Wednesday, August 24, 2005

Tar Sands Will Save Us

Installment 2 of the Series

The Common Misconceptions about Peak Oil

Tar Sands Will Save Us

As opposed to oil shale, which I have direct professional experience with, I have only peripheral experience with tar sands. Tar sands refer to a large grouping of hydrocarbon accumulations where the hydrocarbon phase is so viscous that it will not flow on its own and must be produced either by mining the oil with the equivalent of a large shovel or by injecting heat into the rock (through steam or direct heat of conduction) to decrease the viscosity of the oil to flow.

There is a very good treatise on tar sands – especially the Canadian kind – here on the ASPO web site. It explains everything in much greater depth than I care to go into here.

In any case, like with oil shale, there are many deposits in the world but only a few that are worth considering from a commercial standpoint. The largest of these deposits is in Alberta, Canada and is called the Athabasca Tar Sands (or Oil Sands) deposit. When people speak of tar sands, they are usually referring to this deposit in addition to some nearby deposits at Cold Lake and Peace River. The total volume of “oil” in place in these deposits is estimated to be at least 1.6 trillion barrels.

The “oil” or tar in these deposits is not really oil but something called bitumen. The bitumen is what was left in these deposits after the oil that was initially deposited there was biodegraded over millions of years. Basically them damn bugs ate all the good light oil and left all the heavy tarry shit behind. This is different than oil shale which has never been turned into oil yet. Oil shale requires a very large amount of energy to turn the raw kerogen into a liquid form of hydrocarbon whereas the bitumen in tar sands has already gone through this process

To turn this bitumen into usable energy and transportation fuel it has to be heavily refined and upgraded, but that is doable. However, as you might imagine, this bitumen is not a very valued product by most oil refiners. Consequently, it sells at a heayv discount ($20/bbl ?) to light, sweet crude.

Right now approximately 1 million barrels of bitumen per day are produced from tar sands in AlbertaBy 2010 that quantity is expected to double. It may double again by 2020.

With WTI at $67/barrel lots of companies are making a fortune in this right now. I personally have made enough money investing in a lot of these companies (UTS, WTO, SHC, IMO, OPC, CNQ, DCE, SU, HSE, COS-UN) to either put my daughter part of the way through college or to comfortably outfit my cave when Peak Oil Armageddon arrives.

In any case, if there is so much of this stuff, why can’t it stave off peak oil? Good question. The answer is multi-fold. First, all of the forecasts for future relating to future worldwide oil supply already forecast a substantial and growing wedge of production from Canadian tar sands. Some of these forecasts assume as much as 5 million barrels per day (total “Heavy Oil”) by 2020. But that is not enough to offset the decline in other areas.

In addition, tar sands require a lot of other energy resources to extract and upgrade them. Natural gas has been the fuel of choice for most of these energy needs as well as to use in hydrogenating the bitumen in the upgrading process. The forecasted need for natural gas collides head on with a forecast of limited future supply for this vital resource. There may be a way around this conundrum, but right now it is considered an impediment to future growth of tar sands development.

Lastly there is the issue of acceptable environmental disruption and damage. As you can imagine, mining tar is kind of a messy project. These deposits occur in a swampy, low-lying, area full of muskeg. How much environmental pollution will the Canadians put up with to provide Americans oil? Also, how willing is Canada to break the commitment it signed at Kyoto? These questions are yet to be answered.