The Oil Sands of Alberta, Mega World Reserves
Oil sands are a mixture of sand, water and bitumen, a heavy, high viscosity form of petroleum, found in high concentrations in certain parts of the world, most notably in Canada, the USA and Venezuela.
This non-conventional oil source is different to the normal, lower viscosity (freer flowing) hydrocarbon crude which is extracted from oil wells.
The oil sands have gained significant interest in recent years among investors and commodity traders because of the surge in crude oil prices, concerns about oil reserves and the balance between supply and demand.
You can now subscribe to the free Commodity Universe Ezine below, and get the latest articles on the commodity sector . Just your first name and email. It's as easy as 1-2-3! In fact, as the possibilities for extracting greater volumes of these oil sands becomes realistic with the latest technology, estimates have been revised to suggest that this source could be second only to Saudi Arabian oil reserves.
And when we read the IEA warning in its World Energy Outlook 2007 that uncontrolled growth in world demand for oil will have “alarming” consequences, the ability to extract these tar sands effectively and profitably is excellent news.
A look at the latest BP Statistical World Energy Review 2007 points to total proven reserves, including oil sands, at around 1.39 trillion barrels.
Clearly there is a discrepancy here and it may be that the higher figure of 1.7 trillion barrels refers to total estimated reserves and not proven reserves.
This is significant when you consider that estimates for Venezuelan Orinoco tar sands are as high as 235 billion barrels.
How is the oil extracted?
One method used in north-eastern Alberta is surface mining and this is efficient because there is only about 40-50 metres of peat bog and clay to remove before reaching the bitumen deposits which sit on a limestone base. The bitumen is separated from the tar sands chemically and by agitation, where air forms bitumen droplets which float to the top and residual water is removed.
This recovers about 75% of the bitumen from the tar sands, which is then refined to synthetic crude oil.
While surface mining is efficient (75%) it can only recover about 20% of estimated Athabasca oil sands reserves. New techniques have been found to get tat the remaining resources.
Steam Assisted Gravity Drainage (SAGD) drills wells horizontally, one at the top and the other at the base of the tar sands formation.
Strategically, use of SAGD is important because it has in effect increased Canadian oil reserves fourfold, putting this country second only to Saudi Arabia in terms of world oil reserves.
Most of the major oil companies extracting bitumen from tar sands now use this SAGD technology.
Future production and demand
It is amazing to think that an area of 140,000 square kilometres in Athabasca (equivalent to the size of Florida) will play a major role in the world oil industry over coming decades. Estimates are that tar sands production could, at present growth rates, hit 3 million barrels per day by 2020, and perhaps even 5 mbpd by 2030.
As the US looks to maintain its secure sources of oil, it needs look no further than its northern neighbour.
As America looks to wean itself off Middle Eastern oil, there is a clear need to build the necessary pipeline and refining infrastructure from Canada.
Current Canadian exports to the US of 1 mbpd could increase to 5 mbpd, which would represent about 25% of US daily consumption (and 50% of its oil imports).
Your attention may be fixed on the latest NYMEX crude futures price but watch out too for the activity of China, the world’s second largest consumer of oil, in this huge source of oil.
Already there is a programme to build a $2 billion pipeline from Alberta to the West coast so that tankers can then ship the oil to China.
There are exciting times ahead as this important industry meets a growing demand for oil from across the world.
So with both China and the US eyeing up these huge resources in Athabasca it suggests that over the long term the price of crude will remain strong.
For those engaged in commodity trading and investing it may pay dividends to follow the oil sands more closely going forward.
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