An empire from a tub of goo  

The Globe And Mail has an excellent series of articles on Canada's burgeoning tar sands industry called "Shifting Sands".

* Shifting sands: Part I: Alberta's oil sands changed Canada
* Shifting Sands, Part II: Black gold, Texas tea
* Shifting Sands: Part III: Hollowing out small towns down East
* Shifting Sands, Part IV: The two Albertas forcefully collide
* Shifting sands, Part V: Will Canada avoid the 'Dutch disease?'
* Shifting sands, Part VI: A huge clean-up project for the future
* Shifting Sands: Part VII: Looking for solutions to the carbon conundrum

Plus some related content:

* Oil wealth has ignited the loonie, hurting exports, and the higher energy prices are squeezing profits
* An economy that pins its hopes on something as volatile as oil is asking for trouble.
* Canada as an 'energy superpower?'

Oil does not sprout like geysers from wells in northern Alberta. It is trapped in the mud, in the form of bitumen, a thick, pasty hydrocarbon that native people once used to seal their canoes. (The Bible says Noah did the same to waterproof the Ark.)

Early explorers predicted that one day the sands would prove useful. In 1789, Alexander Mackenzie described how the banks of the Athabasca seeped oil into the river. A century later, a member of a delegation that had come to negotiate a land treaty wrote:

“That this region is stored with a substance of great economic value is beyond all doubt, and when the hour of development comes it will, I believe, prove to be one of the wonders of Northern Canada.”

The hour of development took more than a century to arrive. A tour of the oil sands in the early 1990s would have found only two companies trying to make a go of it and close to wishing they had not bothered. Suncor Energy Inc., partly owned by the Ontario government, had started first, along a stretch of the Athabasca River in 1967. “No other event in Canada's centennial year is more important,” Alberta premier Ernest Manning declared on opening day.

But despite all the cheerleading, the project was “a leap of faith,” says Paul Chastko, a University of Calgary historian and the author of Developing Alberta's Oil Sands. “It was based on this calculation that we don't necessarily need this resource today, but we may need it in some deep, dark distant day in the future.”

A tantalizing treasure lay in wait underground; digging it up with commercially untested methods and still managing to turn a profit was the challenge. And by 1990, after decades of technical hiccups and economic volatility, opening-day optimism had long since flagged. The Suncor mine was plagued by fires and machinery that constantly broke down in cold weather. The situation wasn't much better down the river at Syncrude Canada Ltd., a consortium of U.S. and Canadian companies that had started producing oil in 1978.

Crude prices had recovered from the disastrous lows of the mid-1980s, but were still hovering around $20 (U.S.) a barrel. The cost of production at both operations was not much below that. It was understood, one Suncor former executive recalls, that the company might have walked away then and there, were it not for the billions spent in capital costs and the mammoth environmental liability it had created, most of which was waste water sitting in vast ponds created next to the Athabasca River.

Rick George recalls his first trip to Fort McMurray as the new chief executive officer of Suncor, which The Globe and Mail had dubbed “the unluckiest company in Canada.” It was 1991, and Mr. George, an American who had come to Canada from the booming North Sea oil industry, found himself running an operation dogged by negative politicking and lumbering technology.

“I can remember coming over the horizon and looking at that plant for the first time, and I did wonder what I had got myself into,” he says. “But I'm a very optimistic person. I thought we could make a difference and the people here have executed way beyond anything I ever imagined would happen.”

It was no easy feat. Unlike the vast majority of the world's bitumen reserves, the first sites being developed around the Athabasca are shallow enough to mine from the surface, although this still requires a great deal of energy and labour.

To put the situation in context, Alberta writer David Finch, the author of Pumped: Everyone's Guide to the Oil Patch, suggests this experiment: “Take molasses out of your kitchen cupboard, put as much sand in there as molasses, stir it up, and then put it outside where it gets cold and thick and won't flow – well, that's what the tar sand is like. It's extremely hard to work with, and it wrecks all your equipment.”

The muddy dirt clogs gears and conveyors; the sand corrodes pipelines. To mine bitumen, the land must first be cleared and drained. Clumps of sand are shovelled out and then mixed with water and heated, to force the hydrocarbon to rise to the top. It is then processed in an “upgrader” to produce synthetic crude before being sent to a refinery and turned into gasoline and heating oil.

