Introduction - Cornell University



Alberta’s Oil Sands

Business, Environmental and Governance Issues

STS 331

For Prof. Steven Wolf and Jim Watkins

Due 4/30/08

By: Jeremy Drucker, Erin Litwin, Alex Lowe and Whitney Wadman

Introduction

For years there has been speculation regarding the long-term viability of the Earth’s global petroleum reserves. A widespread theory known as peak oil speculates that there is a finite amount of crude that is available for extraction within the ground. As humans have seemingly come to terms with the scarcity of our supply and demanded continues to price, prices have skyrocketed, making the oil sands of Northern Alberta have become a viable source of crude oil.

Over millions of years, these massive reserves were formed, and pushed north, by the same geological pressures that carved out the Rocky Mountains. However, unlike the light, sweet crude found throughout Texas and the Middle East, this crude was transformed into a substance called bitumen; a heavier, more viscous and carbon-rich form of oil. As a result, the crude found in the oil sands is more difficult to extract, which has brought a host of problems surrounding its development and utilization.

The global rise in oil prices has been rapid enough that expansion of oil sand processing facilities has outstripped the growth of regulatory and governance mechanisms in place. The host of environmental, business, and governance issues that have emerged are large in scope and pressing in nature. In this paper, we will explore the difficulties and complications brought on by oil sands development, and possible future actions. By examining the current regulatory structure and its weaknesses, we will outline our suggestions for improving the current governance structure in Alberta.

Business Development of the Oil Sands

Alberta has long been known as Canada’s energy capital. Today, with the increased production and exploration being conducted in the oil sands region, this moniker rings more true than ever. The oil sands, with an estimated 1.7-2.5 trillion barrels of oil, give Alberta the world’s largest reserves behind only Saudi Arabia[1]. While only 173 billion barrels are estimated to be recoverable with today’s technology, the oil sands have transformed Canada into a veritable energy superpower[2].

The earliest oil sands developments sought to exploit the easiest, most accessible crude. In what is known as open pit mining, massive trucks are used to clear trees, draining the top layer of the earth to expose the ore body. This process decimates what were once thriving, old-growth boreal forests. The extract from this process is piped off to a production plant, where it is heated and separated into sand, water and bitumen. However, over 80% of all bitumen in Alberta is buried too deep below ground for simple open pit mining. As such, new technologies have been developed to extract oil from deep in the tar sands. Whereas these projects were once thought to be overly expensive, today’s rising oil prices make this investment increasingly profitable. Indeed, investment in oil sands development topped $10 billion in 2005, and is expected to continue to rise into the foreseeable future[3]. Today, using drilling, steam is injected into the oil sands, which heats the bitumen, lowering its viscosity and causing it to rise to the surface. Sand is left in place, while oil migrates towards strategically placed wells, in a process known as Steam Assisted Gravity Drainage (SAGD). The bitumen is then piped to the surface. While this process is more efficient at extracting oil, it requires a tremendous amount of water and natural gas to generate power; it has been said that oil sands developments are single-handedly preventing Canada from meeting its Kyoto Protocol targets.

Current oil sands production stands at around 1 million barrels per day, and is projected to rise to 3 million by 2020 and 5 million by 2050[4]. The largest oil sands producer, Syncrude Canada Limited, is also the largest oil producer in Canada. With the capacity to produce over 15% of Canada’s total oil requirements, it is currently producing 350,000 barrels per day[5]. A joint venture operated by seven different oil companies, including the Canadian Oil Sands Trust, Imperial Oil and Petro-Canada, it has been singled out by the Pembina Institute, a leading Canadian environmental agency, as among the worst environmental performers in the region. Suncor Energy, Canada’s largest energy company, recently announced $20.6 billion of further oil sands investment[6]. Currently producing 235,600 bpd in the oil sands region, it has also been criticized as an environmental disaster.

The oil sands are clearly a hotbed of activity, both in exploration and development. However, while businesses claim to be incorporating the needs and objectives of stakeholders, they have been roundly criticized for failing to do enough to protect the environment. Indeed, Mr. Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, an industry trade group, believes that “The sustainability of our industry rests on our ability to do better on the environmental portfolio”, while recognizing that the current environmental situation is simply not adequate.

Environmental Impacts of the Oil Sands

The Albertan Oil Sand development projects have placed a heavy load on the natural environment of the surrounding regions. Both the mines themselves and the energy-intensive oil extraction techniques employed have negatively impacted the surrounding environment. They have affected not only the land itself, but other resources as well, such as nearby bodies of water and the surrounding air. Unfortunately, little is being done to protect the environment or reclaim the land being destroyed.

