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Daily Telegraph: Shifting oil sands

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Steam rising from the Syncrude upgrading site, where oil sand is converted into synthetic crude oil

Last Updated: 12:01am BST 15/09/2007

In the hunt for new fuel sources, a vast swath of western Canada is being mined for its precious ‘oil sands’. Jack Fairweather visits the centre of the new gold rush. Photographs by Jonas Bendiksen

Donnie Leblanc is surprisingly nonchalant for a man who has just blown $20,000 on a two-day trip to Las Vegas. But then, since he came to northern Canada, he hasn’t had to worry too much about money – and there is plenty more where that came from. In a few months’ time he will have saved enough to hit the casinos again.

A former carpenter from Nova Scotia (‘I was just about making ends meet, and man, that’s no way to live’), Leblanc, 44, packed his bags and headed west nine months ago, leaving behind his wife – ‘basically, for good’ – and few regrets. He spent the first few days sleeping in his truck and handing out his cv to prospective employers. He quickly landed a job on a construction site crew in Fort McMurray, and was offered a berth in a camp 25 miles out of town.

Heavy set, with a moustache and beer gut, Leblanc is typical of the thousands who have fled their old lives to earn more money than they could ever have imagined, in the mines of Fort McMurray, a small town in the grip of what may be North America’s last great gold rush. The ‘gold’ in question is black, greasy, cake-like tar – oil sand – and there is a lot of it buried beneath the rolling arboreal forests surrounding Fort McMurray. Dug out of the ground, steamed and refined, the sand turns into that balm of the world economy: crude oil.

Just how much oil the Canadian government-owned land contains is a matter of some debate, but most analysts put the figure at 1.7 trillion barrels (of which 170 billion are recoverable at today’s prices and with current technology), spread across 87,600 square miles of forest and peat bog. Compare those figures with Saudi Arabia’s 260 billion barrels, which accounts for 24 per cent of the world’s reserves, and it is easy to understand why the major oil companies are rushing to stake out the sands.

A road sign at the entrance to Fort McMurray proudly declares, we have the energy. The regional headquarters of the oil sands industry is a town with a population of roughly 80,000, strung out along the banks of the Athabasca river in the north-eastern corner of Alberta, one of Canada’s western provinces. Edmonton, the nearest city, is a four-hour drive south. In every other direction there is nothing but forest and tundra.

Set up in the 1870s as a trading post for the Hudson’s Bay Company, which made its money in the fur trade, Fort McMurray looks like any other small Canadian town: a main street of liquor stores, burger joints, petrol stations; identikit suburbs and the ubiquitous Wal-Mart. Long-term residents take pride in their community, their schools and shopping malls, family diners and their local hockey team, the Oil Barons. This is not a town for tourists. During the winter, which lasts well into April, the town is blasted by Arctic storms and lies under a foot or more of snow. Things aren’t much more pleasant in the summer, when clouds of mosquitoes emerge in the heat. The thousands of people who descend each month are looking for one thing – to get rich, quick. Salaries for basic labour jobs can top $100,000.

Fort McMurray has become the sort of boomtown not seen in North America since the Texan oil rush of the last century. The town’s population has almost doubled in the past few years; most houses have multiple occupancy, with basements and spare rooms often rented out. According to one government estimate, more than 10,000 mine workers in the area are of no fixed abode, camping out by the river in the summer, sleeping in their trucks in car-parks. To relieve some of the pressures on the town, the oil companies use massive military-style camps where workers are corralled into portable buildings.

Seen from above on a cold winter’s morning as your plane approaches the air strip, Fort Mc-Murray is ring-fenced by mining works. The region’s three largest mining operations to the north of the city resemble icy, man-made Grand Canyons measuring about 50 square miles in total; the valley floors buzz with 400-ton dump trucks that shift the sand, and the nearby processing plants belch out vast columns of steam.

Alberta’s oil sands, while not the only such deposits in the world – Venezuela has substantial reserves – are by far the largest. They were formed more than 400 million years ago when a large swath of northern Canada lay under water, and organic matter gradually compacted in a process similar to oil formation in the Middle East and the Gulf of Mexico. What was different in Canada was the collision of the tectonic plates that created the Rocky Mountain range, which effectively poured the oil into low-lying valleys and river beds, which were then covered by a layer of debris.
 
