Features and Interviews
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It's no secret that the U.S. is on the hunt for more oil. Listen to almost any politician speak these days and you'll probably hear the phrase "reducing our demand on foreign oil."
What that really means, of course, is reducing our dependence on oil imported from unstable (and potentially unfriendly) countries, including Venezuela and much of the Middle East. We're not worried about the oil we import from Norway. But in 2005, 20 percent of the United States' crude oil imports were from the Persian Gulf, with more than half of that coming from Saudi Arabia. That makes people nervous.
Possible solutions are everywhere: Ethanol is getting a lot of press at the moment; politicians and wildcatters are eager to tap into the Alaskan Wildlife Refuge; even Willie Nelson is getting in on the action, promoting his "BioWillie" alternative diesel fuel.
One of the most popular solutions, however, lies to the north in the fabled "oil sands" of Canada's Alberta province, where you can literally scoop oil from the ground with your hands.
OK, it's not that simple - the oil is mixed with sand, clay, and water, and separating it is very tricky. But the prospect of having a new oil source in U.S.-friendly Canada represents a tantalizing possibility. Experts say there may be 2 trillion or more barrels of oil in Alberta's 30,000 square miles of oil sands. Not all of it is recoverable using current technology, but about 175 billion barrels are. That puts Canada second only to Saudi Arabia in global oil reserves (Saudi Arabia has 259 billion barrels of reserves.)
Currently, about 30 oil companies are operating or developing oil sands projects in Alberta, and the region is producing 1.1 million to 1.2 million barrels per day (bdp). With further development, Canada expects production to top 4 million bpd by 2020.
Where's The Problem?
If all that oil is up there waiting to be scooped up, won't it solve all our problems? Who needs Saudi Arabia or ANWAR when we have Alberta? And should we sink all our money into oil sands plays?
Expense is the main problem. Everything about the oil sands process carries significant costs. The Alberta oil is what's called "bitumen," a highly viscous, low-grade crude oil that requires an extraordinary amount of labor and investment to turn into a useable product. Only recent advances in technology and the spike in oil prices have made the oil sands worth considering. After all, two tons of earth must be processed to get just one barrel of oil. And because of its viscosity, the bitumen must be upgraded before it can even be transported to a refinery, where it must undergo further processing. Costs per finished barrel can be more than $20 higher than traditional oil wells.
High Risk
The practicalities of the oil sands business make it a risky venture. Oil sands require large amounts of start-up capital, and often don't start producing until the eighth year of development. So if you sink money into a development today, and the price of oil falls tomorrow (or two years from now), you're sunk.
Projects are also at the mercy of a number of uncontrollable factors. For example, the upgraders used to convert the bitumen into usable product are complex, and breakdowns can cause delays and cost overruns. In addition, the in situ processes for extraction are driven by natural gas, leaving the projects vulnerable to fluctuations in natural gas prices and availability. Then there are the technology issues, pipelines, labor shortages, etc.
The final risk is one that gets very little press in the U.S. While environmentalists raise a ruckus about ANWAR, the oil sands make drilling in ANWAR look like good. The deposits are located under Alberta's boreal forests, which are often destroyed in the extraction process. In addition, the processing methodology uses massive amounts of water - two to five barrels of water for each barrel of oil - and eats up vast quantities of natural gas. According to the Sierra Club of Canada, Canada was supposed to lower its carbon emissions by 6 percent from 1990 by 2012 under the Kyoto agreement; instead, emissions have jumped by 30 percent, largely due to oil sands development. (There are strict environmental regulations in place, but they cannot eliminate the impacts entirely.)
Conclusion
In the end, the oil sands are caught in a bit of a Catch-22. We want to develop them, despite the environmental and technical issues, because we need to increase global oil supplies and keep oil prices under control. At the same time, the long lead times and high costs of oil sand projects means that prices must stay high for development to continue.
A June 2006 U.S. House committee report argued that:
eventually, input markets and the infrastructure will catch up and, together with technical advances, stabilize the cost per barrel. At that point, given the huge reserves, the oil sands supply will set an upper limit to the world oil price that OPEC can no longer exceed.
Maybe. But with the EIA predicting oil demand to jump from 80 million bpd in 2003 to 104 million bpd in 2020, the oil sands won't be enough. Even the rosiest estimates only have the oil sands producing 4 million bpd by 2020. That leaves 21 million bpd unaccounted for ... suggesting that the ceiling for oil prices in the future may not be as low as the U.S. House committee hopes.
The Wider World - A Survey of Current Opinion and Research
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