Athabasca Oil Sands

The Athabasca Oil Sands (also known as the Athabasca Tar Sands) are large deposits of bitumen, or extremely heavy crude oil, located in northeastern Alberta, Canada. These oil sands consist of a mixture of crude bitumen (a semi-solid form of crude oil), silica sand, clay minerals, and water. The Athabasca deposit is the largest reservoir of crude bitumen in the world and the largest of three major oil sands deposits in Alberta, along with the nearby Peace River and Cold Lake deposits. Together, these oil sand deposits lie under convert|141000|km2|sqmi of sparsely populated boreal forest and muskeg (peat bogs) and contain about convert|1.7|Toilbbl|e9m3 of bitumen in-place, comparable in magnitude to the world's total proven reserves of conventional petroleum.

With modern non-conventional oil production technology, at least 10% of these deposits, or about convert|170|Goilbbl|e9m3 were considered to be economically recoverable at 2006 prices, making Canada's total oil reserves the second largest in the world, after Saudi Arabia's. The Athabasca deposit is the only large oil sands reservoir in the world which is suitable for large-scale surface mining, although most of it can only be produced using more recently developed in-situ technology. [cite web
title = Alberta's Oil Sands 2006
publisher = Government of Alberta
year = 2007
url = http://www.energy.gov.ab.ca/OilSands/pdfs/osgenbrf.pdf
format = PDF
accessdate = 2008-02-17]

History

The Athabasca oil sands are named after the Athabasca River which cuts through the heart of the deposit, and traces of the heavy oil are readily observed on the river banks. Historically, the bitumen was used by the indigenous Cree and Dene Aboriginal peoples to waterproof their canoes. [Mackenzie, Sir Alexander (1970). "The Journals and Letters of Alexander Mackenzie". Edited by W. Kaye Lamb. Cambridge: Hakluyt Society, pg. 129, ISBN 0521010349] The oil deposits are located within the boundaries of Treaty 8, and several First Nations of the area are involved with the sands.

The Athabasca oil sands first came to the attention of European fur traders in 1719 when Wa-pa-su, a Cree trader, brought a sample of bituminous sands to the Hudson's Bay Company post at York Factory on Hudson Bay where Henry Kelsey was the manager. In 1778, Peter Pond, another fur trader and a founder of the rival North West Company, became the first European to see the Athabasca deposits after discovering the Methye Portage which allowed access to the rich fur resources of the Athabasca River system from the Hudson Bay watershed. cite web
first = Francis J
last = Hein
title = Historical Overview of the Fort McMurray Area and Oil Sands Industry in Northeast Alberta
work = Earth Sciences Report 2000-05
publisher = Alberta Geological Survey
year = 2000
url = http://www.ags.gov.ab.ca/publications/ESR/PDF/ESR_2000_05.pdf
format = PDF
accessdate = 2008-02-17]

In 1788, fur trader Alexander MacKenzie (who later discovered routes to both the Arctic and Pacific Oceans from this area) wrote: "At about convert|24|mi|km from the fork (of the Athabasca and Clearwater Rivers) are some bituminous fountains into which a pole of convert|20|ft|m long may be inserted without the least resistance. The bitumen is in a fluid state and when mixed with gum, the resinous substance collected from the spruce fir, it serves to gum the Indians' canoes." He was followed in 1799 by map maker David Thompson and in 1819 by British Naval officer Sir John Franklin. [ cite web
title = Oil Sands History
work = Unlocking the Potential of the Oil Sands
publisher = Syncrude
year = 2006
url = http://www.syncrude.ca/users/folder.asp?FolderID=5657
accessdate = 2008-02-17]

Sir John Richardson did the first geological assessment of the oil sands in 1848 on his way north to search for Franklin's lost expedition. The first government-sponsored survey of the oil sands was initiated in 1875 by John Macoun, and in 1883, G.C. Hoffman of the Geological Survey of Canada tried separating the bitumen from oil sand with the use of water and reported that it separated readily. In 1888, Dr. Robert Bell, the director of the Geological Survey of Canada, reported to a Senate Committee that "The evidence ... points to the existence in the Athabasca and Mackenzie valleys of the most extensive petroleum field in America, if not the world."

In 1926, Dr. Karl Clark of the University of Alberta perfected a steam separation process which became the basis of today's thermal extraction process. Several attempts to implement it had varying degrees of success, but it was 1967 before the first commercially viable operation began with the opening of the Great Canadian Oil Sands (now Suncor) plant using surfactants in the separation process developed by Dr. Earl W. Malmberg of Sun Oil Company.

