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Peak Oil Matters

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Tag: bitumen

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The “vast”, “massive” resources of Alberta, Canada’s Athabasca tar sands—one of the Technology Fairy’s Answers-to-our-Petroleum Prayers—received a bit of a jolt recently. It appears that yet another fact-free but feel-good story about energy independence has been tweaked by damned facts.

A Rigzone article discussed a series of demand, supply, and capacity factors which have reportedly made Canada’s oil the “cheapest in the world.” As a result, the oil and gas industry in Canada is taking a significant financial hit, with the expectation that this is “likely to get worse in the first half of 2013 before it improves.”

The authors’ conclusion raises obvious consequences which are rarely explained to the public:

Until this production glut is resolved, Canada’ crude oil will continue to sell at a steep discount to other benchmark crude oils, costing Canadian producers significant cash flow. That means there is a growing likelihood that as this wide price gap continues producers will be forced to reduce their expenditures compared to what they would spend otherwise. That could be bad news for the Canadian oil and oilfield service industry in the second half of 2013 if the pricing gap doesn’t shrink.

Fossil fuel exploration and production is not a process one starts by turning a key or flicking a switch. Curtail efforts now, wait for finances to improve, and then begin to ramp up production once again is not an overnight endeavor. Delaying production is not a good thing if supplying is one’s objective.

This problem did not materialize yesterday. As Nathan Vanderklippe reported back in September from Alberta’s Joslyn North Mine Project:

[T]he oil sands’ next chapter is suddenly in the midst of a major rewrite. Joslyn itself has become a symbol of both the eager ambition the world’s oil companies have brought to northeastern Alberta, and the question marks surrounding how those ambitions will be realized. The economics of Joslyn, along with two other projects that are pillars of oil sands growth, have been placed under review by partner Suncor Energy Inc. The company has abandoned lofty growth targets in favour of a rigid focus on costs, and has even said it could abandon some projects.

Although the article states that production growth is not expected to halt completely, Vanderklippe did indicate that “the oil sands industry is being forced to contemplate how profitably it can build new projects.” The article is a great read, highlighting a number of other considerations which tend to get glossed over by those touting that energy independence is just around the corner. Facts continue to suck!

After highlighting a number of cost factors which are forcing these reassessments—not the first time this has happened—the article referenced comments made by a former oil industry executive about these efforts:

[Jim] Carter is not the only one suggesting a pause might be needed in the oil sands, a time to pare back the big numbers industry has long promoted – how many barrels a day they would produce in five and 10 years time, and how many billions they would spend to get there – and focus instead on how much inefficiency it can shed.
In part, that’s because larger factors, including concerns about oil prices, have had a real impact on the viability of future oil sands projects….
Plus, there is the concern that some of the best oil sands lands have been developed.

This latter issue is not restricted to the tar sands. Similar concerns are expressed about the tight oil reserves here in the U.S. [see this terrific piece by Roger Blanchard], and the fact that many of the “best” conventional crude oil fields are on the downside of production is why we discuss Peak Oil!

Adding in legitimate considerations about the labor supply, quality of technology, wear and tear on existing machinery, returns on both energy expended and investments in projects of this magnitude, decisions to pursue or abandon projects are no easy matters. As the article pointed out:

[T]he most expensive new projects require crude prices of $90 (U.S.) to bring home a reasonable return

Higher prices there mean higher prices at your local gas station. Reducing the number of projects means reducing potential supply. Guess what that does to prices?

Perhaps we might consider all of these factors more carefully, and shine a bit less of a spotlight on the fact-free Happy Talk about “vast” this and that? Just a thought….

* My Photo: Good Harbor Beach, MA during Hurricane Sandy – 10.31.12

 

 

 

 

An observation worth noting … and pondering, from Nick Hodge.

For me, the scenario is plain and simple…
If there were ample amounts of crude oil and peak production wasn’t an issue, we wouldn’t be spending billions upon billions to find and try to extract the harder and harder to get stuff, some of which isn’t even oil, but an oil substitute made from bitumen or kerogen.
If there were ample amounts of crude oil, we wouldn’t need the tar sands.
If there were ample amounts of crude oil, we wouldn’t be fighting Russia for Arctic mineral rights.
If there were ample amounts of crude oil, Brazil wouldn’t be drilling holes in mountains of salt miles below the ocean’s surface.
But there aren’t.

So the consequences seem fairly self-evident, don’t you think?:

* we are spending more money to explore and produce over a longer period of time inferior qualities of substitutes in harder-to-reach places (we because oil exploration isn’t free, the industry isn’t Santa Claus, and we are the ones who in the end pay the price)
* and for what it’s worth: Canada’s environment and its citizens are suffering untold harm by the ravages of tar sand production [Google: “photos alberta tar sands” and check out the images)

So now what?

* My Photo: California Pacific Coast Highway – Sept 2004

There are estimates suggesting that the tar sands of Alberta, Canada may contain more than 1.5 trillion barrels of synthetic crude oil in an area roughly the size of New York State. Given that the citizens of this planet consume about 30 billion barrels of oil per year, it seems that Peak Oil is another fallacy consigned to the proverbial dust bins of history. At that annual consumption rate, 1.5 trillion barrels will last a good long while! It’s an awe-inspiring number to say the least….

