Thank you, Mr. Chairman.
My name is Kevin Stringer and I'm the director general of the petroleum resources branch with NRCan. I have with me today Dr. Hassan Hamza, who is the director general of the CANMET Energy Technology Centre in Devon, just outside of Edmonton. Also with me is Kevin Cliffe, who is a director in the petroleum resources branch with the oil division.
I would like to make a brief presentation on the oil sands.
As you begin your study, which we look forward to reviewing once it's done, we really appreciate the opportunity to start with a bit of an overview about what the oil sands is all about, and some of the broad issues that the Government of Canada and Canadians generally are facing with respect to the oil sands.
Slide two is an overview of what we'd like to go through. We will talk about what oil sands are. This is a fairly complex issue, and Dr. Hamza will be able to speak to any questions you may have in that regard. I'll also talk about the history of the oil sands. It has become a major issue in Canada very quickly.
We want to speak to the economic opportunity that oil sands present for Canadians, and some of the economic and social challenges we're facing around the oil sands opportunities.
I'll speak about some of the environmental concerns and issues that have arisen in the areas of air, land, and water, and how we're addressing those in different areas. The provinces own and manage the resource, but the federal government has an important role, and we work with the provinces in that regard.
Then I'll speak about the way ahead, and give you some of our thoughts about moving ahead on this very important issue.
Now to slide three.
The oil sands are primarily located in north-eastern Alberta. However, there are significant oil deposits in Saskatchewan as well.
This really is mostly, but certainly not exclusively, an Alberta resource. There are significant pieces across the Saskatchewan border. But it is a significant area: 178 billion barrels of oil reserves in Canada, of which 173 billion or 174 billion is oil sands. So it is a major part of Canada's reserves. It's over 40% of Canadian production in terms of oil right now, meeting about 6% of North America's oil needs.
If you look at the different areas, we have the Athabasca area, we have the Lloydminster area and Cold Lake area, and then we have the Peace River area. Taken together, it's about twice the size of New Brunswick, which gives you a general sense of the area where we believe there are oil sands and currently there is some production.
Slide four sets out what oil sands are, and the following two or three slides are fairly scientific. Oil sands are a mixture of wet clay, sand, heavy metals, and bitumen. Bitumen is the heaviest and thickest form of petroleum and is made up of large hydrocarbon molecules. Compared to what is often called “conventional” crude oil, it has higher density, higher viscosity and thickness, higher metal concentrations, and a higher carbon-to-hydrogen ratio. All of this makes it a challenge from an environmental perspective as well as, in many cases, an economic perspective in terms of extracting the resource. Oil sands are usually mined or produced by in situ processes that heat the oil so that it will flow—and I will speak to that in a moment.
As indicated in slide five, crude bitumen is a thick, sticky form of crude oil, sometimes referred to as “extra-heavy” crude oil. While bitumen properties vary widely, it's in a near-solid state at room temperature, somewhere between molasses and a puck. Bitumen crude must be diluted with some lighter viscosity product, referred to as a “diluent”, in order to be transported in the pipelines. Basically, it's done by adding heat, by injecting solvents, or by in situ combustion or chemical conversion of the bitumen in reservoir.
As illustrated in slide six, there are two general approaches with respect to oil sands in terms of getting it to market: mining, and in situ development.
If it's close to the surface—that's generally 75 metres or less—it's generally mined. Shallow-depth deposits are recovered using open-pit mining, surface mining. Surface mining requires the removal of layers of muskeg, surface vegetation, and tree cover. This is where you've seen the pictures—or maybe you've been there—with the giant trucks, the giant shovels, etc. That's the mining process. It's less than 75 metres in the Athabasca area only, so not in the Peace River area, and not in the Cold Lake area. It's about 20% of the reserves, so it's a small percentage of the reserves of oil sands, but it's a very large percentage of where the extraction has happened so far. Two-thirds, or 67%, of cumulative production to date is mining, because it's easier to get at than the stuff that's deeper.
The stuff that's deeper is done in situ. That's basically where it's too deep to support economic surface mining. In-place wells are drilled into the oil sands zone, and special recovery techniques are applied to separate the bitumen from the sand, in place, and bring the bitumen to the surface through the wells. That's where it's deeper than 75 metres. In fact, it's easier the deeper you go. While 80% of the oil sands is likely to be dealt with in situ, so far only about 33% has been dealt with in that manner.
