It was a public relations disaster straight from an oil executive's nightmare. On a bright April morning following a typical late spring snowstorm, a flock of 500 migrating ducks had landed on a tailings pond at Syncrude Canada's Aurora oil sands mine, in the north-east corner of Canada's oil-rich Alberta province. Ice surrounding the pond was hampering rescue efforts, forcing the company - Canada's biggest oil sands operator - to move in a crane to lower boats onto the water.
The panicked ducks, thoroughly coated in oily sludge, deftly evaded would-be rescuers by diving under the carcinogen-laced waters. In the end, only five were caught and brought to cleaning stations, three surviving long enough to be airlifted to a wildlife rehabilitation centre in Edmonton, the provincial capital. Alberta's oil sands belt, a remote land of spruce forests and muskeg swamps, is on the migration route of millions of ducks and other waterfowl that every April and May make the long flight to northern breeding grounds.
Syncrude's unwelcome drop-in visitors were not on any endangered species list, but dead ducks would be a devastating image for a home-grown Canadian industry under siege by US and international environmental groups. Cognisant of the coming publicity storm, the Alberta premier, Ed Stelmach, was visibly angry as he questioned Syncrude executives on why sonic canons had not been fired, as usual, to scare waterfowl away from ponds filled with waste from separating molasses-like ultra-heavy crude from grit.
The company lamely explained that the snowstorm had held up deployment of its noisemakers. But by then, environmentalist opponents of Canada's expanding oil-sands sector were gleefully posting images and video clips of the debacle on YouTube and other web sites. The Canadian industry's international reputation had been royally tarred and feathered. "Big oil companies are pillaging Alberta's natural resources, robbing freshwater from the Athabasca River to make giant lakes of toxic sludge that are killing wildlife and poisoning local communities," proclaimed Mike Hudema, a Greenpeace tar sands campaigner, after a July protest at the fateful Syncrude tailings pond - by then no longer blocked by ice.
Branding oil sands as "the world's dirtiest oil", the international environmental group had been calling for the suspension of government approvals for new Canadian oil sands projects, assurances that no new tailings ponds would be built or existing ones expanded, and for stiffer penalties for oil companies that violate environmental rules. Its entreaties were increasingly finding receptive ears, one pair belonging to Jason Grumet, the top energy adviser to Barack Obama, the US Democrat party's presidential candidate.
This summer, spelling out his boss's stance on increasing US refinery purchases of crude from Canadian tar sands, Mr Grumet sent shivers through Canada's oil patch when he said emissions from Alberta's massive oil sands mining and underground steaming operations - two alternative ways to extract the oil - were "unacceptably high". The oil imports could run counter to Mr Obama's plan to shift the US away from carbon-intensive fossil fuels, he added.
"If the only way to produce those resources would be at a significant penalty to climate change, then we do not believe that those resources are going to play a growing role in the long-term future," Mr Grumet said. Canada's output of 1.2 million barrels a day (bd) of crude from oil sands, most of which it exports to the US, is slated to rise to 3.5 mbd by 2020, following an unprecedented international investment boom that has pumped over US$100 billion (Dh367bn) into the sector in the past few years. As of this year, all the world's major international oil companies have taken large stakes in Canadian oil sands projects, with BP being the latest entrant.
The biggest, Exxon Mobil, regards oil sands as so critical to its future that it recently parachuted an entire management team into northern Alberta's bush to run its 25 per cent-owned affiliate, Syncrude. For this, it had to gain the consent of the oil sands consortium's other partners, including its largest shareholder Canadian Oil Sands Trust, which has a 36.7 per cent Syncrude stake. Tom Katinas, formerly the manager of a large Exxon Mobil oil refinery in Britain, assumed his new position as Syncrude's chief on May 1.
Syncrude's management shake-up coincided with the dead duck disaster, although that was not its cause. A longer-standing red flag for Exxon Mobil was Syncrude's $7.5bn expansion project, which opened last year after long delays and large cost-overruns. The start-up was followed almost immediately by a weeks-long shutdown of a key piece of newly installed oil refining equipment, after area residents, mostly native Cree Indians, complained of urine-like odours.
Costs have always been a huge concern for oil sands producers, which have historically reckoned with wafer-thin profit margins in their difficult quest to convert gritty black goo into marketable forms of oil. With huge crude resources at their disposal and no exploration risk - Alberta's oil sands deposits hold at least 1.7 trillion barrels of oil-in-place in known locations, of which more than 170 billion barrels are recoverable with current technology - producers counted on tiny per-barrel profits adding up to large dollar contributions to their bottom lines. In the words of one industry veteran, the business of oil sands mining amounted to moving as much material as possible as efficiently as possible.
