Q. What are oil sands?
A. Sometimes also known as Tar Sands or unconventional oils, these deposits are found primarily in the boreal forest of north-eastern Alberta in Canada, covering something in the region of 140,000 square kilometres in three main areas: Athabasca, Peace River and Cold Lake. They are so named because they are bitumen (tar or pitch) based deposits.
And do they occur anywhere else?
A. Natural bitumen deposits are present elsewhere, but only in Venezuela are they of similar significance to Canada’s reserves.
Q. How do oil sands differ from conventional oil?
A. The deposits are all land based and occur in two extractable forms. Either they can be extracted under an open pit mining process located at up to 75m depth, or deeper underground deposits can be extracted ‘in situ’; approximately 80% of Canada’s oil sands reserves require the ‘in situ’ method of extraction.
Q. What are the various methods of extraction?
A. Open pit mining entails the excavation and clearance of boreal forest and the removal of top soil. The bitumen mix is mined and removed for steam cleaning and processing, where bitumen is separated from the sand. It can then be refined. Up to two tonnes of spoil is produced for every barrel of oil extracted. For ‘in situ’ mining oil is recovered from conventional wells via steam injection to draw the bitumen out. After several months of steam injection, the bitumen is liquid enough to drain ‘by gravity’ into a lower well and can then be pumped to the surface. Crude extracted at these depths is processed into ‘synthetic crude’ so that it can be sent by pipeline for onward refining. This method of steam assisted extraction is called ‘Steam Assisted Gravity Drainage’ or SAGD.
Q. Why have oil sands attracted so much interest?
A. As ‘easy oil’ runs out, the world’s dependence on oil has to be supplied from increasingly more difficult sources, be they in turbulent geo-political locations, or because they are harder to extract (Greenland, the Arctic). Canada represents an abundant supply in a secure, politically stable environment. The scale of Canada’s oil sands deposits should not be underestimated: Alberta has proven reserves of 174bn barrels, and 315bn ‘probable’ barrels. These proven reserves place Canada second only to Saudi Arabia in their potential. Ultimate reserves are put at 1.7 trillion barrels. Output has grown steadily to approximately 1m barrels per day (bpd), with a forecast increase to 5m bpd by 2020. This compares to Saudi production of 9m bpd. Statoil, one operator with SAGD interests expects to extract 200,000 bpd at full capacity.
Q. If oil sands hold out so much potential, why are there concerns?
A. Detractors maintain that as oil reserves dwindle and the world becomes increasingly ‘carbon constrained’, investment should instead focus on alternatives to fossil fuels. Notwithstanding these arguments, oil sands raise some very specific concerns for the responsible investor. The ecological impact from open mining is potentially devastating in terms of land use, biodiversity and water toxicity, whilst SAGD is a far more energy intensive means of extraction than conventional oil.
Q. Can you outline the concerns arising from the open-cast mining method?
A. The boreal forest and its peat covering represent a significant carbon reservoir; deforestation releases substantial carbon into the atmosphere. Canada is home to half the world’s remaining boreal forest, which in turn accounts for 11% of the global terrestrial carbon sink. Both methods of extraction entail the use of extremely high volumes of water, which is extracted from the Athabasca river system. Licenses provide for the abstraction of 349 million cubic metres of water per year. Reuse has reached 90%, but owing to the toxicity of the tailings only 5-10% is fit to re-enter the river system. Enormous ‘tailings ponds’ have been created to store the toxic waste which are the size of small lakes and for which no lasting decontamination route has yet been found. These lakes are so toxic, studies have shown that birds die almost immediately if they alight on them. Tailings ponds are a composite of water, sand, silt clay and bitumen residue with high levels of napthenic acid and can be up to 50 square kilometres in size. Sited in close proximity to the River Athabasca, local communities fear that toxic pollution will leech into the water system. Scientific tests on water quality found high levels of arsenic, mercury and polycyclic aromatic hydrocarbons in the water. As well as water, land and community issues, biodiversity is also affected by the scale of open pit mining as Canada is home to significant herds of caribou, which require large connected areas of intact forest to graze and migrate.
Q. Are the concerns surrounding the SAGD method similar?
A. Only up to a point. Despite requiring land for drilling, access roads, processing and piping, the overall footprint on land use is more modest than for open pit mining, although it is still potentially disabling for wildlife and, potentially, for indigenous communities. The major concerns surrounding SAGD are climate related, principally energy and water use. This method of extracting oil sands has been proffered as more benign and sustainable than open pit mining. However, a conventional barrel of oil emits 28.6kg of carbon in the production cycle, whereas, an average barrel of oil sands emits 85.5kg of carbon. Statoil’s own ‘report card’ for 2010 showed that 670 kg of carbon was emitted per barrel of bitumen extracted, whilst the SAGD method required 12.86 barrels of water per barrel of bitumen mined. It is hoped that technology will reduce this carbon intensity by 25% by 2020, and reduce water intensity by 45% over the next decade. It is worth reflecting that Canada, with a population of only 33m now ranks seventh in the world for global carbon emissions because of its exposure to oil sands; it is also the principal reason why Canada withdrew from the Kyoto Protocol in December 2011 incurring widespread denunciation.
Q. What is the wider significance of continued oil sands exploitation?
A. Scientists are widely agreed that the world’s climate will reach a tipping point if 450 parts per million (ppm) of carbon in the atmosphere is exceeded. If provable oil sands reserves were to be exploited, it is expected the effect on emissions may be catastrophic, and not less than an additional 100GT of carbon dioxide (global anthropogenic GHG emissions were 49Gt carbon equivalent in 2004). If 315 billion barrels were eventually exploited, this would represent no less than an additional 183GT of carbon equivalent. The effect of exploiting all 315 billion barrels would add between 9 and 12 ppm of atmospheric carbon dioxide. Without check, oil sands alone will account for 87% of the OECD inventory of maximum allowable emissions under a 450ppm tipping point model.
Q. What companies are involved in oil sands exploration?
A. High oil prices have made oil sands extraction both attractive and economic, with the result that all the major transnational oil exploration and production companies have initiated extraction. The four ‘super-majors’ alone are collectively expected to extract 1.6m barrels per day by 2020. Companies such as BP and Statoil have committed not to mine, and are wholly involved with SAGD. Shell is both mining and extracting via SAGD.