The environmental footprint with the in situ approach is significantly less than with mining, for obvious reasons. You just have wells. You have seismic issues and some other issues to deal with, but it is a whole different set of issues.
About two-thirds of the processed bitumen is currently being upgraded to synthetic crude oil before being shipped to refineries. Synthetic crude oil is a mixture of hydrocarbon similar to light crude oil, and upgraders are basically refineries that convert bitumen to synthetic crude oil, which is comparable, as I said, to high-quality light sweet conventional crude oil. It's an expensive technique, but it's what the market is looking for. All current mining operations also upgrade the bitumen to synthetic crude oil. In situ operations produce a heavier crude that needs to be diluted so it can be pipelined to refiners.
Slide eight is a bit about the history. This slide starts in 1967, but really it's 1915. In 1915, Sidney Ells, a federal engineer, demonstrated possible commercial use of oil sands for road paving in Edmonton and Ottawa. The early 1900s marked the beginning of looking at its commercial use. In terms of actual commercial efforts, it was really 1936 when Athabasca Oils Ltd. used hot water and solvents to extract the bitumen. That process was used until shortly after World War II.
It really got going in 1967 with the world's first oil sands mine that was started by Great Canadian Oil Sands, now known as Suncor. The Syncrude mine, which is the largest in the world, followed in 1978 and they have been the leaders from day one. In situ projects began in 1979 when Shell began its Peace River pilot that led to commercial operations in 1986. In 1985 in Cold Lake, Imperial Oil also began in situ production. Currently, about 35 major oil companies are active in oil sands and about 70 major projects are under way or under consideration across the oil sands area.
Oil sands are a huge opportunity. The chart in slide nine shows that conventional traditional oil fields in western Canada in particular are declining and are projected to decline over the next number of years as those fields become depleted. As new technology comes along you can get more out of the ground, but that's the current projection. The belief is that the oil sands will or can more than make up for this depletion. As we move toward wind and alternative energies and as we move toward efficiencies, fossil fuels will continue to be a dominant energy source for North America for the foreseeable future, according to the IEA, NEB, and those folks who look at this stuff. The numbers really are quite substantial.
Today about 1.2 million barrels per day of production is coming out of the oil sands, and it's forecasted to increase substantially, to 3.3 million barrels per day by 2020, according to the NEB. At that time it will be approximately 80% of total Canadian production. Right now it's around 50%. To put that into perspective, about 380,000 barrels per day are coming out of offshore Newfoundland. That's a significant number, but in terms of reserves and the percentage of the numbers coming out of the oil sands, it really is that much larger.
Slide ten shows where Canada is with respect to the rest of the world and in particular shows the top ten world oil producers right now. If we get anywhere in the range as projected by the NEB of three million barrels per day, 3.3 million barrels by 2020, and 2.8 million barrels by 2015, the expectation is that Canada would go from its current seventh to fourth in the world in terms of ongoing production, after Russia, Saudi Arabia, and the U.S.
As I said earlier, proven oil reserves in Canada are in the neighbourhood of 178 billion barrels. Of that, about 173 billion or 174 billion barrels are in the oil sands. It really is an enormous amount. It puts Canada at second in the world after Saudi Arabia in terms of the amount of oil reserves. If you want to get a sense of cumulative production, with 174 billion barrels in the oil sands, cumulative production to date out of the oil sands is 5.4 billion barrels. That's how much has come out to date.
Estimated reserves currently under active development--in other words, in those projects that are under development now or already in operation--if they were to take all the oil they could take out, it would be around 21 billion barrels. So there is a lot more that the projects have not yet defined.
The final point on this slide is quite noteworthy. The IEA projections show that by 2030 it's expected that Canada's oil sands production will represent about a third of total OECD oil production. That is a substantial amount from Canada's oil sands production.
We talk about 178 billion barrels as proven reserves, but the sense is that there's a heck of a lot more there. Proven reserves means what is technologically possible at current prices and current technology. Down the road--where the technology has not been invented, and the price isn't anywhere near there yet--there is an enormous amount, 1.7 trillion barrels, estimated. I'm not quite sure how they get that number, as opposed to 1.6, but the sense is that it's an enormous field.
