Despite clear risks to the future of oil sands amid a global move toward regulating carbon, ConocoPhillips and Total have launched a massive expansion of their joint venture in Canada’s vast oil sands. By 2015, the two plan to raise production to 110,000 barrels a day, which is four times current production.
There is no doubt the world needs more fuel, and Canada has it. The oil sands represent the largest proven oil reserve outside Saudi Arabia. But the energy is not as easy to tap into. The fuel starts out as solid bitumen, which must be mined, crushed, diluted and cleaned before it can be turned into ”synthetic crude” in a refinery. Either that or it is extracted by pumping steam into the ground to liquefy the reserves so they can flow to the surface – a process that requires the burning of natural gas to produce the steam, giving off carbon.
And while there are disputes about how much carbon is produced in either process, overall oil sands extraction and production is more carbon intensive than conventional crude oil extraction and production. This has led to concerns about whether carbon legislation will make the process even more expensive than it already is. Or whether certain countries or regions will close their doors to fuel from the oil sands.
So far, however, the US has not closed its door. Indeed, under the Obama administration it has kept it wide open. In August of 2009, the Obama administration approved a pipeline to carry oil-sands fuel from Canada into the US, saying its action was designed to send a positive economic signal in a difficult economic period. And carbon legislation does seem a world away, given how little was accomplished in Copenhagen.
So ConocoPhillips and Total are probably making the right decision for investors to move forward. Here is how Matt Fox, president of ConocoPhillips’ Canadian division put it:
Oil supply from the oil sands is going to be required to meet long-term global demand and play a role in energy security and economic security for North America.
Whether that is the right decision for the environment remains to be seen.
New sources of pressure on Shell’s oil sands projects (FT Energy Source, 18/01/10)
PetroChina goes long oil sands (FT Energy Source, 01/09/09)
Albert Clipper decision disappoints environmentalists (FT Energy Source, 21/08/09)