Canadian Oil Sands Rival Saudi's Reserves

[Realistbear]

http://thebusinessonline.com/Stories.aspx?...3F-EE19F9206FB3

The big oil companies target Canadian oil sands operators

By Richard Orange

14 May 2006

STAFF at Calgary’s Fairmont Palliser Hotel are getting used to a resolutely international crowd. After decades on the fringes of the oil industry, the Canadian province of Alberta is hot. And a stream of investment bankers and company executives, from China, Italy, the UK, France and the US, have been traipsing through the lobby of Calgary’s smartest hotel for two years now, looking to strike a deal that will bring their companies a bigger slice of the prize.

Alberta’s vast reserves of oil sands and heavy oil, with more than 174bn barrels, rival Saudi Arabia’s and, thanks to the $70-a-barrel oil price, what was five years ago marginally economic is now highly profitable. So when Royal Dutch Shell last week snapped up Canadian heavy oil company Blackrock Ventures for $2.18bn (E1.68bn, £1.15bn) hopes were raised that the long-awaited oil sands takeover boom may have begun.

Shell certainly paid a full price. The offer was a 27% premium to Black Rock’s share price and more than three times as much per barrel of reserves than Shell’s French rival Total paid when it snapped up Deer Creek Energy for $1.6bn in September 2005.

Granted, Deer Creek’s assets were in oil sands, which have to be expensively scooped out of the earth, using the world’s biggest diggers, after which the oil is washed out. Blackrock Ventures, on the other hand, produces heavy oil from the Peace River bitumen reserves, where Shell already has a big project.

With Canada and the massive untapped reserves in Alaska's no-go environmental areas coming on stream the problem of Arab oil price monopoly may soon be over?

[Guest Guy_Montag]

Interestingly I went to see a lecture about peak oil just the other day. The chap giving the lecture has just set up a small business on the periphery of the oil industry. Even so he reckoned we were at or very close to peak oil.

But that is not really relevent to this thread, what is, is that even with tar sands, heavy crude & other sources of oil, the middle east contains, I think, 60% of the worlds oil & gas.

He suggested reading the BP annual reports as interesting reading to keep track of where viable oil is available from.

Another interesting point, from a different source, apparently Russia has already hit peak gas.

[Denzil]

[/indent]

With Canada and the massive untapped reserves in Alaska's no-go environmental areas coming on stream the problem of Arab oil price monopoly may soon be over?

I read about this a while back and the only reason the Canadian fields are now viable is that oil is now expensive

enough to warrant the high cost of extracting from the Canadian field. There's a few other like this around too.

In a way it confirms that oil will stay high indefinately.

Not sure how much bearing, if any it will have with price fixing monopoly as there is nowhere near as much profit per barrel from the Canadian source.

Edited May 13, 2006 by Denzil

[bpw]

..........

In a way it confirms that oil will stay high indefinately.

Not sure how much bearing, if any it will have with price fixing monopoly as there is nowhere near as much profit per barrel from the Canadian source.

You need to qualify what you mean by high. The Canadian Tar Sands meet most oil company investment criteria when oil is traded at more than 30USD per barrel. The only thing standing between consumers and a 50% reduction in oil price is therefore 1) the time to appraise and then develop production and transportation facilities for the new reserves and 2) the environmentalists. The high cost of oil can be squarely placed on the shoulders of those NIMBYs who are happy to see thousands of wells drilled in Texas, Arabia and Persia, and yet campaign like devils when oil companies apply for permits to drill wells in places like Alaska and Wyoming. You have to take your hat off to those who work in the oil industry and who get pilloried for producting petrol at 3USD per gal when no one bats an eye at companies that add molasses to water, pump in some CO2 and then sell it at 60cents a can. Who makes the largest profits per unit cost?

The world can radically change the way in which fuels are produced if governments stand by industry and force through legislation and permits which allow the development of tar sands, tight gas, heavy oils, etc. If the public don't want industry to exploit these reserves then as democracies that's fine, they can choose to pay the arab nations, venezuela, russia and canada whatever they want for oil, confident in the knowledge they have voted to bear the cost intill something else comes along - for example nuclear power stations, or wind farms with hundreds of thousands of windmills. All in someone else's back yard of course!

