Will Tar Sands Peak in 2015?

OPEC continue to warn the industrialized nations that their assumptions are overly optimistic about how much the OPEC members will be able to ramp up production to meet demand over the coming decades. It seems the industrialized nations, or more specifically the U.S. DOE, are guilty of the same effusive optimism when it comes to the ramp-up potential in Canada's tar sands. At least one well respected analyst, Chris Skrebowski, long time energy professional and editor of the British-based Petroleum Review, believes the tar sands production will peak in 2015-2020 at 3 million barrels a day or less.


In the wake of a period of tumultuous energy problems originating in Russia's erratic supply policies (they seem intent on using energy as a political weapon) and their current and future impact on Germany, that country's Energy Watch Group recently released a report on their current projections for world energy - and particularly world oil - trends into the short- and medium-term future. One of the key points in that report was a projection that Canada's tar sands production would be up to a level of 4-million barrels a day by 2030.

Canada's NEB (National Energy Board), in fact, suggest that if oil prices stay high it could reach 5-6 million barrels a day by 2030. Energy analyst,Chris Skrebowski, takes issue with such projections. He finds even the EWG projection of 4-million b/day overly optimistic and in an interview with Julian Darley of GPM (Global Public Media) he explains why, in his expert and considered opinion, the tar sands production will peak in 2015-2020, well below that EWG projection. Julian Darley noted that Skrebowski's 2015-2020 date is "dramatically earlier than almost anybody puts it at." Skrebowski reminded him that since the tar sands projects started in the richest central section "we do know, in general terms, that we always will get leaner."

Recent Canadian news reports seem to suggest that Chris Skrebowski is probably more right than wrong. A November, 2007 Toronto Globe and Mail article titled High costs trim forecast for oil sands production suggests that the NEB (National Energy Board) is now projecting a maximum production level in 2015 of only 2.8 million b/d, 200,000b/d lower than their own commonly used 3-million, because of industry discomfort with capital and operating cost overruns of up to 100% on all current tar sands projects. Assuming that Chris Skrebowski is right about peaking in 2015-2020, that suggests tar sands production will never be ramped up beyond 3-million b/d.

What is the real situation with the tar sands? How can there be such a disparity in the estimates for future tar sands production?

In his interview with Julian Darley, Chris Skrebowski highlighted several challenges for the tar sands industry over the foreseeable future. Three that may or may not be soluble are;
* the availability of the high volumes of water needed for tar sands processing,
* the availability of gas or alternative means of heating the tar sands. Greg Stringham, a vice-president of CAPP (the Canadian Association of Petroleum Producers), said the gas price used by the NEB for its main forecast – $7 per million BTU – is on the pessimistic side. "It would be too low to support investment in high-cost unconventional and tight gas projects and not high enough to reduce demand," he said.
* and; how vigorously the various levels of government choose to legislate and enforce environmental controls. Various parties, from the municipality of Fort MacMurray to a host of environmental organizations have called for a moratorium on new projects until environmental impact studies can be completed. Canadian governments have a dubious track record of allowing major projects to proceed before the required environmental assessments are completed only to find, when the studies are done, that they should have blocked the project. Having approved the go ahead they leave themselves with no option but to allow the project to continue.

The one challenge that Chris Skrebowski sees as insoluble, as it is a limit of geology, is that the tar sands have a wide variability in quality. Current operations are being conducted in the bitumen-rich central area of the tar sands deposits. Bitumen, not oil, is what the tar sands hold. It is a thick, tar-like substance which needs further, energy-intensive processing, after the energy-intensive extraction, to be converted into a synthetic liquid crude. In the central areas the tar sands contain about 12 percent bitumen, up to 14% in a few sweet spots. At that level of bitumen concentration tar sands oil production is economically profitable and also has a slightly positive EROEI for strip mining operations. Even in these areas, however, in situ production - which involves injecting steam into the tar sands to separate the bitumen from the sand so it can be pumped to the surface like crude oil - thus far has a negative EROEI because of the higher energy requirements and also because the bitumen concentrations, due to higher levels of biodegradation, are generally lower deeper in the tar sands deposits where in situ has to be used.

As the central areas currently being exploited are worked out, which Chris Skrebowski projects they will be by 2015-2020, operators will have to move out of these central areas into the periphery of the reserves. That is where the problem is. In these peripheral areas Skrebowski suggests the bitumen content drops off to about 8 percent. He sees an open question whether operations will continue to be profitable and have a positive EROEI at these much lower bitumen concentrations.

