Spinning tar into oil
As Canada rushes to supply fuel-hungry nations by tapping its oil sands, northern Alberta is transforming from a sleepy backwoods into a bustling cash cow
Karen Warren / Chronicle
The eight-story-tall cranes used to scoop up the oil sands tower over the landscape near Fort McMurray in Alberta, Canada. With crude prices hanging so high, Canada's unconventional oil sands — or tar sands, as they're often called — have become wildly profitable, adding more than 170 billion barrels of oil to Canada's reserve base
By LYNN J. COOK
Copyright 2005 Houston Chronicle
Nov. 6, 2005, 12:49AM
CALGARY, ALBERTA - Think Saudi Arabia has a lock on oil? Think again.
Turns out Canada has almost as much crude, if not more.
For years Canada has pumped oil from traditional wells, shipping it across the border to U.S. consumers.
In fact, our neighbor to the north is the top oil exporter to the United States. (Saudi Arabia ranks third after Mexico.)
But with crude prices hanging so high, Canada's unconventional oil sands — or tar sands, as they're often called — have become wildly profitable, adding more than 170 billion barrels of oil to Canada's reserve base.
Today, the sands produce as much oil as Texas — about 1 million barrels a day.
Output is set to nearly triple during the next 10 years, and the Canadian Association of Petroleum Producers is predicting a yield of 6 million barrels of oil a day by 2030, a little more than half of what Saudi Arabia produces now.
This swelling supply will feed Americans' voracious appetite for oil far into the future, but the promise is not without problems.
Extracting valuable crude oil from sand is labor-intensive and expensive. And the process, which involves leveling acres of evergreens and spewing greenhouse gases into the air, has riled environmentalists.
Still, energy companies such as Shell, Suncor, Exxon Mobil and ConocoPhillips press on.
As Bob Gibson, managing director of independent investment bank Mustang Capital Partners of Calgary, points out: "All the issues get diluted at $60 oil."
From above Fort McMurray, hundreds of miles north of the U.S. border, the landscape looks more like the cratered surface of the moon than the boreal forest of Alberta.
The sandy soil is sticky with crude, so energy companies have rushed in to clear-cut the land and strip mine for oil where vast stretches of pines and firs once stood.
At the Millennium mine, operated by Calgary-based Suncor, eight-story-tall cranes fitted with enormous shovels carve up the earth, scooping it into the back of dump trucks so big that operators have to climb a staircase to get into the cab.
Oil-soaked sand — called bitumen — is hauled to giant bins and dumped into an elaborate system of machinery, where it is crushed, washed, superheated and chemically treated. What's finally spun out is thick, sludgy crude that can be turned into, for example, the asphalt used to pave roads or the gasoline that fuels the vehicles driven on them.
Jim Proudfoot, Suncor's chief safety engineer, said 1,000 operators work in the mines every day as part of a round-the-clock operation that has a goal similar to that of air traffic control — constant movement.
That's because to wring one barrel of crude from the oil sands, 2 tons of earth has to be pulled from the mine and processed.
At Suncor, more than 330,000 tons of earth is excavated to produce 166,000 barrels of oil every day.
The equipment used to tap the oil sands is expensive, energy-intensive and beyond huge.
"You know how they say everything is big in Texas? Well, everything's big in Fort McMurray, too," Proudfoot said.
Caterpillar-brand dump trucks weighing 360 tons buckle the dirt roads beneath them as they ferry loads of bitumen out of the mine.
In the hot summer months, a wave of road will crest in front of the trucks' tires. They kick up so much dust, water trucks have to routinely spray the pathways that lace through the mine.
The trucks' 925-gallon tanks hold enough fuel to fill 40 new-model Hummers and burn through it in about 18 hours.
Even more immense are the cranes that gouge out the pits, So large there are no diesel engines big enough to run them, they are plugged into a power station by supersize electrical cables that worm their way around the site.
In the winter, Fort McMurray's thermometer can dip to 40 degrees below zero — the point at which mercury freezes. Then, the oil sands often come off in chunks the size of a Volkswagen bus, breaking several "teeth" on the shovel every shift. The cost to replace one tooth: $3,500.
When a dump truck needs a new tire it costs $50,000.
"I describe it as the ultimate big-toys-for-big-boys scene," Gibson said, though Suncor likes to note that 20 percent of its mine work force is female.
Only about 18 percent of Canada's oil sands are accessible by mining. The remainder is locked too deep underground to be accessed without drilling. Energy companies are turning to horizontal drilling and flooding wells with steam and fire to get at it.
The most common technology used when drilling in the oil sands is steam-assisted gravity drainage — or SAG-D.
Two horizontal wells are drilled parallel to each other. Piping-hot steam is blasted down the top chamber to heat the hardened bitumen, allowing the warmed, gooey oil sands to drain into the lower chamber, where it can be pumped out.
