Get Rich Quick at the Oil Sands:
A Complete Guide
How Long Will This Last?
The Economic Outlook
Will this building boom still be going on in five years, in ten? How long will these job opportunities be available? To answer these questions we must examine the centrality of oil to modern industrial civilization. We will see that in the years ahead oil consumption is going to continue to rise significantly as poor countries like China, India, Indonesia and Brazil become rich and their citizens begin buying cars. Simultaneously, supplies of cheap conventional oil are being run down. The laws of supply and demand dictate oil companies will gamble on expensive and dirty bitumen to continue to meet the world’s oil needs.
Why do we still use oil?
Fossil fuels are fundamental to our civilization’s existence. Even today, almost 40 years after the oil shocks of the 1970s brought renewable energy technologies into the mainstream, almost 80% of all our energy still comes from oil, coal and gas.
Asides from successful lobbying by oil companies, there are two obvious reasons for this: Fossil fuels contain almost miraculous quantities of energy, and they are very easy to use. Before the Industrial Revolution most people had to rely upon the muscle power to get anything done. Coal, then oil, then gas radically transformed the amount of energy available to humans. Just how transformative was illustrated by Admiral Hyman Rickover, father of the American nuclear-powered navy. He calculated that an engineer of a diesel locomotive had the equivalent energy of 100,000 men at his disposal. The pilot of a jet plane the power of 700,000. Prior to fossil fuels this energy was usually provided by animals, serfs and slaves. (There were some wind and water mills but the scale was pathetically small by today's standards). The new renewable energies like solar and wind, upon which so much hope has been reposed, signally lack the energy density of fossil fuels. Replacing a single 1,000 Megawatt coal thermal power plant would require anywhere from 1,125 to 2,250 massive 2 MW wind turbines. Renewable energy technologies are rapidly catching up but that doesn't mean fossil fuels don't still have advantages. Despite all their immense drawbacks, they are powerful. Replacing them, however worthy a task that is, will be challenging.
Fossil fuel demand is soaring just as climatologists are urgently warning we must begin to phase them out.
Furthermore these renewable energies like solar, wind, hydroelectric and geothermal, cannot simply replace oil—at least not yet. They are sources of electricity; oil on the other hand is overwhelmingly used as a transportation fuel. Sometimes people ask “Why develop the oil sands when we can be building wind farms?” The answer is because cars cannot run on wind. According to Natural Resources Canada 97.9% of all the cars, planes, trains and ships in Canada run on some kind of oil. If we want to get off oil we need to be able to convert renewable energy into transportation fuel and that is where we run into an absolutely crucial bottleneck: electric cars. We have virtually no electric cars. Oil, and our dependence on it, is not going anywhere until that changes
Will we stop needing oil soon?
So how is our electric car fleet coming along?
85 million new cars hit the road every year, around 235,000 every single day. Virtually all of them have gas tanks. In Norway, the world leader in electric car market penetration, a miserly 1% of cars are plug-in electrics. Around the rest of the world electric cars still amount to little more than a rounding error in automakers production figures, around 0.0125% of all the cars built in 2012. I saw thousands of brand new Porsches, Audis, Toyotas and Buicks during my time in China. Not one of them was electric. They cannot be retrofitted with electric batteries. They will all be on the roads for an average 12 years. They will all need gasoline. At this point we must remind ourselves this is the year 2014, almost 20 years after the Kyoto Protocol came into force. How have we not addressed this yet? Yes, it is encouraging to see the odd Tesla here and there, but these changes are being more than offset by rising total production. By 2020 global electric car production is expected to grow to 6.6 million vehicles a year, but total car production is expected to rise to 107 million vehicles, completely wiping out any gains made in the electric vehicle market.
The Harper Government seems frightened that a sudden global shift to electric vehicles will render our oil sands worthless, and so they are doing everything in their power to drive investment in the oil sands, accepting unfavourable revenue deals and suspending regulation and oversight to entice oil companies into investing. In my opinion this approach is ludicrously short-sighted.
Currently global oil production is around 89 million barrels per day. By 2035 the International Energy Agency projects this demand will rise to 102 million barrels per day. Despite what you may have read about this new technological breakthrough in biofuels or that new conservation method pioneered in Denmark, the fact of the matter is our oil economy is not going anywhere for some time yet.
Where will the oil come from?