The potential of the oil sands isn’t new. Eighteenth-century explorers spotted Native Americans tarring their canoes using the sands, and ever since there has been a steady trickle of entrepreneurs trying to make a buck near the banks of the Athabasca. What has always prevented the oil sand development has been the cost. To produce oil here you need to put almost as much energy into the sands as you get out in the form of crude, making it one of the most energy-intensive and environmentally damaging sources of fuel. That the oil sands are being developed at all epitomises the remarkable crossroads at which the world stands in terms of energy production. Plenty of oil is still out there, but it is increasingly difficult and expensive to access. This reality, usually played down by the oil industry, coincides with the rise of the ‘peak oil’ movement. The concept of ‘peak oil’ is based around the theory of M King Hubbert, a geophysicist working in the 1950s who predicted – accurately – that US oil production would peak two decades later and then enter a rapid decline. The peak oil debate grew to prominence during the high oil prices of the 1970s, but in recent years a new generation of industry experts and geologists have added their voices.

‘The days when you could just open the taps in Saudi Arabia and boost production are over,’ Matthew Simmons, a Houston-based energy consultant, and a leading figure in the peak oil movement, says. ‘The amount of conventional oil we can actually recover is declining.’ Simmons explains that the rates of increase of worldwide oil production have dramatically slowed down in the past few years. Production now stands at around 80 million barrels per day. ‘There have been no major oilfield discoveries since the late 1960s,’ Simmons says, ‘and [oil companies] are desperate to find fuel sources.’

New projects include gas injection of existing fields, ultra-deep-sea exploration off the coasts of Mexico and Nigeria, the development of alternative fuels such as ethanol, and, of course, the stampede on Alberta’s oil sands. Ten years ago there were only two mines here, operated by small Canadian companies. But in the past few years, 15 more mines have sprung up. Between oil majors such as Shell, Conoco-Phillips and Total E&P, more than $30 billion has been spent so far. Over the next decade, an estimated $150 billion will be spent digging vast pits to access the sands, building steaming and refining plants to process the oil, and laying down hundreds of miles of pipelines. The oil companies are betting, in effect, that the world’s economy will remain dependent on oil for the foreseeable future – and that Fort McMurray holds at least part of the answer.

With the air temperature hovering around -35C, Syncrude’s oil-sand operation resembles two vast sugar bowls, the largest measuring 12 square miles, slowly being crisscrossed by a line of ant-like trucks. It is one of three mines in operation, and the region’s biggest producer. Syncrude, a Canadian consortium with heavy investment from American oil majors, mines and refines about 350,000 barrels per day, with plans to increase that figure to 500,000 over the next decade. That would put the company roughly on par with a modest oil producer such as Yemen. The mine, begun in 2000, has a pit measuring just under three miles across, and 180 feet deep. Five hydraulic shovels the size of semi-detached houses take monstrous chunks out of the landscape. They work on different levels – the first digger removing the topsoil that can measure up to 80 feet in depth, with staggered steps of oil sand reaching down to the pit floor where the lowest digger scrapes the final residue from the limestone base.

A fleet of Caterpiller dump trucks – a little smaller than the diggers, but still capable of carrying 400 tons at a go – ferry the sand to large industrial plants where it is steamed and the separation process begins. The diggers and trucks operate 24 hours a day, seven days a week in Syncrude’s two mines, processing about 700,000 tons a day, roughly the equivalent land mass of St Michael’s Mount in less than a fortnight.

For workers such as Leblanc, it can be tough work, especially over the winter months, he says: pitch black for all but seven hours a day, and -55C. The sub-Arctic climate means it is so cold that Leblanc’s team, building the foundations for an oil processing unit, work in shifts laying concrete and metal girders: 20 minutes outside, 20 inside to thaw.

From the oil industry’s perspective, mines such as Syncrude’s represent a remarkable achieve-ment, even though the steaming method needed to turn tar into crude has been known about since the early 1900s. The Canadian government, which controls the land and leases it out, has always been keen to develop the oil sands. What has changed is that they have found the right economy of scale to make money. The oil companies have also been given a boost by high oil prices. Today, it costs somewhere in the region of $20-$25 to produce a barrel of crude oil from the sands, factoring in investment costs, labour and the cost of energy to power the plants. Current oil prices are more than $60 a barrel. Charles Ruigrok, the general manager of Syncrude, an old-fashioned oilman with 20 years’ experience in the field, is confident about the future. He predicts that oil prices will remain high, driven by a perfect storm of diminishing stocks of recoverable oil, war in the Middle East and insatiable demand from fast-developing nations such as India and China (which has made serious noises about investing in the oil sands).

