June 2, 2011

Oil Sands a Big Deal for Big Oil

From Steve Levine:
For years, companies from around the world have poured into Alberta in order to sample the oil sands, a massive concentration of bitumen containing some 170 billion barrels of proven recoverable reserves and more than 1.7 trillion barrels in place. Unlike liquid hydrocarbons, bitumen traditionally has been mined and is thus visible, and the price of extraction has been relatively high, but there were no exploration costs, and hence no dry holes. Neither was there political risk: unlike Libya, Canada was highly unlikely to erupt in civil war; nor, like Venezuela, was it liable to nationalize anyone’s oil property. 
Yet somewhere along the road between that bout of nibbling and now, the oil sands have assumed more profound significance in the eyes of the industry. Exxon, a bellwether and the largest of the super-major companies known as Big Oil, is signaling that the oil sands are a hot, strategic play. At a time when the super-majors are barred from more than 75 per cent of the world’s known oil reserves, located in petro-states that wish to develop the hydrocarbons themselves, Alberta’s bitumen belt represents a profoundly shrewd, core, geostrategic hold. “The resource is bigger than the Saudis,” says Amy Myers Jaffe, director of the Energy Forum at Rice University in Houston, Texas. “The bottom line: There is no risk and no geologic constraint.” . . . 
[At the nucleus of the super-majors] are two anchors – LNG and Canada’s oil sands, both of which are humongously large components of Exxon’s and Shell’s reserve base. For Shell, the Athabasca oil sands deliver 250,000 barrels of oil a day, a large eight per cent slice of its daily global production of 3.1 million oil equivalent barrels; Exxon’s Alberta holdings are producing more than 200,000 barrels a day, or about five per cent of its 4.8 million barrels of daily global output, with more to come. So not only are both unconventional; they are also both long on Alberta. . . . 
The oil sands – by far the largest slice of Exxon’s current slate of 1.6 million barrels in new projects planned over the next five or so years – are part of Exxon’s gamble that unconventional oil and gas will save it from the dust bin. Over the last five years, the company has almost doubled the percentage of its resource base comprised of unconventional resources such as oil sands, LNG and gas fraccing plays to a whopping 40 per cent. Conventional oil and gas are just nine per cent of currently planned major projects. 
This does not mean that the oil industry, already whipped and tossed by expropriation, the rise of national oil companies, plus the turbulence of war, hurricanes and terrorist attack, is moving unhampered into these unconventional plays. A vocal number of Canadian and American environmentalists reject the assertion that the oil sands are a necessity – that the resource, the second-largest volume of oil on the planet next to Saudi Arabia’s, comprises half the world’s known reserves unencumbered by national oil companies, and so must be exploited for both economic and security reasons. 
These critics say that greenhouse gas emissions and water demands make the oil sands unfit as a primary energy source. The super-majors, oil companies from China, Norway and Thailand, and the Alberta government have offered concessions including an active tax on carbon emissions, but otherwise have fought back. There seems little if any chance that the provincial jewel will go underdeveloped. The advantages of the oil sands have been simply too tantalizing to ignore. . . .
Today, reserve replacement remains the key issue, but the stakes are far more momentous than the mere massaging of numbers. For the gas-guzzling United States, the oil sands are a geostrategic asset – a large, long-term supply of oil directly next door and wholly invulnerable to the vagaries of politics that plague so many reservoirs around the world. 
For Exxon, Shell and the others, the resource offers salvation from another bane of oil drillers – production decline, an annual average drop of six per cent to eight per cent in a field’s productivity that sets in immediately once extraction begins. Because of field decline, companies are forced to find new oil every year to compensate not only for what they drill, but for the average field decline, too. It is an extraordinarily difficult feat, particularly if you are, like Exxon, a gigantic super-major producing 4.8 million barrels of oil a day, meaning that you must somehow acquire in excess of one-and-a-half new supergiant oilfields every year.
In the absence of environmental considerations, the case for the oil sands is unassailable. The economic and security advantages are real and significant, as Levine insists. In the presence of those considerations, however, the case is severely weakened.

It is easier to predict what will happen--there is indeed "little if any chance that the provincial jewel will go underdeveloped"--than to say with certainty which set of objectives (the mitigation of economic and strategic insecurity as against the mitigation of environmental catastrophe) is most worthy of pursuing in the here and now.

If blocking the oil sands meant simply "off-shoring" emissions to heavy oil producers elsewhere (Saudi Arabia, for instance), there would be an increase in strategic vulnerability and no significant environmental gain. If the United States refused to be a market for Canadian oil sands, China would undoubtedly step up to the plate.

Oil sands are grim from just about every environmental standpoint imaginable, but its competitors are also not without sin, and its strategic advantages are substantial.

Both "Climate hawks" and "Peak oilers" are vitally engaged in understanding the interaction between "man and nature." They are both keen on "bringing nature back in" to the understanding of the human predicament. But their respective analyses point to profoundly different conclusions with regard to the development of the oil sands.

No comments: