So there is a story going on about the Canadian Tar Sands, a pipeline, and environmentalists who want to stop it from happening. Sounds like more lefty liberal hippies trying to kill the American Dream and unicorns? Well if you don’t read further into the story this is a nice spoonfed way of looking at the situation, but what if you take some time to learn about Tar Sands and their impact on our world?
Faced with this question I turned to the mighty Google and found this page:
Talk about an in depth article on Tar Sands! While I dont really understand most of the science speak (Rick Perry might say this is a Theory, except there are facts involved), but there are a few interesting segments:
The average production cost of one barrel of syncrude from the oil sand resources in Canada was approximately 32 USD in the year 2006. The mining process costs about 16 USD2006/barrel of oil equivalent (boe). The InSitu SAGD extraction costs about 14 USD2006/boe, and the upgrading process to syncrude costs about 16.5 USD2006/boe. Figure 2 shows the break down of the total costs that were incorporated in the EROI calculations above (Herweyer 2007). Mining costs appear to be decreasing according to some reports in early 2008.
Syncrude has approximately the same quality as conventional crude oil, and is therefore competitive. So long as the conventional crude oil price stays above 31.5 USD2006/boe (excluding profits) it is profitable to extract oil sands. The conventional crude oil prices in 2006 were 56 and in 2007 as much as $80 USD/boe (BP 2006). However at the same time the price of diesel, natural gas, steel and so forth used in generating the syncrude were increasing. Nevertheless it appears that tar sands will be a competitive source of oil for the indefinite future.
So from a business perspective it makes sense to get into the Tar Sands and get that oil out while the Middle East is in chaos and Oil Prices are inflated by the markets.
Then there is the tax implications:
The Alberta oil sands tax regime is such that it makes it very appealing for investors to put their money into oil sands business. The attractiveness in the fiscal regime is that until all original capital (plus a return) is recovered, only a production royalty of 1% of revenue is required. After the original capital is earned back by oil sand recovery, a royalty of 25% of net operating income is required. The tax regime is such that essentially no income tax has to be paid until all capital costs are recovered (TD Securities 2004).
Since the most expensive part of getting oil from Tar Sands is the capital expense it sure is nice that the politicians made it so that until those costs are recouped they dont have to pay any taxes at all.
Seems like a total win for businesses and consumers who get more profits and possibly lower costs. As Charlie would say this is #winning!
It turns out those crazy environmentalists are concerned about CO2 which is a direct cause of Global Warming. When we look at the CO2 production of Tar Sands refinement we get some really bad news:
The oil sand industry is one of the major GHG emitters in Canada and the entire process approximately doubles to triples the amount of CO2 released per barrel of petroleum used compared to conventional extraction. The mining process emits about 35 kg CO2 equivalent/barrel, and the upgrading process 45 kg CO2 equivalent/barrel, and the SAGD process 55 kg CO2 equivalent/barrel, (Bramley et al. 2005). In the business as usual scenario for the GHG emissions per barrel of bitumen, the total oil sand GHG emissions until 2020 are as follows: (Herweyer 2007).
At least the CEO’s who are working to pass this pipeline will be dead by 2020 so they wont have to live with the consequences. If you bothered to read that last quote it says that CO2 emissions are doulbled to TRIPLED in oil sands extraction. Thats like, a lot(insert valley girl voice for that last sentence).
What about tax payer costs? Apparently you have to use a lot of natural gas to extract oil sands oil. Apparently you have to use A LOT of natural gas:
According to the National Energy Board (2006), natural gas use will increase from 0.7 billion cubic feet per day in 2005 to 2.1 billion cubic feet per day in 2015. Although Canada has natural gas resources, this enormous rise in natural gas demand will be difficult to meet. The current capacity of the natural gas infrastructure and production will not be sufficient to keep up with these rises and might present a problem. In addition, the natural gas prices are coupled to the crude oil prices, and so they have risen as well. There is also the large issue of where the natural gas will come from â€“ Exxon is now saying they may not be able to build the necessary MacKenzie pipeline unless they receive significant monetary help from the government.
Sounds like capitalism at its finest!
Here is the conclusion:
In conclusion, tar sands are an economically and energetically viable, although hardly ideal, approach to maintaining liquid fuel supplies. The most severe problem is probably their local and global environmental impact, and they are already impacting Canadian CO2 releases significantly. But the tar sands are unlikely to make a large impact on overall supply of liquid fuels because their supply is likely to be rate, rather than total resource limited. If the maximum rate were to grow to about 2 billion barrels a year this would approximately meet Canadaâ€™s demand and could leave relatively little for export if Canadaâ€™s production of conventional oil continues to decline. Achieving even this rate of production from tar sands is uncertain because of growing concerns about environmental impacts downstream and insufficient hydrogen and water.
So the long term costs are horrendous and even at maximum capacity it won’t be enough oil to affect even the low oil using country of Canada of 2 billion barrels a day(the US consumes 18 Billion per day). However it is cheaper than traditional oil processes so lets aim short term and make some dough! Yeehaw!