I should note as well that 80% of the remaining resource is recoverable only by in situ techniques. In other words, it's deeper. The easy stuff...and people who have done this mining would say don't say easy stuff, but the relatively easy stuff has been done and we have the more difficult in situ to continue. But again, that has less of an environmental footprint than the mining has.
In situ projects produce heavy oil, which is differently priced than light sweet crude, and these will involve reduced environmental footprints for land, water, and GHGs for the mining projects. There's a greater range of technology available for application and more of a sense of what is environmentally responsible as we go forward. There's a lot of research going on in that regard, as well.
There are significant socio-economic repercussions for the country as a whole.
The oil sands have generated jobs for Canadians: 120,000 direct and indirect jobs, 1,300 Aboriginal people employed directly in the industry, and $310 million in contracts.
Investments have also been substantial. Over the last 10 years, the industry has spent $47 billion on new capital projects, and between $110 billion and $125 billion in new investments are expected over the next 10 years.
So oil sands investment has been a major economic driver for Canada, with significant challenges around that, as well as opportunity. The next slide actually speaks to some of those economic and social challenges. I think these are fairly well known.
In addition to the environmental challenges, there's the enormous growth in an area that didn't have the population and skilled labour. Areas like Fort McMurray have grown exponentially, from 1,500 people back in the seventies to 35,000 a few years ago, to over 56,000 now, and it's expected to grow in the next few years to 80,000. It really is enormous growth for the Wood Buffalo area. So there's a skilled labour shortage in all sectors of the marketplace. This isn't unique to the oil sands, but it is particularly acute there.
Also, there is labour dislocation, with significant movement across the country to this area. So there are issues with salary benefits versus concerns over labour dislocation.
And there have been pressures on labour, manufacturing, and deliveries, which have increased initial project cost estimates. It's been an enormous issue. The cost of steel for some of the pipeline projects being undertaken has really grown, as we try, basically, to buy up all the steel in the world for some of the projects we're dealing with, both in the oil sands and the pipelines to support them.
Pipeline capacity is also a huge issue. We have the Keystone, Alberta Clipper, and Southern Lights projects that are coming on to deal with the extra capacity that's coming through the oil sands.
And there's increased pressure on local infrastructure. Housing, water, and sewer, those basic infrastructure items, are a real challenge, largely in Fort Macleod and Fort McMurray, but also in Edmonton and other areas around Alberta—and perhaps even Saskatchewan. There are some real challenges with respect to economic and social issues in these areas.
On the next slide, we get into the environmental issues. I think there's a fourth issue that we identify, which I'll start with, because it's an economic and environmental issue, and that is the use of energy. The oil sands use a lot of natural gas, which is needed elsewhere as well, so there's a fair amount of research and work going on to try to decrease that and to make it more efficient, in terms of the use of energy.
Air, water, and land are the three general areas. In terms of air, oil sands production and upgrading are more energy-intensive than the production of light oil. As a result, they create more GHG emissions. The oil sands industry currently accounts for upward of 4% of Canada's total emissions.
In terms of water, which we understand is the nature of the study you will be undertaking, there are a number of environmental concerns associated with increasing water usage in the oil sands sector. These include the potential negative impact on the aquatic ecosystem; the removal of water from the watershed, both surface and ground water; and the large tailing pond issues that are being created by the mining projects—not the in situ, but the mining projects.
In terms of land, the Athabasca oil sands deposit is situated wholly within Canada's boreal forest, with large individual mine areas. The in situ process requires no excavation and less surface area for operation, but it is associated with fragmentation, and there are new roads and seismic testing and things that are associated with traditional well sites and more conventional oil exploration.
So those are the three general areas. I'll speak to the air and water issues in a moment, but I do want to point out slide 16, on the issue of jurisdiction in terms of how we address these issues.
I pointed out at the beginning that the provinces own the resource and set the framework for oil sands development, project approvals, royalty regimes, and regulation. The federal government, however, has an important role, and we actually work closely with Alberta and Saskatchewan in managing that. We have responsibility and some engagement around the environment, habitat, and wildlife protection; around human health; and around aboriginal consultation. And we have shared responsibilities to ensure a fiscal and regulatory framework that encourages a positive investment climate in Canada and that meets environmental goals.
