The world's energy reserves: Where the buffalo roam...

The Independence Online EditionAs the world hunts for the next great oil boom it is looking not to Saudi Arabia, but to Canada.The province of Alberta in the country's west is sitting on the world's s

10 February 2006


The Independence Online Edition

As the world hunts for the next great oil boom it is looking not to Saudi Arabia, but to Canada.

The province of Alberta in the country's west is sitting on the world's second largest oil reserves. Its vast fields cover 149,000 square kilometres, an area larger than England, and experts estimate it holds 1.7 trillion barrels of oil. A mere sliver, 10 per cent, is recoverable at today's oil prices, but that is enough to make Canada's viable supply second only to that of Saudi Arabia.

And with the gold, of course, comes the rush. Oil seekers arrive by the thousands to claim their fortune in Alberta's Fort McMurray, which has become a feverish boomtown.

"This is where the money is," said 52-year-old Eric Fraser, a fast-talking pipefitter from Halifax, Nova Scotia. He moved to Fort McMurray, the regional hub for the industry, four months ago to work at the oil giant Suncor Energy Inc. He earns around 49,000 a year, typical in the area.

"It's so busy here I could quit my job tomorrow, drive down the road, and in 10 minutes get another job," he says. Even the Duke of Edinburgh wanted to see if the oil sands were real, and on his last Canadian visit in May he requested a private helicopter to fly over the other-worldly plants at Suncor Energy, Syncrude Canada, and Shell Canada, three of the largest oil sand outfits.

The sands' open-pit mines could be cut from a science fiction movie. Craters 100 metres deep have been gouged into the boreal forest to create a barren moonscape, where spidery draglines furiously haul chunks of tar sands, and huge 400-ton Caterpillar 797 trucks, the largest in the world, rumble the earth with tires larger than a double-decker bus.

Giant smoke-stacks billow steam, sulphur dioxide, nitrous oxide, and carbon dioxide, and are lit up at night to allow around-the-clock work. Bison roam nearby on reclaimed land, while cannons are fired over tailings ponds to frighten off migratory birds that might land in the toxic pools of sludge.

These oil sand operations produce around one million barrels a day, projected to reach three million by 2015, and six million by 2030, according to the Canadian Association of Petroleum Producers. Investors are licking their chops. Canada's sticky oil sands - or "tar sands" - are suddenly very profitable, with production costs around $13-$15 a barrel. Royal Dutch Shell, ExxonMobil, ChevronTexaco, and TotalFina - four of the world's five largest oil companies - have already invested millions in the area. China has invested in two start-ups and signed a deal with Enbridge Pipelines, a Calgary-based firm that has proposed a 1.95bn mega pipeline to the Pacific coast for export to US as well as Asia-Pacific markets, primarily China.

"China is important to us because of its growth rates and vast consumption, and to be honest, because of its interest in Canada," said Rick Sandahl, vice- president of market development and acquisitions at Enbridge. He estimates around two foreign delegates a month arrive in Calgary to talk shop. "It's stable, laws are well defined, you're not going to find disruptions you get in the Third World."

Such offshore attention has the potential to create tensions south of the border, where those who have taken notice have done so with glee, often talking as if the deposits were on their own soil. "The reserves are so vast in the province of Alberta that they will help solve America's energy needs for the next century," said a CBS broadcast last weekend.

President George Bush has also chimed in. "We appreciate the fact that Canada's tar sands are now becoming economical, and we're glad to be able to get the access toward a million barrels a day, headed toward two million barrels a day," he said in a speech in Waco, Texas last March, a month before PetroChina announced its deal with Enbridge.

The US already relies on its friendly and familiar northern neighbour as its largest energy supplier, thanks in part to the 1994 North American Free Trade Agreement. While it seems that the US will remain Canada's largest customer - currently 80 per cent of Canada's oil is exported there - there is still concern about what will stay on the continent, and what will go elsewhere.

"Some Americans think one more barrel to China means one less barrel to America," said Wenran Jiang, a Chinese expert from the University of Alberta. "China's investment is still a cautious one as they watch and see if the oil sands are viable and profitable."

