Murray Gingras

Recent cuts of the (Alberta) provincial budget have been portrayed by the government as the necessary result of falling revenues due to the bitumen bubble – not to mention low gas revenues. This caused me to consider the future of oil and gas revenues in Alberta. Can we expect high levels of revenue from oil and gas (and coal?) in the future?

One thing is certain: there is no shortage of oil deposits in Alberta. These are present as heavy oil, ultra-heavy oil and tight oil. Regarding heavy and ultra-heavy oil, Alberta has perhaps the most in the world. Consider that there is about 1.7 trillion barrels of the gooey stuff in the McMurray Formation, and another 500 billion barrels in the underlying Grosmont Formation. Well, we basically corner the market. For the record, we could add the Peace River, Cold Lake and Lloydminster heavy oilfields to that inventory. It is no lie to say that Alberta has about 2.5 trillion barrels of oil and heavy oil in place (not all of that is producible). These numbers are so large, I will not even bother discussing the tight-oil Bakken Formation.

Regarding gas, Alberta has LOTS of that, as well. There is deep-basin gas, for example in the Grande Prairie area, tight gas generally throughout NW Alberta (and NE BC) in the Montney Formation and un-estimated volumes of shale-gas in the Devonian Duvernay Formation. Not to mention shallow gas, coalbed methane and conventional gas. Way more potential production than all of Canada needs, and probably at least a 50-year supply of it!

So: there is no problem with resource availability. The limitations are infrastructure to get the products to market (both oil and gas) and the technology to exploit those resources. I see those coming in the future. Despite BC’s intransigence regarding a pipeline to the coast, it is in Canada’s best interest (yes Canada, not Alberta) to get the product to market. Regarding oil, pipelines WILL come and new means of partial upgrading at the well-site are on the horizon (lighter product is easier to pipe to market). So the future should be just fine.

The pity is that this is the same government that is whining about the bitumen bubble that would have seen this coming, had they listened to economists. The same government that permitted unfettered development of the oilsands from 2000 to 2008, so that we now have more bitumen than we know what to do with (also causing many other infrastructure problems in the process). The same government that refuses to look at royalties from the oilsands as part of the budget-solving equation. And now, here we are: cutting services and education. This is, in fact, a story about poor resource management and stewardship. It smacks of lazy government policy that lacks a vision of the future. It reveals the lack of ability our government has in consulting with the large number of talented Albertans working in industry and academe who have seen today’s issues coming. It is the result of an arrogant government that thinks it always knows best in spite of abundant evidence that it lacks any real talent.

Note to Premier Redford: regarding education cuts, we will probably need our economists, geologists and engineers once those pipelines are finished, so let’s not get too carried away.

Maybe I am over-reacting. Students: what do you think?

Lately the oil news in Alberta has centered around the price differential applied to Alberta oil and heavy oil. In simple terms, I suppose that supply exceeds our ability to move the resource out of the province. This has renewed the debate regarding pipelines to the USA and across BC to reach Asian markets. Recent developments seem to indicate that pipelines to Oklahoma may become a reality in a few years: for example Nebraska’s Governor Heineman notified Obama that he has approved the proposed Keystone XL crude oil pipeline’s new route across the state.

http://www.ogj.com/articles/2013/01/nebraska-governor-approves-keystone-xl-pipelines-new-route.html

BC seems a bit more intransient in their position. Initially BC Premier Clark insisted on a royalty for this pipeline to be hosted in the northern part of the province. Then the situation evolved into a more complex beast regarding First-Nations interests and environmental concerns. Regarding the prior: ludicrous. A friend of mine—Astrid Arts, a geoscientist in Calgary posited “do we charge a royalty for their beer or lumber that crosses Alberta into the other 8 provinces east of us?” A cut of the Kokanee tax sounds fine to me! Kidding aside, Astrid made a fair point. Regarding the latter, fair enough. But consider that presently we are shipping bitumen by rail to Oklahoma:

http://www.cn.ca/en/customer-news-transport-market-bitumen-20120627.htm

And this is being considered for Alaska.

http://www.edmontonjournal.com/business/Group+wants+move+bitumen+rail+Alaska/7763076/story.html

Rail is not the most efficient nor—in my opinion the safest—way to move oil. There is no reason pipelines cannot be made safe. The technology is simple and the solution probably should revolve around appropriate monitoring and inspection of the pipeline.

However, other solutions come to mind. 1. Refine more product in Alberta. 2. Have a Provincial development plan for heavy oil resource that is an actual plan. 3. Take less money for the product.

What do you think?

