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Energy Insights: Energy News: Black gold: Oil companies seek profits from Canadian source

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Black gold: Oil companies seek profits from Canadian source


11-10-2009

 

Potentially volatile prices, environmental concerns pose problems for smooth extraction

In the next several years, more raw heavy crude oil will course through the pipelines that serve as the lifeblood of BP Whiting Refinery's $3.8 billion modernization project, begun in 2008 and set for completion in 2012.

While the oil is flowing from Canada's Alberta province, environmental and trade groups are ramping up battles focused on whether a less damaging, more environmentally friendly source is available.

The Energy Resources Conservation Board of Alberta, an independent government agency, estimated its oil sands are the second-largest source of the world's proven crude oil reserves -- 173 billion barrels -- next to Saudi Arabia. The board said as of January, there were 91 active oil sands projects. The oil is located beneath an area one-and-a-half times the size of Indiana in the province's northeastern region.

Cindy Schild, refining-issues manager for the American Petroleum Institute, a trade group, said companies have been processing heavier types of crude oil for about a decade. She said it's getting more publicity now, because several companies -- including Motiva, ConocoPhillips, Marathon and BP -- are making investments to increase their capacity for processing these types of fuels.

In August, PetroChina Co. Limited, China's state-owned oil and gas producer and distributor, bought a 60-percent stake in two oil sands projects from an Alberta-based firm for more than $1.7 billion.

"When you look at the amount of oil, we could double what we are currently importing from Canada by 2035," Schild said. "If that's the case, it plays a big role. You do have other economies that are growing, and they're looking to secure their own energy supplies."

By expanding refinery and pipeline infrastructure, there could be increased energy security and fewer oil-supply disruptions after catastrophes such as Hurricanes Katrina and Rita, Schild said.

Haydn Murray, professor emeritus of geology at Indiana University, said the oil originally was in liquid form, but over time, it congealed into a thick, tar-like material that surrounded grains of quartz sand. The sand is surrounded by layers of water and clay, according to petroleum trade group API. To extract the oil from the deposits called bitumen, Murray said the material has to have other heavy minerals and high-sulfur organic compounds removed from it.

The Alberta government agency said extraction projects involve surface mining -- similar to coal operations -- and in-situ recovery. In-situ refers to the process of pumping steam underground through a horizontal well to liquefy the bitumen, which then is pumped to the surface.

Murray said the only problem with oil-sands extraction is that when oil prices crash, so do profits from the venture. He estimated the price of oil needs to be at least $35 a barrel for the costly venture to make any money.

The fuel source also is getting more publicity. Greenpeace protesters were arrested in a civil-disobedience action earlier this month at Alberta's Royal Dutch Shell PLC facility.

Greenpeace, among other environmental organizations, is calling for a halt to the oil-sands developments. Josh Mogerman, Chicago-based spokesman for the Natural Resources Defense Council, said the oil from the tar sands produces up to three times more of carbon emissions than traditional oil products. An NRDC report also said oil-sands developments are threatening the natural habitat of animals with oil contamination and sapping wetlands of water.

"In terms of global-warming and climate-change issues, this is a real problem," Mogerman said.

The petroleum trade group's Schild disputes the "tar sands" name associated with developments and said while processing heavier crudes is "energy intensive," concerns of exponential increases in greenhouse-gas pollution are exaggerated.

"Regardless of what goes into the refinery, you have to meet the same environmental and quality specifications coming out," Schild said. "You have to have the controls in place. That's why they're investing it in the capital to meet standards in this country."

Schild said 70 to 80 percent of greenhouse gases are emitted through fuel consumption, not production, and that Canada has a "very small" footprint in terms of being responsible for these emissions. The API also counters the argument about habitat destruction, saying the entire mineable area is less than 1 percent of the forest land. Moreover, reclaiming disturbed land is required under Alberta law, she said.

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