‘Conventional oil isn’t going to be enough to meet demand, in the US or elsewhere,’ Ruigrok says. ‘The oil sands can go a long way to meeting the slack.’ By 2015, he says, the oil sands will be meeting 20 per cent of North America’s fuel demands. Beyond that, Ruigrok doesn’t like to speculate. He says oil-sand deposits lying close to the surface will run out, but technology is already being developed and improved to tap deep deposits by pumping steam underground. ‘I don’t think anyone knows just how much oil there is,’ he says. ‘But I think we have enough here to last 100 years, more even.’

In the 1970s such claims from an oil executive would have been greeted with pats on the back; after all, cheap oil is partly the reason for North America’s affluence, and continues to be the mainstay of the economy. But as Ruigrok readily admits, the issues have become more clouded in recent years, with the oil sands a particular lodestone for dissent, especially from the environmental lobby. To start with, there are health risks. Native Americans in the region say that wildlife such as caribou are no longer safe to hunt because of high levels of arsenic in their meat (a result of exposure to toxic waste water from the mines), and local doctors have warned of abnormally high cancer rates in communities living downriver of the mines.

Ricardo Acuna is the director of the Parkland Institute, an Alberta-based research centre that monitors the social and physical impact of the sands. From his offices in Edmonton he reels off a list of problems associated with the sands: the open-pit mining destroys the boreal forest, the traditional hunting ground for Native American tribes. Tests on game have shown they contain dangerous levels of heavy metals in the animals. To provide steam for refining, 359 million cubic metres of water is diverted each year from the Athabasca river, with almost a fifth of that dumped, as waste, into mined-out pits. For every barrel of synthetic oil produced, 80 kilograms of greenhouse gases are released into the atmosphere.

‘This is the most dirty fuel there is,’ Acuna says, ‘and will single-handedly lead to Canada missing its commitment to the Kyoto Protocol.’ (By 2012 the country has agreed to reduce its greenhouse gas emissions by six per cent from 1990 levels.) He points out that most of the oil-sand mines are fuelled by Canadian gas, which is due to run out in seven years’ time unless a 1,200 mile pipeline is built to the Arctic Circle in order to tap the final large pocket of the country’s reserves. The pipeline is opposed by many of the Native American groups whose traditional land it crosses. ‘Do you realise how crazy it is to burn a high-quality product like gas to heat up a vast bucket load of tar?’ he asks. But what worries him most is the future. Already a new system of pipelines is being laid to ship crude from Alberta to the American Midwest for refining, and there are plans for a second, 400,000-barrels-per-day pipeline from Edmonton to British Columbia, to export crude from the oil sands to China and Asia. ‘Now is the time to be making hard choices about the future, and moving away from oil dependency,’ he says. ‘Instead, we’re consuming more than ever, and the developing world is following suit.’

For now, Acuna’s warnings are being ignored, not just by the oil companies but also by the region’s impoverished Native American population, which recently settled a centuries-old land claim with the Canadian government and decades of opposition to the mines in return for 18,600 square miles of land near the mines, and a multi-million dollar compensation package. A couple of hundred Native Americans live in Fort McMurray, but the local hub is 30 miles north in Fort McKay, a community of just over 500 abutting various mining claims. The town has the unmistakeable look of government-assisted living, with rows of ramshackle single-storey dwellings – there are high levels of depression and alcoholism here. Most of the residents over 45 remember growing up living off the land, only to be forcibly resettled by the Canadian government in the 1950s and 1960s. The glaring exception to Fort McKay’s poverty is the brand new $3 million community centre, built using the tribe’s new oil funds. Jim Boucher, chief of the Fort McKay First Nation, says the land settlement is the first step towards leading his community out of its desperate plight, and building an indigenous oil industry. ‘Development of the oil sands is inevitable, we know that,’ he says. ‘It’s destroyed our way of life, but rather than fight against it, it’s time to share in the wealth.’

