Update on Canada's Oil Sands -- Part I

Gary’s Note: There’s plenty of oil! It’s just as easy to get and use as the stuff we’ve already burned through. Byron King explains what Peak Oil really means and why the lights still won’t go out just yet. Enjoy. Whiskey & Gunpowder By Byron King August 24, 2009 Pittsburgh, Pennsylvania, U.S.A. Update on Canada’s Oil Sands — Part I Recently, I had the unique opportunity to tour two different oil sands operations near Fort McMurray, in northern Alberta. I saw a massive open-pit oil sands mine, and the associated reclamation effort, operated by Syncrude Canada Ltd. I also visited an in situ oil sands recovery project called Surmont, operated by ConocoPhillips. The trip was sponsored by the American Petroleum Institute (API), which paid for the airfare and accommodations. Managers at both Syncrude and ConocoPhillips granted me access to any parts of their operations I wanted to see (within allowances for safety). And everyone answered any and all questions I asked. Post-trip, I have complete editorial freedom to write about what I saw and learned. And I learned a lot. So this is Part I of a two-part series. Watch for Part II. ~~~~~~~~~~~~Special~~~~~~~~~~~~~ The Four Major Threats to Your Retirement! Your ability to accumulate a nice, healthy nest egg can make or break your retirement dreams. A series of looming threats are getting brushed aside - they will most certainly affect us all - and in many ways they're being made worse by all of our country's other problems. Fortunately, there are steps you can take RIGHT NOW to help you secure and maintain the rich comfortable retirement you deserve. Click here to learn how to protect and grow your nest egg... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The Past and Future of Oil and Oil Sands The first thing that struck me about visiting the oil sands of Alberta was how much geological and social similarity there is to the oil patch of Pennsylvania. Geologic similarity? Yes, because the reason that the hydrocarbons are so near the surface in both areas — Pennsylvania and Alberta — is that the Pleistocene glaciers scraped off much of the overlying rock. When the glaciers retreated about 10,000 years ago, they left hydrocarbon-bearing rock formations exposed near the surface, or buried not too deep. This led to oil seeps, which led to people being curious about the black, gooey stuff. To be sure, the hydrocarbon resource is quite different between the two places. That is, in Pennsylvania, you have light, sweet crude oil that flows easily and is soft and smooth to the touch. Indeed, Pennsylvania crude feels like hand lotion. (It’s the origin of Vaseline, for example. And some people use it as the basis for a shampoo.) While in Alberta, the “bitumen” from the oil sands is as thick as cold molasses, and very sticky. It’s got some sulfur in it as well. On a warm day in August, oil sands have the consistency of really stiff, dry oatmeal. Bitumen is a far cry from hand lotion. And as for social similarities? Well, the Indians of old used to skim the oil from streams near Titusville, Pa. So did people of the “First Nations” of Alberta, who used to recover the tarry bitumen from the rocks along the Athabaska River of northern Alberta. Thus both oil and oil sands have been around for a long, long time. Early white explorers in both Pennsylvania and Alberta noted the oil seeps. They wrote in journals and logs that eventually somebody could do something with the substance. Eventually, both Pennsylvania and Alberta had their oil booms. In fact, we’re soon coming up on the 150th anniversary of Col. Drake’s oil discovery at Titusville, Pa, on Aug. 27, 1859. Pennsylvania’s oil boom is colorful history at this point (although Marcellus Shale development will soon change that). Whereas Alberta is still in the midst of its oil sands boom. It’s a boom that’s going to last for quite some time, I believe. “Easy” Oil Versus Heavy Oil and Bitumen There’s a reason Col. Drake started an oil boom in Pennsylvania more than a century before Alberta enjoyed the same thing. Col. Drake found some of that so-called “easy” oil. No, it’s not easy to find. It’s that Col. Drake’s oil flows easily from a well. That is, for all the oil that mankind has pumped out of the ground in the past 15 decades, almost all of it has been the light, sweet stuff that flows easily. Generally, when people looked for oil they bypassed the heavy oil and bitumen. Until lately, of course. When we think about the concept of “Peak Oil” today, we need to keep in mind what we’re talking about. The curves show oil output peaking in so many parts of the world. This phenomenon is quite real, as long as you understand that it’s the “old fashioned” kind of oil deposit that Col. Drake was drilling. The light, sweet, easy-flowing oil is getting harder and harder to find, certainly in significant quantity. But there are a lot of other hydrocarbon molecules out there. Most of those molecules are not light, sweet crude oil. Indeed, most of the hydrocarbon molecules that the world will use in the future will be “heavy,” with lots of carbon atoms and not so many hydrogen atoms. Here’s a graph from oil services giant Schlumberger that estimates the world’s heavy oil and bitumen resources. Canada’s 400 billion cubic meters of bitumen translates into something like 1.4 trillion barrels of oil equivalent. How much is that? Well, it’s about SEVEN times the total oil reserves of Saudi Arabia. It just so happens that most of that Canadian bitumen is located in Alberta (with some is in Saskatchewan). And Fort McMurray, about 250 miles north of Edmonton, is the heart of the development process. ~~~~~~~~~~~~Special~~~~~~~~~~~~~ "The Bailout Loophole!" 