Edited May 13, 2006 by bpw

[Dr Doom]

I've posted a lengthy post elsewhere on this board about why we shouldn't be getting too excited about tar sands.

EROEI (energy returned on energy invested).

How much energy do we need to spend to get the energy from the tar sands.

Estimates vary from optimistic 1:3 to pessimistic 1:1 (or less).

The report mentioned probably doesn't take into account factors that are subject to change, such as sharply increasing natural gas costs, as well as externalities such as the amount of fresh water needed.

It doesn't matter what is done, once we're past the global oil production peak there is going to be less net energy available for the human race to consume. Things are going to change, perhaps drastically.

[malco]

I can't understand why this keeps coming up. It is no secret that countries like Canada, Venezuala and the US have potentially immense low-quality oil reserves. But they are just that, low quality oil reserves. To get low-quality sour crude out of the Alberta tar sands requires the input of high-quality resources; namely nat gas and potable water. The process has been aptly described as turning gold into lead.

It is highly unlikely that these resources will ever be exploited to any great extent because of that energy input required to do so. The existence of a resource does not mean it makes sense to exploit it. To illustrate the point by absurdity, there is about $30 million of gold dissolved in ever cubic mile of sea water. Is there a gold rush to the beach? Nope; because it would cost an awful lot more than $30m to get the gold out.

The current oil issue has nothing to do with gouging or conspiracy or anything other than the geological resource is under pressure and therefore low-quality deposits are being considered. The very fact that crap like Alberta tar sands and Venezualan heavy oil is being considered is a certain sign that the best is gone and now we are working our way through the seconds that were put aside decades ago.

This oil crisis is not going to go away and it will probably get worse yet before it gets better (with the fall in expectation of consumers and the rise of renewables).

Edited May 13, 2006 by malco

[clv101]

With Canada and the massive untapped reserves in Alaska's no-go environmental areas coming on stream the problem of Arab oil price monopoly may soon be over?

Reserves are virtually irrelevant - extraction rates are all that maters and unconventional oil is never going to match the tens of millions of barrels a day flow rates of regular oil today.

[Living In Hope]

I live in Alberta (Edmonton). The oil revenue we're currently generating in this province is unbelievable. Alberta is the only province with no debt owed to the Feds, and the only province that has no GST ("Government sales tax" - think "VAT). A couple of months ago the Provincial Gov handed out tax-free cheques for $400 each to every man, woman and child in the province, just for the fun of it. They're talking about more cheques coming later. We get rebates on our energy bills if prices go too high. The economy is booming. They can't build houses quickly enough for the flood of people coming here, and tradesmen can virtually name their price. Shops, restaurants etc. can barely get enough staff to run the place. House prices in Calgary and Edmonton have jumped up this year.

The word around here is that technology is advancing all the time, and making the extraction in the AB oil sands more and more viable.

Incidentally: we left the UK 11 years ago, but are moving back in July (there might be money overseas, but Britain is still a fantastic country, is still home, doesn't have mosquitoes and doesn't get down to -40 in the Winter - unless it's changed recently?!).

Thanks partly to the HPC site, we're planning to rent for the foreseeable future.

[Guest Bart of Darkness]

If this thread turns into another debate about the viability of tar sands as a source of oil, I'm getting my coat.

[Levy process]

I've posted a lengthy post elsewhere on this board about why we shouldn't be getting too excited about tar sands.

EROEI (energy returned on energy invested).

How much energy do we need to spend to get the energy from the tar sands.

Estimates vary from optimistic 1:3 to pessimistic 1:1 (or less).

The report mentioned probably doesn't take into account factors that are subject to change, such as sharply increasing natural gas costs, as well as externalities such as the amount of fresh water needed.

It doesn't matter what is done, once we're past the global oil production peak there is going to be less net energy available for the human race to consume. Things are going to change, perhaps drastically.

Good post. And just to focus in on the point about energy spent to realise the energy in the tar sands, this is a different point to ANY economic argument. You can put economic arguments to one side and ignore them if the answer to the energy-to-extract-energy question is 1:1 or less. If the ratio of energy returns (nothing to do with money) is 1:1 or less, there is NO PHYSICAL WAY to make any use of this energy, and at very best it would be an expensive and environmentally damaging way to convert some other form of energy, as yet untapped on a large scale, into automotive energy using conventional internal combustion. At worst, and much more likely, it simply would not happen if the ratio comes out like that.

