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Financial Times: Green leaves, black gold

By Sheila McNulty
Published: December 15 2007 02:00 | Last updated: December 15 2007 02:00

Beneath a vast conifer forest in Canada lies the biggest proven oil reserve outside Saudi Arabia. With the cost of crude sky-high, what price the trees? By Sheila McNulty

It is 3pm on a Thursday, and the carpark at the tiny airport on the edge of Alberta’s boreal forest is crammed. Gary Stewart has been coming here for years, and mutters about how busy the area has grown as he circles slowly in his hire car, searching for a space. The 57-year-old has encouraged a photographer and me to come to this western slice of Canada for a bird’s-eye view of the area, the world’s largest remaining unspoiled forest and wetland ecosystem. But it’s not just the beauty of the trees that Stewart will be pointing out. Buried under the canopy lie 140,000 sq km of oil sands – black, grainy tar that is quickly turning into Canada’s cash crop.

This is the largest proven oil reserve outside Saudi Arabia, but the energy here is not as easy to tap into. Unlike Saudi Arabia’s vast underground reservoirs, this oil starts out as solid bitumen, which must be mined, crushed, diluted and cleaned before it can be turned into ”synthetic crude” in a refinery. That process makes traditional oil production look almost as green as wind energy: extracting a barrel of crude derived from oil sands results in greenhouse gas emissions five times greater than the process for a barrel of conventional crude (a figure some energy companies dispute). It costs far more, too.

Despite this, the world’s biggest private-sector oil companies have not been put off. Far from it. As the oil price has climbed tenfold in almost as many years – from about $10 a barrel in 1998 to almost $100 a barrel in November 2007 – the Fort McMurray airport has outgrown itself. Every rise in the price of crude makes Alberta’s sands a more attractive target for the international oil companies, and hastens the environmental catastrophe that Stewart fears. It also heightens the prospect of reputational destruction for those same oil majors.

Last year, Stewart, who grew up in the forests of eastern Canada and earned a masters degree in wetland ecology from McGill University, left Ducks Unlimited, a wetland conservation group for whom he managed a boreal programme, to become adviser to the boreal campaign for The Pew Charitable Trusts, a prominent US advocacy group. This autumn, as the oil price continued its climb, Pew began urging journalists to see the devastation this new frontier in oil exploration has wrought.

When fully developed, Alberta’s oil sands will be the size of New York State. Extracting the full 175 billion barrels of reserves will mean destroying large swathes of wildlife habitat, leaving behind mountains of toxic waste. It also will have a devastating impact on global warming. Not only is mining bitumen carbon-intensive, but it does enormous damage to one of the planet’s major carbon-storage banks. The trees, peat and soil in the boreal forest store 186 billion tonnes of carbon – equivalent to 27 years of the world’s CO2 emissions from the consumption of fossil fuels. Only 10 per cent of the boreal forest is protected by Canadian law, and the oil companies are competing with other industries to divide the other 90 per cent between them.

Signs of that work are clear within minutes of take-off. A patchwork of deforestation lines cut through the trees, like cracks in a pavement. The lines, made by the likes of Royal Dutch Shell, ExxonMobil and Chevron, are necessary for 3D seismic work to decide where to set up their extraction efforts. Deforestation lines are up to 2.5m across, and even the least invasive projects include about 1,000km of cuts. Deforestation lines are hardly the worst environmental problem – the sands are usually strip-mined, producing waste material and carbon emissions. Outside Syncrude’s project, a sign notes: ”If the oil sand and overburden [ripped up land and forest] we’ve mined were loaded into gravel trucks, they would stretch, bumper to bumper, from Toronto to Vancouver” – some 2,000 miles.

Six million of a total 14 million hectares of oil sands have been leased to oil companies; only 10 per cent of that is under development. Still, environmentalists like Stewart want further leasing to cease until Alberta passes global-warming, water-pollution and species-protection legislation. The environmentalists are unlikely to win: after years of cheap crude, when Canada could barely tempt investors with 1 per cent royalty fees for access to the land, politicians fear killing this new cash cow.

Oil sand leases over the past decade have brought the province $3.4bn in payments, plus the royalties, jobs and a new industry making parts for extraction machines. Stewart knows the numbers as well as any politician – and what they mean for his cause. He leans across the aisle of the aircraft: ”The oil sands are really an important part of the energy solution, but not if they don’t do it right. There is no need for this.”

Development is taking a measurable toll on the forest. Woodland caribou numbers have fallen by 50 per cent during the past 10 years, according to The Pembina Institute, an environmental group focusing on oil sands. It expects the species to vanish from the region with further development.

And yet Canada is desperate to expand its oil-sands industry, which began 40 years ago with a single project by Suncor, a Canadian company. It was 12 more years before Syncrude, in which ExxonMobil has a stake, built the next project. Twenty years passed without further interest. Not until 1998 did international oil companies turn to oil sands; the government granted 30 approvals for expansions and new projects. That rush has continued, with 40 new projects or expansions approved between 2000 and 2007.

