CANADA: Where Oil Is Mined, Not Pumped


FORT McMURRAY, Alberta -- Along Highway 63 here the rolling hills give way to
massive open pits, huge waste ponds and tangles of pipes and refining equipment
that spew smoke into the air.

In the pits, shovel trucks load dirt into dump trucks that are so gigantic a
driver has to climb a ladder attached to the front grille to get behind the
steering wheel.

The changing landscape reflects an ambitious quest to develop a new source of
oil. Major companies -- faced with tougher prospects for developing big new oil
fields around the world -- are doing what was once unthinkable: sinking billions
of dollars into projects to wring oil out of deposits of petroleum buried amid
sand and clay.

Until a few years ago, such projects -- called "oil sands" or "tar sands" --
sputtered at the fringes of the oil industry. But since technological
breakthroughs brought down costs and oil prices have soared, companies have been
investing heavily here. Oil-sands production is now profitable when a barrel of
oil sells in the low $20s, analysts said -- far below the recent $50 range.

Just outside this boomtown, huge machines dig up the earth and remove the oil
sands, whose deposits of a substance called bitumen smell something like roofing
tar and are as thick and sticky as molasses. Companies are mining hundreds of
feet deep and running the unearthed deposits through a complex process to
convert them into oil. Companies move enough dirt and oil sands in two days to
fill Yankee Stadium.

Factoring in the oil sands, Canada's proven oil reserves are reported to be
nearly 180 billion barrels, second only to Saudi Arabia. U.S. energy officials
say Canada's oil-sands deposits are among the largest in the world. The oil
sands are buried under an area about the size of New York state. Fort McMurray,
the hub of oil-sands activity, boasts on billboards: "We have the energy."

The oil sands also are enriching the province and creating thousands of
high-paying jobs. On the edge of town, a modern museum has interactive exhibits
showing how the mining and refining processes work. One exhibit allows visitors
to smell samples of the oil sands. "As we call it: Sniff the smell of money,"
said Bert MacKay, the museum supervisor.

Companies here are producing increasing amounts of oil from this
unconventional source -- about 1 million barrels a day. If all of that oil went
to the United States, it would amount to roughly 5 percent of daily consumption.
In 1995, oil derived from the sands was less than half the current amount.
Alberta officials expect production to triple from today's level by 2020.

Oil companies have been struggling to replace aging fields whose production
has tapered off. Many have been frustrated by oil-rich countries in the Middle
East and elsewhere that refuse to open their doors to Western companies.

"We are all kind of fighting each other in the rest of the world where oil
production is not increasing," said Michael Rodgers, a senior director of PFC
Energy, a Washington-based consulting firm. "We have to start thinking about
unconventional resources. A lot of companies are saying, 'We do have this option
in Canada.' "

Canada was the top supplier of crude oil to the United States last year,
providing about 16 percent of U.S. imports. Crude produced from the oil sands is
making up a larger portion of what Canada sends to the United States. Even so,
development of the oil sands is not happening fast enough to significantly
reduce U.S. dependence on Middle Eastern oil. Companies such as Exxon Mobil
Corp., Chevron Corp., the Royal Dutch/Shell Group and ConocoPhillips Co. have
oil-sands projects here. China's oil companies, eager to gain access to supplies
to satisfy the country's growing energy needs, are buying into oil-sands
projects and would like to import some of the oil.

The oil sands are becoming increasingly important as the worldwide thirst for
oil increases. Demand has surged and producers has struggled to keep up, pushing
oil prices up. Gasoline has followed, with a gallon of regular selling for more
than $2 in the United States.

Though profitability has improved, making oil out of the oil sands can be
less lucrative than traditional oil development. Oil-sands production also
requires spending money in different ways. With normal oil production, companies
have to invest heavily in exploration and sometimes drill wells that come up
dry. With oil sands, companies spend very little on exploration -- the soil here
is loaded with bitumen -- but must devote large amounts of money to remove the
deposits from the ground and change it into crude oil.

The pickup in production transformed Fort McMurray from a remote hamlet to a
thriving city with more than 55,000 residents. The demand for skilled workers is
so high that some companies are importing them from as far away as South

Some companies would like to invest more but are constrained by a tight labor
market, logistical complications and sophisticated machinery that takes years to
build. Companies are lobbying for improved roads, affordable housing and other
government services they say are needed to support expansion.

"The industry is growing as fast as it can," said James E. Carter, president
of Syncrude Canada Ltd., which started producing from the oil sands here in

On a recent day at Syncrude, the giant trucks rumbled through pits, the earth
heaving from their weight. Fully loaded, some of the trucks weigh more than two
Boeing 747 airplanes.

"It feels like you're driving a boat," said Lisa Goldie, who sat in the
driver's seat of a truck, punching information into computer displays on the
dashboard. Smaller vehicles fly bright orange flags above them so the huge
trucks don't run them over.

The trucks haul away the top layers of dirt, exposing the espresso-colored
oil sands. The sands are then collected and sent to processing facilities that
separate the bitumen. It typically takes two tons of oil sands to produce one
barrel of crude, which is 42 gallons. The companies move about 1 million tons of
earth a day.

In other locations, the oil sands are buried too far below the surface for
mining. To reach them, steam can be injected underground to loosen the bitumen
and allow it to flow though wells to the surface.

The companies say they plan to eventually fill all the pits and are planting
trees. But they say the waste ponds -- filled with water, sand and petroleum
byproducts -- will take years to settle.

Officials of the government agency Environment Canada said in a recent
interview that in the past five years, they have taken 21 enforcement actions
against oil-sands companies for such violations as releasing prohibited
contaminants into the air and water.

Officials said the scale of the projects is unprecedented and they do not
fully know what the environmental impact will be. "Nothing has been done on his
scale before," said Robert Moyles, an agency spokesman. "The record to date is
that it is being done in an environmentally responsible way."

Environmentalists complain that the mining pollutes the air and water and
that companies huge amounts of clean-burning natural gas are used in the process
of converting the oil sands into crude. Natural gas is in short supply in the
United States, where prices have risen in recent years.

"Why are we taking this clean fuel and using it to create something really
ugly," said Stephen Hazell of the Sierra Club of Canada. "Does Canada really
want to be the tar nation? That's not the way to go. Not if we want to have a
livable planet in 100 years."

The Alberta provincial government could not be more pleased with oil sands.
The operations are bringing thousands of high-paying jobs to the region, and the
companies have to pay royalties to the government.

In Fort McMurray, the impact of oil sands is laced through the city. More
than half the population is connected to the industry. Visitors to the city's
hotels often find a trail of mud footprints left by contractors working in the
operations. Guests might end up at the Oil Sands Hotel or the Oil Can

As the population booms and people move here from other countries, the flavor
of the city also is changing. To cater to the culinary needs of the new
arrivals, Annelies Geisler opened a store called the Import Connection, which
sells food from around the world. The Latin American section includes bottles of
yellow hot pepper and the South African section includes cans of guava

Geisler has been expanding sections to match the changing population. "We're
all here because of the oil sands," she said.

AMP Section Name:Energy
  • 183 Environment

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