Scarcity may be the mother of invention. When the
demand begins to outstrip a finite supply, prices
invariably rise and the free market comes up with
alternatives. Such is the thinking when it involves coping
with the current oil situation that now forces consumers
to pay $2.50 at the gas pump. What to do?
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Ken Silverstein
EnergyBiz Insider
Editor-in-Chief |
Enter oil sands: The idea is that the abundant resource
could supplant our dependence on foreign oil imports
within a decade, or two. And as the technology to produce
the stuff improves, the cost to find it could drop and the
ultimate oil discoveries might escalate. According to CIBC
World Markets, oil rigs are the primary source of all new
findings today. But, as conventional sites become less
productive, the bank says that Canadian oil sands will
become the single biggest contributor to incremental
global supply by 2010.
That's a rosy outlook that must be tempered with
enthusiasm. "Oil sands are a good resource," says Paul
Grimmer, president of Eltron Research in Boulder, an
energy firm working on hydrogen solutions among other
things. "The big challenge is whether it is technically
feasible. It is. But it requires large amounts of natural
gas and water."
Oil sands, sometimes called tar sands, are buried in
the ground. It is a rich resource with as much as 500
years worth of reserves. And much of it can be found in
our friendly neighbor to the north, Canada. It is mined
and processed, much like coal. The subsequent oil is
separated out through a highly energy-intensive process
and it ultimately produces a tar-like substance that is
chemically split to make crude oil. It all takes lots of
water and natural gas, making it an expensive undertaking
at present.
According to the U.S. Geological Survey, Canada will
soon rival Saudi Arabia when it comes to recoverable oil
production. Two years ago, the government agency ranked
Canada 20th on the list of global oil potential suppliers
with about 5 billion barrels of oil that could be mined.
Today, it's second on the list with 175 billion barrels --
all because of its oil sands deposits. By contrast, Saudi
Arabia has an estimated 260 billion barrels of oil
reserves.
The unconventional oil commodity now accounts for about
a third of Canada's production. But, the agency says that
it could supply 70 percent by 2025. Experts at Shell Oil
Co. say there are as much as 2 trillion barrels of
reserves in Canada's domain and that more and more will
become accessible with the development of new technologies
that allow for cheaper production -- accounting for the
500-year estimate. Altogether, about 70 nations including
the United States have oil sands deposits.
The Canadian enterprise Suncor Energy has been
producing crude oil from oil sands since 1967 while the
joint Canadian-U.S. company Syncrude has been doing the
same since 1978. Their potential is reflected through
their stock prices: The former, for example, now produces
270,000 barrels a day and has plans to expand that to
500,000 by 2012. Its stock has risen by 400 percent in the
last five years.
"Fundamentals point to the continued strength in crude
oil prices and (Canadian oil sands companies are) in an
enviable position to benefit from this market," says
Marcel Coutu, CEO of Canadian Oil Sands Trust, which is
the country's largest income trust.
Environmental Issues
Clearly, the need for alternative fuel sources as well
as unconventional petroleum is strong. In 2002, global oil
consumption was at least twice as great as new oil
discoveries. Today, the world community uses 85 million
barrels a day while the United States consumes a quarter
of that.
Meantime, emerging nations such as China and India are
demanding ever-increasing supplies of oil to feed their
expanding economies. Altogether, demand for oil will rise
by 54 percent in the next 20 years, says the U.S.
Department of Energy. To meet the expected future demand,
it says that global production would have to jump by 44
million barrels of oil per day.
It takes at least five years to bring new oil supplies
on line. At the same time, once-plentiful lifelines in the
North Sea and Kuwait are depleting. Demand won't fall. So,
it all means that gas prices will remain high when
compared to historical levels. Therein lays the incentive
to develop new sources of production, or other
transportation alternatives. The market now reflects the
possibilities: A member of the Canadian Parliament told
CBS' 60 Minutes that the oil sands frenzy is bigger than
America's Gold Rush in 1849.
But there's a catch, or a few of them at this point: It
costs about $3 a day to develop a barrel of oil in the
Middle Eastern nations compared to roughly $20 a barrel
for oil sands in Canada. And recall the process whereby
the oil is extracted from the dirt? Well, that cycle
consumes a lot of energy because developers have to burn
oil or natural gas to separate the oil from the elements.
That adds cost. It also creates more carbon emissions
thought to cause global warming.
Beyond those barriers, the mining of the commodity
leaves an awfully large footprint in the wilderness. At
the same time, environmental organizations are concerned
that the optimism surrounding oil sands will only add to
the world's dependence on fossil fuels at a time when it
says that cleaner and sustainable energy alternatives are
available.
Others are also expressing caution. "It takes a lot of
natural gas to process oil sands, and much more will have
to be allocated," says James Halloran, Wall Street analyst
for National City Bank in Cleveland. Without the added
natural gas, "technological improvements will have to be
made to make up for the lack of it. At some point, the
cost to the environment may limit production growth."
Producers, meanwhile, are having trouble getting the
needed resources to support increased development of oil
sands.
The oil companies don't dispute any of the concerns. As
far as the mining and production processes go, they say
that Canadian law requires them to replant destroyed
forestland and that they are continually trying to find
new ways to limit their harmful air emissions.
Still, the one pervasive reality hovering over the
whole discussion is that there are oil constraints that
have led to higher prices and worries over future
supplies.
The profile of oil sands is therefore rising. If the
projections bear fruit, the commodity may provide a
lifeline. And the good news is that it can be found in
neighboring Canada that is business-friendly.
For far more extensive news on the energy/power
visit: http://www.energycentral.com
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