‘Big Oil’

Forty-three years ago, deep in the blackfly-infested wilds of northeastern Alberta, Sun Oil (now Suncor) saw the future and invested $250 million in the Great Canadian Oilsands plant.

Some called it an enormous gamble because after all, the technology needed to crack the black, gooey bitumen was in its infancy; a barrel of conventional oil was worth only $20 in today’s money, and the road to the nearest town, a place called Fort McMurray, wasn’t much more than a two-lane gravel track.

A gamble, perhaps, but let’s talk payoff instead.

Today, Fort McMurray is nicknamed Fort McMoney, the province is building a 10-lane urban freeway and bitumen (worth $27/bbl last year) is now sixty-three and counting. Also in those same 12 months, four huge projects worth a combined $17.7 billion have been launched to harvest the planet’s second-largest petroleum resource.

One of those leading the way in the continuing development of the oilsands is Imperial Oil Ltd., which, along with its parent partner ExxonMobil Canada, will inject $8 billion into the Kearl development located 75 kms north of Fort McMurray.

With a resource estimated at 4.8 billion barrels, Kearl will now be extracting crude oil from the gritty sands starting in 2012 and well into the 21st century.

The Kearl project is part of an astonishing story of wealth, technology and market strategy, the anchor of what Prime Minister Stephen Harper says will be Canada’s emerging role as a “world energy super power” that already accounts for up to six per cent of the nation’s GDP and 20 per cent of Canada’s energy appetite.

Equally, the oilsands will continue to face global challenges for the environmental marks it leaves on an enormous swath of Canada’s boreal forest, the planet’s air, and its impacts on the lives of thousands of workers and residents.

IOL cautious, persistent on Kearl

Imperial Oil Ltd. obviously knows its way around the oilsands, with key roles at Syncrude Canada and the Cold Lake in-situ plant, but when the board of directors was set to green light Kearl in 2007, with some $228 million already invested, things got a little bumpy and a bit uncertain.

A potent environmental coalition, along with the federal government, was challenging a key project permit. Those were also the days of turbo-charged labour and material costs across western Canada. And, by 2008, oil prices were in free fall so there were clearly better things to do, or not do, with $8 billion.

But Imperial Oil’s directors waited out the rough weather, the federal cabinet reinstated the permit, costs and prices settled down, and on a Monday morning in May 2009, they issued a brief, three-paragraph release saying the project was back on.

“Psychologically the announcement came at a good time,” says Ian Doig, the Calgary-based veteran oil patch commentator. He notes that big or small, everyone in the game was taking the same pounding.

Kearl under construction

This winter, a small army of 2,500 builders on site and elsewhere continued with the construction of the Kearl camp, plant, road and infrastructure to support a fly-in, rotating workforce of up to 1,300. Two separate airstrips will serve Kearl and other projects.

The name belongs to a small lake on the mining lease, dedicated years ago to Flight Lieutenant Eldon Kearl, a 23-year-old RCAF bomber pilot killed over Berlin in 1944.

Amec, the international engineering firm, along with Fluor Corporation, have been awarded EPC (engineering, procurement and construction) contracts for the first of the mine’s three phases. Finning Canada has a 10-year commitment to supply Caterpillar equipment, parts, labour and maintenance.

The technical challenges they face are now routine for an oilsands project: muskeggy boreal forest, permafrost, deep freeze winters and forest fires in the summer.

To help overcome some of the hardships of the rugged and remoteness of the site, Kearl will have its own co-gen power and heat plant as well as 45 kms of road to keep it in touch with Fort McMurray and its attractions.

An initial mine train will work four open pits, and the 345,000 b/d target will come in three stages beginning late in 2012. Imperial Oil continues to finalize its planning for the subsequent stages.

Oilsands recovery methods are not complex. Mammoth shovels and fleets of enormous haul trucks strip away the overburden (stockpiling it for later remediation) then bite into the molasses-like sand and truck it to a crusher. The sand is liquified with hot water or steam and the sticky bitumen floats off to be mixed with diluents and liquids taken from natural gas processing elsewhere. The blend will in turn be piped down to Imperial Oil’s refineries in Edmonton, or as far as Ontario or even the Midwestern U.S.

A major component that Imperial Oil has not included, at least for now, is an on-site upgrader, which would partially refine the heavy crude into a lighter product that more refineries could handle. It’s something the Alberta government would dearly like to see as a job-making, tax-generating add-on.

“We believe that existing and future refineries will be able to absorb (phase-one bitumen), but we haven’t made final decisions on potential upgrading for future phases,” says Pius Rohlheiser, IOL’s information director.

Living and working strives for balance

As Alberta’s economy ramps up for Kearl and other projects, an old problem is resurfacing; that being a looming labour bottleneck as the scramble for workers starts anew.

University of Alberta Business Dean Mike Percy, in the Calgary Herald in January, cautioned that even though Alberta’s jobless rate (6.7 percent in January 2010), is double the pre-recession rate, it still doesn’t mean enough workers with the right skills can be hired when they’re needed.

