The report calls for a sustainable approach to oil sands development, including establishing parameters for development and reclamation; creating a new fiscal plan that eliminates federal tax subsidies and increases royalty revenue; and investing a portion of the wealth in a sustainable energy fund.

Alberta is home to nearly all of Canada’s oil sands—and area of 149,000 square kilometers that constitute about 23% of the entire province. Today, about one-third of Canada’s total oil production is derived from these oil sands. That’s changing rapidly.

With the production constraints and declining fields of conventional oil and the resulting surge in prices, investment in the unconventional production of crude from oil sands in Canada has soared. The Canadian Association of Petroleum Producers (CAPP) earlier thus year projected a 50% total increase in Canadian crude oil production by 2015 from 2.6 million barrels per day in 2004 to 3.9 million barrels per day, with an investment of some C$87 billion over the next 10 years. (Earlier post.)

Government and industry see the potential of increasing that to 5 million barrels per day by 2030, making Canada one of the top oil producing and exporting countries of the world.

Oil sands are a mixture of sand, clay, water and deposits of bitumen—a very viscous form of oil that must be rigorously treated in order to convert it into an upgraded crude oil before it can be used in refineries to produce gasoline and other fuels. (Oil sands used to be called tar sands, to give you a sense of it.) The ratio of bitumen to everything else is relatively small: 10%–12%.

The bitumen contained in the oil sands is characterized by high densities, very high viscosities, high metal concentrations, high amounts of sulfur and a high ratio of carbon to hydrogen molecules. With a density range of 970 to 1,015 kilograms per cubic meter (8-14° API), and a viscosity at room temperature typically greater than 50,000 centipose, bitumen is a thick, black, tar-like substance that pours extremely slowly.

Oil sands production can be divided into in-situ production (heating and other processing of the tar-like sands while still underground to release the oil, with subsequent extraction) and mined production (where the sands are mined, and then hauled to a retort for processing).

Once extracted, the resulting heavy crude must then be upgraded into useful product.

Investment announcements in the oil sands have flowed hot and heavy the past few weeks. A few prime examples:

• Canadian Natural Resources used the presentation of its Q3 results to announce an aggressive oil sands and heavy oil expansion plan that could cost some C$25 billion (US$ 21.2 billion) and propel the company into the ranks of the top independent oil producers globally.

  The proposed capital expenditure amounts to nearly the C$29-billion market capitalization of the company, which is Canada’s No. 2 oil and natural gas producer.

• EnCana, Canada’s largest natural-gas producer, announced it is exploring investing some C$5 billion to increase its oil-sands production 12-fold (from 42,000 barrels per day to 500,000 barrels per day) over the next decade. Another C$7.5 billion would be needed to maintain production over the life of the project. Investors reportedly are knocking at EnCana’s door to get in on the work.

• Shell Canada Ltd., Canada’s fourth-largest oil company, said it plans to boost capital spending 60% next year partly to increase output from an oil-sands project in Alberta. The company forecasts spending C$2.7 billion ($2.28 billion) in 2006, with C$965 million allocated to the Athabasca Oil Sands Project.

Areas of primary environmental concern relative to oil sands production include:

• Surface disturbance from mining operations.

• Water. Both types of processing consumer large amounts of water, ranging from 2.5 units to 4.0 units of water for each unit of bitumen produced.

• Greenhouse gases. Oil sand operations emit large amounts of carbon dioxide (CO₂) and some methane (CH₄) gas and nitrous oxide (N₂O). Increases of GHG emissions from oil sands production will have to factor in to Canada’s Kyoto compliance.

• Criteria pollutants such as oxides of nitrogen (NO_x), sulphur dioxide (S0₂), volatile organic compounds (VOCs) and particulate matter (PM).

• Energy needs. The recovery and upgrading of bitumen from the oil sands are energy intensive activities, consuming large amounts of natural gas, electricity, transportation fuels and hydrogen.

Nitrogen oxide intensity of producing synthetic crude oil from oil sands versus conventional oil in Alberta	Sulphur dioxide intensity of producing synthetic crude oil from oil sands versus conventional oil in Alberta.

As a result, the Pembina report argues:

The magnitude of the risks and opportunities arising from Canada’s oil sands rush is unprecedented in the history of Canadian energy production. All Canadians, including future generations of Canadians, have a stake in the outcome.

Given the scale and pace of the development, it is clear that Canada has a global responsibility for demonstrating stewardship and leadership in preventing the current and rapidly increasing environmental impacts of oil sands exploitation. Furthermore, any development of the oil sands must be done in the context of a national strategy for the transition from environmentally intensive conventional energy to an economy based on sustainable energy.

The report makes four primary recommendations for Canada to demonstrate leadership in this area:

1. Responsible use.

   • Develop a national energy framework by the end of 2006 with targets and supporting policies for energy efficiency, energy conservation, renewable energy and conventional energy in collaboration with the provinces, First Nations, industry and non-governmental organizations (NGOs).
   • Provide incentives for responsible consumption.
   • Regulate Canadian fleet fuel efficiency based on best available technology.

2. Protecting the climate.

   • Define Best Available Technology Economically Achievable (BATEA)-based targets for the oil sands industry at a level that ensures new and expanded projects make a meaningful contribution towards meeting Canada’s emission reductions obligations under the Kyoto protocol.
   • Invest in research and provide incentives to promote the commercialization of more efficient transportation-based technologies and the development of low-impact alternative fuels.
   • Require all existing and new oil sands operations to be carbon-neutral (net zero GHG emissions) by 2020 through a combination of actual reductions and emission offsets.

3. Protecting the Regional Environment.

   • The government of Alberta should establish a conservation offset within the oil sands region by protecting an area of intact boreal forest of high conservation value that is representative of the region.
   • Alberta should establish interim environmental limits that protect human health and the environmental integrity of the region before approving additional oil sands development.
   • Alberta should establish clear reclamation expectations that ensure the long-term ecological sustainability of the region before approving additional oil sands development.
   • The governments of Canada and Alberta should create the conditions for CEMA to successfully refine environmental limits and develop regional environmental management systems to guide decisions about future oil sands development. This will require the development of specific memoranda of understanding between government and CEMA that include clear deliverables and a firm schedule, the provision of additional human and financial resources, and clear statements of political expectation and support for meaningful outcomes.
   • Canada and Alberta should assume responsibility for those issues that will not or cannot be addressed through the CEMA process in a timely fashion. Commit to a process to consult with stakeholders and a schedule to implement new standards and systems to manage these issues.
   • Canada and Alberta should ensure that industry maximizes their use of best available technologies to minimize the rate of increase of cumulative environmental impacts.

4. Establishing an Equitable Fiscal Regime

   • Establish a timeline for eliminating federal subsidies, especially tax advantages, to the oil and gas sector.
   • Redirect subsidies and favorable fiscal policies towards conservation of energy, energy efficiency and expansion of low-impact renewable energy.
   • Maximize the collection of royalties and taxes to compensate current and future generations of Albertans and Canadians for the utilization of this publicly owned, nonrenewable resource.
   • Invest a portion of the wealth derived from royalties and taxes into a permanent fund for sustainable energy to foster further innovation in energy conservation, energy efficiency and the production of low-impact renewable energy.

Resources:

• Oil Sands Fever: The Environmental Implications of Canada’s Oil Sands Rush

• Pembina Oil Sands watch website

• 2005 Canadian Crude Oil Production and Supply Forecast

• ASPO: Canada’s Oil Sands Resources and Its Future Impact on Global Oil Supply

• Oil-based Technology and Economy: Prospects for the Future, Danish Board of Technology, 2004