A lot of fuss is being made over CNOC’s attempt to acquire Nexen. On the surface, this looks like the same, same-old. After all, some truly historical Canadian companies have been absorbed by international concerns. The once mighty Gulf Canada was purchased by ConocoPhillips. Dome, another solid Alberta outfit ended up with Amoco, which was purchased by BP. I have no idea who purchased Norcen (they gave me a scholarship when I was an undergrad)… maybe Husky? But then, Husky is Canadian (majority owned by a Hong Kong resident).  What about Canadian Hunter? They were one of the most innovative Canadian oil and gas producers of the last 50 years! They were gobbled up by Devon. So… what is the difference?

Well, as a Canadian, I can go purchase shares of ANY of the companies that own the above assets. I can still participate in their economic success. I can go to shareholder meetings and hold them accountable! Try and do that with CNOC. You will be disappointed. Do not ignore this issue. Write your MP and let them know that selling off Canadian companies and putting them out of reach of Canadian investors is absolutely unacceptable.

Read this article!

http://www.edmontonjournal.com/opinion/Lamphier+Oilsands+hyperbole+hides+real/7118772/story.html

Very interesting summary of CO2 sources.

In southern Alberta, Saskatchewan, North Dakota and in Montana, tight oil production (from the Bakken Formation) is now approaching 1 million barrels per day. That is about 1% of world demand: not bad. Bakken production now challenges McMurray bitumen production, which is on the order of 2 million barrels per day and rising.

The Bakken Formation has garnered less environmental attention than the McMurray deposits, and is an attractive resource from that point of view. However, it is a play that requires fracing and locally comes under scrutiny ( http://video.cnbc.com/gallery/?video=3000041249 ). The McMurray, on the other hand is a whopping huge deposit that promises steady cash flow and stability, but is either mined (see attached) or steamed ( http://www.conocophillips.ca/EN/tech/sagd/Pages/index.aspx ).

As usual, excellent choices! What do you think of these options?

First, to avoid confusion, I am using the term fracing as a derivative of fracturing, as it applies to induced fractures in subsurface boreholes. I think it is commonly written as fracking, but that just doesn’t seem right. Where does the “k” come from?

The media attention on fracing has become overwhelming. Many people who live near fracing operations are worried for contamination of their land or water. There is at the very least anecdotal evidence that fracing has “gasified” nearby water wells. However, industry has taken the general position that fracing can be (and is) done without any serious risk to local water supplies or the environment. Some scientists have echoed the same thing (see: “Fracking risk is exaggerated” http://www.newscientist.com/article/dn21341-fracking-risk-is-exaggerated.html). But who trusts scientists, anyways?

I recently attended a lecture by Professor Karlis Muehlenbachs, a geochemist-colleague here at the University of Alberta (see the article “Fracking Contamination ‘Will Get Worse’: Alberta Expert” at http://thetyee.ca/News/2011/12/19/Fracking-Contamination/ ). He presented a point of view that was – to say the least – enlightening. Based on several years of research and thousands of chemical analyses from oil and gas wells in Alberta, he is able to show that gas routinely crosses from one geological unit to another. This leakage may primarily occur right alongside the well-bore, but in cases where fracing is more intensive (e.g. coal-bed methane), leakage is expected. Broadly speaking, the amount of leakage may be small or large (it is not really known) and it is unclear how much shallow aquifers are  influenced by this contamination, but it certainly provides food for thought. I think we need to know this.

Professor Muehlenbachs further pointed out that there is an assumption that people who are against fracing are worried about ground-water pollution. Sometimes, however, when a person says “I am against fracing” they mean “I am against the endless industrial traffic associated with fracing operations” or “I am against the noise associated with gas production facilities”. Maybe they simply mean to say that they do not trust industry. Certainly the issues surrounding fracing are more complex than gas in well-water.

There is good with bad. New fracing techniques, along with horizontal drilling, are technologies that are largely responsible for staving of a North American (read USA) energy shortage. Just 10 years ago, there was a lot of uncertainty regarding American energy independence, and now the USA is looking like the Saudi Arabia of natural gas (400-800 trillion cu ft)! Canada will probably be shown to have similar resources, but this is not yet well established. That is a lot of gas. Although neither side (industry versus concerned locals or environmental groups) seems prepared to admit it, leaky wells may be the cost of energy stability and keeping oil and gas affordable. Okay: who would want to admit THAT? I think it is true, however.

I turn the conversation over to you. How important is low-cost energy to you and your lifestyle? IS the cost of doing business reasonable? Can fracing be regulated so that it is safer? (see “Calgary-based energy companies welcome new fracking standards?” at http://www.calgaryherald.com/business/Calgary+based+energy+companies+welcome+fracking+standards/6076346/story.html )

Shale gas and other forms of tight gas are starting to become real alternatives to crude oil. Look at the Annual Energy Outlook (2011), published by the US Energy Information Administration (EIA): they more than doubled their estimate of technically recoverable shale gas reserves in the US, to over 23 trillion cubic meters from 10.0 trillion cubic meters ( see: http://www.eia.gov/forecasts/aeo/er/pdf/0383er(2012).pdf ). That is a lot of gas! If you consider that there are many initiatives to liquefy natural gas, so that gas can be used as a replacement for diesel (for example), is this the way forward?

