A chorus of concern for the environment

By Bernard Simon in Toronto
Published: June 30 2008 03:00

Whenever residents of Edmonton, Alberta, flush their toilets after 2012, some of their sewage will find its way to a Petro-Canada plant north-east of the city that converts bitumen-like oil sands into crude oil.
Petro-Canada has promised that the first phase of the Fort Hills Sturgeon upgrader, consuming 15.8m litres of water a day, will not only run entirely on treated wastewater, but will then send the used water back to Edmonton for further recycling.
The Fort Hills initiative is one of many environmentally friendly processes companies are trumpeting in response to a widening chorus of concern about the damage caused by oil sands extraction and upgrading on water supplies, wildlife habitat and the atmosphere.
The Pembina Institute, an environmental group, warned in a recent report that Petro-Canada's upgrader and eight others planned for the same area over the next 12 years will consume 10 times as much fresh water as Edmonton's 750,000 residents, use more electricity than all the homes in Alberta, and spew out the same volume of greenhouse gases as 10m motor vehicles.
The institute and other activists have urged the Alberta and federal governments to impose far stricter conditions before approving new oil sands projects.
Greta Raymond, head of Petro-Canada's environmental and social responsibility group, says her job has become both easier and more difficult in the past year or two. "The environment is a strategic issue for us, and our business leaders understand that," she says. "The thing that's become harder is the external environment, the expectations of the public."
The stakes for all sides are huge. Located in three main deposits across an area the size of Florida, the oil sands are estimated to contain reserves of 173bn barrels of oil, a figure exceeded only by Saudi Arabia. Within the next decade, Canada's oil sands are expected to surpass deep-water offshore wells as the biggest source of new global oil supplies.
The oil sands, which look and feel like molasses, are found in bands between six and 10 metres thick. Two tons of oil sands typically yield 1.25 barrels of bitumen and a barrel of crude. Deep deposits are extracted by injecting huge quantities of steam into wells, using a process known as steamassisted gravity drainage.
The steam melts the bitumen, allowing it to be brought to the surface. Bitumen deposits closer to the surface are recovered by open-pit mining.
Once recovered, the bitumen is "upgraded" into heavy crude oil, and piped to a refinery.
Environmental activism is not the only shadow to creep across the Canadian industry's playground. Even as companies bask in surging prices, they are strugglingwith acute labour and material shortages, and heightened regulatory scrutiny.
Ben Dell, analyst at Sanford C. Bernstein, concluded in a recent report that "with rising costs, higher taxation and a currency disadvantage, Canada is not looking very good for oil and gas production, at least relative to the US".
Calgary-based Nexen and Opti Canada have pushed up the estimated cost of their Long Lake project, to C$6.1bn, almost double the original estimate of C$3.4bn.
Long Lake is due to come onstream this year, with an initial output of 59,000 b/d.
France's Total and Norway's StatoilHydro, have recently pushed back the start-up dates of their projects.
The Canadian Association of Petroleum Producers' latest forecast, in mid-June, expects production to grow from 1.2m b/d a day last year to 3.5m in 2020, down from its previous projection of 3.8m.
"The potential for oil sands projects to reach capacity is unchanged," the producer group says, "but this will be accomplished over a longer period due to continuing and new challenges."
Still, the pace of expansion in north-east Alberta remains frenetic. Statistics Canada estimates that capital spending in the oil sands will reach almost C$20bn this year, more than the national investment in manufacturing.
Oil companies have announced projects totalling more than C$100bn. "What's so exciting about this business is that it has no visible endpoint," Rick George, chief executive of Suncor, one of the biggest oil sands operators, recently told a Calgary business group.
But even the most gung-ho oil industry executives are being forced to take account of the critics.
A poll this year by the Calgary Herald and the Edmonton Journal, Alberta's two most influential newspapers, showed that almost two-thirds of the province's residents favour regulatory limits on greenhouse gas emissions from oil sands projects, even if some of the projects are delayed or cancelled.
"We need to listen to that concern," Mr George warned. "More importantly, we need to respond to it".
Copyright The Financial Times Limited 2008