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Posted: March 01, 2012

Black gold

Canada has made a "Fort McMoney" from its Alberta oil sands, but Colorado faces a tougher road

Allen Best

Five percent or more of the oil consumed in Colorado comes from a sticky, black substance called bitumen, which is mined 1,600 miles to the north in a forested, boggy region of the Canadian province of Alberta. The locals in Fort McMurray, the center of the mining operations, and at corporate headquarters in Calgary, spit out the syllables rapidly, slightly emphasizing the first: BIT-u-men.

Bitumen is to Alberta what kerogen – the key constituent of oil shale – is to Colorado. Both are vast in scale. Using current technology and prices, Canada’s bitumen can provide 173 billion barrels of oil, a reserve second only to that of Saudi Arabia. Both pale when compared to the kerogen deposits of Colorado, Utah and Wyoming. Leaving a large room for error, between 1 trillion and 3 trillion barrels are technically recoverable.

There’s one crucial difference: The bitumen of Alberta comes in a geological formation that, as one author noted metaphorically, can be spooned, while Colorado’s oil shale requires a fork and knife. If the oil companies have invented those utensils, they’re keeping quiet. This begs the question of why the oil companies need up to 2 million acres of public land for experimentation.

In Canada, it took oil companies decades – and rising oil prices – to figure out how to profitably cleave the bitumen hydrocarbons from their companions of clay, water and sand. Yet today Canada is the No. 1 source of foreign oil for the United States, and the Alberta deposits are a major part of that. Currently, 99 percent of the exported bitumen-derived oil comes to the United States. Worrisome to some, the bitumen may also become a critical source for China. The North Gateway, a pipeline proposed to be a port on the Pacific Ocean, would enable that.

A different pipeline, the Keystone XL, has become a surrogate argument about climate policy in North America. The proposed 1,700-mile pipeline would feed refineries in the Gulf Coast already equipped to handle heavy oil from Venezuela and the Middle East. Democrats and Republicans have jockeyed for gain in a complex calculus involving disputed claims about job creation, energy security and environmental impacts. The only thing that can clearly be said is that President Barack Obama has kicked the can for a decision past the next presidential election.

"I think this has been a major slap in the face to the government of Canada and Canadian companies," says Peter Dea, president and chief executive of Cirque Resources, a Denver-based oil and gas exploration company. He warns that the many Colorado-based companies involved in oil sand work may lose out in a de facto boycott. Frederick-based bridge builder Flatiron, Steamboat Springs-based construction contractor TIC, and Broomfield-based MWH, a water-engineering company, are among several Colorado businesses that work directly in Alberta’s fields.

U.S. Rep. Ed Perlmutter, although a champion of renewable energy development, has supported the Keystone. "The climate issue is there, but we are not going cold turkey from oil and gas at this point," says Perlmutter, a Democrat whose district includes the campus of the National Renewable Energy Laboratory. "And so I would rather have it come from our hemisphere than from another hemisphere."

Even the two sides disagree on what to call the material: "oil sands" to proponents, "tar sands" to those opposed. As tar comes from coal, the latter is technically incorrect, even if the bitumen looks, smells and feels much like ordinary tar. Cree Indians indigenous to the region heated it to seal their canoes.

This bitumen provides 15 percent of the fuel stock for Suncor Energy’s refinery five miles northeast of downtown Denver. The Commerce City plant produces 34 percent of the gasoline consumed in Colorado, distributed through 38 Shell stations and six Phillips 66 stations. The refinery also provides the jet fuel used at Denver International Airport.

Suncor was the first company to successfully exploit the bitumen deposits. That began in 1967, when the company was called Sun Oil, and for a decade it was the only company. The pace picked up in the late 1990s, and today Alberta’s bitumen deposits have investors from across North America but also French, Norwegian and Korean companies, joined most recently by China’s Sinopec, which now has $5 billion invested in the oil sands. Canadian Prime Minister Stephen Harper is inviting further Chinese investment.

Fort McMurray is the center of the mining. It had 2,000 people when Suncor began its first operation, but has spurted to 80,000, with potential to expand to 250,000 in the next quarter century.

The Fort McMurray that I glimpsed during a brief visit in October — paid for by the Canadian government — is a curious place. It looks better kept and more durable than the energy towns of the Rocky Mountains. In some outlying subdivisions, it looks little different than Parker or Castle Rock. Prices are not ordinary. A typical 2,400-square-foot home this winter was listed for $1.2 million. It had six bedrooms, including those in a basement lock-off. Proliferating, well-paying jobs have made it a worldly job center.

