RNNR Committee Report

Economic and geo-political context

The development of the oil sands is largely being driven by robust continental and global demand for crude oil. Strong growth in demand for oil and geopolitical tensions in the Middle East and elsewhere have led to an important increase in the price of oil in recent years (see chart, below) and have served to highlight many of the relative advantages of the oil sands.

Average Crude Oil Price (Spot WTI), 1984-2005

Source:    BP Statistical Review of World Energy 2006.

The Committee heard testimony that global demand for energy will continue to increase and that hydrocarbons such as oil and gas will continue to be the dominant sources of primary energy on a global basis.¹ As a witness observed, given the scale by which energy is produced and used in the world today and the infrastructure that is in place, fossil fuels are likely to supply most of the world’s energy for the foreseeable future.²

From that perspective the oil sands are likely to play an increasingly important role in meeting energy demand over the coming years and decades. Moreover, political instability and geopolitical tensions in the Middle East and in other oil-producing regions serve to highlight the relative advantages of Canada’s oil sands. Canada’s political climate is “extremely stable” compared to that in many other oil-producing countries.³

The resource

Oil sands are composed of bitumen, a heavy and viscous tar-like oil, contained in a mixture of sand, clay and water. Bitumen accounts for about 10-20% of Alberta’s oil sands. Oil sands deposits are found beneath an area of north-eastern Alberta covering about 140,000 square kilometres (or about twice the size of New Brunswick). The oil sands are extracted in the Athabasca, Cold Lake and Peace River areas of Alberta. It is estimated that there are upwards of 1.7 trillion barrels of bitumen in place in the province, which, according to some, is “equal to or exceeds the conventional oil deposits in the world.”⁴ Of the approximately 1.7 trillion barrels in place it is estimated that about 315 billion barrels are potentially recoverable. Established oil sands reserves, that is, the portion of the resource that can be economically extracted using current technologies, are estimated at about 174 billion barrels. According to the Canadian Energy Research Institute these oil sands reserves could “supply Canadian demand for oil for 250 years.”⁵ Because of the oil sands Canada is in the enviable position of holding the second largest oil reserves in the world after Saudi Arabia (see chart).

Crude Oil Reserves (January 2004)

Source:    U.S. Department of Energy, Energy Information Administration. Data are from the Oil and Gas Journal.

While there are oil sands deposits in other countries, most notably Venezuela, it is thought that the largest deposits occur in Canada. Moreover, “Canada is the only area in the world where [such deposits] are being commercially exploited.”⁶

Developing the oil sands—Canadian innovation at work

The oil sands were first surveyed by scientists from the Canadian Geological Survey (now part of Natural Resources Canada) in 1875, about a century after fur traders and explorers first recorded their experiences of seeing bitumen along the banks of the Athabasca River.⁷Building upon the knowledge garnered in the 1930s and 1940s when a number of small privately—and publicly—financed oil sands plants were constructed, the Great Canadian Oil Sands project (now owned by Suncor Energy Inc.), located just north of Fort McMurray, Alberta, was completed in 1967. At the time, this commercial-size 45,000 barrels per day project, the first of its kind, was described as "the biggest gamble in history" and a "daring venture into an unknown field."⁸A second, larger, project, this one developed nearby at Mildred Lake, Alberta, by the Syncrude consortium, a joint public-private venture, came online in 1978.

The development of the oil sands has been described as a Canadian success story. For example, it took vision and innovative Canadian research and development to find ways to separate bitumen from the sands and to ultimately bring the oil sands into commercial production. In the words of Mr. Jim Carter, President and Chief Operating Officer of Syncrude:

“We’re talking here about research and development that’s been done right here in Canada. This is homegrown stuff, the mining and the extraction of the bitumen from the sand and the turning of it into a viable product that we can put into the marketplace. If we hadn’t done that thirty years ago, we would be in dire straits today in terms of our crude oil supplies […] So I think we’re very fortunate; we’re the pioneers. I can tell you from my own personal experience [...] I’ve spent 28 years with Syncrude Canada, every day of it living in Fort McMurray, and the first 15 years that we worked in this business, we were toiling in obscurity. People didn’t believe it could be done. They didn’t believe we could actually make this into a viable business; they treated it as an R and D curiosity. Through that effort and energy, the development has occurred, and we’ve continued to invest in R and D […] I think Canada would be in a far less enviable position today if the oil sands had not been developed—and that’s all of Canada. A lot of our product goes to the Edmonton area refineries, but it also comes to Sarnia, and it goes over the mountains to the west coast as well. This product goes across the country, and it is really helping to secure our energy security in the