Some of the ways in for the federal government here include the Canadian Environmental Protection Act, the Canadian Environmental Assessment Act, the Navigable Waters Protection Act, the Fisheries Act, the Indian Lands Agreement Act. And we worked with Alberta as well on some joint documents, such as the national water framework, which DFO prepared along with the Alberta government.
In terms of air, in 2007 Canada set out its national plan for reducing greenhouse gas emissions and provided further detail in March of 2008. Existing facilities in oil sands—existing facilities being pre-2004—will be required to reduce emission intensity by 18% below 2006 standards by 2010, and will be required to achieve a 2% annual reduction thereafter. Newer facilities built since 2004 will have to meet a cleaner fuel standard and improve their intensity by 2% a year as well.
Additional measures apply exclusively to the oil sands and coal-fired electricity sectors, including requirement that oil sands in situ and upgraded facilities commencing production after 2011 achieve significant reductions based on carbon capture and storage standard. We're still working out exactly what carbon capture and storage standard requires, but we believe carbon capture and storage will be a major part of the solution moving forward on oil sands, but also in other areas.
I should note, however, that between 1990 and 2002, GHG intensity of production improved by 27%. There has been an absolute increase in GHG emissions because of the growth of the oil sands, the number of projects. The intensity actually has improved, and we've all set objectives, including the Alberta government setting objectives for improvements moving forward.
I'll turn to water, slide 18. In the oil sands industry, water is important. It's required for extraction and other processes like transporting slurry, separating oil from sand in the mining operations, and making steam for extraction. In oil sands surface mining, about 70% of the water is recycled, and in situ, in the deeper stuff, which is going to be the future, about 90% is being recycled. Those numbers are an improvement from where they were a number of years ago. Depending on who you talk to, it's between 30% and 45% improvement in efficiencies over the last 10 or 15 years.
The Alberta government, responsible for this, has set an objective of a further improvement by 2015. Alberta Environment, monitoring the water quality and oil sands in the region, has set that objective, and we've been working with them through DFO in particular, which has developed a plan that was released in February 2007, a water management framework for oil sands in Alberta.
The final slide is just a bit of a summary. It really is an enormous resource, a hugely important resource for Canada, for North America, and for the world. High oil prices and improving technology will likely make more of it available in a shorter period of time than folks may have thought. Our challenge is to make sure that as it is developed, it is developed in an environmentally responsible way, in a way that takes into account the economic and social challenges we spoke to and is driven by sustainable development.
Moving ahead, in our view, means partnerships: partnerships with the Alberta government and other provincial governments; partnerships internationally, where we're involved with many other countries in terms of carbon capture and storage, in terms of many aspects on the environment side; partnerships with industry; partnerships with environmental groups; partnerships with aboriginal groups, particularly the ones who live there, the Athabasca Tribal Council and others in the area.
With that, thank you very much for your patience. We have a few extra slides, which I think I'm not going to walk you through, but we'll leave them for your information.
We'll be happy to answer any questions or comments you may have. I've taken more time than I was supposed to, which I appreciate.
My name is Colleen Killingsworth and I am the president of the Canadian Centre for Energy Information.
We are a non-profit, third-party energy information resource on all sources of energy across Canada. I'll just point out we are a non-advocacy group and we do rely on a rigorous stakeholder review process for all our original content.
I have a lengthy slide presentation that is put together to serve as extended background and information for you. Please don't let that intimidate you. I will only be speaking to some key highlights per slide.
As world demand for crude oil continues to grow, the oil sands deposits of northern Alberta represent one of the few reliable, long-term sources of supply. The total amount of bitumen in the ground is estimated at 1.7 trillion barrels, of which 174 billion barrels are considered recoverable reserves based on current economics and technology.
Only about 10% of Alberta bitumen resource is considered economically recoverable with current technologies, yet those reserves would be sufficient to sustain production of three million barrels per day for more than 150 years.
The next slide is a graph that shows you Canadian oil production and its projections for growth in the oil sands development and production to 2020.
The next slide shows you where Canada sits within the top five world oil reserves. The oil sands reserves are larger than the reserves of Iran, Iraq, or Russia, and are second in size only to those of Saudi Arabia.
