Walking on the moon: a trip to the oil sands

So rather than news, what we took away were vignettes and impressions, which we will share. Some are related to oil; some are more connected with the quirky nature of mining boom towns, where virtually the entire economy rests on the extraction of a natural resource. Towns like that have long been part of minerals extraction in North America; think of Sudbury, Ontario (nickel) or Leadville, Colorado (molybdenum). Because oil extraction is far less labor-intensive, those sorts of towns are not as easy to find on the petroleum side. But the oil sands are different, straddling both the mining and petroleum sectors.

A few things we observed and concluded:

--Yes, it's all about what's in the ground, but it's all about the people too. Fort McMurray is a long way from anywhere -- several hundred miles from Edmonton, the closest significant city -- and recruiting skilled workers is a never-ending job. Recruiting goes on all over Canada and into other parts of the world. Workers from the perpetually depressed Atlantic coast of Canada are a significant labor source; refineries in that region have reported difficulties hanging on to skilled employees, who are lured to Alberta by the pay levels of the oil sands. The riches to be made for blue-collar workers are some of the best anywhere. For example, one member of our traveling party is quite familiar with a skilled heavy equipment mechanic at the oil sands. This worker owns two homes in Fort McMurray and one elsewhere in Alberta. The houses carry no mortgage; they'e owned free and clear. The owner? He's 24. And he's making C$150,000 a year.

--Estimates on the marginal costs of a barrel of oil from the oil sands are all over the map, with figures often quoted well in excess of $20/b. Our hosts said nothing definitive when asked this question. This raises the question of just how operations managed to continue during the low-price days of the 80's and 90's. Why didn' they just shut down, the way your professor in Economics 101 would have told you was the inevitable course of action? Two reasons stand out: when the price of oil had fallen to $10/b, it dragged down the price of natural gas with it. Natural gas is a key part of the production process, heating the ore in-ground for in situ production, or for separating oil from the ore in open-pit mining operations. The second was the long-term commitment that companies had made to the sands, and the knowledge that if they sent some of those hard-to-recruit workers home, they might never get them back.

--Nukes don't seem to be an energy-generating option for the oil sands. As one official pointed out, nuclear energy would be used to replace natural gas as the energy source to produce steam. But steam requirements are spread out over the entire region. Nuclear power is usually built as one giant plant, serving a wide area. If the steam was generated near the plant, you then have the problem of transporting the steam to the various sites. (Another option could be that you simply transport the electricity generated by the nuclear plant around the region). Whatever the outcome, it's clear that this remains something only theoretical. Driving the prospect of nukes to power oil sands extraction is the projection that the sands' energy needs may suck up every last cubic foot of gas that is expected to come out of the Mackenzie Delta project in northern British Columbia.

--We were shown several areas that had been reclaimed. Open-pit mining in the oil sands moves vast quantities of rock and dirt to get at an ore that is about 10% oil. (That may not sound like much, but metals mining often extracts ore that has less than 1% metal content.) The result is a giant canyon, a black and grey moonscape. But our hosts were quick to point out where land had been reclaimed, through a process that at its most basic takes all of the unwanted material pulled out of the ground, sticks it back in the "lunar" canyons and then is covered with trees and vegetation. At the one area we were shown, it was very difficult to believe that we were standing on what had once been one of those holes. It's hard not be impressed. At another area, bison have been reintroduced, grazing on what we joked was high-octane grass.

--The "upgraders" that convert the bitumen "froth" into Sweet Synthetic Blend carry a misleading name. They're basically refineries. They have cokers, and they have hydrotreaters. But the end-product is not the traditional output of a refinery, e.g., gasoline, diesel. Instead, SSB, as it's called is sort of half-crude, half-unfinished product. It goes into a refinery for further processing, so it's more like crude than anything. But however it is described, the term upgrader does not do justice to these plants. They're highly complex refineries.

--The team that visited the oil sands on August 15 didn't get a chance to see The Globe & Mail, Canada's national newspaper, before its visit. If it had, it would have seen a front-page story that illustrated the growing pains and tensions being created from this source of more than 1.2 million b/d of oil. In the story, former Alberta premier Peter Lougheed said oil sands development is going to be the focus of a battle between the federal and provincial governments over the projects' pollution. He said it will be "10 times" greater than any prior federal-province battle. That's another point that supports the town's nickname of "Fort McMoney."