To develop a mine, companies must first clear away all greenery, top-soil, sand, clay, gravel and muskeg. This is followed by extensive digging, allowing the oil to then be extracted; over two tons of sand must be moved to produce one barrel of oil. Unfortunately, this process completely alters the natural landscape – a problem which has not been properly reversed by the mining companies responsible. Instead of replanting lush coniferous tress, the companies, if they take any action at all, have been reclaiming the land as meadows. In fact, Syncrude Canada Inc. is the only company to gain certification for a reclamation effort, for a forest in Edmonton[7].

Furthermore, mining the bitumen requires vast quantities of water – 2 to 4.5 volume units for each volume unit of synthetic crude oil[8]. The water is diverted mainly from the Athabasca River, but also from Mildred Lake[9]. To give an idea of the volume of water being used, the current oil sands mining operations are licensed to divert 359 million m³ from the Athabasca River per year[10]. While 90- 95% of the water used is recycled, it can only be reused in the extraction process[11]. The water that is not recycled ends up in tailing ponds; it is likely that this water will seep into the groundwater in the future.

Lastly, the extraction process requires coal and natural gas as fuel, which emits incredible amounts of green houses gasses into the atmosphere. Approximately 1.0 to 1.25 gigajoules of energy are needed per barrel of bitumen extracted[12]. Thus, the process of extraction releases CO2 into the atmosphere, along with other harmful gases such as SO2, O3, and H2S[13]. Thus, although energy efficiency is expected to increase, as of now, the oil sands are responsible for 3% of Canada’s greenhouse gas emissions. They are expected to be the single largest contributor to growth in Canada’s greenhouse gas emissions in coming years[14].

The Politics and Governance of Oil Sands Development

With their increasingly rapid development, the oil sands have become an increasingly prominent issue to politicians and citizens of both Alberta and Canada as a whole. Aware of the importance to their constituents, the government of Alberta conducted a public consultation from September 2006 through May 2007 asking questions regarding the nature of oil sands development. From the letters and testimonies submitted, it became clear that responsible and sustainable development was of great importance to the citizens of Alberta. A committee was formed that gave the Albertan Government one hundred and twenty-two recommendations for action concerning the oil sands. However, government action was not immediately taken to address these recommendations. With the March 2008 Albertan elections approaching, the matter of the oil sands gained further attention as a prominent political platform issue. With candidate’s views regarding the oil sands now an integral part of obtaining office, candidates began to focus time and energy to developing proposals concerning the oil sands. The result was the production of a new energy plan and publications to inform the public about renewed government efforts within a month of the election. The public’s concern for the environmentally responsible development of the oils sands brought the issue to the forefront as a political issue.

Public pressure and concern encouraged politicians to take action and express their views and plans for the oil sands. As a result, it became increasingly popular to trumpet sustainability as a platform. However, while the provincial government made it clear this was to be their stance towards the oil sands, this appears to be more façade than reality. Indeed, Alberta’s Conservative Party was able to cruise to another election victory, expanding its already strong majority, on the strength of the economic growth created by the oil sands.

The oil sands have been subject to an enormous explosion of growth in recent years. The growth has been so fast that it has outstripped the ability of the government to provide adequate means by which there can be discussion and discourse on responsible development. As a result, stakeholder groups are only now gearing up and beginning to demand input into development and its effects.

The model for natural resource regulation in Canada dictates that the province has the ability to make most decisions and is the major beneficiary of any associated tax revenue. This is troublesome for many Canadian citizens in other provinces as the resulting environmental degradation associated with the oil sands has the potential to affect their surroundings as well as Canada’s standing as a socially and environmentally responsible nation. The issue of regulation is further complicated by the fact that the federal government is tasked with regulating air quality, which is intimately tied to oil sand production, a resource they do not have jurisdiction over.

David Ebner, who writes on Canadian energy policy and the oil sands for The Globe and Mail, contends that there is disconnect between the people of Alberta and the provincial leaders[15]. He theorizes that this stems from the fact that they were re-elected despite general displeasure with the environmental effects of the oil sands development projects. He believes their re-election can be attributed to the stunning economic growth that been the result of the billions or dollars of oil revenue. Ebner was despondent in discussion, owing to his belief that the Conservatives are the Canadian party least likely to engage citizens and stakeholders in discussion regarding their views and desires. This is consistent with the failure of the Alberta government to address the list of one hundred and twenty-two recommendations set forth by the survey committee.