Oil sands deposits underlie 140,800 square kilometres of Alberta, an area larger than the island of Newfoundland or the state of North Carolina. Smaller potential bitumen resources are also being evaluated in northwestern and east central Saskatchewan. Conventional heavy oil deposits in Canada are concentrated around Lloydminster on the Alberta-Saskatchewan border, but heavy oil has also been found in British Columbia, offshore Newfoundland and Labrador, and the Arctic islands.
I won't go into discussing this slide, as it has already been covered by Mr. Stringer, but it shows you the oil sands molecule and how it is developed.
According to the National Energy Board, in 2006 production from the oil sands reached 1.1 million barrels per day, surpassing the oil production of Texas and equal to about one-tenth the output of Saudi Arabia, or 1.3% of the total world crude oil supply.
Dozens of multi-billion-dollar projects are under way to expand oil sands production. The Alberta government envisions oil sands production as high as five million barrels per day by 2030. This would be equivalent to nearly one-quarter of current North American oil consumption.
The growth of the oil sands industry has had far-reaching benefits. Nearly a quarter of a million people are directly and indirectly employed by the oil sands. Studies estimate that the oil sands activity will provide $123 billion in government revenues in Canada between the years 2000 and 2025.
About 18% of Alberta's economically recoverable oil sands bitumen reserves are close enough to the surface to make mining feasible. Most of these are located in the area north of Fort McMurray.
Mining extraction techniques were initially borrowed from other open-pit mining processes and used giant draglines, bucket wheels, and conveyor belts to excavate oil sand and transport it to processing facilities. This system was costly and difficult to maintain, especially in the harsh northern climate.
In the early 1990s substantial savings were achieved by switching to power shovels, oversized trucks, and water-slurry. The switch in technology was a key step in making the oil sands industry cost-competitive with conventional oil producers.
The next slide is a good illustration of the oil sands mining process. Once oil sands ore is mined, it is transported by truck to a slurry system called hydro-transport, where the process of separating the bitumen from the oil sands begins. The slurry is treated with hot water in an extraction plant to recover the bitumen.
Tailings, a mixture of water, clay particles, and some bitumen, is a byproduct of the extraction process. Tailings are stored in ponds, which are later reclaimed.
Once the oil sands ore has been completely mined, the site is reclaimed to a state comparable to what existed prior to the oil sands development.
I'm going to skip over the next slide, as Mr. Stringer has covered this quite well.
The following slide illustrates the SAGD process. This is one of the in situ processes, which more recently has gained popularity and is the most common method used in new, smaller-scale projects. SAGD stands for steam-assisted gravity drainage. In this method, pairs of horizontal wells, one above the other, are drilled into an oil sands formation, with steam injected continuously into the upper well. As the steam heats the oil sands formation, the bitumen softens and drains into the lower well. Pumps then bring the bitumen to the surface.
As shown on the next slide, existing in situ projects use natural-gas-fired boilers to generate steam. Technologies have been developed to use crude bitumen as a fuel if needed for steam generation.
One technology that could reduce energy requirements is called vapour extraction, or VAPEX. In this method, pairs of parallel horizontal wells are drilled, as in SAGD. But instead of steam, natural gas liquids such as ethane, propane, or butane are injected into the upper well to act as solvents so that the bitumen or heavy oil can flow to the lower well. An industry-government conversion is currently evaluating a VAPEX pilot project, and several operators are also testing the technology on their own leases.
In situ, as the next slide says, is expected to disturb only about 10% of the surface land in the development area and utilizes about 90% less water than current mining methods.
The next slide is on upgrading. Once extracted, the bitumen can be sold directly to the market or upgraded by the oil sands operators into a variety of crude oil products. Because most oil refineries are designed to handle only conventional light and medium crude oil, bitumen requires special processing or upgrading to make marketable commodities.
The next slide is a diagram on the upgrading process. Upgrading is usually a two-stage process. In the first stage, coking, hydro-processing, or both are used to break up the molecules. Coking removes carbon, while hydro-processing adds hydrogen. In the second stage, a process called hydro-treating is used to stabilize the products and to remove impurities such as sulphur. The hydrogen used for hydro-processing and hydro-treating is manufactured from natural gas and steam.
As the next slide shows, upgrading produces various hydrocarbon products that can be blended together into custom-made crude oil equivalent or sold or used separately. The Syncrude and Suncor mining projects use some of their production to fuel the diesel engines in their trucks and other equipment at their operations. Suncor also ships diesel fuel by pipeline to Edmonton for sale on the marketplace.