This is not the first time that Fort McMurray has experienced an oil boom, and an influx of drifters such as Donnie Leblanc. During the high oil prices of the 1970s, the town had its first wave of interest in the oil sands. Fort McMurray’s two oldest operators set up shop back then, sparking a hectic round of construction work. But for the most part, interest died away in the 1980s, allowing new residents to bed in, and a sense of community to re-establish itself. What is different this time is the sheer scale of investment – and many fear this could have catastrophic consequences.

Todd Jackson, 48, a local union leader, has lived in Fort McMurray for 27 years, and spent most of them working as a welder in the mines. He now works at the Communication, Energy and Paperworkers Union as a staff officer; a neatly groomed and quietly authoritative figure, who listens to workers’ complaints and liaises with oil company officials. He lives with his wife and two teenage sons in a modest clapboard subdivision on the affluent outskirts of the town, and has witnessed the town’s recent transformation, little of it good. Overcrowding has been the most obvious physical impact, Jackson says: the hike in house prices, the traffic jams, five-hour waits to see a doctor, an increase in drug abuse and prostitution. The homely smalltown vibe in which he raised his children has gone for good. ‘There are young kids here earning $100,000, and they’ve no idea what to do with it,’ he says. ‘So they buy a nice pick-up truck and cruise around town looking for trouble.’

The lure of the oil sands has already created what Jackson refers to as a ‘civic deficit’. He notes that the understaffed school system has recently lost three former principles, who are now employed in the mines. Painters, carpenters, postmen and rubbish collectors have similarly left their jobs, or left Fort McMurray altogether, driven out by high prices. Jackson tells me that one nickname for the town in the rest of Canada is ‘Fort McMoney’. The other, more worryingly, is ‘Fort McCrack’.

Just behind the Oil Sands Hotel, a block from the main street, dozens gather near a homeless shelter to drink and smoke crack cocaine. Their stories are much the same – they came to Fort McMurray with problems that they thought wealth would cure. Ronnie McDonald, 44, is a painter and decorator by trade. He came to Fort McMurray a year ago, briefly lodged in a house but found he couldn’t afford the rent. He moved first to the upper floors of the town’s Red Cross shelter, reserved for hard-up workers, and then, a few months ago, to the shelter’s basement, where the drug addicts stay. ‘I guess I kind of gave up the will to live, and there’s a lot of drugs around here,’ he explains. ‘Then, one thing led to another…’

There are 485 registered homeless in the city, many of them Native Americans, although the figure is likely to be much higher.

Melissa Blake is the town’s mayor, a svelte and assured 37-year-old, dressed in a brown business suit. She is well aware of the problems the town faces. Four months ago, Blake led a call for a moratorium on oil sands development, warning that Fort McMurray was on the verge of imploding. For all the money being invested in the mines, precious little had reached the town and its creaking infrastructure. The high salaries of workers are often taxed in their home states or provinces, and most of their income is spent in places other than Fort McMurray (recently, some oil companies have begun using foreign ‘guest’ working programmes – many workers are from South Asia – as a way of keeping salaries down, which has exacerbated the flight of money). The oil companies pay remarkably low taxes on the oil they produce — just one per cent of revenue goes to the Canadian government, the lowest rate among oil-producing nations – so the town has been watching its oil wealth drain away. ‘My job is to defend this town’s interests, and for a long time they weren’t being met,’ Blake says. ‘The oil companies weren’t always aware of the human dimension to the development of the oil sands.’

Blake modified her position a little after the federal government awarded the town $400 million (she estimates $1.2 billion is needed), but the central dilemma has not changed. On the one hand, she welcomes the well-paying jobs offered by the mines, and the chance to develop the town. ‘We want to create a land of opportunity here, where people can raise a family, and expect their children to find a good job.’ But on the other, she asks whether Fort McMurray’s boom can create a sustainable future for her community. A resident of the town since childhood, she witnessed the last boom and bust, and wonders, if interest wanes, or the oil runs out, whether Fort McMurray will survive the next downturn.

Todd Jackson, too, is worried that no one is thinking long-term, that today’s gold-rush town could well become tomorrow’s ghost town. ‘If this is the last great oil rush, then what happens next?’ he asks. ‘Do we have a plan B for 20, 30, 40 years down the line, or are we just rushing to make money while we can?’

http://www.telegraph.co.uk/arts/main.jhtml?xml=/arts/2007/09/15/sm_oilsands.xml

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