Aside from the financial cost associated with the mining, production, refining and shipping of the product, there is a huge energy cost.

Natural gas is a key source of energy for oilsands production, and rising output will require substantial increases in gas used, to as much as 1.6 billion cubic feet a day in 2015 from the current 600 million cubic feet a day. CBC.

That’s an increase of 2.67 times gas usage for a doubling of oil output. Wrong ratio. Looked at another way, it seems even more daunting.

Based on current rates, gas usage would rise from 10 percent of Western Canada [...] supply by 2012 to an “unthinkable” 50 percent by 2030, assuming oil sands output of 5 million bpd. [Another doubling of production from 2015 to 2030] Petroleum News.

Then there is the water issue. Much of the processing of the oil sands must be done in situ -- i.e., in the ground, rather than digging it up for processing. Basically, the companies use steam to heat the bitumen to the point where it flows more easily to the surface. The water taken for that purpose is removed from the hydrologic cycle -- in other words, rather than being above ground, it remains stuck below ground after helping force out the bitumen.

Oilsands development is threatening the future of water quality throughout northern Alberta and northern Saskatchewan, warns anew federal-provincial report yet to be made public.

The report explains that for each unit of oil produced from oilsands, one unit of water is lost from the hydrological cycle as it fills the deep cracks in the earth from which the oil was recovered. Mackenzie River Basin Board.

Environmentalists, farmers and ranchers oppose the use of underground and surface fresh water because it permanently removes that water from the hydrological cycle, especially in recent years as Alberta has been crippled with a series of droughts. Studies show that in the late 1990s rivers in Alberta and Saskatchewan were flowing at 60 percent to 19 percent of their historic levels.

The Athabasca River in northeastern Alberta, the single most important source of water for the oil sands, is declining fast, said University of Alberta ecology professor David Schindler. He said there are projections that by the mid-2000s the base will be only 80 to 90 cubic meters per second. The current flow is calculated at about 675 cubic meters. Petroleum News.

For a good overview of oil sands, issues and a technology roadmap look at this document from an August 2003 National Resources Canada workshop.

Given the ongoing decline in conventional oil and the as yet lack of viable and relatively inexpensive energy alternatives, the oil sands are a strategic resource that can help reduce dependence on offshore supplies. Canada has an opportunity to lead the Western world in oil production by aggressive development of this resource. The investments by all levels of government, the people of Alberta, as well as industry, have positioned the industry so that it is now poised to ensure a healthy return on investment.

However, the industry faces a number of challenges that are increasing both in number and magnitude. In fact, they are increasing to the point that nothing less than an industry wide response is required to ensure all players survive and thrive in a global marketplace. This is a major driver behind the Oil Sands technology roadmap at this time.

This is a tough issue, financially and environmentally. If conventional crude oil were to remain inexpensive, this approach would be a non-starter. With the projected global supply-demand crunch and the affect that will have on oil prices, oil sands may indeed contribute significant amounts of oil (assuming the energy and water issues get worked out). But you can confident that it will not be cheap.