Skrebowski, in fact, may be optimistic. Several studies, including one called PHOTON conducted specifically for the tar sands industry by the University of Calgary, have found that bitumen concentration in a reserve varies considerably both vertically in the reserve but also across the reserve. That variability ranges from under 5 percent to a high of 13-14 percent. Outside of the central areas currently being exploited, however, the bitumen concentration is consistently under 10 percent even in shallow strip-minable sections.

Analysis of the Utah "tar sands", by comparison, which are really hard shale, not pliable sands, has also showed that their content may be as low as 3-5 percent (the Orinoco tar sands in Venezuela have a bitumen concentration of only up to about 10 percent). This suggests that, from an EROEI perspective, the Utah tar shale could never be exploited economically unless..... the U.S. government decided they were critical and lavished huge subsidies on any organization prepared to exploit it "in the interest of national security". The same, of course, can be said of Canada's tar sands. If they are deemed crucial to North American or U.S. energy security organizations may be financially encouraged to continue their exploitation whatever the cost. Dick Cheney's NEPDG (National Energy Policy Development Group) described Canada's tar sands as "a pillar of sustained North American energy and economic security."

At some point in the foreseeable future Canada's domestic energy needs and U.S. Energy policy are headed for an inevitable clash. Canada's conventional oil production is already in decline and will continue to decline. Natural gas production is barely holding despite an unprecedented amount of drilling in the last couple of years. And Canada's domestic energy needs are growing at 3-4% per year. It is a worrying prospect for Canadians as energy sovereignty was effectively surrendered under the NAFTA agreement. Canada's energy resources must, under the agreement, be open and accessible to corporate energy interests. To date, four of the five oil majors (Royal Dutch/Shell, ExxonMobil, ChevronTexaco, and TotalFina) have invested or committed themselves to invest billions of dollars in tar sands development. National oil companies have also staked their claim, ranging from Norway's Statoil to China's Sinopec.

Whether strip mining or in situ processing is used in the exploitation, however, using tar sands as a source of oil is an unquestioned environmental disaster. And the oil majors have a very poor environmental track record in almost every area of the world in which they operate. Oil derived from tar sands causes greenhouse gas emissions (because of the high energy use, particularly natural gas cooking of the bitumen) 3-4 times higher than conventional liquid crude extraction. But sixty-five percent of the world's oil, it is estimated, is contained in tar sands, not as liquid crude. If governments continue to see oil as critical to their national interests and a key underpinning of their national economy and the global economy, they may still choose to continue to try to keep the wheels on the runaway train by exploiting the widespread tar sands deposits of various descriptions and quality wherever they can be found. Over seventy countries contain tar sands deposits including the U.S.A., Venezuela, Russia, Cuba, Indonesia, Brazil, Trinidad and Tobago, Jordan, Madagascar, Colombia, Albania, Romania, Spain, Portugal, Nigeria and Argentina. Within the United States, oil sand deposits occur mainly in Utah, Alaska, Alabama, S.W. Texas, California, Kentucky, Oklahoma, and Missouri with scattered deposits in other states. None of these other areas equals Canada's tar sands for volume or quality however.

The Canadian region defined as "the Athabaska tar sands" covers an area over 140,000km2 of once virgin boreal forest, a larger area than the state of Florida. It is estimated to hold an equivalent 1.7 trillion barrels of oil or more. But of that only 150-200 billion barrels (about 10 percent) may be recoverable "with today's technology and under current and anticipated economic conditions". But with "the cost of adding a new b/d of synthetic crude production capacity in the oil sands now rang[ing] between $80,000 and $100,000", as per the National Energy Board, that could require additional capital investment of $300-500 billion (currently about $100 billion of further investment has been scheduled or committed) to ramp up to the "desired" production levels of 3-4 million b/d, let alone the optimistic and probably unachievable 6 million b/d suggested as possible by the NEB. As capital costs keep rising exponentially, even that cost of $100,000 per b/d is likely on the low side for future projects, particularly if they are in situ operations or are operations in the peripheral, bitumen-poor areas of the reserves.

On top of escalating capital costs the tar sands industry is also running into severe unanticipated operating costs due to shortages of manpower and equipment, high infrastructure and equipment maintenance costs due to the climatic extremes under which they operate, increased royalty demands from the Alberta provincial government and a host of other costs. With the experiences in Canada's tar sands as a model, the most advanced and successful tar sands exploitation to date in the world, it is reasonable to wonder to what extent governments and energy corporations will be willing to gamble the huge sums needed to undertake similar developments in other areas of the world.