The problem is that it is expensive to produce bitumen, a black substance that smells like tar and is ultimately turned into, among other things, gasoline, jet fuel, motor oil, toothpaste and bubble gum. Exploration costs are almost zero - everyone knows where the oil sands are - but processing the slurry mix of bitumen, silt, sand, water and clay requires intensive steam injection. It takes about three times as much energy to refine a barrel from the oil sands as it does from conventional crude.

And so, for years the oil sands were thought to be a pipe dream with costs too exorbitant to be worthwhile. In 1967, Suncor opened the first commercial pit mine, but it was only in the late Nineties, with advances in technology and rising oil prices, that the sands began to look inviting.

Now, with oil at $67 a barrel, partly because of soaring demand from China and India, developing the sands is a top priority for the province, which owns its natural resources and is led by Ralph Klein or "King Ralph" as he is known here. This is a man who once famously threw money at homeless people and yelled at them to get jobs, so it is perhaps not surprising an entrepreneurial go-and-get-it attitude prevails.

Still, there are critics who say that pursuing the oil in the name of economics will only exacerbate the province's problems.

"What's Fort McMurray like Well, there's traffic problems, there's drug problems, there's housing problems," said Leona Lake, 43, a security officer at the packed Boomtown Casino.

Fort McMurray is a remote city of 61,000 with local taverns named Oilcan, Diggers and Cowboys. In the past decade, the city has ballooned by 60 per cent, and finding affordable housing is near impossible. (Suncor has erected "No overnight camping!" signs in the employee parking lot.) Highway 63, the principal road that leads south 250 miles to Edmonton, has been likened by Paul Wells, a columnist for Maclean's magazine, as "something out of a Mad Max movie". On Thursdays, shift-change days, thousands of cars, charter buses and logging trucks create bumper-to-bumper traffic that can last for hours. Fatal accidents are frequent. In the summertime, ditches fill with roadside memorials - hard helmets nailed to crosses.

For every oil-sands job, three more in the service sector are needed, says the city's mayor, Melissa Blake. Even the town's branch of McDonald's is forced to close early some days because of staff shortages.

Last year, the federal government stepped in and agreed to streamline immigration applications for oil-sand employers. About 44 per cent of workers come from outside the province, mostly eastern Canada, but some from as far away as Venezuela, South Africa, and even Britain - at least one store stocks Jaffa Cakes and Galaxy chocolate bars.

These problems weigh heavy on the province, said Guy Boutilier, Alberta's Minister of Environment and the former mayor of Fort McMurray, who coined the town's slogan, "We have the energy." He says environmental concerns are under control, but "our top Letterman-like list of concerns is housing, labour shortage and continuing to expand the highways".

Environmentalists disagree that everything is in check, despite natural-sounding project names such as Jackpine, Steepbank and Horizon. Mining and upgrading crude oil burns huge amounts of natural gas, and requires six times more fresh water than the amount of bitumen produced. Critics say using natural resources like this is like using gold to make lead.

The oil sands continue to be Canada's largest producer of greenhouse gases and threaten its Kyoto commitments, which have been cast into doubt with the election of a new federal government that has hinted it will scrap the Kyoto protocol."There are some obvious flaws with the K-word," said Mr Boutilier when asked about Canada's Kyoto pledges. "But that won't stop us from becoming a world leader in technology solutions for the environment."

Advances such as sulphur dioxide scrubbers have greatly improved air quality, and Shell Canada has publicly announced quantifiable targets, saying it will reduce its greenhouse gases by 50 per cent by 2010.

Environmentalists applaud such actions, but add that one-off reductions are offset by overall expansion, which looks set to increase as oil companies gobble up land leases at a record-breaking pace. There are also concerns that the oil companies will be unable to return the complex boreal ecosystem to its near original condition, as regulated by the government, and point out that the indigenous caribou population is already dwindling.

Few in this right-of-centre province seem to be much fazed by social or environmental debates, preferring instead to talk about how they will spend the C$400 (194) "prosperity cheque" every Albertan will receive in the post later this month, a windfall from the province's 680m surplus.

"The problem is, Fort McMurray is so remote," said Marlo Raynolds, executive director of the Pembina Institute, a Canadian environmental organisation. "How many people think of environmental destruction when they pull up to a gas pump"