Billions of barrels of oil are hidden in Canadian sand

Oct 10, 2005 02:00 AM

by Kevin G. Hall

Along a giant patch of Canada's Far North, where moose outnumber people, a vital part of America's energy future seeps out of riverbanks and is hidden below soft prairie grass.
These Canadian oil sands will help keep American SUVs running in the years to come.

Oil sands?
In the north of the remote Alberta province rests the equivalent of 1.7 tn barrels of oil. An estimated 176 bn barrels is recoverable with today's technology, and perhaps twice that amount is potentially recoverable. But this oil can't be pumped from the ground the conventional way. It's spread across more than 54,000 sq miles, about the size of North Carolina, and it's mixed with sand and clay.
"It's the single largest hydrocarbon deposit on the Earth, and it's next door to the biggest market for oil products, the United States. What's wrong with it? It's crap oil," said Neil Camarta, senior vice president of oil-sands operations for Shell Canada.

"You've got to use a lot of energy and a lot of pots and pans to extract it from the sand, and you have low-quality oil. It's a high-cost business and a lot of capital and a lot of operating costs," Camarta said.
Don't mistake that for discouragement.
"The good news is, once you've got those pots and pans on the ground, you never run out of oil," Camarta said.

Canada already has quietly surpassed Saudi Arabia as the United States' largest foreign supplier of crude oil and petroleum products. The US Energy Department thinks foreign oil will account for as much as 72 % of US supplies by 2025.
The sands contain a tar-like grade of crude oil called bitumen, which must be separated from the dirt through a costly, complicated boiling process. Hydrogen is added, sulphur and nitrogen removed, and the final product is synthetic crude oil.

Shell's Athabasca Oil Sands Project -- a joint venture among Shell, ChevronTexaco and other companies -- already produces about 155,000 barrels of oil a day. Within a decade, it should produce half a mm bpd. America consumes 20.7 mm bpd, and of that, about 12.1 mm barrels are imported.
Shell runs the newest of the three well-developed oil-sands operations. All three expect to produce at least half a mm barrels of oil within a decade. Suncor Energy, formerly part of the Sun Oil Co., began producing synthetic crude oil in 1967. Syncrude Canada has operated since 1978; 25 % of it is owned by Imperial Oil, whose majority shareholder is ExxonMobil.

"This is the one place where you can bring on oil. You know the costs, you know what you're dealing with," said Robert Esser, director of global oil and gas resources at Cambridge Energy Research Associates.
"It's in the process of taking off -- it's not just starting; it's there. These are major companies and major sums of money entering this playing field."

This year, oil-sands operators are expected to produce more than 1.1 mm barrels of oil a day, for the first time surpassing Canada's conventional oil production, which is forecast for 1 mm bpd. Oil-sands production is projected to reach 2.3 mm barrels of oil a day by 2010, 3.4 mm barrels by 2015 and 5 mm barrels by 2035.
Arriving at those numbers won't be pretty. Two tons of dirt must be mined and processed to produce a single barrel -- 42 gallons. Around the clock, huge three-story trucks carrying as much as 400 tons snake through vast mine pits that literally resemble mini-Grand Canyons.

"We really are digging the biggest hole on Earth," said Myles Kitiwaga, an environmentalist with Toxics Watch Society of Alberta in the provincial capital of Edmonton. The environmental group is one of several that fear strip mining is far outpacing the restoration of land.
Less than two decades ago, production costs were as high as $ 30 a barrel. That has come down to less than $ 18 a barrel -- still high considering it costs some countries less than $ 4 a barrel to produce conventional oil. But oil now sells for between $ 60 and $ 70 a barrel. The math is simple. Oil sands are profitable.

"In the early '80s, we had to prove that the technology would work and the system would work and the economies of scale would be there. Then... we began to home in on the costs," said Jim Carter, Syncrude's president and chief operating officer.
"Fortunately, the timing has just been perfect, with the world's crude oil demand going up and prices going up accordingly. It's made it a pretty attractive business."

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