The NEB continues to stick with the belief that the market price of oil will drive tar sands production, seemingly ignoring the EROEI return issue. In their view, "If oil prices – now nudging $100 (U.S.) a barrel – remain high, Canada's crude output could rise to almost six million b/d by 2030, of which five million b/d would come from the oil sands," the NEB report, entitled Canada's Energy Future, states. "Conversely, if oil prices fall to around $35 a barrel, Canada would only produce about three million b/d of crude by 2030, and only 2.7 million b/d of that would be from the oil sands."

Tar sands are not an environmental problem, however, just because of the high greenhouse gas emissions. As the article America's Claim on Our Tar Sands puts it, "The magnitude of the environmental risks and liabilities arising from Canada's tar sands rush is unprecedented in the history of North American energy production. Growing awareness about the global warming and environmental consequences of relying upon growth in tar sands production throws into sharp relief the perils of our addiction to oil in the 21st century."

Everything about the tar sands is big, most significantly, but not only, its global warming and environmental implications -- leading some to now describe the tar sands as "Canada's dirty secret." The tar sands mines are each as big as 150 square miles and may be 300 feet deep, each leaving a tremendous scar on the landscape. Depending on the bitumen concentration, 4-6 tons of material must be moved and processed for every barrel of synthetic crude produced. Over 80 per cent of the established tar sands reserves are deeper and must be extracted in situ. Reclaiming and cleaning up the land damaged by tar sands operations will be a monumental task. According to the paper The Harm the Tar Sands Will Do, "after 40 years of mining, not a single operation has received a reclamation certificate from the government of Alberta. Suncor Energy's operation, the longest-operating tar sands mine, says it has reclaimed 858 hectares of land since starting operations in 1967, less than nine per cent of the land its operations have disturbed to date. Syncrude Canada, the largest daily producer of tar sands, says its operations have disturbed 18,653 hectares since 1978, with just 4,055 hectares of land reclaimed. None of this reclaimed land has been certified as such. At best, reclamation of the tar sands region will be a large-scale experiment that is unlikely to restore a self-sustaining boreal forest ecosystem within the next century."

Water usage is the other major environmental problem with the tar sands. Even at 12% bitumen concentration, tar sands mining operations (in situ operations use even higher volumes) withdraw two to 4.5 barrels of fresh water from the Athabaska River for every barrel of oil they produce. Current operations, to achieve about 1 million b/d production, are permitted to withdraw more than 349 million cubic metres of water per year, a volume equivalent to the amount required by a city of two million people. But unlike city effluent waters, which are treated and released back into the river, tar sands mining effluent becomes so contaminated that it must be impounded in huge, man-made containment ponds. Water withdrawals for tar sands surface mining operations pose threats to both the sustainability of fish populations in the Athabasca River (which is already turned brown from the pollution from seepage from the containment ponds and various spills and is too contaminated to be used for community water), and to the sustainability of the Peace-Athabasca Delta (until now one of the last unspoiled delta regions in the world), jeopardizing the subsistence and commercial fisheries of local aboriginals.

Based on the environmental destruction being wrought by tar sands operations it is to be hoped that Chris Skrebowski is right in his belief the tar sands will peak by 2015-2020. It must then be further hoped that when the economic viability disappears the operators will quietly and discretely fold their tents and slip away, that governments don't continue to financially encourage their exploitation with massive subsidies. Those hopes may be unrealistic in view of the belief of the current U.S. administration under George Bush and Dick Cheney that they are critical to U.S. economic and energy security. With the short time they have left in office there is little to celebrate in the pending change in administration. None of the potential future presidents seem to be intent on changing the country's energy direction or policies. Perhaps in the remaining months of the presidential race one of them will take the energy bull by the horns and inject some sanity into the country's energy policies. Yeh, right!

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Sources and additional material;

Chris Skrebowski on alarming new peak oil report
America's Claim on Our Tar Sands
The Harm the Tar Sands Will Do
Pour-point depression of crude oils by addition of tar sand bitumen
Oil Sands
Oil (Tar) Sands
Strip Mining for Oil in Endangered Forests
Athabasca Tar Sands
Tar Sand
High costs trim forecast for oil sands production
Heavy oils and tar sand(HOTS) fluid research at Calgary.
Reservoir and Bitumen Heterogeneity in Athabasca Oil Sands