Canada's Alberta Oil Sands
It's no secret Alberta has had its fair share of trouble. When Alberta announced its 20% royalty hike a few years ago, companies started to look for better opportunities elsewhere. With the huge potential of the Bakken play in southeastern Saskatchewan, companies soon flocked to Alberta's neighboring province.
Recently, Alberta fought back, revising its royalty program (for the fifth time since 2007) in order to boost drilling activity. The Alberta government recently extended two drilling incentive programs to March 2011.
That's a start. But let's get back to the oil sands. . .
A few weeks ago, I found myself in a heated debate over the future of the oil sands. And one thing soon became clear to me: this gentleman knew absolutely nothing about where oil sands production was headed. All he could focus on was how the dirty tar sands were plaguing the environment. Hence, the oil sands were an abomination that must be stopped.
To a certain extent, he was right. The massive surface mining operations involve an energy-intensive process that leaves a huge environmental footprint. Granted, he wasn't aware of the reclamation projects underway.
The problem, however, was that he knew practically nothing about oil sands extraction. If he were a little better informed, then he might have been able to see the oil sands in a different light.
For starters, only about 20% of the entire oil sands resource is too deep to be mined. And that, dear reader, is the key to realizing its potential.
You see, the next generation in oil sands extraction is not with those surface mining pits, but rather using in-situ methods like SAGD (Steam Assisted Gravity Drainage). In SAGD, steam is injected into a deposit in order to heat up the thick bitumen. Lowering the bitumen's viscosity will allow it to flow towards producing wells.
I wouldn't be so quick to lump these in-situ methods in with those devastating surface mining operations. In fact, in-situ operations leave approximately the same environmental footprint as conventional operations (not to mention they use 20% less water than the mining projects).
Now, that's not to say there aren't still obstacles to overcome. The SAGD method, for example, emits more greenhouse gases per barrel than mining and is still an energy-intensive project.
Naturally, there are more in-situ methods being developed for commercial production. Petrobank's THAI process immediately comes to mind, which involves a fire flood underground and upgrading the bitumen underground. The THAI process is projected to recover between 70-80% of the oil-in-place, compared to the 20-50% recovery from current in-situ methods. Furthermore, the THAI process uses a negligible amount of natural gas and water.
Considering 97% of Canada's oil reserves come from the oil sands, I think it's safe to assume development will continue. Unless, of course, you'd like to see our dependence on OPEC oil rise.
Need more proof of an oil sands revival?
Look no further than Section 526. . .
Section 526 of the Energy Independence and Security Act of 2007 had some strong implications for the Canadian oil sands. Section 526 targeted unconventional petroleum sources with greenhouse gas emissions greater than conventional sources. In other words, Section 526 prohibits the government from purchasing fuels with a higher carbon intensity than gasoline.
On June 17, the U.S. Senate Energy and Natural Resources Committee voted for a bill that could put the oil sands back in our good graces. One amendment passed by a voice vote stated U.S. refiners would not be in violation of Section 526 by buying crude oil produced from Canadian oil sands.
With oil prices on their way to $80 per barrel, any weakening of Section 526 will undoubtedly boost oil sands activity. And I expect those smaller companies developing new in-situ recovery methods will come out on top in the next round of oil sands' profits.
Until next time,
Energy and Capital