But once it gets to the surface, there are more headaches.
At about 50 degrees Fahrenheit, bitumen has the consistency of a hockey puck. So just getting the carbon-intensive solid to flow through a pipeline requires a lot of chemicals and condensate to dilute it.
Right now, most oil sands crude gets upgraded and refined pretty close to home in Alberta's Edmonton industrial complex and across the border in Washington state and the Midwest. Several proposed pipelines could take it a lot farther afield, namely to the Gulf Coast and China.
Enbridge, which has offices in Houston, is working on a project dubbed "Gateway," which would run oil sands crude across the Rockies to Kitimat on British Columbia's coast. The $4.1 billion project would require a new deepwater port to be built so supertankers could dock there to pull away with cargo bound for China or California.
Brian Fowler, the commercial manager for the Gateway project, said refineries in Los Angeles and San Francisco already are capable of processing heavy crude because they get that kind of supply from Alaska, where the resource stream is slowly but surely tapering off.
But it's China's demand for oil, which has been increasing even faster than U.S. demand, that's captivated Enbridge.
"Candidly, we're underpinning the success of this profitability to Asia," Fowler said.
He said most people don't realize it, but Canada is closer than the Middle East to China's major ports. A supertanker of crude takes 34 days to travel from Canada and 45 days from Saudi Arabia, he said.
The Gateway project will sink or swim based on whether companies that ship to Asia will agree to 15-year commitments. It's a lot to ask since most tanker contracts are locked in for only one year.
"It takes five years to build a pipeline, and, I'll tell you, getting a refinery to make that decision five years in advance is tough," Fowler said.
Houston-based pipeline company Kinder Morgan is spending $5.6 billion to buy Terasen, which operates a trans-mountain crude pipeline that moved oil sands output to Vancouver.
The company, which mostly operates natural gas pipelines, likely will double that line's capacity and continue to expand in the oil sands region, said Kinder Morgan President Park Shaper.
"We will remain agnostic," he said. "We're happy to go whatever direction people want as long as they're paying for it."
Enbridge and Exxon Mobil also are working to reverse the direction of some pipelines that ran Gulf Coast crude up to the Midwest. Now, those pipes will bring Canadian crude down to Cushing, Okla., and the heavy-oil-refining complexes on the Gulf Coast.
Not everybody in Alberta is happy about the way the oil sands are progressing.
A recent report from the University of Alberta's Parkland Institute said Canada is backsliding into the ancient role of "hewers of wood and drawers of water" and neglecting the development of Canadian industry.
The report frets about pipeline expansion into the United States, saying it has the potential to destroy Alberta's refining and petrochemical industry. The report's conclusion: Without drastic measures to protect itself, Canada could quickly turn into one more pool of raw resources for the United States to pillage.
The Alberta government and 16 energy companies are considering a huge, new
$6 billion refining and petrochemicals complex near Edmonton that would churn out upgraded — and more expensive — fuels and chemicals, keeping more money in Alberta. The proposal is in its initial stages.
Alberta Energy Minister Greg Melchin is on the ropes. He wants to make sure the sun doesn't set on Alberta's heyday, but a lot of Canadians are fighting mad about the province's economic windfall and greenhouse-gas emissions.
Despite levying only a 1 percent tax on most oil sands projects right now, Alberta is taking in almost as much money as the entire federal government.
The province also gets royalties from regular oil wells and earns even more from natural gas production.
The Canadian Association of Petroleum Producers said Alberta's energy prosperity is creating new wealth and jobs in other Canadian cities, including Ontario, where steel is manufactured.
Alberta, which became the only debt-free province in Canada last year, has a budget surplus, so the provincial government is cutting a $400 check to every man, woman and child who lives there.
The province, which churns out the lion's share of the country's carbon dioxide emissions, has put Canada's commitment to the Kyoto treaty on climate control in peril.
The accord calls for Canada to slash greenhouse-gas emissions — carbon dioxide output — from its 1990 benchmark level. That reduction is supposed to be achieved by 2012, but, thanks in large part to activity in the oil sands, Canada's carbon emissions have jumped more than 20 percent.
Many policymakers and energy executives say there's a solution that can keep the oil sands progressing while keeping Kyoto alive. None seems willing — or able — to spell out exactly what that answer is.
Shaper said Kinder Morgan is interested in carbon sequestration — binding up the greenhouse gas and injecting it back into the ground.
The company has experience with it in Texas because it runs a pipeline through which captured carbon dioxide is taken to old oil fields and pushed down wells to force more oil to the surface.
Energy Minister Melchin likes the idea of sequestration but said that, as it stands, the economics are marginal at
best.
One industry insider said that despite Kyoto's impending deadline, most decision makers aren't giving it too much thought.
"Not really," he said."Everybody's too busy making money."