Development

The key characteristic of the Athabasca deposit is that it is the only one shallow enough to be suitable for surface mining. About 10% of the Athabasca oil sands are covered by less than convert|75|m|ft|0 of overburden. The mineable area as defined by the Alberta government covers 37 contiguous townships (about convert|3400|km2|sqmi|-2|disp=s|abbr=on) north of the city of Fort McMurray. The overburden consists of 1 to 3 metres of water-logged muskeg on top of 0 to 75 metres of clay and barren sand, while the underlying oil sands are typically 40 to 60 metres thick and sit on top of relatively flat limestone rock. As a result of the easy accessibility, the world's first oil sands mine was started by Great Canadian Oil Sands Limited (a predecessor company of Suncor Energy) in 1967. The Syncrude mine (the biggest mine in the world) followed in 1978, and the Albian Sands mine (operated by Shell Canada) in 2003. All three of these mines are associated with bitumen upgraders that convert the unusable bitumen into synthetic crude oil for shipment to refineries in Canada and the United States. At Albian, the upgrader is located at Scotford, 439 km south. The bitumen, diluted with a solvent is transferred there in a convert|610|mm|in|0 Corridor Pipeline.

Population

The Athabasca oil sands are located in the northeastern corner of the Canadian province of Alberta, near the city of Fort McMurray. The area is only sparsely populated, and in the late 1950s, it was primarily a wilderness outpost of a few hundred people whose main economic activities included fur trapping and salt mining. From a population of 37,222 in 1996, the boomtown of Fort McMurray and the surrounding region (known as the Regional Municipality of Wood Buffalo) grew to 79,810 people as of 2006, including a "shadow population" of 10,442 living in work camps, [ cite web
last = Planning and Development Department
title = Municipal Census 2006
publisher = Regional Municipality of Wood Buffalo
year = 2006
url = http://www.woodbuffalo.ab.ca/business/demographics/pdf/2006_census.pdf
format = PDF
accessdate = 2008-02-06] leaving the community struggling to provide services and housing for migrant workers, many of them from Eastern Canada, especially Newfoundland. Fort McMurray ceased to be an incorporated city in 1995 and is now an urban service area within Wood Buffalo. [ cite web
title = Urban Service Areas
work = Unincorporated Places
publisher = Alberta Population
year = 2008
url = http://www.altapop.ca/unincorp.htm
accessdate = 2008-02-06]

Estimated oil reserves

The Alberta government's Energy and Utilities Board (EUB) estimated in 2007 that about convert|173|Goilbbl of crude bitumen are economically recoverable from the three Alberta oil sands areas based on benchmark WTI market prices of $62 per barrel in 2006, rising to a projected $69 per barrel in 2016 using current technology. This was equivalent to about 10% of the estimated convert|1700|Goilbbl of bitumen-in-place. [cite paper
author = Andy Burrowes
coauthors = Rick Marsh, Nehru Ramdin, Curtis Evans
title = Alberta's Energy Reserves 2006 and Supply/Demand Outlook 2007-2016
version = ST98
publisher = Alberta Energy and Utilities Board
year = 2007
url = http://www.ercb.ca/docs/products/STs/st98_current.pdf
format = PDF
accessdate = 2008-04-12] In fact WTI prices topped $133 in May 2008. Alberta estimated that the Athabasca deposits alone contain convert|35|Goilbbl of surface mineable bitumen and convert|98|Goilbbl of bitumen recoverable by in-situ methods. These estimates of Canada's reserves were doubted when they were first published but are now largely accepted by the international oil industry. This volume placed Canadian proven reserves second in the world behind those of Saudi Arabia.

The method of calculating economically recoverable reserves that produced these estimates was adopted because conventional methods of accounting for reserves gave increasingly meaningless numbers. They made it appear that Alberta was running out of oil at a time when rapid increases in oil sands production were more than offsetting declines in conventional oil, and in fact most of Alberta's oil production is now non-conventional oil. Conventional estimates of oil reserves are really calculations of the geological risk of drilling for oil, but in the oil sands there is very little geological risk because they outcrop on the surface and are easy to locate. With the oil price increases since 2003, the economic risk of low oil prices was reduced.

The Alberta estimates only assume a recovery rate of around 20% of bitumen-in-place, whereas oil companies using the steam assisted gravity drainage (SAGD) method of extracting bitumen report that they can recover over 60% with little effort.

