Oil sands production to triple

Ottawa, Canada (GLOBE-Net) - Production from Alberta’s oil sands is expected to triple to 3 million barrels per day in the next decade, resulting in increased demand for natural gas and exacerbating already excessive environmental pressures on land and water, says a new report from the National Energy Board.

Rapid developments in energy markets since a 2004 report from the Board led the agency to issue an update of Canada’s Oil Sands - Opportunities and Challenges to 2015 (PDF).

The update focuses In particular on the doubling of crude oil prices, and similar increases in natural gas prices. The impact of water withdrawals, land reclamation and pollution associated with oil sands exploitation are becoming clearer.

While high oil prices are expected to spur further development, increased natural gas costs, environmental concerns and pressures on social infrastructure in the region will temper production somewhat, says the report.

$125 billion in capital investment in the region has been announced for the period to 2015, but the report notes that not all of this is likely to be committed. Forecasting that approximately $94 billion in investment will be undertaken, the board examines the economic and environmental influences of the industry.

Private energy firms actively seeking expansion in the region include Suncor, EnCana, and Canadian Natural Resources Ltd. Several Chinese national firms have also announced oil sands mining plans: SinoCanada Petroleum, China National Offshore Oil Corporation (CNOOC), and PetroChina (in partnership with Enbridge) will participate in oil production and/or transportation.

Most of the planned new production is expected to employ Steam Assisted Gravity Drainage (SAGD), a technique which requires inputs of water, generally from the Athabasca River system, and heat, usually from natural gas.

Supply costs at the plant gate for bitumen production using this method are estimated at approximately Cdn. $19 per barrel, making extraction economical at benchmark crude oil prices of US$30 - $35 per barrel, about half their current level.

Water needs for the industry are enormous. Between 2 and 4.5 barrels of water are withdrawn for every barrel of synthetic crude produced in a mining operation. SAGD extraction does reduce water needs as steam is recycled, but the magnitude of anticipated production growth will cause stresses on available groundwater resources to increase.

Currently approved projects are licensed to withdraw 2.3 billion barrels of freshwater per year, almost all of which ends up in highly contaminated tailings ponds despite recycling efforts, says the report. Planned projects would push water extraction to 3.3 billion barrels per year.

Air emissions also continue to be a major concern. Huge volumes of natural gas are burned in the production process, raising the issue of using a relatively clean burning fuel to produce crude oil. The Pembina Institute predicts that emissions will rise to 67 megatonnes per year by 2015 in a second-best scenario from current levels of approximately 35 Mt.

Meeting the soaring demand for natural gas and other energy sources will necessitate development of infrastructure such as the proposed Mackenzie Valley Pipeline, and technology developments for alternative power supplies. Nuclear energy is one option that has been put forward.

Land degradation and the uncertain effectiveness of the reclamation process, and socio-economic conditions in oil sands producing communities are also important considerations in allowing further development. Some groups have called for a moratorium on further projects until land, water, and emissions management issues can be resolved.

The tremendous growth and environmental pressures associated with oil sands production mean that there exist many opportunities to make economic gains by improving the efficiency of production and reducing the industry’s environmental footprint. Although water and energy inputs per unit of output have decreased over the past decades through advances in technology, overall growth in production has meant an increase in total emissions and water use.

Natural gas will continue to supply the bulk of power to the region, but improvements in gasification technology could result in a shift in energy sources; bitumen and coke will be converted into clean burning synthetic gas – ‘syngas’ – in a new SAGD project that could lead to further development in this area.

The nuclear energy option would address the emissions problem, but opens up new concerns over hazardous waste management. Wind energy, utilized by some companies such as Suncor, may contribute to the Alberta grid but is unable to meet to the large scale needs of oil production.

Carbon dioxide emissions will be a major issue, particularly as the federal government is poised to bring forward some form of an emissions cap. Alberta has also announced it will regulate greenhouse gases.

Carbon capture and storage offers potential for the industry, particularly as CO2 injection into underground wells can be used to improve crude oil extraction. A dedicated pipeline from Fort McMurray to central Alberta would be needed, but uncertainties with respect to regulation and incentives make this option difficult to forecast, says the report.

There is no doubt that oil sands production will continue to grow in the coming decade. Just how much growth will occur will depend on how environmental pressures, socio-economic factors, and market conditions combine to create incentives or barriers for development. What is clear is that increased environmental impacts are a primary concern for government regulators as well as industry officials.

This provides an opportunity for government and industry to make significant strides towards sustainability allowing this vast natural resource to be exploited without increasing environmental and health risks. How well we do will determine whether Canada can set a new standard for fossil fuel management in the 21st century.

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