Whole villages of workers from Newfoundland and Nova Scotia, job-short provinces along Canada’s Eastern Coast, shuttle to "Fort McMoney" for two- or three-week periods, then zoom home. It’s now home to Africans, Filipinos and others. There’s a cosmopolitan feel amid the muck. Not surprisingly, escort services seem to thrive. Most surprising of all was mention in the local daily newspaper of a ban on plastic bags beginning in 2010. This, in an oil boom town! Even Aspen has not yet implemented its ban on plastic.

Without the oil sands, all this goes away, said Melissa Blake, the mayor of the Regional Municipality of Wood Buffalo, which includes Fort McMurray. The economy consists solely of oil. The town’s existence is neatly encapsulated in a sign at the entrance: "We Have The Energy."

About 20 percent of Alberta’s oil sands can be extracted in big strip mines. I’m not squeamish about such things, as I once worked at the giant molybdenum-processing Henderson Mill, near Silverthorne, and have visited many other mining operations in Colorado and Wyoming. However, even my short, narrow visit to Fort McMurray suggested a far greater enormity. Production of oil, which was 1.5 million barrels daily in 2010, is projected to reach nearly 3 million barrels daily by 2020. Surface disturbance now is only one-third the size of Montreal, but the bitumen altogether underlies an area the size of Florida.

We were bused to the North Mine. The spruce and aspen trees had been felled, the water-logged layer of peat at the surface, called muskeg, had been rolled up and stored, for use later in revegetation. The overburden of sand and gravel had likewise been hauled away, exposing the oil-rich deposits. Bitumen constitutes 10 percent of the source material.

This giant excavation had created a bowl, a mile and a half across and 200 to 230 feet deep. Across this moonscape, giant Caterpillar haul trucks, with tires that weigh 11,680 pounds each, lumbered with their cargo of 400 tons of bitumen ore for delivery to a plant called an upgrader. Such plants process the raw bitumen into crude oil, spewing what I presume was water vapor into leaden skies. Terraces of yellow material, as if from some ancient civilization, stood in one area. It was the sulfur extracted from the bitumen deposits, waiting for an improved price from fertilizer manufacturers. I was reminded of images of desolate industrialized areas of Eastern Europe before the collapse of communism. Mining oil sands will never be confused with growing carnations.

Then, over the hill, we were shown a reclaimed area, complete with wood bison grazing along a lake and trees growing. Reading other accounts, I get the sense that this is part of the basic tour, kind of like taking out-of-town relatives to Vail or the Royal Gorge.

But oil companies freely concede they don’t yet have all the answers in reclaiming tailings or other impacts. To that end they have created a consortium to incrementally advance technology and best practices. To push the effort, Suncor has shared its patented technology, $1 billion in the making.

The larger, less photogenic story about oil sands development involves a process called in situ, meaning in place. This is needed for the 80 percent of bitumen located too deep underground for economical strip mining. The technique parallels one Royal Dutch Shell has been developing to extract the kerogen from oil shale deposits near Meeker. In this case, perforated pipes are inserted horizontally underground. Steam injected into the higher-level pipe melts the bitumen, which is collected in the lower pipe and pumped to the surface.

Environmental groups like Canada’s Pembina Institute claim that scattered in-situ operations may so badly fragment habitat of the wood caribou that they will locally become extinct. The oil sands can be extracted – but not at the expense of the environment, Pembina insists. Dr. Kevin Percy, the lead scientist with the Wood Buffalo Environmental Association, testified to the high marks achieved by oil companies in maintaining air quality. He had, he said, come out of retirement to lead the evaluation, and he had no financial stake. He was not, he insisted, an industry shill.

Similar to Colorado’s potential oil-shale operations, the most troublesome issues are water needs and emissions of greenhouse gases. Fort McMurray has large amounts of water compared to Colorado, but the Natural Resources Defense Council says not enough to support the growth in oil sands development that the Canadian government supports. Already, 8 percent of the giant Athabasca River is depleted during low- to medium-flow periods. Suncor points out that it has reduced use of water per unit of energy by 30 percent since 2002 through improved technology and best practices. Profits from oil extraction can be harnessed to finance incremental advances in technology,

Greenhouse gases are trickier yet. Alberta’s oil sands require vast amounts of energy, mostly natural gas, to unlock the new energy. The Natural Resources Defense Council, in a 2010 report, said the surface mines yielded 8 to 19 percent greater emissions for well-to-wheel as compared to the U.S. average gasoline baseline as of 2005. In situ mines were even worse: 16 to 37 percent.

