The oil sands can be developed in a sustainable fashion and can bridge to the energy of the future but the opportunity is fleeting as the province awaits America's lead rather than pursuing its own destiny.
Many consider nuclear power another bridge to a green future that is constrained by problems of waste and the potential for nuclear weapons proliferation.
Ironically the problems of spent nuclear fuel (SNF); heat, ionizing radiation and radiolysis which breaks down water into ions corrosive to fuel bundles and their containers are assets with respect to the developing the oil sands in a sustainable fashion.
Hydrogen released by the process of radiolysis and the heat generated by SNF within an oil sands formation would over turn the equilibrium of the system and contribute both to the in situ cracking and mobilization of the viscous bitumen. The high-energy flux of spent nuclear fuel will ionize and fracture (upgrade) a portion of the long chain molecules in the ground.
The...
Preparing for the Final Boom by Richard Schneider
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Since the advent of big oil, boom and bust cycles have been a fact of life in Alberta. Consequently, Albertans face the current economic crisis with a quiet resolve born of the knowledge that, soon enough, another boom will be on its way and all will be well again. Indeed, there is evidence to suggest that the seeds of the next boom have already been sown.
But what if the next boom turns out to be the last one. One last big hurrah, and that’s it. There are some fairly compelling reasons why this might be so. It is not that Alberta is about to run out of oil any time soon. But as the saying goes, the stone age did not end because they ran out of rocks. A global energy transition has begun and in 20 years the production and use of oil will be much different than it is today. For Alberta it means that the era of oil booms will draw to a close and it would be well for us to begin thinking now, while options still exist, about how best to manage the final boom to ensure that our prosperity does not end when it does.
Let’s begin by taking stock of what we know.  As everyone is keenly aware, Alberta sits atop the second-largest deposit of oil in the world, some 1.7 trillion barrels in-place. Our golden goose has enough eggs left to keep laying for at least a hundred years. But there is an important caveat here. Production of conventional oil — the oil we built our fortune on — peaked in the 1970s and has been in decline ever since. Production of conventional oil is declining in most other oil producing regions as well, aside from the Middle East. The difference in Alberta is that we have vast supplies of unconventional oil, the oilsands, to take up the slack. Within the next five years oilsands production is expected to account for 65% of Canada’s total output of crude oil.
The thing to keep in mind about the oilsands is that they are more difficult and costly to develop than conventional reserves. They are not called the tar sands for nothing. The stuff has to be heated before it will flow, then it has to be separated from the sand, and finally, it has to be refined to produce a useable product. This takes a lot of energy and money and is hard on the environment in more ways than you can count. Most of the activity occurs in northern muskeg that alternates between mosquito season and 40 below, far from existing infrastructure and labour sources. There is only one reason any oil company would come here: there are no better options.
The problem is that conventional oil supplies are dwindling. According to the International Energy Agency, the international body that tracks these sorts of things, production from existing oil fields is declining by approximately 2.4% per year (a little over 2 million barrels/day). To put this in perspective, that’s nearly twice the current output of Alberta’s oilsands that must be found and brought into production each and every year to just to maintain existing supplies. But after more than 50 years of intensive exploration, most of the world’s large and easily accessible oilfields have already been found and put into service. So the world is now knocking at our door. Not because our oil is particularly desirable, but because the low hanging fruit has all been picked. It’s either us, the bottom of the ocean, or the guerillas in Nigeria.
The demand side of the equation also has to be considered. The global economy is currently in the midst of a major economic recession, the longest since the Great Depression. One might expect this would knock back the demand for oil. And indeed it has — by a whopping 2.9%.  Trillions of dollars of investment losses, bankruptcies and home foreclosures at record levels, millions of people out of work, and the world continues to use as much oil as it did in 2006. The global economy and its associated use of oil is like a large ocean liner at cruising speed; it does not stop on a dime, and even making a turn takes a long time and a big push. If the nascent economic recovery continues along its current trajectory, worldwide consumption of oil will again reach its peak level in less than two years. Thereafter, demand is expected to resume its inexorable march upwards, at an estimated 1.6% increase per year.
What this means is that the era of cheap oil is at end.  The fact that the Saudis and some of their friends still have plenty of oil left and can pump it out for a few dollars a barrel is irrelevant because they cannot supply all of the world’s needs, even if they wanted to. Other sources are needed to meet the demand, and the cost of these sources is rising quickly as conventional reserves are depleted and replaced by more expensive alternatives such as the oilsands. This drives up the base price of oil because the Saudis and other low cost producers naturally expect to receive the same price per barrel as everyone else, regardless of their cost of production. Add a few commodity speculators to the mix and prices can quickly get out of hand, as they did in 2007/2008.
