Saturday, May 26, 2012

Oil sand myths

There is a lot of misinformation about the oil sands. In this article I hope to clear up some of the major misconceptions I see bandied about on various websites. I'll try to be objective but keep in mind I am in the "pro development" camp. Read on after the break.
Myth 1: The oil sands emit 85% more CO2 than conventional oil.
The EU says oil sands oil emits 22% more. Jacobs says they emit 12% more. What is clear is that they don't emit 85% more, as reported by numerous environmental groups over the years.
The confusion is that groups opposed to the oil sands usually ignore the fact that most CO2 released from any type of oil is from using the final product, whether that's in a car or burning down a house down to fraudulently claim insurance or better understand the talking heads.
It is true that the oil sands emit much more in the extraction and upgrading process than conventional crude, and on this "wells-to-tank" measure 85% or even higher would be accurate enough. But on a "wells-to-wheels" measure which takes into account the full impact of the oil over its lifetime, the best estimate is that the carbon intensity is between 14 and 20% higher for oil sands.

Myth 1B: The oil sands are why Canada failed to achieve its Kyoto treaty goals.
In 2010, the oil sands accounted for a little less than 7% of Canada's total emissions, or 48 megatons. Canada was on track to miss its Kyoto target by something like 260 megatons, or 35 to 40% of total emissions. Every province except Quebec increased its emissions over the period between 1990 and 2012, when under the targets Canada was meant to be reducing its emissions by 6%.

Myth 2: The oil sands have devastated areas the size of small countries.
This claim is generally caused by confusion of what's what. The Athabasca bitumen deposit is indeed huge, about 142 thousand square kilometres, or 60% as big as the UK, which isn't a particularly big country in the first place. But of this area, only a small fraction can be extracted economically with current technology, amounting to about 24 thousand square kilometres. The rest is either too deep to mine or too shallow or too thin to use in-situ methods on.
Of that remaining area, only about 20% can be extracted with open pit mining and the rest by in-situ technologies like SAGD. That means the potential mining area is about 4,800 kilometres. The area that actually has been mined is 715 square kilometres, about the size of Singapore, and about 10% of this is at some stage of reclamation. That's still a big number, but keep in mind that the Canadian boreal forest is 3.2 million square kilometres in total.
This argument is usually accompanied by a deafening silence on the reclamation requirements the province places on oil sands projects, particularly mining operations, or deep cynicism of the oil companies' intentions of living up to these requirements or the effectiveness of the process. While not perfect, generally reclamation is pretty promising, as demonstrated here.

I don't have the area disturbed by SAGD and other in-situ processes. In general these projects are said to disturb about 10% of the total area they extract from, and that disturbance is in the forms of pads and facilities that are easy to remove and reclaim compared to the mining operations

Myth 3: The oil sands are mostly owned by China and/or other foreign entities. Most profits do not remain in Canada.
As discussed in this post, oil sands opponents often state that foreigners derive most of the benefit from oil sands extraction. It is true that there is a significant foreign presence in the oil sands, with most of the world's  major independent oil companies represented, like ConocoPhillips, ExxonMobil and Shell, as well as a number of state owned (or state controlled) companies like Statoil and Sinopec. But Canadian operators are still heavily represented with such companies as Suncor, Cenovus, Nexen and most of Syncrude. This article has a tally of which oil companies produce what. Canadian companies produce 57% of the total, Americans 30% and China only 2.2%, as of early 2011. Of course as new projects start up this number will shift, but there are plenty of Canadian projects in the pipeline as well.

Some people would say that 43% foreign ownership is still too high. I would say that those people should keep in mind that regardless of where a company is based, they still have to pay Canadian taxes and royalties. They typically employ large numbers of Canadians and invest vast amounts of money here. Many oil sands projects still haven't recovered these initial outlays, as demonstrated by the fact they haven't reached "payout" in their royalty status. It can be decades before an investor starts seeing a profit on an oil sands project, and foreign ownership is a testament to faith in the future of oil prices and the stability of the Canadian business environment. In short, without foreign capital the massive outlays required for most oil sands projects would be impossible. That is, unless Canadians have a sudden and extreme change of heart and start aggressively investing in Canadian oil companies.