On the plus side, natural gas is inexpensive, abundant and widespread, and if anything gas is likely to be substantially underestimated in it’s abundance! We could go on living the swinging lifestyles that we have become used to due to the availability of “cheap” crude.

There is a downside. The burning of NG still releases abundant CO2 into the atmosphere. Sure, it is cleaner, but it is not clean. Also, there are environmental concerns regarding fracing and infrastructure intensity, too. Finally, if we pursue natural gas, will this not just mean we more or less stop pursuing clean energy?

T. Boone Pickens, an American resource expert and former CEO of Chevron (among other things) has for several years put forward arguments for the embracing of natural gas. His angle is focused on energy security for the USA. But, he understands the issues. Those interested should search the multimedia and consider his arguments.

What do YOU think?

The labeling of the Athabasca Oilsands as “Dirty Oil” is prevalent in North America and Europe. Media coverage within Canada has been reasonably balanced, but there is plenty of rhetoric to be heard both here and abroad. I have heard statements, for example on CBC Radio this morning, that are unnecessarily inflammatory. The interviewee suggested that if we burn all the oil in the oilsands, then we are sealing the Earth’s fate. That is silly, because the statement applies to burning crude oil in general. You could equally say the same thing about burning all the crude in Saudi Arabia.

Take a step back. Yes, bitumen requires more carbon intensity to turn into synthetic crude. But, should anyone really believe that burning normal crude oil is somehow more environmentally friendly? Are people forgetting that conventional crude has been involved in far more substantial environmental incidents than can be ascribed to McMurray bitumen? Consider Deep Horizon, the Exxon Valdez, the oil fires of Kuwait (intentional, mind you), and Ixtoc 1. How about the oil-withdrawal-associated subsidence near Los Angeles? Hmmm… or Rainbow Pipelines 2011 spill in Alberta, and so on. And think about the volume of conventional crude produced. It is a much larger polluter of the environment.

I would further add that although mining of the oilsands comes with an obvious set of environmental threats, are we comfortable rebuking oilsands mines when other types of mining activities produce far more polluting tailings (for example lead-zinc, iron, or copper) and often go largely unnoticed (see Rio Tinto Estuary Spain: 5000 years of pollution: in Environmental Geology #39 in September 2000) (although the Rio Tinto example has indeed been well covered).

The real issue is that there is a huge market for crude oil as an inexpensive and transportable source of energy. At this point, economic alternatives are still on the horizon and the development of crude-oil resources is a reality.

You can add to the above—and it has been stated many times before—that at least the revenue from bitumen trickles down to the people in Canada. The oilsands support a vibrant and educated work force. And Americans reap the economic benefits of the McMurray deposit as well (many American Companies own rights to mine or steam oilsand and I know many Americans who work in Calgary and Fort McMurray as a result of their interests). Also, France (Total), Norway (Statoil), China, and Britain (BP) posses important rights to bitumen resources, that benefit their domestic economies. Other than the North Sea, Australia and the Gulf Coast, you would have trouble convincing me that oil wealth has been shared as effectively in other important oil provinces.

Much of the talk in Alberta centers around the two proposed pipelines intended for the shipping of bitumen out-of-country. Broadly, two issues are discussed. Outside of Alberta, the concerns revolve around environmental issues, mostly those associated with oil spills (pipeline leaks). Within Alberta we should be asking ourselves if we really want to ship unrefined bitumen outside of our borders.

Regarding environmental concerns: these are legitimate. Pipelines do leak. Nearly all pipeline pumping stations are characterized by very small spills due to equipment leakage and maintenance spillage. Over time these add up. More catastrophic spills are the result of pipeline pressure coupled to corrosion of the pipe, which can lead to pipe failure. One would think that with modern materials and pressure-sensing equipment… not to mention centralized computer monitoring stations, that pipeline spills could be eliminated. The reality is that pipeline spills still occur. An important truth of pipeline spills is that they tend to be more spatially limited and smaller in scale than offshore spills. Is this yet another “to make an omelet you have to break a few eggs” issue?

Shipping bitumen out of Alberta is definitely erosive to future industrial expansion in Alberta. Every refinery we feed is one refinery less in Alberta. Supporters can point to labor shortages in Alberta, protecting ourselves from industrial pollution, and the presence of oil-starved refineries in the USA. Fair enough. But where I come from, the availability of more (highly paid) local jobs is considered to be a good thing. At least regarding the shipping of oil to the USA, a major driver is that the bitumen producers in part own the proposed refinery destinations. I get that. An economic decision on their part. But, not an economic decision on Albertan’s behalf.