The interest is directly related to a global trend: whereas in 1970 international oil companies controlled 85 per cent of the world’s oil reserves, today state-owned oil companies control 80 per cent of those reserves. This means that oil-rich countries such as Russia and Venezuela are no longer at the mercy of multinationals, and that multinationals are now seeking opportunities in alternatives such as oil sands.

Lew Watts, president of PFC Energy, an industry consultancy, refers to the new interest in oil sands as ”evidence of another nail in a closing coffin for the international oil companies”. ”For oil reserves of this size, they’ve really got nowhere else to go,” Watts says. ”That is why they are willing to take on the economic and environmental risks.” All the big companies are here – including BP, which last week acquired a 50 per cent share in the Sunrise field. Yet Alex Farrell, associate professor of energy and resources at the University of California, Berkeley, says public policy will catch up with the projects, forcing changes upon the oil companies that will affect project economics to the detriment of shareholders.

Until then, extraction continues. To mine the oil sands, companies must remove the overburden, ripping up trees and stripping away wetlands, peat moss and soil to depths of up to 29m, in order to expose the tar. The mining operations leave huge reservoirs of ”tailings” – grey water laden with toxins – that have to be held back behind dams up to 300ft high to stop them flowing into the boreal’s Athabasca river. Measured by the volume of materials used to build it, the dam at Syncrude’s site is probably the biggest such structure in the world, according to Norbert Morgenstern, professor emeritus of civil engineering at the University of Alberta. That means the mountain of dirt surrounding this grey lake is bigger than the Three Gorges Dam in China. And, Morgenstern notes, because they are made of porous materials, ”all dams, even concrete dams, seep a little bit”.

This is a concern at Fort Chipewyan, Alberta’s oldest settlement, which sits downstream on the Athabasca river from the main swathe of oil sands projects and their dams. It is also where we are headed today. The former fur-trading post dates back to 1783 and is home to First Nations tribes, who fear contamination of the animals they hunt and fish, and the river they rely upon for drinking water. Indeed, data going back to the mid-1990s, recorded by the Canadian government and private companies, reveal that concentrations of toxic polycyclic aromatic hydrocarbons in the sediments of the Athabasca river have increased steadily with oil sands developments, according to Jeffrey Short, research chemist at the Auke Bay Laboratory in Alaska.

Moreover, John O’Connor, a family doctor who works in Fort McMurray, the region’s main town and the epicentre of the oil sands economic boom, has for several years raised concerns about an unusual number of serious illnesses in Fort Chipewyan. Most significant were five incidents of bile-duct cancer among the 1,000 residents, when the illness is so rare it is usually seen in no more than one in 100,000 people. Yet the government insists the waters – and villagers – are safe.

The oil companies periodically pay the most influential village elders $300 each to fly to Fort McMurray, visit their projects and shop for groceries – a real luxury given that Fort Chipewyan is on a peninsula surrounded by water, wetlands and wilderness. Dorothy Adam, an Aboriginal who accompanies the elders on trips, says they are confused: ”So many things are happening so fast.”

As the photographer snaps away, I spot a refinery we had flown over the previous day. The sulphurous air around it carries the ”smell of money”, in Stewart’s phrase. It’s not a smell you can ignore, and some experts think the oil companies will not be able to continue development while holding their noses. The companies recognise the dilemma they are in, says Susan Ruth, senior director at Cambridge Energy Research Associates: ”The values and expectations of all of the stakeholders are changing. The management of the companies is responsible to all of these various interests, and they are trying to find the right path through that thicket.”

Peter Robertson, vice-chairman at Chevron, tells me over the phone ahead of my trip that ”the issue of providing energy is complicated enough. Climate change rolling in over the top makes it more complicated. People and countries and policymakers are going to have to face up to a lot of trade-offs.”

All the oil companies offer some demonstration of a commitment to fight global warming. Some use newer, ”environmentally friendly” projects that heat the tar underground and pipe the resulting oil to the surface – although this requires deforestation lines as well, where the heating pipes are laid. Suncor, meanwhile, invests in wind energy. And Kevin Meyers, president of ConocoPhillips’ Canadian operation, says the company is working on technologies to eliminate carbon emissions from oil sands but stresses it must continue production: ”These things are going to take years – decades – to develop. Development of the oil sands is crucial to meeting the demands of our global economy. I don’t know if the world has the luxury of waiting.”

Earlier that day, I visited the project we are now flying over, Albian Sands Energy’s Alberta operation, and watched the world’s biggest trucks – each two stories high and carrying 400 tonnes of oil sands ore – being loaded by excavators. Chris Zorica, Albian spokesman, insisted they would be ”reclaiming” the land: ”You come back in 30 years, you won’t know this has been here.”

Not everyone is so optimistic about land reclamation. The Alberta provincial government rejects assertions by Suncor and Syncrude that they have reclaimed land by planting grasses and trees, and bringing in bison; this reclaimed area is not ”equal in land capability” to the forest it once was, according to the government.

