The US is currently trying to repair und upgrade Iraqi oil facilities in order to bring more crude to Western markets. After Saudi Arabia, Iraq has the second biggest oil reserves worldwide. However, it was recently suggested that the world largest oil reserves might not lie in the Middle East but in the province of Alberta in Canada. This year, the Canadian oil reserves increased by 3?600 percent from 4.8 billion barrels in 2002 to 180 billion in 2003. This was not due to a major exploration success but to a drop in cost of producing oil from oil sands. This fact made the Oil and Gas Journal to classify the oil sands reserves as economically recoverable and proven.
Oil sands are very different from conventional oil and natural gas deposits. Usually oil and gas are trapped in porous rocks. Drilling into the porous rock releases the oil and gas which then can be pumped to the surface. Or, in some cases, no pumping is necessary where conventional fields are under pressure and oil and gas can directly be collected at the surface. Unlike conventional oil, the oil sands are a mixture of bitumen, sand, water and clay This water contains extremely fine particles of clay and other trace materials. The bitumen, a particularly thick and tar-like hydrocarbon, surrounds the sand and water. To separate the bitumen from sand, water and clay is the major challenge in the extraction process. Once separated, bitumen is upgraded into high-quality oil called "synthetic crude?
Oil sand deposits can be found around the word. On of the largest is the Athabasca oil sand deposit in northern Alberta, Canada. But Athabasca is only one of several deposits which have been found in Canada. Other sites are located on Melville Islands, the Canadian Arctic, Wabasca, Cold Lake and Peace River.
Today, oil production from oil sands is still considerably expensive. With the current technology, costs rise to $9 per barrel. In comparison, a barrel of crude from the Middle East costs only $2. However, proponents of oil sands claim that with new technologies, the expenses will drop and oil sands should become more competitive. In Alberta, the amount of crude gained from oil sands is already higher than conventional production. For whole Canada, oil sands account for around a third of the total exploration. Furthermore, production in Canada safes the oil companies from high expenses for transportation and security premiums involved in importing crude from volatile regions like Venezuela or the Middle East. Alberta hopes that production will increase to 1.9 million barrels per day by 2010.
However, one of the drawbacks of oil sands is the amount of energy which is required for the extraction. Much of this energy is required in form of gasoline or natural gas. But especially natural gas markets have been very tight in the US and the price has almost tripled in the last four years. Recently, even the US head of the Fed, Allan Greenspan, has warned that such high natural gas prices could harm the economy. Natural gas prices are closely tied to the prices of crude. When oil prices will rise, oil sands production will also become more expensive. These facts undermine the logic by the proponents of oil sands that it will become more economical when price of conventional oil will rise. With rising energy prices, Alberta oil prices will rise simultaneously.
Oil sand producers are also indulged in a heavy battle with owners of natural gas deposits. In September, 938 gas wells will be shut down by the Alberta Energy and Utilities Board. The removal of gas reserves has become a threat to oil sands producers as it could put at risk the bitumen recovery, due to dropping pressure levels in reservoirs. The scientific debate is still continuing but the regulators are afraid that large reserves could be lost for ever. Therefore the closing is just a precaution. After further studies will be completed, a final decision about the issue will be made. At stake is about 30 billion cubic meters of gas - about two per cent of the province's remaining reserves. However, it is estimated that the energy content of the bitumen reserves at risk to be about 600 times the amount of gas in the area. It can be foreseen, that a court will have to rule about the issue, there are companies, for example Paramount Resources, which are to loose 50 percent of their gas production if the decision goes through.
The oil sands of Alberta have definitely a future potential but it is unlikely that they will replace vast crude deliveries from the Middle East. The opposite is true. By 2025, the US is expected to import two thirds of its oil and half of the imports will come from the unstable Middle East region. With this outlook, it will be most decisive if Canada will be able to reduce production costs. If not, they will not be able to replace Middle East supplies and be forced themselves to export oil.
Author: Andreas Wild