The next slide deals with transporting oil sands products. Whether synthetic crude or diluted bitumen, they are transported in the same manner and in the same pipelines as conventional crude oil. The vast pipeline system extends from the producing areas in northern Alberta to refineries in eastern Canada, the U.S. midwest, and as far south as the gulf coast.
The next slide is a map of the North American crude oil pipeline system.
The next slide shows the benefits of oil sands. Oil sands developers are expected to invest about $45 billion in the oil sands during the next four years. This is in addition to the $34 billion in capital expenditures to date.
As a result of this growth, the number of people directly and indirectly employed by the oil sands industry is expected to total nearly a quarter of a million in just two years.
The economic opportunities extend across Canada and internationally. According to the study by the Canadian Energy Research Institute that examined the impact of the oil sands development over a 20-year period, about 56% of the employment impacts from the oil sands would occur in Alberta, 27% would be in other Canadian provinces, and 17% would occur internationally. The gross domestic product gains outside Alberta are largely due to the demand for steel, vehicles, and other equipment manufactured in other provinces and countries.
Most importantly, this serious study estimates that oil sands activity will provide $123 billion in government revenues in Canada between the years 2000 and 2025. During the same period, an additional $13.5 billion in revenues will be generated for non-Canadian governments, primarily as a result of the oil sands industry relying on international manufacturing sources.
The economic, environmental, and social challenges of the oil sands arise from the nature of the resource, its location, its vast scale, and the rapid acceleration of development since the late 1990s. The soaring demand for labour and services to support the projects, and the effects on the existing aboriginal and non-aboriginal communities, are among the social challenges.
Since the 1970s, the government and oil sands companies have established programs to train and recruit aboriginal people as employees, contractors, and suppliers, and the new projects seek aboriginal involvement where possible.
The chart on the next slide depicts employment due to the oil sands. It shows 56% of oil sands employment in Alberta, 27% in other provinces, and 17% internationally. On government revenue breakdown from the oil sands, 36% of the revenue is in Alberta. Other provinces receive 23%, and Canada as a whole receives 41%.
The National Energy Board estimates that 500 cubic feet--14 cubic metres--of natural gas are used to produce a barrel of upgraded crude oil from mining upgrading projects. About twice that much is used to produce one barrel of bitumen from in situ projects. With respect to other challenges related to energy use, introducing new technologies to improve energy efficiency is generating results. Energy used in oil sands mining and extraction has been reduced by 45% through the use of new technologies, such as hydrotransport and new low-temperature extraction processes.
On challenges related to water use, as we heard Mr. Stringer say, water recycling and the use of non-potable groundwater already has reduced the impact on freshwater resources. And new technologies may reduce the large water requirements for current oil sands production methods. Companies are also working with scientists, government authorities, and forestry companies to reduce the cumulative impacts on soil, vegetation, and wildlife.
There are cooperative programs underway between government, oil companies, and forestry companies to reduce the cumulative impacts on landscapes, forest productivity, and wildlife. These include using low-impact seismic reclamation techniques, which provide for more rapid re-vegetation; protecting caribou habitat; introducing bison to reclaimed land; and, to date, planting more than eight million trees.
Improved pollution controls, such as flue scrubbers, have reduced per-barrel emissions of sulphur oxides, nitrogen oxides, and particulates that can cause smog and acid rain effects.
With respect to greenhouse gas emissions, bitumen extraction and upgrading, as you have heard, produce more than twice as many greenhouse gas emissions per barrel compared to conventional crude oil production. However, about 80% of emissions from oil use occur at the point of final use, such as an automobile or furnace.
Several methods to reduce greenhouse gas emissions have been suggested. One possibility would be to inject emissions underground, known as carbon capture and storage, or carbon sequestration. Some of the carbon dioxide might be used to enhance production from conventional oil fields.
On a per-barrel basis, greenhouse gases and other emissions have already been reduced substantially since the 1990s, but the recent rapid expansion of production has made further emissions reductions a high priority for companies and government authorities.
The next slide shows the life cycle of emissions. If upgraded crude oil from oil sands were not available, additional imports would be required in North America. Some imports, such as Venezuelan heavy crude, actually have higher life cycle emissions than upgraded crude from the Canadian oil sands.
That's the end of my presentation.