Alberta Tar Sands–a risk analysis by Andrew Nikiforuk (part 2)


Two weeks ago, there was a global affairs forum at a local church, and I attended in order to watch a presentation on the Alberta Tar Sands project.   Although the project is taking place in Canada, the environmental impact may end up being global, so that’s why it was included in the forum.    Jeff Green, who is a member of the Climate Reality Project, introduced a video documentary by Andrew Nikiforuk, a journalist based in Calgary, who has written a book on the project called Tar Sands:  Dirty Oil and the Future of a Continent.   Here’s a link to the video for those who want to watch the entire documentary http://www.youtube.com/watch?v=jiNgiPkF0TY

There needs to be a national debate about the pace and scale of the project, according to Mr. Nikiforuk.   He recommends that people listen to the advice of former Prime Minister Peter Lougheed, a conservative, who said this in 2006 about the project, “slow down, behave like an owner, collect your fair share, save for a rainy day, and clean up the mess.”   Yes, having the resources in Canada is a blessing to a certain extent from an economic standpoint, which is the positive risk or opportunity side of the equation.    But is there a full accounting of the potential negative impacts on the society of Canada?

6.   Declining Energy Returns (Energy Cannibalism)

To extricate bitumen from the tar sands underneath the ground, the technology called Steam-Assisted Gravity Drainage or SAGD is used.    This is where natural gas is burned to boil water, which is then turned into steam and injected into the bitumen deposits in order to melt them to the point where they can be brought up to the surface.     With SAGD, you need 4 times as much natural gas as you would in a traditional mining operation.   Every day, enough natural gas is used in the tar sands project to be able to heat 6,000,000 homes.    This consists of 1/5 of the entire natural gas supply of Canada.    Much of the natural gas is coming from the so-called “shale gale” from British Columbia, the processing of which is done by companies from Saudi Arabia, China and Korea.

It is important to understand the concept of Energy Returned on Investment or EROI.    It simply means “how much energy do you need to spend in order to get a certain amount of energy in return?”    100 years ago, the EROI in the oil industry was 100 to 1, meaning it took the energy equivalent of 1 barrel of oil to get 100 barrels of oil out of the ground.    The global EROI has been declining since the light crude oil has been taken out of the ground and the industry is moving on the heavier crude oil which is more difficult to extract and process.    For example, the current global EROI for the oil industry in general is about 20:1.    In the tar sands project, the traditional mining method has an EROI of 5:1,  but for the SAGD or steam-powered method mentioned above, the return is only 1.4:1.    Andrew Nikoforuk says the project is not sustainable simply from an economic standpoint because the return is so meager for the energy needed to obtain it.    It is a “progress trap”; a developmental dead end.    As the Catholic theologian Ivan Ilyich noted, “The energy crisis cannot be overwhelmed by more energy inputs.”

One phrase that I have invented to describe this situation is that declining energy returns can also be termed “increasing marginal futility.”

7.  Lack of Fiscal Accountability

The problem from the standpoint of the nation’s finances is that all of the wealth that is under the ground and theoretically belongs to the country as a whole is being practically given away to the oil industry.    The US Council on Foreign Relations said in 2009 that “Alberta has relatively low royalty and tax rates for the oil sands, which promotes greater production.”

Here’s a chart derived from the US Government Accountability Office report to the Canadian legislature in 2006 which shows the percentage of industry oil revenues that the government takes.    The highest is Venezuela as 89%, the lowest is Alberta at 39%.

Government Share of Industry Oil Revenues

Country

Percentage

Venezuela

89%

Nigeria

77%

Norway

76%

Angola

73%

Ecuador

61%

Louisiana

57%

California

53%

United Kingdom

52%

Wyoming

52%

Alberta

39%

in Norway, the net revenue for oil companies is about 23% of the gross, and many companies would be quite satisfied with that.    In Alberta, the government allows the oil companies to have a net revenue of 53%, almost double the rate of profit allowed by Norway.    In the last decade alone, this amounts to a $40 B giveaway to the oil companies in Canada.

This money should be saved for the future when Canada runs out of oil, and it could be used to stabilize the currency in the short run as well, which would be of immediate benefit to the economy.    Under the current conditions, the Federal government in Canada makes more money from oil sands development in the form of corporate taxes that the Alberta government makes it royalties because they have been set at such a low rate.

