[OPE-L] Oil Sands

From: glevy@PRATT.EDU
Date: Mon Jan 23 2006 - 08:40:39 EST

"60 Minutes", a weekly news program on CBS, had an episode yesterday
on "The Oil Sands of Alberta" (see below).  A number of important
issues are posed by this development, such as:

-- how will this affect the relationship of the US to Saudi Arabia
     and other Miiddle Eastern oil producing states?

-- how will the increased supply of oil on world markets affect oil
     producing economies, including Venezuela?

-- how will this alter the relation between Canada and the US?

-- will the possible rivalry between the US and the PRC over oil
     supply from Canada have political and/or military consequences?

-- what will be the environmental consequences of the digging-up
     of Alberta be for that region, Canada, and Earth?

-- will the increase in the supply of oil lead to decreasing costs
     for the elements of constant circulating capital and a
     higher average rate of profit?  Will the increase in the
     supply of oil lead to a significant enough reduction in the
     cost of producing all commodities which are oil derivatives
     (such as plastics, rubber, and fiberglass) so as to
     significantly lower the non-labor costs of producing
     commodities for sale on world markets and perhaps fuel (no
     pun intended) an international capitalist expansion?

Any thoughts?

In solidarity, Jerry


The Oil Sands Of Alberta

Jan. 22, 2005
(CBS) There's an oil boom going on right now. Not in Saudi Arabia or
Kuwait or any of those places, but 600 miles north of Montana.

In Alberta, Canada, in a town called Fort McMurray where, this time of
year, the temperature sometimes zooms up to zero.

The oilmen up there aren't digging holes in the sand and hoping for a
spout. They're digging up dirt - dirt that is saturated with oil. They're
called oil sands, and if you've never heard of them then you're in for a
big surprise because the reserves are so vast in the province of Alberta
that they will help solve America's energy needs for the next century.

Within a few years, the oil sands are likely to become more important to
the United States than all the oil that comes to us from Saudi Arabia.

Correspondent Bob Simon reports.


Twenty-four hours a day, 365 days a year, vehicles that look like
prehistoric beasts move across an arctic wasteland, extracting the oil
sands. There is so much to scoop, so much money to be made.

There are 175 billion barrels of proven oil reserves here. That's second
to Saudi Arabia's 260 billion but it's only what companies can get with
today's technology. The estimate of how many more barrels of oil are
buried deeper underground is staggering.

"We know there's much, much more there. The total estimates could be two
trillion or even higher," says Clive Mather, Shell's Canada chief. "This
is a very, very big resource."

Very big? That's eight times the amount of reserves in Saudi Arabia. The
oil sands are buried under forests in Alberta that are the size of
Florida. The oil here doesn't come gushing out of the sand the way it does
in the Middle East. The oil is in the sand. It has to be dug up and

Rick George, the Colorado-born CEO of Suncor Energy, took 60 Minutes into
his strip mine for a tour. He says the mine will be in operation for about
25 years.

The oil sands look like a very rich, pliable kind of topsoil. Why doesn't
oil come out when squeezed?

"Well, because it's not warm enough. If you add this to hot water you'll
start the separation process and you'll see the oil come to the top of the
water and you'll see sand drop to the bottom," George says.

It may look like topsoil but all it grows is money.

It didn't always. The oil sands have been in the ground for millions of
years, but for decades, prospectors lost millions of dollars trying to
squeeze the oil out of the sand. It simply cost too much.

T. Boone Pickens, a legendary Texas oil tycoon, was working Alberta's
traditional oil rigs back in the '60s and remembers how he and his
colleagues thought mining for oil sands was a joke.

"Here we are sitting there having a drink after work and somebody said
this isn't going to, it isn't possible. It'll all have to be subsidized to
a level, said, before they'd make money you'd have to have $5 oil,"
Pickens says laughing. "We never thought it would happen."

