Canada: The next oil superpower?

Manik Talwani

08/15/03: (National Post) America has many reasons for its risky involvement in Middle East politics, but there is no question that dependence on imported oil plays a very large role. The fact is, however, that the largest deposits of oil in the world are not in the Middle East -- or in Russia or off West Africa or in the Caspian Sea area, for that matter. They are in two Western Hemisphere countries: Venezuela and Canada.

The catch is that they consist of bitumen and other forms of "heavy oil" -- petroleum buried in sand deposits that requires a special refining process to be converted into so-called syncrude. This conversion is expensive, but the end product has all the favourable qualities of conventional light oil. And these heavy oil deposits occur in mindbogglingly large quantities.

Along the north shore of the Orinoco River in Venezuela, in an area known as the Faja de Orinoco, the Venezuelan national oil company estimates that 1.2 trillion barrels of heavy oil lie within a few thousand feet of the surface. A representative of Total, the oil giant, said that as of now only 5% to 10% of the oil can be recovered. Yet he estimated that technical improvements could raise recovery rates to around 25%. If so, this would eventually mean some 300 billion barrels of usable crude.

Canada's deposits are even larger: estimates range from 1.6 trillion to 2.5 trillion barrels of bitumen (which is also called "oilsands" or "tar sands"). About 9% of the deposits are relatively close to the surface and should have very high recovery rates -- at least 50% and possibly up to 90%. Combining this with a very modest 5% recovery rate for the deeper bitumen, and the country's total potential reserves can be estimated at 174 billion to 271 billion barrels.

Thus the total potential of the two countries nearly equals the 600 billion barrels remaining in the Middle East reserves. The problem, of course, is that harvesting and converting the heavy oil would require huge investments and improvements in technology by the international oil conglomerates. Being viscous, it is difficult to get out of the ground and to transport. It is expensive to upgrade, and refining it produces more sulfur dioxide as well as carbon dioxide and other greenhouse gases than production and refining of conventional oil.

Heavy oil will probably never be as cheap as Middle East crude -- but it is much closer to home, geologists know exactly where it is and one big producer is our politically stable northern neighbour. So should the United States make the Western Hemisphere's heavy oil reserves a focus of its long-term energy strategy?

Consider the alternatives. We now import more than half of our annual requirement of seven billion barrels. Domestic oil reserves are about 28 billion barrels and thus can, by themselves, supply the nation's need for only about four years. Estimates for the recoverable oil in the Arctic National Wildlife Refuge, should we decide to exploit it, range from 4 billion to 12 billion barrels, enough for six to 20 months. Clearly, even if Americans suddenly all switched to Toyota Priuses, domestic reserves could not supply their needs for long.

Another course -- moving toward cleaner, renewable sources of energy -- would be great, but is unlikely to happen soon. Popular opinion is strongly against nuclear fission, and we are decades from making solar energy or any other alternative a significant factor in our supply.

Like it or not, we will not wean ourselves from imported oil for decades. And heavy oil has some things to recommend it. Oil reserves are rapidly dwindling in the Middle East, and Saudi Arabia alone keeps producing nine million barrels a day. By contrast, just two million barrels of heavy oil are produced each day, and there's plenty of it.

And technological advances are being made (the price of Canadian bitumen has dropped by two-thirds since the 1970s). These include the use of satellite technology to measure minute amounts of ground upheaval in shallow reservoirs, and the pumping of steam into the reservoirs to make the oil less viscous (a technique that is constantly being improved through new seismic monitoring technology). There is also a promising new strategy for transportation: mixing the heavy oil with conventional lighter oil, which can then be sent through a pipeline to an upgrading facility.

Of course, expanding heavy oil production to make it a significant part of our energy strategy will require a huge investment. For example, oil companies have estimated that achieving just an additional 200,000 barrels a day of converted Venezuelan heavy oil would take some $3-billion in research and new refining capacity. Extrapolating such figures is hard to do, but a back of the envelope calculation indicates that it could take more than $100-billion to bring Venezuelan daily production up to Saudi levels.

Thus American policy makers may have to decide whether the risks of global market instability and the foreign-policy consequences of relying on Middle Eastern oil are severe enough to make switching to heavy oil a priority. Doing so would mean persuading the oil giants to make huge investments. Federal subsidies would have to be a consideration, although more subtle changes in our tax code and import rules could be tried to give the companies proper incentive. Washington would also have to make solid trade agreements with Venezuela and Canada to guarantee long-term access, and would have to come up with new industrial regulations that take environmental concerns into account.

There is no way to put a price tag on this idea. But the payoff is clear, not only for Canada and Venezuela, but also for American energy security and foreign policy.

Manik Talwani is a professor of geophysics at Rice University. This piece was originally published in The New York Times.

 Copyright  2003 National Post

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