The price swings of the past few years provide some useful insights into the future of oilsands development. When oil prices rose above $50 per barrel in 2005 oil companies began to take an interest in the oilsands. When prices climbed even higher this interest evolved into an outright feeding frenzy. Rampant development followed, resulting in inflation and labour shortages. There simply wasn’t enough raw material, equipment, and labour to go around, and costs soared. Massive budget overruns on oilsands projects became the norm, driving up the breakeven cost of new projects from the mid $30 range to around $80 by the fall of 2008. Consequently, when the price of oil dropped below $40 earlier this year as a result of the recession most new oilsands projects were put on hold or cancelled. Even now, with oil back up around $70, most proposed oilsands developments remain on hold.
This illustrates a critical point. There is a world of difference between a barrel of oil in the ground and a barrel in the pipe. The rate of turning the former into the latter is limited by hard and unavoidable constraints. Moreover, the faster you try to develop, the tighter those constraints become. Try as we might, a quadrupling of oilsands production to five million barrels per day is about the best we are likely to achieve over the next 20 years. This means that most of our 1.7 trillion barrels of oilsands deposits are going to stay in the ground for a very long time, regardless of the price of oil or our desire to extract it.
In an ideal world the depletion of conventional oil reserves would be offset by a combination of energy conservation and increasing supply from alternative energy sources, and our lives would roll merrily along. What is actually happening is pretty much the exact opposite. Worldwide demand for oil is again increasing, led by the same countries that have been driving demand growth in recent years: China, India, and the Middle East. In the meantime, unconventional oil projects in Alberta and around the world remain on hold because of unfavourable economics. There is only one thing that stands between us and a train wreck: Saudi Arabia.
Saudi Arabia is the only oil producer with meaningful spare capacity (at least for the next few years) and the ability to turn the tap on and off relatively quickly. If they handle their supply very carefully they might be able to keep prices high enough to stimulate the development of alternative supplies but low enough to prevent a shock to the world economy. If history is any guide, however, the odds of this happening are not good. If they release too little oil, the tightening supply will generate a price spike, exactly as it did 2008. If they release too much oil, prices will remain low which will deter energy conservation efforts and further hamper the development of alternative sources. In this case the crunch is delayed, but it is worse when it arrives.
Over the longer term, the spare capacity held by the Saudis will all be needed, and then some. According to the International Energy Agency, within 20 years the equivalent of four new Saudi Arabias will be required just to make up for the shortfall from declining conventional oil production. Then one has to add in the increased demand for energy arising from the industrialization of China, India, and other developing countries. The implications are clear: supplies will tighten, unconventional sources of oil will become increasingly important for meeting global demand, and oil prices will rise as a consequence.
It would appear then that another boom for Alberta is all but inevitable within the next few years. But this boom is likely to be the last one. This is because a global transition away from oil will occur over the next 20 years as a consequence of several factors that are now coming into alignment.
The rising price of oil will itself be a key factor in this transition, particularly because the high prices will be sustained this time around. Above $70 a barrel various alternative forms of energy become viable. Already, electricity producers and large industrial users of oil, accounting for almost 40% of current global oil consumption, are beginning to convert, mostly to coal and natural gas which remain plentiful. High oil prices will also support the expansion of renewable energy sources, such as wind power, solar, and next generation biofuels (grassoline). Renewed interest in nuclear energy is also likely in some countries. Finally, high prices will drive efforts to increase energy efficiency, as was seen after the oil price shocks of the 1970s. For example, the new Chevy Volt will purportedly make 240 miles per gallon which, even if exaggerated, provides a clear indication of what can be expected in coming years.
The transition away from oil is also being driven by efforts to address global warming and by a desire by major oil importers such as the United States and the European Union to achieve energy independence. The arrival of the Obama administration in the United States is of particular importance because it means that the world’s largest economy and energy user is shifting away from its long-held role as climate laggard. The pressure for other heel-draggers such as China (and Canada for that matter) to get on-board will now increase. Wherever it occurs, the alignment of economic signals and government policy will substantially hasten the transition away from oil.