Estimates vary, but environmental groups says it now takes two to four barrels of fresh water from the Athabasca plus 750 cubic feet of natural gas and about two tons of oily sand to produce one barrel of oil. The process produces two to three times the carbon emissions of a conventional oil well and creates toxic waste water, called tailings, that cannot be allowed back in the river.

To expand profitably, the companies needed to have two things happen: The technology had to improve and the price of oil had to go up. In the early 1990s, a simple switch helped to solve the first problem. Companies went back to using enormous dump trucks – as big as a two-storey house – to haul out the sand, rather than conveyer belts, which were difficult to move when needed and often froze in the northern cold. At Suncor, this yielded immediate results: Energy requirements were reduced by 40 per cent and the overall cost per barrel was slashed by several dollars.

Syncrude also fared better after it figured out how to transport the bitumen more cheaply by sending it through pipes as a watery slurry. Even with the price of oil bouncing around $20 a barrel, the improvements were enough for both companies to turn a profit. But to the rest of the world, the oil sands might as well have been on another planet. The year Mr. George arrived at Suncor, they were producing about 350,000 barrels a day, a tiny fraction of what geologists believe the sands hold.

And how much oil is there? Estimates bounced around for years until 1999, when Alberta got serious about determining its potential. Based on data from 56,000 wells and 6,000 core samples, the Energy and Utilities Board (EUB) came up with an astonishing figure: The amount of oil that could be recovered with existing technology totalled 175 billion barrels, enough to cover U.S. consumption for more than 50 years. ...

There is no question that extracting, upgrading and transporting unconventional crude leaves a crushing ecological footprint. Based on current mining leases, the oil sands may transform that Florida-sized swath of forest into a massive lunar landscape – much of it unlikely ever to return to its original state. (Existing projects have already stripped roughly 460 square kilometres.) As well, the mining operations are licensed to draw 349 million cubic metres of fresh water from the Athabasca every year, twice the amount used by Calgary, a city of one million people. Some of the water is recycled, but most of the muddy leftovers, or tailings, wind up in those toxic “ponds” that are large enough to be seen from space.

By comparison, the so-called “in situ” operations needed to exploit the vast majority of sand reserves, which are located deep underground, cause less disturbance on the surface and require less water. But heating the bitumen underground and pumping it up also requires much more energy and produces far more greenhouse gas.

A swelling chorus of environmentalists – and a tide of bad publicity internationally – has led to calls to slow development until proper measures can be taken. Oil companies have managed to reduce their per-barrel environmental impact by recycling water and controlling toxins from their smokestacks. But there has been so much growth, the environmental impact has ballooned anyway.

“I don't think anybody gets how big it is and how much bigger it's going to get,” says Ruth Kleinbud, an outspoken naturalist who moved to Fort McMurray in the early 1980s. ...

Unless improvements are made, the environmental damage will mushroom, given that production could triple over the next seven years, says study co-author Simon Dyer, a biologist and senior policy analyst at the Pembina, which has called for a moratorium on approving further projects. “We are really at the tip of the iceberg,” he warns. “If people are concerned about the environment, you don't want to be around in 2015.”

In the end, logistics may be the biggest damper on developing the oil sands. The rising price of natural gas needed to heat the bitumen, the limited pipeline capacity and constraints on how much water can be taken from Athabasca River all pose serious problems. But the biggest hurdle may be a shortage of human capital.

In the years ahead, an army of skilled workers like Thunder Bay's Dave Bohonis will be needed – as many as 30,000 of them, ranging from engineers to welders, pipe fitters and electricians. And Petro-Canada senior vice-president Neil Camarta says the province historically has trouble if worker demand tops 10,000.

His company is already looking for skilled labour to build Fort Hills, its largest project in the sands. Phase one alone calls for 7,000 trades people and 2,500 engineers – and “we're struggling right now,” he says from his Calgary office. Based on projections, he says, “there just aren't going to be enough construction workers here in Alberta available to build all these projects.”

Just as many labourers were brought from China to build the railway, oil companies are now recruiting abroad. But the sudden influx of newcomers is already overwhelming Alberta's social services, causing a spike in housing costs and clogging the 435 kilometres of two-lane highway between Edmonton and Fort McMurray.