Of course, what the deniers of Peak Oil neglect to mention (facts can be so annoying!) is that perhaps 10% of that total will ultimately be produced, and that will take many decades if not centuries. This estimated reserve nonetheless represents the second largest resource on the planet, exceeded only by Saudi Arabia. But it is, sad for the deniers, not the solution to our energy woes.

Canada is already the United States’ leading supplier of oil, and about half of that comes from the tar sands in Athabasca Valley. The tar sands (some prefer the more benign term “oil sands,” as if we’re discussing beach sand that one just scoops up with a shovel and then wrings the oil out) are actually a mix of ingredients including bitumen, which is a dense congregation of heavy hydrocarbons (think paving material). At room temps bitumen is so thick that it does not flow, and fifteen or twenty degrees cooler than that, it’s as hard as a hockey puck.

One does not require any technical expertise to realize that converting thousands of tons of hockey pucks each day to liquid oil is a wee bit energy-intensive. And when the facts about extraction are made known (forests are first leveled, then tons of earth are excavated, then the bitumen from those tons of earth are heated to several hundred degrees by a high-pressure steam process known as Steam Assisted Gravity Drainage to liquefy the tar sands—all produced via natural gas at levels which some suggest are enough to heat 3 million homes per day—resulting in carcinogen-laced waste water left in nearby “tailings ponds” which currently cover an area greater than 50 square miles!), it quickly becomes clear that we have some energy-related and environmental issues of considerable magnitude.

It’s been stated that every barrel of synthetic crude produced originated from more than two tons of tar sands dug up and separated by the above-referenced steam process, which itself requires two barrels of fresh water for every barrel of oil produced. Think about that for a moment … this is what we have to do to obtain oil?

Leaks from the tailings ponds and resultant contamination of ground water are of immense concern to the residents of the area, and the significantly greater incidents of cancers among residents have been sources of dispute for years. Thousands of birds and animals have reportedly died from exposure to these contaminant-laden ponds. One Canadian report suggests that for all the efforts to contain those ponds, several million gallons of the polluted water leaks out every day. Not a single one of the tailings ponds have been reclaimed in accordance with the licenses granted. Once the mining stops, what happens when the ponds are left completely untreated and unattended?

(And I’m not even discussing the greenhouse gas emissions caused by this incredibly energy-intensive process, which are estimated to be anywhere from 15% – 40% per barrel higher than conventional oil production. I’m also skipping any discussion of the huge investments in specialized oil refineries needed to process synthetic crude, and the pollution potentials arising from the pipeline networks for transporting that fuel from Alberta to the Great Lakes region of both Canada and the United States.)

The deniers, as they are so skilled at doing, tend to gloss over those pesky truths and instead issue their pronouncements about the trillions of barrels of oil at the ready. They also conveniently neglect to inform that the current rates of oil production from tar sands aren’t even enough to keep pace with annual depletion rates from conventional oil fields. Omitting those facts makes it seem as though we just have all of these billions or trillions of barrels of “extra” oil just waiting for someone to lay claim. The truth is far different.

After thirty years of investments to the tune of several hundred billion dollars and thirty years of production efforts, the Canadian tar sands are producing less than 1.5 million barrels of oil per day … that’s it! In fact, Canada’s energy forecast was recently trimmed, pushing out the estimated higher rates of production by several more years. This past November, the Canadian Energy Research Institute (CERI) released a study showing tar sands production increasing to 4.5 million b/d by 2030 and growing toward a peak of 5.3 million b/d in 2041. Actual production in 2008 was 1.3 million b/d. [1] It seems we have a ways to go….

Even the most optimistic boosters of the tar sands expect no more than 3 million barrels of synthetic crude oil per day in the next 15 – 20 years, and with worldwide consumption rates of approximately 85 million barrels per day, 3 million won’t make much of a dent. It will make even less of a difference once increased demand, depletion rates, and an inability to keep pace via new discoveries are all factored into the mix. Facts truly are annoying at times!

Worse for advocates of tar sands as the solution to end all solutions, the current recession and price volatility in the oil markets have adversely impacted Canadian investments as well. It’s been reported that projects which were expected to deliver more than a million and a half barrels of this synthetic crude per day were cancelled or placed on hold indefinitely [2]

Our industrial needs dictate that we get all the oil we can. But at some point, we need to ask: At what cost? Let’s hope we have the collective wisdom to ask it a day too soon rather than a day too late.

Next: An Intro’ To Oil Shale

Sources:

[1] http://www.energybulletin.net/node/50971 Canadian Oil Sands Misses Unrealistic Projection – Issues Another
Published Mon, 12/14/2009 by ASPO-USA
[2] http://www.newscientist.com/article/mg20427375.900-extreme-oil-scraping-the-bottom-of-earths-barrel.html?full=true Extreme oil: Scraping the bottom of Earth’s barrel 02 December 2009 by David Strahan