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Daily Telegraph: Sands of grime put Canada in energy elite

Sands of grime put Canada in energy elite
By Fred Langan (Filed: 02/05/2006)

High in northern Alberta a company called Syncrude is mining oil from a black pit that measures 35,000 acres. Giant lorries, the largest in the world, take three loads of oil sands from a huge shovel then deliver it to a crusher on its way to becoming oil.

“Each truck carries about 400 tons of material and we get about 200 barrels of oil from that,” says Jim Carter, president and chief operating officer of Syncrude, the largest oil sands operator in the world. The Fort McMurray, Alberta, company is a consortium owned by seven firms, including Canadian Oil Sands Trust (37pc), Imperial Oil, which is the Canadian arm of Exxon Mobil, (25pc) and Petro Canada (12pc).

Carter comes from a mining background, not an oil background. He pushed for the use of giant shovels and lorries, which are more flexible than giant moving scoops and draglines, the last of which were retired last month. He says the mine site is barely touched.

“We will be mining here for another 45 years,” says Carter. “Last year our production was 250,000 barrels a day. We will have that to 350,000 by the end of this year.”

That is on this one site. There are 80,000 sq km of oil sands in Alberta, about the size of Ireland. Huge swaths of the boreal forest and a light layer of topsoil cover the oil sands. The deposits come in three locations: Peace River to the west of here, Cold Lake to the east on the Saskatchewan border, and by far the largest deposit in the Athabasca region surrounding Fort McMurray.

There are 6,500 people working on the Syncrude site, in the open pit mine and the plant that upgrades the heavy oil to light synthetic crude. More than 10pc of the workforce are local natives, a group with some of the highest rates of unemployment in Canada.

Indians once used the gooey tar to waterproof the seams of their birch bark canoes. The oil was pushed to the surface aeons ago from deep underground by the same geological forces that formed the Rocky Mountains just to the west.

The oil sands of Alberta contain 175bn barrels of oil. Only Saudi Arabia has larger reserves at 259bn barrels. Optimists such as the Canadian Association of Petroleum Producers (CAPP) say the reserves could be 10 times that if new technology succeeds in separating the oil from the sand in the underground deposits that are difficult to access.

Just using conventional technology is going to vault Canada to become one of the world's leading producers, with all the oil safely connected by pipeline to refineries in the United States. Just this month an unused pipeline running south-north in the US reversed direction to take Alberta oil south.

“Right now Canada is the eighth-largest producer in the world, just below Norway. By 2015 we will be number five, moving to just below Iran or maybe past it,” says Greg Stringham, vice president of CAPP in Calgary.

The light oil of Saudi Arabia and the Middle East is cheap to produce and easy to refine. The heavy sands of Alberta's oil sands have to be mined and then separated. It is a process that consumes a lot of energy but with oil nearing $75 a barrel, the world's oil giants think it is worth it.

There are three operators in the Athabasca region near Fort McMurray: Syncrude, Suncor and Shell, in a venture with Chevron. And oil companies from Exxon Mobil to France's Total are expected to invest $75bn (£40bn) to $80bn over the next decade.

Some of the oil is heavy, but Syncrude produces light oil that Stringham calls “the lighter half of the conventional Texas or Alberta barrel”.

“The light synthetic oil can feed existing refineries to produce gasoline and other products,” says Stringham.

While mining is used to get at most of the oil, the bulk of it lies far below the surface. There are complex methods of getting at the bitumen that is too deep to mine. High-temperature steam (at about 350 deg C) under high pressure is pumped down into the deposits of oil sands. The bitumen liquefies and is pumped to the surface.

The cost of producing light synthetic crude is $21 to $25 a barrel and that has risen by $3 a barrel in the past year or so along with the price of natural gas and diesel. Still, Syncrude's Carter points out his firm produces its own diesel and much of its natural gas.

With oil at current prices the companies are profitable, and the shares of firms such as Canadian Natural Resources and Suncor have been soaring on the Toronto Stock Exchange.

The major difficulty for many operators is finding people to work.

“Our biggest problem is finding housing for the people who are coming here,” says Melissa Blake, mayor of Fort McMurray, the town at the centre of the oil sands development. On average 100 people a week arrive in this town of 61,000 looking for work. There is also a transient population as high as 12,000 that commutes to work from other parts of Canada, staying in rented space for weeks on end.

Workers are so hard to come by that unskilled people in fast food restaurants are paid C$14 (£6.90) an hour, double the minimum wage. The Fort McKay Group, run by an Indian tribal council, pays trained cooks in its catering service as much as C$40 an hour.

“The price of oil drives growth in Fort McMurray. And at these prices we expect our [permanent] population to grow to 100,000 by 2012,” says Blake.

The oil sands are expected to be producing at least 3m barrels a day by 2015. That will not be enough to bring a return to cheap gasoline.

“The oil sands will not mean lower oil prices,” says Peter Tertzakian of ARC Financial, a Calgary-based energy consultancy. He has also just published a book on the world energy business called A Thousand Barrels a Second.

“The oil sands do represent a turning point in the history of energy and a switch to synthetic sources of oil,” says Tertzakian who adds the world is not running out of oil, it is just running out of cheap oil.

The oil sands do mean a growing supply of secure oil for the US, one that could outstrip even the most optimistic estimates if technology can be perfected to mine deep underground deposits.

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