proposal.

Linklater said he and his family, who live in the village of Old Crow, north of the Arctic Circle, hunt and kill several caribou each April and October during the animals' migration through the area. "That's what is in our freezer all year long -- the caribou -- and that's what we eat," he said. But he noted that the Canadian pipeline lies outside caribou migration areas.

Many other twists and turns lie ahead amid the complicated energy politics of the Far North.

The Mackenzie project has caused consternation in Alaska because it could delay construction of the planned $20 billion, 3,500-mile natural-gas pipeline from Alaska's North Slope down into Canada. The existing trans-Alaska pipeline carries oil only, and natural gas extracted in the North Slope as part of the oil drilling process must be re-injected into the ground. Experts say income from a natural-gas pipeline is needed to allow full expansion of oil drilling in the Alaska refuge.

The proposed Alaska pipeline route, which would parallel the Alaska- Canada Highway into the Yukon and British Columbia, is further behind in the Canadian regulatory process than its Mackenzie rival. Canadian officials are believed to be deliberately taking a go-slow stance to ensure that their pipeline gets built first.

Although U.S. officials hope the output from Alberta's oil sands will be exported mainly south of the border, Chinese officials are trying to lock up long-term contracts for oil that would be sent through a proposed pipeline to the coast at British Columbia and then exported via tanker to China.

"There have been Chinese delegations in every skyscraper in Calgary," said George, the analyst.

"The Chinese are doing what the United States is doing, scouring the planet for every molecule of oil production they can get their hands on."

Many Washington conservatives are seeing red. "It's definitely a big worry for the Chinese to be trying to monopolize the oil sands," said Frank Gaffney, president of the Center for Security Policy in Washington.

"We're in a race for energy supplies, and we can't allow China to win this one."