There is a lot of misinformation about this topic I think. Focusing on the poor energy returns will help to clear away a lot of the myths.

[Realistbear]

I can't understand why this keeps coming up. It is no secret that countries like Canada, Venezuala and the US have potentially immense low-quality oil reserves. But they are just that, low quality oil reserves. To get low-quality sour crude out of the Alberta tar sands requires the input of high-quality resources; namely nat gas and potable water. The process has been aptly described as turning gold into lead.

It is highly unlikely that these resources will ever be exploited to any great extent because of that energy input required to do so. The existence of a resource does not mean it makes sense to exploit it. To illustrate the point by absurdity, there is about $30 million of gold dissolved in ever cubic mile of sea water. Is there a gold rush to the beach? Nope; because it would cost an awful lot more than $30m to get the gold out.

The current oil issue has nothing to do with gouging or conspiracy or anything other than the geological resource is under pressure and therefore low-quality deposits are being considered. The very fact that crap like Alberta tar sands and Venezualan heavy oil is being considered is a certain sign that the best is gone and now we are working our way through the seconds that were put aside decades ago.

This oil crisis is not going to go away and it will probably get worse yet before it gets better (with the fall in expectation of consumers and the rise of renewables).

Seems that as far as the oil companies are concerned its a done deal. Billions are being invested and they must see a return on their money. With oil at $70 and the possibility that the Arab nations may hike to $100 bbl the $50 bbl viability threshold has long been reached. The Falklands also has massive reserves that are deep but possibly becoming viable. As the quote from the artcile below suggests--the technology must be there for an oil company to spend that kind of money.

Alberta’s vast reserves of oil sands and heavy oil, with more than 174bn barrels, rival Saudi Arabia’s and,

thanks to the $70-a-barrel oil price, what was five years ago marginally economic is now highly profitable.

So when Royal Dutch Shell last week snapped up Canadian heavy oil company Blackrock Ventures for

$2.18bn

(E1.68bn, £1.15bn) hopes were raised that the long-awaited oil sands takeover boom may have begun.

Edited May 14, 2006 by Realistbear

[Smurf1976]

I did a bit of consulting work for the Canadian heavy oil industry in 2000 so I'll comment...

Bottom line is that about 178 billion barrels of recoverable oil from tar sands translates to about 120 billion barrens of upgraded crude oil. The third which "disappears" is the fuel used in production etc.

So it's a 120 billion barrel resource in practice. That's about what the world uses in 4 years. More to the point, a realistic limit to production is around 11 million barrels per day which would completely use the entire resource in about 30 years. That 11 million barrels per day is the optimistic figure. If different assumptions about technology, time to write off the massive investments etc. are made then it comes down to about 6 million barrels per day.

So overall it's somewhere up to about 10 million barrels per day of production that's available. Based on demand growth of 1.5 million barrels per day per year (around the range of most estimates) and assuming production elsewhere is maintained at a flat rate (doubtful to say the least) then the tar sands can meet world demand growth for the next 3 to 6 years BUT will take far longer than this to actually ramp up production to that level.

So overall it's a useful resource but not a solution to the oil problem. A nice profit for those involved and some very worthwhile income for locals and Canada as a whole but it's not the magic solution.

Venezeulan extra heavy oil (Orinoco belt) is about 273 billion barrels recoverable or at least 200 billion barrels when upgraded. So it's a bigger resource. But being pumped rather than mined imposes production rate limits as with conventional oil fields and of course there's still the need for expensive upgrading plants as with tar sands. So again, it's a help but not in itself a solution.

As for oil shale, the most recent serious attempt at using this that I am aware of was in Australia. A pilot plant was built and it ran for quite some time. Ultimately there were simply too many noxious emissions, too many fires etc and the company concerned couldn't sustain the losses any more so it's shut. It did manage a positive energy recovery (produced more than it used) so is viable in that sense but actually making a viable process has been a persistent problem that has already seen the likes of ExxonMobil walk away and cut their losses. If a small pilot plant caused serious environmental problems with uncontrollable emissions (due to persistent unforeseen problems) just imagine what a full scale plant would do. That is the fundamental problem with oil shale along with generating twice the volume of waste rock that is mined. WHERE do we put it?