In Norway, there was a national debate involving all parties on the left, right, and center about how to use this natural wealth in such a way as not to undermine their democratic institutions.    The problem of relying on a natural resource for the majority of your revenue is that those in government tend to represent more and more the interests of those companies extracting the resource, and not the country as a whole, to whom the resource theoretically belongs in the first place.    This increases the political inequality of the country in the sense that it increases the divide between those who are governing and the people who are being governed.    The conclusion that the Norwegians came to in their national debate was that the revenue generated from the extraction of oil needed to be saved for exactly the reason mentioned above, because some day it will run out.    The Norwegians have saved about $500 billion since 1996, as opposed to $35 billion saved by the Canadians since 1978, of which Alberta has saved $14 billion.    The projection is that if Alberta doesn’t save $100 billion by 2030, it will likely be the most highly taxed region in North America.

The entire point of Andrew Nikiforuk’s talk, you might say, is that Canada needs to have a similar national debate because it does involve all Canadians, not just those in Alberta.   

8.   Regulatory Neglect

The Alberta Tar sands project is located in the world’s 3rd largest river basin, the MacKenzie River Basin, which provides 1/6 of Canada’s fresh water supply.   In 2009 and 2010, David Schindler and Aaron Kelly produced two scientific papers showing that the pollution from the tar sands project in the form of air particulates and watershed destruction was pouring a lot of contaminants into the Athabasca river such as bitumen and bitumen particulates such as heavy metals that were the equivalent of an annual oil spill of 5,000 barrels.    This has had an effect of increasing the number of severe deformities in fish caught in the Athabasca river.   But as for government regulatory oversight is concerned,, the one monitoring station on that river was not even calibrated to test for oil sands contaminants.    The government’s Oil Sands Advisory Panel in 2010 said an environmental monitoring system for the oil sands needed to be established.

In Alberta, the provincial government, after initially excoriating Schindler and Kelly for their findings, in essence admitted that they were correct in their conclusion that “PACs (polycyclic aromatic hydrocarbons) and trace metals are being introduced into the environment by oil sands operations.”

Not enough is known about the extent and capacity of the aquifers, and this question directly affects the question of how much groundwater loss through these tar sands operations can be sustained, and for how long.

9.   The Bitumen Debt

The oil industry has developed a PR campaign to develop “equivalent land capability” meaning that the trees on the lands that have been devoted to the oil sands project that have been destroyed will be replanted elsewhere.    The problem is that there is only $1 billion in the “reclamation fund” to clean up the mess in general, which is nowhere near an adequate amount to handle this enormous task.

The carbon intensity of the resources in Canada is among the highest in the world (Iran and Venezuela are high, but not as high as Canada).   40 million tons are being extracted in the tar sands to eventually produce 15 million barrels per day or bdp, as opposed to 15 million tons in Norway being extracted to produce 2.0 million bpd of oil.    It is a lot dirtier source of oil, in other words.

Shell Oil once described a scenario where they would face no regulatory opposition in the United States and have unfettered access to oil resources.    They called it the “scramble scenario” and they wisely said that this would in turn “attract increasing opposition from powerful water and climate lobbies that oppose the environmental footprint of these developments.”   According to Andrew Nikiforuk, that “scramble scenario” accurately describes not a hypothetical future, but the present in which we find ourselves right now.

10.   Immature Technology

We know that the SAGD technology requires 4 times as much natural gas as the traditional mining approach, but there are additional side effects of this technology to be considered, such as when the steam is released to the surface in a catastrophic explosion, like the one that occurred in May 18, 2006 and caused a 300-foot crater (luckily no one was injured).

The amount of steam is takes to create a barrel of oil has turned out to be underestimated.    It was estimated that it required 2.4 barrels of steam to extract a barrel of oil back in 1987-1989.    The average SAGD project now requires 3.5 barrels of steam, meaning that there has been a deterioration in the energy efficiency of about 50%, with companies requiring as much as 6 barrels of steam to product that same barrel of oil.

How innovative is the oil and gas industry?    Not very much, as compared to automotive, pharmaceutical, or technological companies such as Toyota, Pfizer, or Google.    They are not lean enough as operations to support the R&D required to be innovative.

Conclusion:  The Leadership Gap

St. Francis of Assisi once said, “start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible.”   Canada needs to have a national debate on the extent of the oil sands project in Alberta and heed the advice of former Prime Minister Peter Lougheed, a conservative, who said this in 2006 about the project, “slow down, behave like an owner, collect your fair share, save for a rainy day, and clean up the mess.”

I would say that we need to have a similar debate in the United States about the extraction of shale oil and gas through hydrofracturing (fracking), and the transport of tar sands oil through the proposed Keystone Pipeline system.    

  • Is the U.S. government behaving as if it is the owner of the resources on behalf of its people?    
  • Is it collecting a fair share of the revenue generated from those resources?  
  • Is it saving for a rainy day when those resources will no longer be available?  
  • Are there sufficient resources being devoted to cleaning up the environmental mess created by that extraction?   
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4 Responses

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