The entire people side of the oilsands juggernaut is a case study in managing the demands of ballistic development with the realities of frontier conditions. In this context, if making mistakes is how to learn, many CEOs , politicians and planners could count themselves very, very smart.

One illustration is the region’s explosive growth in the past decade of nine per cent per year, gauged at 90 new people every week. The city of Fort McMurray just completed a $136-million water treatment plant in 2009 but a year later, it’s too small.

The provincial government has only recently completed the twinning of Highway 63, the main land link to the south. Parts of a new city expressway will be 10 lanes wide, and new bridges and interchanges should help curb a plague of accidents and delays.

And every national newspaper and TV network has run features on the scary social conditions bred by too many single young men with too much money, brittle from mind and body-bending weeks of 12-hour shifts. (Keyano College runs a mandatory, 16-hour course called “Shifting to Wellness” to help entry level workers cope).

How much money? The Canadian business magazine Money Sense in a 2009 survey of 150 Canadian cities ranks Fort McMurray “Number One” in household income at a $164,122, well head of second-place Vaughan, Ontario at $135,354.

It says “new” cars account for about 30 per cent of the local traffic, about double the national average.

Philip Cooper speaks for the Regional Municipality of Wood Buffalo, the coalition of 10 communities (McMurray and nine much smaller aboriginal communities) in an area bigger than Nova Scotia whose population of 103,000 is triple what it was 10 years ago.

“From a municipal point of view, (the question we ask is) who are we building the city for? Is it a giant work camp or a sustainable community that works with the surrounding environment?”

“The outcome of the boom is there has to be close collaboration among everyone,” he says, pointing to their 25-year visioning project called Future Forward that suggests by 2030,
the population will double again. The plan says the region will strive for diversity, and envisions a year-round business and industrial centre in Canada’s Northwest.

It also suggests its international airport will welcome visitors “who marvel at this quality urban centre nestled in a vast undeveloped wilderness.”

World smears oilsands image

The region could already be lauded as a key Canadian industrial centre, but the vision of a “vast undeveloped wilderness” 20 years from now may need some tempering.

While “Big Oil” has been pilloried by media and environmentalists at home and abroad, watchdogs like the Calgary-based Pembina Institute say it’s the Alberta and Canadian governments that have even more to account for.

“The abdication by government of its responsibility to protect the environment is actually our number one priority,” says Simon Dyer, Pembina’s oil sands program director, who unsuccessfully challenged government permitting of the Kearl project.

Despite promises made nine years ago, says Pembina, governments still have no land use plan, and no common standards for reclamation in what could be a 2.5 trillion barrel, 200-year resource era for Canada.

A particular focus has been the cumulative impact on northern waters, and downstream users like Fort Chipewyan, an aboriginal community with cancers their leaders blame on seepage from vast tailings and settling ponds.

Mainstream consumerism is also sending signals that oilsands’ oil has to get cleaner. Two American chains, grocers Whole Foods Market Inc. and retailers Bed Bath and Beyond Inc., announced this February they will try to avoid buying fuels derived from Alberta oilsands because they have “higher than normal GGH footprints.”

They admit it can’t be failproof; there’s too much integration in America’s energy supply chain, a fifth of which comes from Canada, but it’s a new twist in the energy marketing landscape for government and industry alike.

“Obviously this is a question that is bigger than Imperial Oil and the Kearl project,” says Imperial Oil’s Rohlheiser. He counters that there is a lot of misinformation about oilsands; for instance, claims that they produce triple the GHG of conventional oil are not accurate at all.

“I think there’s an acknowledgement by all parties that industry and government needs to do a better job of getting the facts out. We clearly can do better.”

He says they’re working at innovations like storing water for use when Athabasca River flows are low, enhancing the mill process to use less energy and make better bitumen, and even increasing the size and fish potential of Kearl Lake itself.

But Ian Doig, the Calgary commentator, lamented in his July 2008 Doig’s Digest that Big Oil and Big Government have collectively botched the oil sands PR battle.

“Increasingly, a growing number of U.S. politicians don’t like what they are seeing and now the Government of Alberta and the Canadian oil industry desperately searches to find the reset button on the control panel.”

Doig says industry has to change its perspective from only looking at its 90-day quarterly performance cycle, and the Alberta government has to invest more to enhance its image, citing Alberta’s 2008- 09 budget which he says allocates only 14 cents out of every $100 earned from petroleum to promote the resource.

At least one part of the solution is the in-situ technology that uses steam, shot deep into oil sands reservoirs, to warm the bitumen and split it from the sand. It is then pumped to surface by a spiderweb of directionally drilled return holes. New ideas might even see electro-thermal, and subterranean fire, as greener ways to free the oil.

While most of today’s recovery is by surface mining, within 20 years, decidedly cleaner in-situ will overtake it as surface deposits are depleted.

And with at least four of every five barrels taken from deep underground, rather than clawed from the pristine boreal landscape, perhaps there’ll be more of that “vast undeveloped wilderness” left for the visionaries of Fort McMurray to protect.