Ebner also characterizes both the environmental regulations and lobbying groups that are attempting to have input in regulation as being largely ineffective. This is consistent with the actions of Cumulative Environmental Management Association (CEMA), a multi-stakeholder committee initiated by the government. The group strongly recommended slowing and even halting land sales in areas where conservation opportunities are high. Much of the land that contains oil sand deposits is under government management, and the leasing of the areas is a political responsibility. Despite the strong encouragement of the CEMA to temporarily forgo leasing more land until better conservation plans are developed, the government rejected the suggestion. This decision is despite the fact many of the stakeholders calling for the halt are members of the oil industry.

In another effort to ensure adequate regulation, CEMA has compiled a guide of legislation that deals with how oil sands pit mines are to be reclaimed and restored to their natural state[16]. The directors at CEMA have determined that given the lack of outlets or opportunities to directly participate in the management of the resource, one of their best tactics can be ensure that existing legislation is judiciously applied and enforced. This also points to the fact that growth has outstripped regulatory ability; the guide of oil sand related legislation was needed because regulators were not well acquainted with what regulations are applicable.

The Pembina Institute, a leading environmental organization in the region, has taken a different track. They have attempted to gain entrance into the regulation of oil sand development by increasing the transparency of the environmental effects of the oil sands. The companies that are involved in mining and utilizing the oil sands have done so without readily publishing facts regarding environmental impacts[17]. Thus, there is no basis for comparison between mines and between the effects of different mining techniques used. In response, Pembina has compiled a report card that compares mines and the technology employed at each site so that regulators and the public can ensure that if the oil sands are to be developed, they are mined in the most environmentally responsible way available.

Pembina has also commissioned an online survey of election candidates, asking them to answer several questions concerning the oil sands. The poll was intended to help voters better understand candidate’s positions. 123 potential candidates responded and their responses were compared to the answers of 500 Albertan citizens who were asked the same questions. In this way the Pembina Institute has attempted to ensure citizens’ views on oil sands development are best represented.

A host of other watchdog groups and think tanks have sprung up attempting to have their voices heard on the responsible development of the oil sands region[18]. Their suggestions range from increased transparency to slowed development with additional impact studies, to a complete moratorium on all oil sand mine development. The multitude of groups represents the efforts of concerned citizens who want their voices heard; these groups represent a desire for a much more participative method by which they can have direct say into the regulation and the utilization the oil sands.

The oil sands have only recently become economically viable. As a result, there is an inadequate framework for a participative model of regulation. This is supported by the research and experience of David Ebner, as well as the multiplicity of groups clamoring to have their voices heard in the face of an otherwise disinterested provincial government.

Conclusions

The oil sands clearly represent a significant economic opportunity for the province, and people, of Alberta. However, there are significant challenges in developing the oil sands in a responsible, sustainable fashion. The current structure, in which responsibility for oil sands regulation rests firmly on the shoulders of the provincial government of Alberta, simply is not effective. The most recent piece of legislation passed, which will force firms to bury carbon dioxide emitted during the extraction process beginning in 2012, has been criticized as woefully inadequate. While environmental groups, such as the Pembina institute, have made proposals, they have been largely ignored. Indeed, businesses are able to pretend they are environmentally-friendly, all the while developing one of the world’s dirtiest sources of energy. In this sense, Alberta seems to be stuck in between epoch one and epoch two; while business and government make claims to be incorporating efficiency and sustainability in their approaches to development, there is a sharp disconnect between their words and their practices. This combination of administrative and economic rationalism- where experts in government make the rules, while industry and other players are left to sort out the results, is currently leading Alberta down a destructive path.

In our view, therefore, significant changes are necessary to ensure that oil sands development occurs in a sustainable, environmentally-friendly fashion. Alberta’s government must recognize this momentous opportunity and enact radical changes, while incorporating environmentalists in the decision making process. However, Alberta’s Conservative Party, in power since 1971, remains a bastion of pro-business, anti-regulation sentiment. Moreover, the economic growth resulting from the oil sands has led to rising incomes and job creation, reinforcing the party’s popularity and leading to a recent decisive election victory. Continuing with the current system will certainly bring economic growth, but at what cost? Growth and prosperity can still be harnessed in a sustainable fashion. Even Mr. Davies recognizes the need for change. Indeed, we believe that change now, while times are good, will surely be easier than making changes after irreversible harm has been done. Stricter reclamation enforcement, with harsher fines and penalties for failure to restore forest, is necessary. We believe the carbon tax is a good idea in principle, but the fines need to be raised to further induce innovation. This principle of polluter-pays is a positive step, and should be extended to water usage, forest usage and air damage, the three other major areas of environmental concern. Oil sands development represents a “high-tech industry that thrives as a result of innovation and strong investment”[19]. By using taxes to induce innovation, the Albertan government has the unique opportunity to harness the research and development power of global energy giants for the environment. Moreover, incentives and subsidies from windfall oil royalties could be used to provide incentives for the development of clean, green technologies and other environmentally friendly energy sources, such as wind and solar power. GRI reporting and other independent recognition is necessary to ensure that firms are following through on commitments, taking some of the regulatory pressure off the provincial government. While the federal government of Canada certainly could play a constructive role in environmental regulation, any legislation from Ottawa is likely to be viewed as interference in Alberta’s local matters, and as an attempt to swindle resource wealth. Alberta, and indeed much of Western Canada, has historically felt a disconnect with Ottawa, and would likely reject any heavy-handed attempts at federal regulation.

