Tar Sand Oil

by Dan Schafer

Quagmire is how Jimmy Carter describes the situation of the western countries enmeshed in Iraq. It epitomizes one of the themes of our last article. We argued that letting our thirst for oil be the driving force of political relations in the Middle East mostly ended up with contrary results. Democratic countries found themselves supporting autocratic governments who suppressed their own people's freedom. The backlash was predictable. It led to a revolution in Iran that found Americans taken hostage by a regime with whom the West could not reason. Then twenty some years later, terrorists determined to use any means, struck unthinkably in the air, in New York and Washington, D.C. and unnerved peaceable people all over the world. Some of the steps taken in response to this latter development were perhaps justifiable, but there is wide disagreement about their effectiveness.

We also said in our last article that one cannot undo history. The implication of that is that there is only way to go and that is forward. Bewailing what we have done, whether seventy-five years ago or three years ago is of little help. We must find the way from where we are now. We must square ourselves to what has been done and try to take a wiser path as we move on.

"Ends" That Result From "Means"

Unquestionably it is the duty of governments to protect and defend their people's interests. Their responsibility includes protecting the interests of their entrepreneurs in foreign countries as well. But pragmatic politics that operate by the axiom that the end justifies the means will eventually result in "ends" that are a product of the "means". Usually such pragmatism is looking at short sighted "ends" that never are the real "end". The East's concept of Karma is pretty hard to demonstrate, but hard headed sceptics can hardly argue with the truth that "you reap what you sow". So moving on doesn't mean abandoning pragmatism, but it does mean testing our pragmatic ideas by the criterion of whether they violate basic principles of truth and reality, justice and integrity.

We suggested last time that one thing that could be done was for the western world to become less dependent on Middle East oil, that is, to take the steps necessary to prevent our need for energy from forcing us into a pragmatism that compromises with untruth, unreality, injustice or dishonesty. We also suggested that one means to do that was for developed countries, through sticks (tax) and carrots (diverting oil subsidies to other energy sources), to keep the price of oil high enough to discourage wasteful consumption. That would also have the benefit of encouraging the development of alternative sources of energy.

“Today's discussion is of an alternative, perhaps not to oil itself, but at least a different source of oil. America's neighbour to the north has a quagmire of a literal sort, a mucky mix of sticky tar, water, clay and sand. But the Athabasca tar sands in Alberta are, by themselves, the largest petroleum resource in the world. The Alberta Energy and Utilities Board concludes that these tar sand deposits contain 1.6 trillion barrels of bitumen. (www.syncrude.com/who_we_are/01_02.html) So why don't North American and European oil companies just buy their oil from Canada instead of from the Middle East? The simple answer is that, in the short term, it is more expensive to get it out of the ground and turn it into useable fuel. It is clear, as much as we who don't own petroleum shares would like, we can't expect oil companies to forgo their profits just to be patriotic or for society's greater good. The Soviet experiment demonstrated that such idealism in business is not a practically viable model. But companies and entrepreneurs will take risks and invest their resources and technology if they can expect a good return

More Expensive Than Poking a Pipe in the Ground

Up to now in Saudi Arabia it is mostly more or less a matter of poking a pipe in the ground and watching the oil flow. In Alberta, on the other hand, the tar either has to be mined with gigantic shovels and hauled with similarly gigantic trucks to a processing point, or steamed out of the ground with heat and pressure through complicated well bores. Then comes the job of separating the bitumen from the sand. And then is the job of upgrading the bitumen by the addition of hydrogen to make it something more like the oil that refineries can deal with. Two other complications are the quantities of water used in the process and the carbon dioxide that is produced.

But, in fact, the cost of producing a barrel of oil from this quagmire has dropped from about $30 three decades ago to about $12 for example, at the Royal Dutch/Shell facility which opened in June 2003. (The Economist, 26 June 2003) So although it is complicated and costly, the companies involved have been continually improving their technology, both to lower costs, and to lower the environmental impact of their operations. Obviously, with prices of oil as high as they have been for the past year or so, there is money to be made from this unlikely source. The success is evident in the boom town feel of cities like Edmonton that have benefited greatly from the prosperity brought by the oil production in their province.

At the Mercy of Volatility

What is needed, of course, is tremendous investment both in production capacity and in the transportation infra structure, meaning pipelines. In 2004 total oil from oil sand was about one million barrels per day. That is no little amount, but compared to Saudi Arabia's ten million barrels per day, Alberta producers have a long way to go. Obviously there are many international oil companies with plenty of money that could be invested, but they need to be convinced of the reliability of their investment. If they were convinced that the price of oil would stay near their present levels the reliability of their investment would not be in question. Even if prices were to return to the $25 to $30 level, profits would be leaner but the investment would still be safe. "History shows that Saudi Arabia talks a lot about price stability, but in practice engineers (or bungles its way into) occasional price collapses that splash cold water on potential investments in marginal projects such as those in Alberta. Indeed, when the world oil price collapsed to $10 a barrel nearly five years ago, several seemingly eager investors suddenly lost interest in what looked to be promising tar-sands ventures." (The Economist, 26 June 2003)

Where is the 250 Year View?

This is where western countries with right priorities in the public sector can provide the sticks and carrots for the private sector to do what is good for all of us as well as for the interests of their stock holders. If energy policies were in place to keep the market price of energy near its actual value in the 250 year view, the ability of the sticking-a-pipe-in-the-ground" suppliers to accidentally on purpose oversupply the market, depress prices and thus dry up investment in alternative sources would be greatly neutralized.

Whether there will be such wisdom and political courage in high places remains to be seen. Likely enough we will muddle along concentrating on short-sighted goals and populist, borrowing-from-the-future, let-our-grandchildren-sort-it-out policies.

Patient Provider

But in the midst of man's chaotic management of the resources the Creator has provided him, it is quite fascinating how providential our Creator is. Think of how He has provided for us at all levels of our development. He provided the sun to warm us when we didn't know any more than that. Then we discovered the dead tree branches and straw that we could burn for heat and cooking when we didn't know how to do anything else. Then we discovered that oil from plants and animals would burn for light in a more controlled way. Then we noticed the tremendous power He had put in falling water and began to learn how to harness that. Somewhere along the way we discovered that black rock in the ground would burn longer and with more heat than wood. So at every stage, despite our perversity, despite our putting His provision to all sorts of wrong uses like blackening our cities with coal soot and spilling His oil on the sea and destroying birds and fish and plant life, or blowing one another to bits with gun powder, dynamite and atomic bombs, we still find another little blessing He has buried somewhere where we never realized. This messy tar in Athabasca, Alberta is just another little example of how He has saved something for us even after we have squandered so many of His good gifts.

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