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Canada’s Oil Sands Production Reaches 1.9 Million Barrels per Day, But Operating Costs Are High, Business and Industry Trends Analysis

The oil sands (also referred to as “tar sands”) found in Canada, Venezuela and other locations throughout the world were historically regarded as unrecoverable assets by many members of the energy industry.  However, through decades of effort and investment, as well as evolving technologies, the process of turning oil sands into usable crude oil became a viable business, particularly when oil prices were $70+ per barrel.
Canada is the only nation that has built an industry based on its oil sands resources.  It is a major exporter of oil to the U.S.  Including its oil sands, Canada has 175 billion barrels of recoverable oil reserves, ranking it as one of the world’s leaders.
In the Athabasca field in the province of Alberta, Canada (north of Montana on the U.S./Canada border), huge cranes reap massive scoops of oil sands from open pit mines of vast proportion.  These scoops dump the sands into monstrous trucks nearly as tall as three-story buildings.  Each truck burns 50 gallons of diesel per hour as it lumbers along, hauling 360-ton loads of tar-coated sand and clay to giant tumblers and superheated cookers.  Oil sands are coated with bitumen, a substance with the consistency of cold molasses that can be processed and refined into a synthetic crude oil.  This labor-intensive work is turning the black dirt of Athabasca into one of the greatest sources of oil in the world.  Additional Alberta fields include the Peace River and Cold Lake regions.
The technology used in mining oil sands has been under development for many years.  Canada’s first strip mines in the oil sands opened in the 1960s with expansion into the 1970s.  In the 1990s, the industry was further encouraged by very high market prices for crude oil.  By 2003, a collection of startups and joint ventures, including major oil company partners, managed to streamline the process of mining, transportation and processing these oil sands so that large scale production was economically viable.  The costs were high, but acceptable.  Strip mining, pulling the oil sands from open pits, remained the primary method of extraction.  Billions of dollars were poured into new facilities to mine and convert the sands to usable crude.  
How much of this mineral-rich black dirt exists?  In Canada alone, where most of the oil sands projects are located, there may be as much as 1.8 trillion barrels of oil equivalent by some estimates.  In 2022, S&P Global reported oil sands production in Canada at 3.7 million barrels per day.
Significant changes in oils sands technology are in store.  As much as 80% of Canada’s remaining reserves are too deep to strip mine.  In addition, strip mining creates eyesores and environmental challenges.  As a result, oil sands production is evolving away from strip mining, towards “in situ” (which is Latin for “in its original place”) production.  With the in situ method, pairs of perforated well holes are drilled to a depth of a few hundred meters below the surface.  The two bores are then drilled horizontally for another 800 meters or so, one a few feet below the other.  Above ground, massive steam generators burn natural gas to create steam that is injected into the top bore hole.  This has the effect of melting the bitumen out of the sand.  The bitumen settles downward.  The liquefied bitumen is then pumped out through the bottom bore, along with a quantity of water.  The water is recycled to the steam generator.  The bitumen is mixed with a petrochemical that dilutes it and is then sent via pipelines to a refinery.  The process is referred to as “steam-assisted gravity drainage,” or SAGD, and has one of the highest extraction costs in the oil industry.  
From an environmental standpoint, this method eliminates the need for ugly surface mines.  However, it requires the burning of immense quantities of natural gas to power the steam generators.  Several new techniques are being tested that may result in much more efficient production at lower cost and with fewer emissions.  In one new practice, butane is used downhole as a solvent to dissolve the bitumen. 
In an attempt to lessen the carbon footprint of oil sands production, Shell spent $1.36 billion on a plant in Canada, called Quest CCS, that captures and stores underground more than 1 million tons of carbon dioxide per year.
Today, relatively high production costs and a lack of adequate pipelines for moving the oil to market pose significant problems for producers.  Canada’s oil sands industry is suffering from financial boycotts in some countries.  Deutsche Bank announced in mid-2020 that it will no longer finance oil sands-related projects, joining HSBC of the UK, BNP Paribas of France and UBS of Switzerland.  Norway’s Oil Fund announced its intention to stop equity investment in four of Canada’s major oils sands producers:  CNRL, Cenovus, Imperial Oil and Suncor Energy.
The industry is also facing pressure from insurers.  Zurich dropped coverage of the Trans Mountain pipeline system which is owned by the Canadian Government.


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