But then $40 a barrel happened and the oil sands not only made sense, they
made billions for the people digging them. But it wasn't just the price of
oil that changed the landscape, it was the toys. That's what they call the
giant trucks and shovels that roam the mines.

Everything about the oil industry has always been big. It's characterized
by bigness, from the pumps to the personalities. But up here in Alberta,
it's frankly ridiculous. The mine operates the world's biggest truck. It's
three stories high and costs $5 million. It carries a load of 400 tons of
oil sands, which means, at today's oil prices, each load is worth $10,000

What it's like to drive one of these monsters? At the foot of a tire, we
asked the driver, Jim Locke.

"You have 14 steps going up, and at my house you have 14 steps to the
bedroom. So it's like going upstairs in my house, sitting on my bed and
driving the house downtown," says Locke.

But getting downtown is just the beginning. The oil sands then go into a
plant. They're heated in a cell, which separates the oil from the sand.
The result looks like something out of Willy Wonka's chocolate factory.
This oil froth is then sent to an upgrader and eventually to a refinery.

Asked if the processed oil is as good as that pumped in Saudi Arabia,
Mather says, "Absolutely as good as. In fact, it even trades as a, at a
premium because it's high quality crude oil."

The capital of the oil sands frenzy is a frontier town called Fort
McMurray, which isn't in the middle of nowhere. It's north of nowhere and
colder than the Klondike, but a boomtown just the same. The local hockey
team is called the "Oil Barons." They're on a winning streak.

Is this comparable to a gold rush?

"I think it's bigger than a gold rush. We're expecting $100 billion over
the next 10 years to be invested in this area - $100 billion in a
population that, currently, is 70,000 people," says Brian Jean, who
represents the region in Canada's parliament.

Pickens is one of those investors. He runs a hedge fund in Dallas and is
now a true believer.

"We're managing $5 billion here. And, about 10 percent of it is in the oil
sands. So, it's the largest single investment we have," Pickens says.

And if oil sands are the answer for investors, does Pickens think the oil
sands are the answer for the United States?

"Oh, I think so," he says.

Most of those lumbering trucks are on their way to the gas tanks of
America. A million barrels a day are now coming out of the oil sands and
oil production is expected to triple within a decade. It won't replace
Middle Eastern oil but at that point it will be the single largest source
of foreign oil for the United States, even bigger than Saudi Arabia, which
sends a million and a half barrels a day to America.

Greg Stringham, who works for the Canadian Association of Petroleum
Producers, says surprisingly, that Washington has only been paying
attention for the "last couple of years."

Stringham often lobbies for the oil sands in Washington. He says that in
Alberta you don't have to look for the oil sands - the earth moves.

"When it comes to exploration in the oil sands, you can't drill a dry
hole. It's there," he says. "We know where it is. They've outlined it. You
don't have any risk. But other conventional sectors around the world,
there's a huge exploration risk."

The exploration risks are the least of it. Much of the world's crude is in
the Middle East where the instability is deeper than the oil. When
Alberta's blue-eyed sheiks took to Wall Street last summer in their
Stetsons to drum up support for the oil sands, their message seemed to be,
"If you can't trust Alberta, who can you trust?"

"Alberta is a very good place to do business. It's a very stable
environment," says Mather.

The bonus for Canadians, aside from the treasure, is the notion that
Americans might have to start treating them with a little less

"With their oil, I think we're going to need them a lot more than they
need us," says Pickens.

"We may appear in Canada to be a mouse compared to the elephant down south
in terms of diplomacy or politics. But in terms of resources, we are
mighty equals," says Mather.

There have been grumblings out of Ottawa that Canada should consider using
the oil sands as leverage in its serious trade disputes with the United

Does Brian Jean think America is taking Canada for granted on the oil sands?

"Absolutely. And I think most people, most Canadians believe that," he says.

And the Canadians have alternatives. The Chinese, for example, are just
dying to get a piece of the sandbox.

"I've been contacted personally by Chinese delegates that want to get into
the plant sites here and want to see and want to invest," says Jean.