Only 3% of the initial established crude bitumen reserves have been produced since commercial production started in 1967. At rate of production projected for 2015, about convert|3|Moilbbl/d, the Athabasca oil sands reserves would last over 170 years. [cite web
url=http://www.energy.gov.ab.ca/oilsands/954.asp
month=June | year=2006
title=Oil Sands Fact Sheets
first=Alberta
last=Department of Energy
accessdate=2007-04-11] However those production levels require an influx of workers into an area that until recently was largely uninhabited. By 2007 this need in northern Alberta drove unemployment rates in Alberta and adjacent British Columbia to the lowest levels in history. As far away as the Atlantic Provinces, where workers were leaving to work in Alberta, unemployment rates fell to levels not seen for over one hundred years. [cite web
url=http://www.statscan.ca/english/Subjects/Labour/LFS/lfs-en.htm
date=April 5, 2007
title=Latest release from the labour force survey
first=Statistics
last=Canada
accessdate=2007-04-11]

The Venezuelan Orinoco tar sands site may contain more oil sands than Athabasca. However, while the Orinoco deposits are less viscous and more easily produced using conventional techniques (the Venezuelan government prefers to call them "extra-heavy oil"), they are too deep to access by surface mining.

Economics

Despite the large reserves, the cost of extracting the oil from bituminous sands has historically made production of the oil sands unprofitable—the cost of selling the extracted crude would not cover the direct costs of recovery; labour to mine the sands and fuel to extract the crude.

In mid-2006, the National Energy Board of Canada estimated the operating cost of a new mining operation in the Athabasca oil sands to be C$9 to C$12 per barrel, while the cost of an in-situ SAGD operation (using dual horizontal wells) would be C$10 to C$14 per barrel.cite paper
author = NEB
title = Canada's Oil Sands Opportunities and Challenges to 2015: An Update
publisher = National Energy Board of Canada
date = June 2006
url = http://www.neb-one.gc.ca/energy/EnergyReports/#oil_sands
format = PDF
accessdate = 2006-10-30 ] This compares to operating costs for conventional oil wells which can range from less than one dollar per barrel in Iraq and Saudi Arabia to over six in the United States and Canada's conventional oil reserves.

The capital cost of the equipment required to mine the sands and haul it to processing is a major consideration in starting production. The NEB estimates that capital costs raise the total cost of production to C$18 to C$20 per barrel for a new mining operation and C$18 to C$22 per barrel for a SAGD operation. This does not include the cost of upgrading the crude bitumen to synthetic crude oil, which makes the final costs C$36 to C$40 per barrel for a new mining operation.

Therefore, although high crude prices make the cost of production very attractive, sudden drops in price leaves producers unable to recover their capital costs—although the companies are well financed and can tolerate long periods of low prices since the capital has already been spent and they can typically cover incremental operating costs.

However, the development of commercial production is made easier by the fact that exploration costs are very low. Such costs are a major factor when assessing the economics of drilling in a traditional oil field. The location of the oil deposits in the oil sands are well known, and an estimate of recovery costs can usually be made easily. There is not another region in the world with energy deposits of comparable magnitude where it would be less likely that the installations would be confiscated by a hostile national government, or be endangered by a war or revolution.

As a result of the oil price increases since 2003, the economics of oil sands have improved dramatically. At a world price of US$50 per barrel, the NEB estimated an integrated mining operation would make a rate return of 16 to 23%, while a SAGD operation would return 16 to 27%. Prices since 2006 have risen, exceeding US$145 in mid 2008. As a result, capital expenditures in the oil sands announced for the period 2006 to 2015 are expected to exceed C$100 billion, which is twice the amount projected as recently as 2004. However, because of an acute labour shortage which has developed in Alberta, it is not likely that all these projects can be completed.

At present the area around Fort McMurray has seen the most effect from the increased activity in the oil sands. Although jobs are plentiful, housing is in short supply and expensive. People seeking work often arrive in the area without arranging accommodation, driving up the price of temporary accommodation. The area is isolated, with only a two-lane road connecting it to the rest of the province, and there is pressure on the government of Alberta to improve road links as well as hospitals and other infrastructure. cite paper
author = NEB
title = Canada's Oil Sands Opportunities and Challenges to 2015: An Update
publisher = National Energy Board of Canada
date = June 2006
url = http://www.neb-one.gc.ca/energy/EnergyReports/#oil_sands
format = PDF
accessdate = 2006-10-30 ]