Setting aside the horrifying implications this has for the global climate and the future well-being of the biosphere, where will these millions of barrels come from? As a finite resource, there is by definition only so much oil in the ground. Assuming we keep pumping oil at this fantastic rate, one day there will be none left, and I seriously doubt anyone will be waiting around for the next batch to be ready in 100 million years.
For most of the 20th Century we were able to supply almost all our needs from massive fields of high-quality conventional oil located onshore throughout the world. After a well was sunk in these fields the oil essentially pumped itself. They were in America, Mexico, Romania, Russia and the Middle East. We also used a lot less oil back then too. Germany, for example, uses as much oil in 38 days as they did in all of the year 1938. As a result of our huge draws on these conventional fields these massive reserves of so-called ‘cheap oil’ have begun to run down.
Yet there is still a tremendous amount of oil left. The problem is that it's located in increasingly difficult to reach places: In offshore oil fields in the North Sea, the Gulf of Mexico and the Brazilian littoral; in the Alaskan, Canadan and Siberian high Arctic; and from more complex rock formations such as shale and Venezuelan heavy oils. And of course the Canadian oil sands. Deriving petroleum from these sources was once prohibitively expensive, but thankfully the price of oil has tripled in the last decade and made the exercise profitable.
Still, getting enough oil to meet demand is going to be extremely challenging and the recent drop in oil prices should not fool us into complacency. The only reason we are in the extremely expensive and energy intensive oil sands in the first place is because we are running out of cheap oil. Even in light of dramatic short term plunges in the price of oil, we must never lose sight of this fact. In an interview with the Globe and Mail, the chief economist at the International Energy Agency, the organization that quite literally writes the energy policy of the industrialized nations, argued that the oil sands were absolutely crucial for replacing declining oil production from the cheap oil fields. Indeed, just to keep the global economy from collapsing in the next two decades we're going to need to make absolutely jaw-dropping investments in our energy infrastructure.
The IEA said that over the next 20 years, the world will need investments of $40-trillion (U.S.) across the energy spectrum, 60 per cent of which would be needed just to replace aging assets and meet current demand. Some 80 per cent of upstream oil and gas investment would go to offset declines in today’s fields and keep production at current levels.
There is much hand-wringing in Alberta over temporary construction slow-downs and price drops, but these concerns are short-sighted. Energy = Economic Activity, and for now Energy = Oil. Failing to meet oil demand is simply not an option, at least if we want to keep the global economy from collapsing. The price of oil may drop substantially for a short period, like it is now in the fall of 2014, spooking investors and causing project cancellations and layoffs, but we must not forget Alberta’s oil reserves are one of the largest remaining stores of this invaluable material on earth. As more fields of conventional oil run dry and the price rises inexorably to pay for the more difficult to access oil, the value of Alberta bitumen will only increase. It might increase dramatically.
Building is expected to continue at a rapid pace. To give an idea of the scale of these projects, the project under construction by CNOOC (Nexen) will yield 40,000 barrels a day, seen on the graph as the small red section in the CNOOC column. That project cost $1.4 billion dollars, included the hiring of well over 2,000 workers over a period of several years and, when completed, will yield an estimated daily revenue of $12 million. I made this graph with information from the Oil Sands Review updated in October 2014.
The oil companies certainly seem to agree with this assessment. Most of the them build their oil sands projects in phases. Phase 1, for example, is an extraction facility capable of producing 40,000 barrels of oil a day, Phase 2 another facility nearby of 80,000, and so on and so on. All three of the projects I worked on for three different companies were in Phase 1 or 2. All of them had regulatory approval out to Phase 5 or 7. If all goes according to plan the current building boom will continue into the mid-2030s. Two million barrels of oil were coming out of the oil sands every day in 2012. That number is expected to double or even triple by 2030.
The International Energy Agency expects oil production from conventional fields to stay flat, though many analysts believe this is overly optimistic. Unconventional oil (read: the oil sands) will have to make up for the increasing global demand.
A Convenient Truth
We as a civilization have painted ourselves into a corner. For decades to come we will be forced to pump more oil every day to run the machines we keep building by the million. At the same time the rest of the world is running out of cheap oil, causing the gaze of oil executives all over the world to turn to Alberta’s tremendous untapped potential. They are looking at the long term profit projections and they really, really like what they see. If allowed to develop without requisite safeguards, this is an extremely inconvenient truth for our climate, but it is convenient for our purposes here, because it means there will be jobs in the oil sands for a long time to come.