Buried in the oil sands: the value of Alberta bitumen

Canada is facing major opposition as it moves to export more of its tar sands oil. Sarah Blackman speaks to experts from environmental groups, oil companies and academic institutions to find out if this resource is essential to our energy supply or a fuel worth forgetting about.

Canada could be accused of burying its head in the sand, ignoring environmental opposition and major transportation issues, after its Alberta government predicted last month that it would generate nearly $10bn in bitumen royalties by 2014.

Northern Alberta's oil sands are the world's third-largest oil resource, but their high green house gas emissions, which are set to triple by 2020, have led the EU to consider banning imports of the black stuff.

Even the US, the main exporter of Alberta bitumen, has raised concerns over the environmental impact of the substance. In January, President Obama delayed the construction of TransCanada's Keystone XL, a major pipeline which could transfer up to 900,000 barrels of oil from operations in Canada to refineries on the Gulf Coast, unlocking huge profits.

But, does Canada need European imports when it has a top oil consumer in China eyeing up its oil sands and looking for investment deals? Also, with US refineries already set-up to handle heavy crude, can it really pass up a chance to exploit its neighbour's resources when Iran is threatening to ban oil movements through the Strait of Hormuz?

Environmental impacts could muddy the waters

"In January, President Obama delayed the construction of TransCanada's Keystone XL, a major pipeline which could transfer up to 900,000 barrels of oil."

With production levels set to soar to three million barrels of oil a day by 2030, up from 1.126 million barrels each day in 2006, Canada is now believed to hold the third largest oil reserves on Earth, after Saudi Arabia and Venezuela.

But with mounting opposition in the US and EU to importing oil mined from tar sands, this resource could be stuck in limbo. At the moment, the European Commission is pushing legislation which could see oil derived from oil sands as more damaging to the environment than crude oil, potentially limiting - or leading to a ban of - oil sands imports to the region.

Figures, like those produced by Canada's Pembina Institute, may sway the EU to make a final decision over oil sands. According to Pembina, an environmental group, the carbon intensity of extracting and upgrading a barrel of synthetic crude oil from Alberta bitumen is 3.5 to 4.2 times greater than a barrel of North American conventional crude oil.

Environment Canada also estimates that emissions from oil sands will triple to 92 megatons of CO2 equivalent by 2020, up from 30 megatons in 2005, despite Canada's commitments at climate change talks in Copenhagen to cut emissions by 17% during this period.

Joshua Laughren, director WWF Canada's climate change and energy programme, believes that despite some laudable efforts, progress on climate change has been overwhelmed by the 'unrestrained pace' of oil sands development.

"The regional environmental footprint is large and expanding. The pace and scale of the development is incompatible with sustaining certain vulnerable ecosystem components - woodland caribou may be the best example," Laughren said, adding that Canada is heading towards a 178MT emission overrun under its current policies.

"The $2bn Alberta will invest in carbon capture storage over 15 years will produce, at best, a 5MT reduction, by comparison. So, at this pace it's hard to avoid the obvious conclusion. Either Canada will badly miss our greenhouse gas reduction commitments, or the reductions from other sectors and other regions of Canada will have to be draconian and devastating," Laughren added.

A decision by the EU to ban oil sands for environmental reasons, however, could have very little impact on Canada's economy, with Alberta bitumen representing just 0.08% of oil imports to Europe, according to Dr Bob Schulz, academic director for petroleum land management at the University of Calgary's Haskayne School of Business.

"What's 0.08%? It's like 2000 barrels a day," Schulz explained. "So if Europe says 'we are not taking Canadian oil', China and the US really don't care. In my view, the EU resolution about oil sands is either an effort to make them feel good about not very much or an effort strongly influenced by environmentalists. It's waving a flag but it won't change anything in Canada or Europe, unless the US environmentalists say, 'well Europe did that so we should do the same thing.'"

Laughren agreed that Canada sells very little synthetic crude or bitumen to the EU, but said: "I think it ought to be a signal and warning: Canada's assumption that the world will simply accept our oil, on our terms, regardless of the greenhouse gas emissions impact and regardless of our domestic and international performance, is a dangerous one."

International exportation issues

Earlier this year, 2012, Iran's threat to block oil movements through the Strait of Hormuz had some US Republican party members calling for approval of TransCanada's Keystone XL, which would transfer oil sands from Canada to the US Gulf Coast refineries.

"Developing the pipeline will also make it harder for the US to break its dependence on oil, according to Natural Resources Defense Council international director Susan Casey-Lefkowitz."

Their demands were rejected, however, as the Obama administration said it did not have sufficient time to obtain the information necessary to assess whether the 1,700-mile project, in its current state, is in the national interest. The administration indicated that TransCanada can reapply for the project by submitting an alternate route for the Nebraska leg of the pipeline, to allow the pipeline to circumvent the Ogallala aquifer, the Midwest's main source of drinking water.

But, environmental groups are maintaining that the pipeline could pollute air, water supplies and harm migratory birds.

Developing the pipeline will also make it harder for the US to break its dependence on oil, according to Natural Resources Defense Council international director Susan Casey-Lefkowitz. In a recent blog she said: "The threat of an oil crisis if Iran blocks the Strait of Hormuz is immediate and will not be alleviated by Canadian tar sands oil.

"Dependence on oil (from anywhere) is what makes us vulnerable to price spikes or supply disruptions. So the more fuel-efficient we get, the less we are beholden to foreign sources of oil - whether Iranian or Canadian. This is one of many reasons why the Keystone XL tar sands pipeline is not in the national interest," Casey-Lefkowitz continued.

Dr Schulz disagreed with Casey-Lefkowitz however and said: "In my view, Keystone is going to go through, the only question is when and the reason for that is because refineries in the US are set-up to handle the heavier crude.

"If Iran decides it isn't going to ship oil it will cause chaos and the Middle East already has chaos in terms of oil, so If you want to secure oil supply it's a lot better to rely on friends from Canada, the Middle East or Venezuela," Schulz added.

Turning critics: seeing is believing

"But maybe Canada doesn't have to persuade its critics. Maybe it can rely on demand from the top oil consumer, China."

In a bid to persuade critics at home and abroad that they are doing all they can to clean up operations, six of the largest Canadian oil sands developers have joined forces to deal with water contamination, land disturbance, the spread of toxic tailings ponds and greenhouse gas emissions.

Royal Dutch Sell, Statoil, Canadian Natural Resources and Suncor Energy plan to set goals and track progress to get quicker results.

Statoil director of communications Peter Symons explained how Statoil will persuade critics that oil sands aren't as environmentally damaging as they are made out to be.

"We believe 'seeing is believing', and we want our stakeholders, particularly those who question our participation in the oil sands, to see what we're doing. So when we host site tours, we bring our critics and key influencers together, including NGO's Greenpeace, Bellona and WWF Canada, political stakeholders and international media."

But maybe Canada doesn't have to persuade its critics. Maybe it can rely on demand from the top oil consumer, China.

Chinese oil companies Sinopec and Cnooc have invested heavily in Canada's oil sands and in January 2012, Athabasca Oil Sands said it would sell its remaining 40% interest in the MacKay River project in northern Alberta to PetroChina for $666 million.

So, if the US and Europe want a slice of the oil sands action they will have to snap them up quickly, or face losing what could be a lucrative resource to other nations. If not, they will need to stick to their guns and focus on green alternatives to secure energy supply.