Wednesday, December 16, 2009

Alberta Oil - One Glob for the Price of Two Globs

Has anyone noticed the elegantly profitable symmetry that is unfolding in the Alberta oil patch?

A phalanx of oil companies, all of whom swear that they do not have time nor resources to put up a few windmills or do any other reasonable thing, are lining up to get their dibs in on the Athabasca Oil Sands.

Why is this, I wondered to myself.

Of course, the answer came quite easily.

Because these oil sands are a profitable operation.

But, they are really more profitable, even, than meets the eye. That's because there is a special magic in the air in Alberta that actually doubles the sales... and who knows what's going on with the profits? The oil companies are raking it in as it is, of course. Posting gargantuan profits with minimal worries about what the economy is doing. Cheating the public outright at the retail level at every turn. It is mind boggling what they get away with.

The coffee card effect

But the real sleight-of-hand goes on in the oil sands. Remember, this is the operation where it takes something like 4 times the energy to produce a barrel of oil as it does in conventional oil production. For starters, it takes 1200 cu. ft. of natural gas to produce one barrel of oil in the extraction process of conventional tar sands production. Since a barrel of oil is equal to about 6,000 cu. ft. of natural gas, it's just about like a Tim Horton's coffee card - extract 4 barrels of oil - you get to sell another barrel! Then there is all the other fuel used in the operation. Running all those dump trucks on steroids, shuttling the workers, etc., would all be additional energy burnt and additional Co2 and other emissions in the air and water. Even today, with oil production at possibly 15-20% of the anticipated future levels, the tar sands are consuming 40% of Alberta's natural gas production.

At that point we can consider the barrel of oil delivered, for the purpose of this discussion, but the consumption of fossil fuels associated with that barrel has only just begun. That's because Alberta has the intent of using carbon capture and storage (CCS) to reduce or neutralize the impact of the fuel burnt in the extraction process. In a nutshell, each time the Co2 emissions from one unit of fossil fuel is sequestered in CCS, the equivalent of another 50-75% of a unit of fuel is burnt. As explained in more detail here, this includes 20-30% in the capture, another 20-30% in liquefaction and a long list of other costs, including transportation of the liquid to the storage site, facilities construction, etc.

The net effect is a clusterbomb of fossil fuel consumption. To be sure, there may be few, if any, cases where the oil company running a project is one and the same as the company supplying the natural gas. But it is clear that all of these companies, together with their smaller suppliers and the Province of Alberta, form a common community that, as a whole, stands to realize exceptional benefits from the multiple combustion engine that is the Athabasca Tar Sands.


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