Despite the best efforts of companies to move as much of the construction work as possible out of the Fort McMurray area, and even out of Alberta, the shortage of skilled workers is spreading to the rest of the province. [ cite news
last = Nikiforuk | first = Andrew
title = The downside of boom: Alberta's manpower shortage | work =
publisher = Canadian Business magazine
date = 2006-06-04
url = http://www.canadianbusiness.com/managing/employees/article.jsp?content=20060522_77876_77876
accessdate = 2006-10-30] . Even without the oil sands, the Alberta economy would be very strong, but development of the oil sands has resulted in the strongest period of economic growth ever recorded by a Canadian province. [ cite paper
author = StatsCan
title = Study: The Alberta economic juggernaut
publisher = Statistics Canada
date = 2006-09-14
url = http://www.statcan.ca/Daily/English/060914/d060914c.htm
accessdate = 2006-10-30 ]

Oil sands production

Commercial production of oil from the Athabasca oil sands began in 1967, when Great Canadian Oil Sands Limited (then a subsidiary of Sun Oil Company but now an independent company known as Suncor Energy) opened its first mine, producing convert|30000|oilbbl/d|m3/d of synthetic crude oil. Development was inhibited by declining world oil prices, and the second mine, operated by the Syncrude consortium, did not begin operating until 1978, after the 1973 oil crisis sparked investor interest. However, the price of oil subsided afterwards, and although the 1979 energy crisis caused oil prices to peak again, introduction of the National Energy Program by Pierre Trudeau discouraged foreign investment in the Canadian oil industry. During the 1980s, oil prices declined to very low levels, causing considerable retrenchment in the oil industry, and the third mine, operated by Shell Canada, did not begin operating until 2003. However, as a result of oil price increases since 2003, the existing mines have been greatly expanded and new ones are being planned.

According to the Alberta Energy and Utilities Board, 2005 production of crude bitumen in the Athabasca oil sands was as follows:

See also

* Canadian Centre for Energy Information
* History of the petroleum industry in Canada (oil sands and heavy oil)
* Mackenzie Valley Pipeline

References

External links

* [http://www.mapleleafweb.com/features/alberta-s-oil-sands-key-issues-and-impacts Alberta’s Oil Sands: Key Issues and Impacts]
* [http://www.onearth.org/article/canadas-highway-to-hell OnEarth Magazine » Canada's Highway to Hell]
* [http://www.guardian.co.uk/environment/2007/oct/30/energy.oilandpetrol Mud, Sweat and Tears] —Guardian Newspaper, 2007
* Hugh McCullum, Fuelling Fortress America: A Report on the Athabasca Tar Sands and U.S. Demands for Canada's Energy (The Parkland Institute)-- [http://www.ualberta.ca/~parkland/research/studies/execsum/ESFuelling.pdf Executive Summary] [http://www.ualberta.ca/~parkland/research/studies/Fuelling%20Fortress%20America%20WEB.pdf Download report]
* [http://www.syncrude.ca/users/folder.asp?FolderID=5657 Oil Sands History] —Syncrude Canada
* [http://www.oilsandsdiscovery.com/home.html Oil Sands Discovery Centre] —Fort McMurray Tourism
* [http://wired-vig.wired.com/wired/archive/12.07/oil.html The Trillion-Barrel Tar Pit] —Article from December 2004 Wired.
* [http://www.oilsandsreview.com/ Oil Sands Review] —Sister publication to Oilweek Magazine
* [http://www.energy.gov.ab.ca/oilsands/793.asp Alberta's Oil Sands] —Alberta Department of Energy
* [http://www.eub.ca/docs/products/STs/st98-2006.pdf Alberta's Reserves 2005 and Supply/Demand Outlook 2006-2015] —Alberta Energy and Utilities Board 2006-06-15
* [http://www.neb-one.gc.ca/clf-nsi/rnrgynfmtn/nrgyrprt/lsnd/pprtntsndchllngs20152006/pprtntsndchllngs20152006-eng.pdf Canada's Oil Sands—Opportunities and Challenges to 2015: An Update—June 2006] —National Energy Board of Canada
* [http://www.centreforenergy.com/generator2.asp?xml=/silos/ong/oilsands/oilsandsAndHeavyOilOverview01XML.asp&template=1,1,1 Oilsands overview] - Canadian Centre for Energy Information
* [http://www.oilsandswatch.org/media-release.php?id=1182 Alberta Plan Fails to Protect Athabasca River]
* [http://flyvbjerg.plan.aau.dk/megaprojects.php Megaprojects]
* [http://www.statcan.ca/english/freepub/57-601-XIE/57-601-XIE2007003.pdf "Energy Statistics Handbook" (February 2008) "Statistics Canada" ISSN 1496-4600]
* [http://www.dailywealth.com/archive/2008/may/2008_may_22.asp Investing In Athabasca Tar Sands]