Yet Alberta is contemplating weakening the legal defences protecting the land. Jay Nagendran, assistant deputy minister of oil sands environmental management, tells me the government is considering certifying land as ”reclaimed” after companies plant seeds for new trees. ”We’re looking at making it realistic,” he explains. ”I don’t think we need to wait the 30 years if we know it was planted.”

Alberta did give the environmentalists an inch this year. The government will require facilities emitting 100,000 tonnes or more of CO2 per year to reduce the total by 12 per cent or pay into a fund researching ways to reduce greenhouse-gas emissions from oil sands.

Moreover, Dan Woynillowicz, senior policy analyst at The Pembina Institute, says governments outside Canada could help restrict the development of oil sands. California passed a low-carbon fuel standard this year, requiring fuel producers to cut 10 per cent off the average emission of carbon from the fuels they sell in the state by 2020. California is not an important market for fuel produced from oil sands, but if other state governments sign on to the standard, as two Canadian provinces are considering, then ”all of a sudden oil sands could have no US market,” Woynillowicz says.

Woynillowicz notes that renewed attention to the Kyoto Protocol could add to anti-oil-sands sentiment. The Pembina Institute says oil sands are responsible for half of Canada’s growth in greenhouse gas pollution, which means that if Canada wants to fulfil its Kyoto commitments, it might have to put significant pressure on the oil-sands industry to change its ways. And yet Rob Renner, Alberta’s environment minister, argues: ”Nobody is meeting their obligation under the Kyoto Protocol.”

Stewart’s boss, Steven Kallick, director of The Pew Environment Group’s boreal conservation project, argues that public opinion on climate change will force the oil companies to move to protect the environment: ”It’s inevitable that, globally, people will not stand for *business as usual’ with carbon emissions.” Jeff Rubin, chief economist at CIBC World Markets (an internet bank), agrees: ”The world is changing when you can’t get coal-fired capacity licensed in Texas.” (That was the case, this year, for TXU, which withdrew eight applications for coal plants in the world’s energy capital after a battle with environmentalists.) On May 15, scientists from 50 countries signed the Canadian Boreal Initiative, urging the government to slow development until the environment could be protected.

Yet for all this, the companies’ rush to develop oil sands has only intensified. ”We’re clearly putting all we have across the Shell world toward developing this resource,” says Brian Straub, Shell Canada’s senior vice-president for oil sands. Albian Sands’ Zorica considers his company’s work a service: ”If we weren’t here, it would just be woods,” he tells me as we pull out of his massive mining project. He cannot fathom that that is precisely what many people would have liked it to remain.

As our flight homes in on Fort Chipewyan, the pilots right the bouncy aircraft just enough to set down on a thin strip of land. They cheer themselves to a stop. Inside the terminal – the size of the bathroom in the one we just left – Stewart dials Mom’s Taxi. A middle-aged Aboriginal, Mom, arrives in a minivan and drives us to the main road. Teepees have given way to trailers and wooden homes. The town of 1,000 is quiet – it’s bingo night.

We’re going to meet Archie Waquan, former chief of the Mikisew Cree First Nation tribe and owner of a successful bed and breakfast. Chain-smoking, Waquan invites us into his home for a beer. It is comfortable, with a huge picture window overlooking the boreal. Waquan says the oil sands have changed the taste of wild bird, moose and the water. Many town residents now drink bottled water, which they buy in Fort McMurray – a lifestyle change they attribute to oil sands. People in Fort Chipewyan are catching an increasing number of fish with deformities. The local lodge serves frozen fish from the city.

With his sweatshirt and baseball hat, Waquan looks far removed from the First Nation tribes of the past. His daughter is part of the future, driving one of the trucks at an oil sands mine – a fact his wife slips out. But he carries the message of a people that still treasure the land as they found it: ”I would like them to slow down development. I can see our province being a have-not province in 100 years.”

Waquan feels patronised by oil company claims that they will return the land to an equal or better state than it was in before they arrived: ”What takes thousands of years to create, man is going to bring it back in 30 or 40 years?” he says, as the dark of the twilight forest creeps into his living room. ”It doesn’t make sense.”

Stewart’s mood has darkened. He drains his glass and stands to leave: ”Here is one of the last great wildernesses of the world, and we’re going to fritter it away. There will be a day of reckoning, and Canada and the oil companies will pay the piper.”

Sheila McNulty is the FT’s US energy correspondent.

Copyright The Financial Times Limited 2007

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1 Comment on “Financial Times: Green leaves, black gold”

  1. #1 Mark willard
    on Dec 15th, 2007 at 17:18

    Hi my name is mark willard im from buffalo new york, and i read the article on the oil sands in canada and i was very interested. i couldnt watch the video on it, and id like to know more about it. so could you please email me back giving me information on this?

    Thank you,
    Mark Willard

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