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Thus for much of the 1970s, Syncrude performed baseline environmental studies and data gathering. It started digging in 1978. At first, the pit looked like a moonscape of open-pit mining. See the photo below. It looks like a mess, right? Well, there’s more to the story. The mining process is fairly straightforward. Big shovels (really big) scoop large volumes (really large) of oil-laden sand (API number 8, the "bitumen") into gigantic loaders (and I mean gigantic.) The loaders haul the rock to a crusher. The crushed rock goes to a washing bin, kind of like your washing machine at home except it's the size of a high-rise office building. The Syncrude operation washes the bitumen off the sand using naphtha. Then it separates the bitumen, recovers the naphtha for reuse and takes the clean sand (and it's clean) and replaces it in a previously mined pit. The process uses a lot of water, but not as much as the horror stories you might hear about "draining the rivers" of northern Canada. Each barrel of water is recycled about 18 times. The process uses a large amount of natural gas, but not as much as you may have heard (like "all the natural gas of northern Canada"). Pretty much everything about the operation is built with cogeneration in mind, so the company continuously recovers the heat at each stage. That natural gas goes a long way, from what I saw. If it takes, say, five years to dig a pit, and then it may take five or more years to fill it back up with sand during the restoration process. Syncrude's goal is to handle the rock as little as possible. Eventually, Syncrude returns the land to original grade, although the company has some artistic license with the contours. It covers the land with the original topsoil, which has been in cold storage (northern Alberta… it's cold up here for 10 months of the year). Then it replants trees, and that's saying something, because the growing season is under two months. It takes 80 years for your basic spruce tree to reach maturity. There's even a new water table, despite the disturbance of the land. ~~~~~~~~~~~~Special~~~~~~~~~~~~~ Gain exposure to currencies of emerging BRIC countries-and don’t lose a dime on market risk. Don’t let market risk get in the way of potentially rewarding exposure to the BRIC currencies. Our three-year MarketSafe® BRIC CD shields you from any market risk and provides 100% principal protection on deposits held until maturity. Four BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi High upside potential No market risk to deposited principal Low $1,500 minimum deposit Some experts believe these four countries may become economic powerhouses in coming years. Now could be the right time to add these currencies to your portfolio. And you can do so — safely — with the U.S. denominated MarketSafe BRIC CD. Don’t miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is September 18, 2009. Apply today or learn more here. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Where Things Now Stand So at this stage, after 30 years or so of mining (with about 80 years to go, at current rates of extraction), Syncrude has come to a point of delivering 350,000 barrels of synthetic crude oil per day. It takes the 8-API bitumen and upgrades it to oil that's competitive with West Texas Light. Then it delivers it to the JV members, for whatever use the owners want to make of it. Along the way, the Syncrude process removes the sulfur, so it's sulfur free (refiners like that). In fact, there's a mass of sulfur up at Syncrude that's about the size of the step pyramid at Saqqara, Egypt. And along the way, Syncrude sells the sulfur to the chemical industry. The former Syncrude mine that I visited is about 3.5 miles square, and formerly about 200 feet deep. Now it's restored to grade, with trees growing and a herd of 300 wood bison grazing. For the cynics out there, I'd say that it's not some environmental Potemkin village, because you can't fake a replanted forest of 25-year-old trees. You can't fake a 300-bison herd. Not on a former mine site 3.5 miles square. Sure, there are still issues about land disturbance, settling ponds, water usage, gas usage and myriad of other things that come up when you’re spending billions of dollars on a major mining effort. But Syncrude has built its business model around dealing with the “other” issues, and not just moving oil sands and recovering oil products. Don’t underestimate the ability of the Alberta government to regulate its energy producers. This is a long way from Appalachia. Meanwhile, we’re talking about literally billions of barrels of bitumen (or oil equivalent) that the process makes available to the