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Canada's black gold oil rush

Oil sands at the Muskeg River Mine in Alberta, Canada
A Shell worker with a handful of black, sticky oil sand at the Muskeg River mine

By Sarah Shenker
BBC News, Calgary

As the massive yellow truck approaches the digger, it manoeuvres into position and honks its horn, signalling its readiness to receive a payload of 400 tonnes of black, oily sand.

Already, another truck has stopped some 100m away, ready to take its turn ferrying oil sand from the mine face to the crushers for the first step in its processing into oil.

At just over 620 tonnes, the Caterpillar 797B is the largest truck in the world, with tyres as tall as two men and as heavy as a bus. The digger is seven storeys high and its shovel can lift 100 tonnes a scoop.

"Driving one of these is like driving a pick-up truck," says Cindy Blanchard, 40, who works at Shell's Muskeg River mine in the province of Alberta.

She works 12-hour shifts, days and nights, feeding the 24/7, 365-day oil sands industry which had been booming.

Caterpillar 797B at Muskeg River mine in Alberta, Canada
These truck drivers can earn more than C$100,000 a year

Oil prices reached an all-time record of $147 (99) a barrel in July but the subsequent drop amid worries over the global economy has been steep.

Industry insiders are keen to take the long view but there is no doubt lower prices are threatening to put a brake on the tar sands bonanza.

The industry had an uncertain start in the late 1950s and early 1960s - a cheap and efficient extraction method was elusive enough to prompt plans to use a nuclear bomb to access deep reserves.

But technological advances coupled with rising demand and prices for oil pushed production to 1.2m barrels a day, more than double what it was in 2000.

Economically recoverable reserves have now been put at 173bn barrels, placing Canada second only to Saudi Arabia in global oil reserves.

"It's a world-class resource, with 300 to 400 years of production left in it at current rates," says Martyn Griggs, oil sands manager with the Canadian Association of Petroleum Producers (CAPP) in Calgary.

Alberta Deputy Premier Ron Stevens
Deputy Premier Stevens sees a bright future for Alberta

There are three major players at the moment - Suncor, Syncrude and a consortium led by Shell - but more foreign investors and consortiums have piled in.

They have helped make the oil sands one of the biggest capital investment projects in the world, averaging C$20bn ($15.8bn; 10.7bn) a year over the past few years, and with more than C$100bn ($79bn; 53.6bn) projects announced for the next 10 years.

"The potential is vast," says Don Thompson, president of the industry body, the Oil Sands Developers Group, and a Syncrude employee for 29 years.

One in six Albertans are employed in the oil industry, which accounts for a third of provincial revenue. The province has a budget surplus, and an unemployment rate of about 3%.

"It is the economic engine of Alberta and of Canada," says Alberta's conservative Deputy Premier Ron Stevens.

"At this time of global economic turmoil, the one shining economic light in this country is the oil sands," he says.

Tough times?

It has undoubtedly been a tumultuous year for the industry.

As oil prices dropped from highs of over $140 (95) a barrel to under $50, falling at one point as low as $40, about C$40bn worth of future projects have been put on hold in recent months.

Many future oil sands projects had been counting on oil prices of $70-80 a barrel, although established producers would still make a reasonable profit at $50 a barrel, says the CAPP's Mr Griggs.

The industry takes a long-term view, he says: "When you are investing some C$20bn a year, you're not looking at today's oil prices."

Two or three years ago, $50 a barrel would have been a good price.

Mr Thompson of the Oil Sands Developers Group says the delays are understandable.

"But the energy demands of the world will continue to grow and inevitably, sources of conventional crude will continue to decline... The oil sands will continue to be developed," he says.

Mining oil sands is still a tricky business.

Each grain of oil sand is made up of grain of sand surrounded by an envelope of water, with an outer layer of bitumen - a type of heavy crude oil.

To reach the oil-rich sand, operators have to clear-cut the boreal forest of northern Alberta, drain wetlands and remove hundreds of metres of peat-rich topsoil and overburden.

OIL SANDS

info-graphic

It takes two tonnes of oil sand - a mix of bitumen, sand, clay and water - to make one barrel of oil.

info-graphic

Oil sands lie about 100m deep so trees and overburden - a clay, silt and gravel mix - is cleared first.

info-graphic

Mined oil sand is crushed and mixed with hot water to form slurry. Bitumen floats to the top and can be extracted.

info-graphic

The leftover water, clay, sand and residual bitumen, known as tailings, is pumped into large man-made lakes.

info-graphic

Bitumen is upgraded on site or piped further south in Alberta or to the US, where it is refined into fuels etc.

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Once revealed, the layer of oil sand is dug out of the ground with massive shovels.

It is then crushed and mixed with hot water to form a slurry, from which the bitumen can be extracted.

The leftover liquid, made up of water, clay, sand and residual toxic hydrocarbons is pumped into large man-made lakes, known as tailings ponds.

It is an expensive, energy-hungry process - the richest oil sand is about 10% oil, and it takes about two tonnes of it to make just one barrel of oil.

Deeper layers of oil sands are only accessible through in-situ technology, where steam is injected into the ground to soften the oil sands, which are then sucked up to the surface.

It will eventually become the main means of exploiting the oil sands, as about 80% of reserves are too deep to mine.

Moonscape

The scale of the project is huge. The total area currently being mined is 420 sq km (162 square miles), while the overall area that the Alberta government has leased to oil companies is 64,919 sq km.

The area of exploitable reserves is 140,200 sq km - about the size of Florida.

From the air, the strip mines have transformed the forest into a moonscape of craters and lakes, with smoke stacks pumping out billowing clouds.

At night, at a distance, the busy, sprawling plants are lit up like small towns.

Digger at the Muskeg River mine in Alberta, Canada
2009 could be a challenging year for the industry

All this in a remote part of northern Alberta, centred on the city of Fort McMurray.

The effects of strip mining, and the industry's heavy use of water and natural gas to process the bitumen, are controversial.

Oil sands production is said to emit three to five times the amount of greenhouse gases than conventional oil production.

But industry officials say that on a "well-to-wheels" basis, that is taking into account refining and transport as well, it is only about a sixth more.

Environmentalists and independent scientists say the industry is polluting the Athabasca River, from which the plants take their fresh water.

And they say a lack of government action means not enough is being done about the cumulative effects on the environment.

Residents of a community downstream from the plants, Fort Chipewyan, complain of a rise in cancer rates, which they fear is a result of toxins from the tar sands ending up in their diet.

An investigation by the Alberta Cancer Board is due to be published soon.

Earlier this year, 500 ducks died after landing on a tailings pond run by Syncrude. The company said it had not turned on its noisemaking bird deterrents. A government investigation is ongoing.

Whatever the results, it seems the pace of opposition to the oil sands is quickening. All this points to another troubled year ahead for the industry.

Map of oil sands areas in Alberta, Canada



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