On the other hand, liquefaction of coal is proven to work and is reasonably economic so IMO that's by far the most likely source of non-conventional oil once the easier tar sands (and bitumen if Venezuela becomes sufficiently stable politically) are developed. Brown coal is especially suitable and the world's largest deposit of that is in Australia - a stable country not known for revolution or war. There's plenty of brown coal elsewhere too including New Zealand, India and others.

I'm not convinced about the comment that Russia has reached peak gas though. With over 40% of world reserves either they have been telling outright lies as to the extent of their reserves (quite possible), simply haven't developed sufficient reserves to produce the desired volumes (also quite likely) or they haven't reached a peak in gas production.

If Russia has overstated gas reserves and the peak is for real then that's a massive worldwide problem since it leaves Iran and Qatar as basically the only countries with major gas reserves not already in production. Needless to say those reserves won't last long when the whole world starts using them and of course there's a lot of political issues too... Overstatement of reserves would explain the relative lack of development of gas in Russia previously assumed to be due to the effects of Communism etc so it's certainly a possibility.

[leefam83]

I live in Alberta (Edmonton). The oil revenue we're currently generating in this province is unbelievable. Alberta is the only province with no debt owed to the Feds, and the only province that has no GST ("Government sales tax" - think "VAT). A couple of months ago the Provincial Gov handed out tax-free cheques for $400 each to every man, woman and child in the province, just for the fun of it. They're talking about more cheques coming later. We get rebates on our energy bills if prices go too high. The economy is booming. They can't build houses quickly enough for the flood of people coming here, and tradesmen can virtually name their price. Shops, restaurants etc. can barely get enough staff to run the place. House prices in Calgary and Edmonton have jumped up this year.

The word around here is that technology is advancing all the time, and making the extraction in the AB oil sands more and more viable.

Incidentally: we left the UK 11 years ago, but are moving back in July (there might be money overseas, but Britain is still a fantastic country, is still home, doesn't have mosquitoes and doesn't get down to -40 in the Winter - unless it's changed recently?!).

Thanks partly to the HPC site, we're planning to rent for the foreseeable future.

We came back after a year , had to make a quick decision because of the kids education. What else made you decide to come back ? I lived in Kelowna by the way. No work of any quality and I forsaw that the grass isn't always greener early.

[Realistbear]

On the other hand, liquefaction of coal is proven to work and is reasonably economic so IMO that's by far the most likely source of non-conventional oil once the easier tar sands (and bitumen if Venezuela becomes sufficiently stable politically) are developed. Brown coal is especially suitable and the world's largest deposit of that is in Australia - a stable country not known for revolution or war. There's plenty of brown coal elsewhere too including New Zealand, India and others.

I have invested in UK Coal and do see this as a viable energy source in a world where oil is becoming more and more a political bargaining chip. I took up a minority position ( ) about 2 months ago and the shares have risen just over 15%. They have so far weathered the sharp falls in the FTSE so there may be some serious money about to chase UKC.

UK COAL (LSE:UKC.L)

Last Trade: 168.00 p

52 wks change(1 yr): +42.98%

Edited May 14, 2006 by Realistbear

[Living In Hope]

What else made you decide to come back ? ...

No work of any quality and I forsaw that the grass isn't always greener early.

Apologies to rest of the posters on this thread; I know this is off on a tangent, but replying to above:

Decision based on all the things you can't put a price tag on: family, being "home", culture, history, sense of humour, beautiful architecture around you, temperate climate, decent chicken kormas on a Friday night and a local pub with some atmosphere...

Decision definintely not based on financial grounds - financial grass is certainly greener here (once the snow has melted off it). Thanks to the oil sands, Alberta is a very different ball game from anywhere else in Canada. (Kelowna is a drastically different place from Edmonton - it's in a different province, on the other side of Rockies, with different climate, economy, social attitudes etc.). It's not that Alberta isn't a great place to live, it's just that it's not home. I know that doesn't make sense to some people, though.

But as already said, there are some things in life that are priceless. (and Gordon B would probably say, for everything else there's Mastercard!)