North American marketplace. And if the U.S. wants to get onto its environmental high horse about the source of the hydrocarbons from the oil sands — and tax or ban their importation — there are other buyers in the world. Like the Chinese, who have racked up many frequent flyer miles on their treks to Fort McMurray. That’s all for now. In Part II, I’ll discuss the in situ process that I saw at the ConocoPhillips Surmont site. Until we meet again, Byron W. King If just one more of you mathematically-challenged, crypto-commies writes in about the 47 million uninsured… Please, please, please explain to me this: why stop at healthcare? Leaving aside the very real fact that insuring everyone — whether directly or by redistributing money stolen as tax from others — will help push our penurious nation further along the bankruptcy trail… Why stop at healthcare? Why is there no hue and cry for the nation to make sure everyone has housing? Or food? When next you send me your nasty little screeds, please answer that. gary@whiskeyandgunpowder.com. And if you send me emails full of insults and curses (and you know who you are), don’t be surprised if my reply is less than polite. Just be glad I’m not this Shooter… Gads, the psychopathic responses to your [so-called] "free health care" confirm a conclusion I came to several years ago—that the ONLY way honest and productive folks have to survive the next couple decades is to find ways to escape the system.  We have long passed the point where honest folks can "suck it up" and allow themselves to be consumed by the government predators and their parasite co-conspirators outside government. It has gone soooooo many light-years beyond the point of no return that now "just plain folks" next door have become our mortal enemies!  Not kidding. I'll say it straight out to those who advocate "free health care" and all non-voluntary social programs, "You are my mortal enemy, and you deserve to die".  Is that clear enough?  I do not exaggerate here, not one iota. While I will not take actions to physically harm these folks, the system is now so far beyond any semblance of honesty or ethics that I have been taking aggressive actions to stop feeding these predatory beasts, even when doing so involves substantial risk and/or effort. The few of us who are honest and productive must stop feeding these predatory beasts, both actively and passively.  We must not support these atrocities by letting them take these actions against us.  To be more exact, we cannot stop them from taking these actions against us, but each of us must find and implement ways to prevent them from forcing us to fund their schemes—and I include ALL of them, not just "socialized medicine". We can no longer afford to say "the risk of avoiding their scheme is too great, so I must comply".  They have gone so far now, that the risk of complying and feeding these predatory beasts (both kinds) is massively greater than the risk that our means of evading them is discovered. Until we are ready for open revolution, for the second 1776 in effect, we must stop feeding these beasts, both government and neighbors. Signed, A sane human who would not demand my neighbors fund my expenses. P.S.:  It is utterly preposterous for anyone to buy health insurance! Doing so encourages folks to live unhealthy lifestyles, waste doctor and clinic/hospital resources for mere discomforts, and drive the costs of all medical care through the roof.  In contrast, buying major medical insurance (catastrophic expense insurance) makes plenty of sense—for the exact same reasons that people buy fire insurance on their homes, but not "clogged toilet" insurance. Honestly, most humans today are absolutely, completely INSANE. Human trash like this could never have "settled" this continent (200 ~ 20000 years ago)—no way, no how, not remotely possible. Those of us who might be up to that level of challenge must escape or avoid the cages erected for us by these evil predators. I am, and I encourage every honest, productive human to do so too. Yep. Some folks just need killin’… Many of you Shooters worry that increased state involvement in medical care will mean rationing and eventually state-sponsored euthanasia to cut down demand by those deemed not as worthy of care as others, probably for reasons of advanced age. But euthanasia is the one good thing that may come out of all of this! The state won’t let us live in peace — controlling the currency and the cost of credit, nationalizing industries, creating monopolies through prohibition and using the resulting cost explosion as an excuse to meddle, etc…the least they could do is provide us a peaceful, painless way out. Or maybe you could look for a way out that doesn’t involve giving up the ghost. Every corner of the world is carved up into nation-states that see their inhabitants as resources to be exploited. But we’re going to keep looking for a way out. Stay tuned. Regards, Gary Gibson Managing Editor, Whiskey & Gunpowder gary@whiskeyandgunpowder.com One Famous Expert Warns, "There Will Be Panic" The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market Follow the Whiskey & Gunpowder on Twitter, here. 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