Asked what he thinks about the Chinese interest in the oil sands up in
Alberta, Pickens says, "At first I thought they were tire kickers. But I
think they're serious buyers."

And the millions of Chinese who have moved from their bicycles to traffic
jams are driving up the demand for oil. It's virtually insatiable and the
Canadians want to step up production quickly. What's holding them back is
labor - the shortage of it.

Brian Jean says another 100,000 people are needed in Fort McMurray.

That's why one oil company has built a runway to fly workers daily from
civilization to Fort McMurray. But why would anyone want to come work in a
place where temperatures plummet to 40 below and the sun sets shortly
after it rises in the long winter? Well, perhaps because the oil companies
pay some of the highest salaries in North America.

Take Josh Lichti, who says he could be making $120,000 by the time he is 22.

"It's amazing," he says.

But even if workers come flocking, the oil companies still have other
problems. Creating energy from oil sands requires so much energy that the
oil companies wind up spiking greenhouse gas emissions.

"And they do it in volumes that exceed any other production of oil crude
anywhere on the planet," says Elizabeth May, the director of the Sierra
Club of Canada.

She takes issue not only with what the oil sands are doing to the
atmosphere, but to the land. The oil companies, environmentalists say, are
digging up an entire province. Take a helicopter ride over the mines and
you'll think you're flying over the moon after a moonquake.

"One of the reasons they can be mined the way they've been mined is the
out of sight, out of mind aspect of it. And your film crew is one of the
few that's gone in there to look at how devastating this is," May says.

Even money men like Pickens have noticed. "Can't argue with it. I mean,
there's no question that, that they've got a mess up there. But I do think
they'll take care of it over time," he says.

The oil companies say they will reduce greenhouse gasses and they point
out they are required by Canadian law to refill old mines and plant new
trees, and that is happening - slowly. One company, Syncrude, has even
introduced bison to land that once was a barren pit.

Rick George of Suncor Energy insists in the future people won't recognize
the mines. "So what you see today is a mine. What you'll see 10 years from
now is a replanted forest," he says.

"You're telling me that if I come here, it's gonna be pretty?" Simon asks.

"Absolutely," George says. "These sites will all be going back. Now we'll
be minin' at a different location at that point.

"This will look forested when we get done with it in 20 years time."

But there is a larger question that not only environmentalists are asking:
will the availability of an enormous supply of secure oil right next door
mean America will have little incentive to reduce its dependence on oil?

"What Canada's doing," says May, "is continuing to feed the U.S. addiction
to fossil fuels, instead of being the kinda friend who says, 'Let's make a
helpful intervention here.' We're acting as the supplier of a drug fix to
the U.S., while all the time saying, 'Just say no.' But we keep selling

But unless the Chinese go back to bicycles and Americans trash their SUVs,
there will be buyers - for oil anywhere, no matter how it's found or
mined. Right now, Canada has become the land of opportunity for oilmen.
They will tell you there is little else on the horizon.

"Bob, if you take a tablet and put on it where is supply gonna come from
that we don't know about today. And you put down all the optimistic
points, that tablet will basically be blank," says Pickens.

As blank as the landscape around Fort McMurray, where the world of oil
exploration ends.

Does Pickens think the days of cheap oil are gone?

"They're gone," he says. "From what we knew as cheap oil, when I pumped
gasoline in Ray Smith's Sinclair station on Hinkley Street in Holdenvale,
Oklahoma, 11 cents a gallon, that's gone."

Will we ever again see $1.50 a gallon? "We won't ever see $1.50 a gallon.
No, that's gone," says Pickens.

Right around the corner from Fort McMurray you can still see oil being
produced the traditional way. It's picturesque now. The wells are still
pumping but they belong to the past, like the iron horse that once rode
across these prairies.

The future? Up here in Alberta they're convinced it's in the dirt.

By Draggan Mihailovich ©MMVI, CBS Broadcasting Inc. All Rights Reserved.

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