The outcome of these various processes cannot be predicted with certainty. But consider the following scenario. It’s 2030. The most profitable sites in Alberta’s oilsands are now in production, delivering nearly five million barrels/day. Production from older projects is beginning to decline but no new projects are under development because the economics are no longer favourable. The remaining reserves are of lower quality, start-up capital costs remain high, the penalty oil companies must pay for emitting carbon has skyrocketed, and the price of oil is now only $50 per barrel. Oil prices declined after a period of extreme price volatility between 2015 and 2020. This volatility was caused by the inability of Saudi Arabia to balance supply and demand during a time when unconventional oil had yet to significantly ramp up its production and oil consumers had yet to make much headway in terms of energy conservation and substitution. The effect of the price spikes was to galvanize efforts around the globe to transition away from oil. In addition, reports in 2019 that the Arctic ocean would be ice-free within a decade served to focus public concern about climate change, leading to an international program to reduce CO2 emissions by an additional 50% by 2030. Together, these forces led to a rapid decline in the use of oil after 2020. When the rate of decline in demand matched and then exceeded the rate of natural production loss from existing oil fields, new high-cost sources of oil were no longer necessary or desired and oil prices declined.
Will it turn out like this? Only time will tell. But it is certainly plausible and worth thinking about. The key point is we cannot blithely assume that the boom and bust cycle we have become accustomed to in Alberta will continue indefinitely. Major changes in the way the world uses energy are now underway and being a high cost oil producer and the worst emitter of CO2 makes us vulnerable in the long term. True, when there are no other options, the world will beat a path to our door. But they will leave just as quickly when circumstances change.
If the next boom is indeed to be the last (albeit a big one), then it needs to be handled differently from the others. In particular, we need to develop the maturity to not blow it all as we have in the past. Our record is abysmal. The Alberta Heritage Savings Trust Fund, established as a legacy fund during the boom of the 1970s, grew to over $11 billion in its first seven years. But in the 25 years since, the fund has increased by only $3 billion, despite the inflow of more than a hundred billion dollars of oil and gas revenue into government coffers during that period.
We also need to do a better job of handling the disruptive side-effects that an oil boom generates. When oil prices spike, the oil patch becomes a black hole that sucks raw materials, labour, and equipment from the rest of the province. This is harmful to other industrial sectors and skews the training and composition of our workforce — just the opposite of what is needed for Alberta to thrive in a post-oil economy. It also generates problems for individuals. Price inflation harms those with low or fixed incomes and offsets wage gains for others. The quality and availability of services (especially social services) decline for all.
Finally, we need to take better care of our environment. Though we are realistically only going to bring a small proportion of the oilsands reserves into production, development is currently scattered across a land area the size of Florida. The environmental harm from this scattergun approach is vastly greater than if development was concentrated into a few intensive development zones where profitability is highest. We also need to place a much higher priority on water and air resources and on reducing CO2 emissions.
These issues are large, but not insolvable. Norway provides a working example of how they can be successfully addressed. Norway started producing oil in the late 1970s and since 1990 it has been producing roughly the same amount of oil as Canada (of which Alberta contributes the lion’s share). Realizing early on that their resource had a limited lifespan, and having witnessed at close hand the disruptive effects of oil booms in the Netherlands and England, the Norwegians devised a new approach to the development of their resource.  First, in exchange for the right to drill, oil companies must hand 78 per cent of their profit to the state. This high royalty rate ensures that Norwegians receive the maximum financial benefit from their resource and helps moderate the pace of development. Second, Norway shields its economy from the distorting effects that oil booms produce by directing most of the oil revenue to a savings fund. In doing so, it has generated a $370 billion national pension fund while maintaining a diverse economy, low unemployment, and one of the highest standards of living in the world (even higher than Canada's).
Implementing a system like Norway’s in Alberta may seem unlikely, given our history with previous booms. But this is not because Albertans are inherently more short-sighted than Norwegians, or care less about their children and future generations. Nor is it simply the fault of our politicians. Voters would not have given premier Stelmach an overwhelming majority if they felt that he and his party have been seriously leading us astray. Rather, our approach reflects an ingrained belief that our oil wealth will never run out. Why worry about tomorrow when we know the tap will never run dry? But, as the prospect of a post-oil economy comes into focus and environmental damage from oil development reaches critical levels, a shift in thinking is needed. Twenty years may seem like a long time, but it is actually just enough to build up our nest egg and set our house in order for what lies ahead. Hopefully we can get it right this time because we are unlikely to get a second chance.
