Energy in Canada - Non-conventional Oil

Non-conventional Oil

Canada has oil sands deposits greater than the world's total supply of conventional oil at 1,700 billion barrels (2.7×1011 m3) to 2,500 billion barrels (4×1011 m3). Of these, 175 billion barrels (2.78×1010 m3) are producible at current prices using current technology, which makes Canada's proven oil reserves second only to Saudi Arabia. Production costs are considerably higher than in the Middle East, but this is offset by the fact that the geological and political risks are much lower than in most major oil-producing areas. Almost all of the Canadian oil sands are located in Alberta. The Athabasca oil sands are the only major oil sands deposits in the world which are shallow enough for surface mining.

Commercial production began in 1967 when Great Canadian Oil Sands (now Suncor) launched the world's first major oil sands mine. Syncrude opened the second major facility in 1978. The third, by Shell Canada, started in 2003. The oil price increases of 2004-2007 made the oil sands much more profitable, and by 2007 over $100 billion worth of new mines and thermal projects were under construction or on the drawing boards. Royal Dutch Shell announced that in 2006 its Canadian oil sands operations were almost twice as profitable on a per-barrel basis as its international conventional oil operations and in July 2007, it announced it would start a massive $27 billion dollar expansion of its oil sands plants in Alberta.

Cost of production in the oil sands, from raw tar sand to fractionate in the pipe feed, was $18 dollars per barrel; now with improvements it is in the 12-15 dollar range. Rapid price increases in recent years have greatly contributed to the profitability of an industry which has traditionally focused on reducing operating costs, and continues to do so. Critics argue that the focus on operating costs does not sufficiently address environmental issues - for example, "ravaged landscapes, despoiled rivers, diseased denizens, and altered atmospheric chemistry."

Oil sands operations differ from conventional oil in that the initial profitability is somewhat lower, but the geological and political risks are low, the reserves are vast, and the expected lifetime of production extends for generations rather than just a few years. Governments have an incentive to subsidize the start-up costs since they will recover their initial subsidies from tax revenues over a long period of time. From the standpoint of federal-provincial revenues, they also differ in that the federal government will receive larger higher share and higher return on its incentives than it would from conventional oil, while the provincial share, although substantial, will be proportionally smaller. Consequently, there has tended to be much less intergovernmental conflict and more agreement on how these projects should be handled.

If global oil prices remain high, it is likely that Canada will become one of the largest oil producers in the world in the next few decades. If so, there will be environmental issues, resulting more from the vast scale of the operations rather than the toxicity of the products. The oil sands deposits are roughly the size of Florida and the operations would drastically alter the landscape, which until recently was largely wilderness. In addition, concerns have been raised about water supplies, since the mines and steam projects would use a large portion of the flow of several major rivers. The most serious problem in the short term is an acute labor and housing shortage which has driven vacancy rates in the oil sands area to zero and wages to extremely high levels. However, given the hundreds of billions of dollars in revenue expected to be generated by the oil sands in the next few decades, it is likely that future projects will be approved regardless of the problems.

Also 19 deposits of oil shales have been identified in Canada. The most explored deposits are in Nova Scotia and New Brunswick. These are not as large as those in the Western United States, and will probably remain undeveloped in the foreseeable future since they are much more expensive and much smaller than the oil sands.