Today, Alberta stands at a fork in the road. With a historic opportunity for oil wealth creation, it must also realize the downside to unfettered and unregulated development. Alberta Premier Ed Stelmach and his Conservative Party have the chance to act before it is too late, to develop the oil sands in a sustainable fashion. Unfortunately, political considerations and economic growth seem to be the top priorities for Alberta. In our view, Alberta’s black gold, while certainly leading to riches, could also lead to ruin.

Works Cited

Canadian Association of Petroleum Producers. April 10, 2008.

Davies, Travis. Personal Interview. 17 April 2008.

Dyer, Simon; Moorhouse, Jeremy; Laufenberg, Katie and Rob Powell. Under-Mining the Environment: The Oil Sands Report Card. The Pembina Institute. January 2008.

Ebner, David. Personal Interview. 16 April 2008.

Government of Alberta. “Alberta issues first-ever oil sands land reclamation certificate.” Alberta news release. 19 March 2008. Government of Alberta. 19 April 2008. .

Griffiths, Mary et al. “Troubled Waters, Troubling Trends.” May 2006, 1st Edition. The Pembina Institute. .

Guidelines for the Implementation of Ecosystem Management Tools in the Athabasca Oil Sands

Region. November 2002. Cumulative Environmental Management Association. 17 April 2008.

Oil Sand Discovery Center. “Fact Sheet.” Government of Alberta. EnvironmentalProtection. 16 April 2008. .

Tar Sands. Sierra Club of Canada Prairie Chapter. Sierra Club Prairie. 16 April 2008 .

TarSandsTimeOut. 2006. The Sierra Club. 17 April 2008. < >

The Government of Alberta. “Oil Sands Consultation: Multistakeholder Committee Interim Report.” Oil Sands Consultations. 30 November 2006. Government of Alberta. 10 April 2006 .

Oil Sands Discovery. Canadian Institute of Mining, Metallurgy and Petroleum. April 10, 2008.

Suncor Energy. April 10, 2008.

Syncrude Canada Limited. April 10, 2008.

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[1] Oil Sands Discovery. Canadian Institute of Mining, Metallurgy and Petroleum. April 10, 2008.

[2] Ibid.

[3] Canadian Association of Petroleum Producers. April 10, 2008.

[4]Davies, Travis. Personal Interview. 17 April 2008.

[5] Syncrude Canada Limited. April 10, 2008.

[6] Suncor Energy. April 10, 2008.

[7] Government of Alberta. “Alberta issues first-ever oil sands land reclamation certificate.” Alberta news release. 19 March 2008. Government of Alberta. 19 April 2008 .

[8]Ibid.

[9] Oil Sand Discovery Center. “Fact Sheet.” Government of Alberta. EnvironmentalProtection. 16 April 2008 .

[10] Griffiths, Mary et al. “Troubled Waters, Troubling Trends.” May 2006, 1st Edition. The Pembina Institute. < >.

[11] The Government of Alberta. “Oil Sands Consultation: Multistakeholder Committee Interim Report.” Oil Sands Consultations. 30 November 2006. Government of Alberta. 10 April 2006 .

[12] Ibid.

[13] Oil Sand Discovery Center. “Fact Sheet.” Government of Alberta. Environmental Protection. 16 April 2008 .

[14] Tar Sands. Sierra Club of Canada Prairie Chapter. Sierra Club Prairie. 16 April 2008 < >.

[15] Ebner, David. Personal Interview. 16 April 2008.

[16] Guidelines for the Implementation of Ecosystem Management Tools in the Athabasca Oil Sands Region. November 2002. Cumulative Environmental Management Association. 17 April 2008.

[17] Dyer, Simon; Moorhouse, Jeremy; Laufenberg, Katie and Rob Powell. Under-Mining the Environment: The Oil Sands Report Card. The Pembina Institute. January 2008.

[18] TarSandsTimeOut. 2006. The Sierra Club. 17 April 2008. < >

[19] Davies, Travis. Personal Interview. 17 April 2008.

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