Allowing foreign companies to have "skin in the game" is an excellent way of building international support for the oil sands. It is unlikely that Norway and France would have been as quiet as they have in the EU oil sand debate if Statoil and Total weren't major players in the industry, for example. Allowing significant foreign ownership is a way for Canada to demonstrate that it's willing to spread the success around, and helps stop the narrative from becoming Alberta against the world.

Further, Canadian oil and gas companies like Nexen, Suncor, Encana and countless others operate all over the world, not to mention Canadians working for multinationals based elsewhere. We reap the benefits of this open market every day, and if we expect it to continue it seems foolish to talk about closing Canada off from foreign competition.

That said, some countries do shut Canada out of their oil and gas industries, as well as other sectors of their economies. I do not have an issue with the Canadian government being more heavy handed with state owned companies from places like this. If a country denies outsiders access to its resources, companies controlled by the government of that country shouldn't expect to waltz into other places and get full access. Obviously, I'm looking at you China. China, are you listening?

Myth 4: The oil sands caused an increase in cancer in Fort Chipewyan.
In 2006, physician John O'Connor caused a stir when he announced he'd found 6 cases of a rare cancer, cholangiocarcinoma, in Fort Chipewyan, a couple hundred kilometres downstream from the oil sands. An Alberta Health study found that 3 of these were other types of cancer and one wasn't cancer at all. The study found that overall, there were slightly more cancers than expected in the town, but that it was "borderline statistically significant." The Alberta Health study recommended continuing monitoring for the following five to ten years.

O'Connor came under severe criticism, Health Canada physicians charged him with blocking access to files, billing irregularities, engendering a sense of mistrust in government and causing "undue alarm". He was ultimately cleared of all these charges.

Playing devil's advocate, maybe there is more cancer than usual in this town. And maybe it is caused by the oil sands. But how are we to know if it's caused by increased industrial activity in the area or simply the natural level of bitumen found in the river? The McMurray formation does outcrop into the river, after all, meaning there has always been, and always will be, trace amounts of bitumen in the river. There are also other potential industrial culprits nearby, including pulp and paper and the suspiciously named "Uranium City" on the other side of lake Athabasca.

Myth 5: The oil sands use unsustainable amounts of water and poison the Athabasca river.
The oil and gas industry is the fourth biggest user of water in Alberta, after agriculture, commercial users and municipal users. Agriculture dominates water use here, it uses at least six times as much fresh water as the oil sands.
Most of the water used in the oil sands mines come from the Athabasca river, and in 2010 they extracted 230 million cubic metres. This is 0.6% of the average flow of the river, or 3% of the lowest period of the year.

In general, water is a non-issue for the oil sands. It doesn't require all that much compared to other sectors and northern Alberta has more water and fewer users than southern Alberta anyway.

Myth 6: The oil sands are killing manufacturing in Canada by raising the value of the dollar.
From the CBC, home of still .gifs and Excel's default styles
This isn't really a myth, since it is broadly true (and obvious) that a booming resource sector increases the value of the Canadian dollar and reduces the international competitiveness of manufacturers. The contentious part of this, as discussed in this earlier post, is that overall this makes the oil sands a bad thing. I won't replicate that post here, but suffice to say the oil sands have more than displaced job losses caused by the higher dollar, even within Ontario where this complaint is commonly heard. It also can't be overstated how beneficial it is to the balance of payments of a country to be a net exporter of oil rather than a net importer. Canada ran a federal surplus between 1997 and 2008 after decades of deficits, thanks in no small part to commodity exports (see chart) as well as reform by the Liberals, to their credit. In my opinion Canada would have weathered the global recession far more poorly if the government hadn't been in surplus for that decade and if it wasn't making money hand over fist on oil exports.


  1. How about you go down stream and drink some water. It's probable fine.

    1. I'd sooner drink untreated water out of the Athabasca than the Bow or the Elbow, how about that?

    2. When was the last time you drank from one of the Great lakes?