Suncor, however, sees only a slight increase in production of greenhouse gases over conventional sources – and points out that 85 percent of greenhouse gas emissions are issued from the tailpipes of cars and trucks. That puts the onus on consumers.

Both sides embrace technology, but they want to place their bets in different sectors.

Colorado native Rick George, the chief executive of Calgary-based Suncor since 1991, calls technology the "game-changer we need to effectively and responsibly manage this resource." He grew up in Brush and got an engineering degree from Colorado State University, plus a law degree in Houston and management training at Harvard.

George sees development of renewable energy occurring in a parallel track with that of fossil fuels – but with fossil fuels remaining the world’s dominant source of energy for decades to come, maybe longer. By 2050, according to the International Energy Agency, hydrocarbons will provide 75 percent of the world’s energy, down from 85 at present.

"As a society, we need to get to a constructive dialogue on greening our economy and the energy that we need to fuel it – and doing so on practical and realistic terms," said George, who will retire in May, in a recent speech. He points out that Suncor has reduced the carbon intensity of a barrel of oil by 50 percent since 1990.

Suncor – which endorsed the Colorado Climate Action Plan issued by former Gov. Bill Ritter in 2007 – has invested $750 million in wind and biofuels. But the Canadian Energy Research Institute foresees investments of $2.1 trillion in Alberta’s oil sands between 2011 and 2035. The bulk of money is still going into fossil fuels.

Calgary is the corporate headquarters for this boom. It’s much like Denver, smaller and without the sprawl, but with the majesty of Banff National Park just an hour away. It surpasses Denver in the worldly atmosphere of its downtown and the sheer spectacle of new, shiny and sky-piercing towers. These sparkling buildings all bear names of energy companies – including TransCanada, the proponent of the Keystone XL pipeline.

"It’s not about the pipeline. We know how to do pipelines," said David Keith, when we visited him at the University of Calgary. Keith has been drawing broad attention because of his effort to devise technology that can draw carbon dioxide out of air. The magnitude of accumulating greenhouse gas emissions warrants such a fantastic effort at geo-engineering, he believes, and Bill and Melinda Gates apparently agree. They have bestowed his enterprise with $4.5 million in funding.

"We can’t continue to keep taking carbon out of the ground and putting it into the atmosphere," he told us. "It’s important to be realistic about this."

The broader battle he sees is about meaningful climate policy. In the absence of anything more than empty gestures in Canada and the United States, environmental groups are fighting bit-by-bit actions: coal plants, pipelines, and whatever else.

In time, they will win, he says, "because we can’t continue pumping out carbon for the next 100 years." When that day comes, "Alberta will be devastated because they are investing their money into an economy that is totally carbon based," said Keith, who now has dual appointments at Harvard University as professor of applied physics and public policy.

"A government should use the wealth it has to invest in things that will allow us to thrive when the oil industry has shut down," he added. Alberta’s tax on carbon, $15 a ton for emissions surpassing 100,000 tons annually, is ineffectual, and the $2 billion is not wisely invested, he says. He wants Alberta to place its bets on wind, solar or maybe nuclear.

In Colorado, the federal government calls the essential shots on development of oil shale deposits. Jeremy Boak, who directs the Center for Oil Shale Technology and Research at the Colorado School of Mines, says the oil companies want to know the rules in order to make investment decisions. "They have to decide whether two barrels (of water per barrel of oil from oil shale) is too much, and if it is, they are going to have to be able to explain why it is OK for biofuels to use 30 barrels," he says.

Randy Udall, a Carbondale-based observer of energy matters, calls oil shale "the petroleum equivalent of fool’s gold," because no one has yet figured out a way to harvest the kerogen. Depending upon the technology, he says, it could be much more polluting than oil sands. The oil shale, he adds, "must stay in the ground if we hope to have a livable climate a century from now."

For Udall, the take-away lesson from Alberta is that Colorado should look before leaping into "dirty" fuels. For Suncor, the message is that revenue from bitumen can be leveraged to improve environmental performances over time.

Call it the question in the sand: How clear and present is the danger of accumulating greenhouse gases in the atmosphere? That’s the basic argument about the Keystone XL pipeline and a dozen others. Wearing a dozen different coats, it’s likely to be the argument for years to come.

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