But tiny profit margins could and did turn on a dime into a sea of red ink for any oil sands operation that failed to control production costs, or if oil prices dived. In the mid 1990s, with its Alberta oil sands mining and processing operations racking up annual losses, Canada's oldest oil sands operator, Suncor, was considering quitting the business. Dee Parkinson, a diminutive oil executive with previous experience as the tough female boss of a Canadian oil refinery, had the unenviable task of turning things around. It was a job that no one else in Canada's male-dominated oil patch was keen to take on.
What Ms Parkinson pulled off because, as she said, "my job was on the line", was not rocket science - just a ruthless overhaul of all Suncor's oil sands materials handling and engineering processes, resulting in efficiency gains throughout the operation. Most notable was a switch from bucket wheels, an iconic but high-maintenance piece of oil sands equipment that frequently broke down, to giant trucks and mechanised shovels. Borrowed from the hard-rock mining industry, fast moving trucks the size of small houses are a staple of all oil sands mining projects today.
As a result of Ms Parkinson's reforms, unit costs at Suncor's oil sands operations plunged, as did emissions of some nasty pollutants such as sulphur and nitrogen oxides. Operating on adjacent oil sands leases, Syncrude was quick to institute similar changes, enabling Alberta's oil sands sector to weather a period of rock-bottom oil prices while setting the stage for the recent investment boom. In those days, environmental protesters were largely absent from the tract of remote boreal forest that oil companies were fast converting to moonscape by building the world's biggest open pit mines; not so during the recent oil-price boom, as Canada's growing oil sands operations - a money mine as oil prices rose - gained worldwide attention. Now, by far the biggest threat to their long-term profitability comes from tougher environmental laws, especially regarding carbon emissions, that North American politicians are likely to champion to satisfy the demands of voters and European trade partners.
Already, Alberta's government has introduced regulations requiring all new oil sands projects to incorporate technology for capturing carbon dioxide with a view to storing the waste gas underground. In time, if combined with investment in infrastructure to pipe the gas several hundred kilometres to ageing conventional oil fields in northwestern Alberta, where it could be used to boost oil production, Canada's oil sands could support North America's biggest carbon capture and storage (CCS) project ? possibly the largest such project in the world. But this will take years, if not decades.
In the meantime, Royal Dutch Shell, the third major oil company to enter Canada's oil sands mining sector, has decided to lay the groundwork for integrating CCS into all its oil sands operations, old and new. The company ships bitumen - the intractable tar-like crude extracted from oil sands - nearly 500 kilometres to its Scotford oil refinery, near Edmonton. There, the bitumen is converted into a more marketable, less carbon-dense "synthetic light crude oil" that is easier to process further into petroleum products such as gasoline and diesel. It is at the bitumen "upgrading" stage that the company proposes to capture carbon emissions.
"The time to act is now," said Janet Annesley, a Shell spokeswoman. "We are going to be in this business for a long time, and we believe the best strategy is to invest wisely through the commodity cycle." Indeed, with bitumen shipments to Scotford from its own oil sands operations and from third parties expected to rise, Shell is already expanding the refinery's existing upgrader - an expensive piece of specialised refining equipment for processing bitumen - and plans to build a second upgrader for start-up in 2010.
The company's plan to integrate CCS into overall refinery operations is therefore timely. Still, it is not a sure thing, with a decision on commercial viability likely "sometime post-2010", Ms Annesley said. "We believe the environmental dimension (of oil sands) can be managed, and Alberta has the regulatory framework to effectively manage the industry. But the real problem is cost," she added. In the meantime, Syncrude's dead duck drama has Shell and other oil sands players preening their public images. Shell's corporate presentation on oil sands includes a "well-to-wheels" comparison that calculates total carbon emissions from producing gasoline from mined oil sands and burning it in a car engine at 186.6 grams of carbon dioxide per kilometre, only 14 per cent higher than the equivalent 164.1 g/km calculation for gasoline produced from conventional oil.
That is a far cry from the three-to-one ratio in carbon emissions that most environmental groups claim for oil sands versus conventional oil. It is also worth noting that the lion's share of carbon emissions included in Shell's calculations derive from gasoline combustion in cars, not oil production and refining. The company has already reduced per barrel emissions from its oil sands operations by 50 per cent since their start-up in 2001, "primarily by improving energy efficiency", Ms Annesley said.
Still, if Shell hopes such rationalist number crunching will sway public opinion in the emotionally charged environmental debate, it may be whistling in the wind. More persuasive might be the company's cutting edge technology for scaring ducks away from tailings ponds: a cute robotic peregrine falcon. @Email:tcarlisle@thenational.ae
