Report from a Meeting in China about the Pipelines for Oil Export from Canada's Oil Sands

One of the reasons that I am in China just now is that Uppsala University is discussing increased collaboration with the Chinese University of Petroleum in Beijing, CUPB. It is Professor Feng of the School of Business Administration at CUPB that leads research on Peak Oil at that university. He has just organised a workshop with the theme "The Impacts of Peak Oil".

At the workshop there were about 20 of us seated around the central table and then a further 20 people sitting behind us. Aside from representatives from CUPB there were delegates from the China Academy of Social Sciences, the oil company CNPC, Chinese members of the IPCC and people from Tsinghua University, the National Energy Administration, Uppsala University, Sweden, and Grant MacEwan University in Edmonton, Canada. Primarily we were to discuss Peak Oil but also China's energy security and what China is doing to secure its future oil supply.

The first item on the day's agenda was a discussion of Canada's oil sands. The experts invited to speak on this issue were Professors Mike Henry and William Wei from the School of Business at Grant MacEwan University. Professor Henry began by reviewing a few fundamental facts about the hydrocarbon reserves in Canada's oil sands but more information exists in chapter 10 of my book, "Peeking at Peak Oil". Here is a quote from the book:

"Some years ago "tar sands" was the most common name given to what is called "oil sands" today. Indeed, the appearance and consistency of the oil that is extracted from these sands does remind one more of tar than crude oil. The industry term for the hydrocarbons found in the oil sands is "bitumen". Large deposits of bitumen exist in the province of Alberta in Canada. The total volume of this bitumen, the "Original Oil In Place" (OOIP), is 2,000 billion barrels (gigabarrels, Gb). Of this, 170 Gb are thought to be extractable. This would represent a recovery factor of around 9 % which is similar to some of the lowest recovery factors of the world's oilfields. The bitumen exists at various depths. Approximately 20 % of it (35 Gb) exists at depths shallower than 75 metres and can be mined using conventional mining techniques. The total surface area for which this mining approach is viable is 4,700 square kilometres. The greater part of Canada's accessible bitumen must be extracted using other "in situ" methods. The most common in situ method is named Steam Assisted Gravity Drainage (SAGD)."

Today Canada's oil sands produce approximately 1.5 million barrels of synthetic oil per day (Mb/d). For the production to be profitable requires a price for that oil of US$45 per barrel. In a few years an even higher price will be needed since, to date, no tax has been paid to the Canadian state. Pipeline capacity exists to transport current production but if production is increased by, e.g. 0.5 Mb/d then large investments will be required to increase this. Professor Henry indicated that Canada lacked such capital. Previously capital from the USA had helped to finance expansion of oil sands production but the current weak economic climate was making financing of expansion more difficult. Chinese oil companies have now begun to purchase production installations and recently they with 100% took over the control of a Company. Naturally, they want the oil to be shipped to China. However, the USA regards the oil sands in Canada as its oil. The situation is ripe for conflict. One thing is certain and that is that increased oil production from the oil sands will require a new pipeline. It is very interesting to study the two projects that are currently being planned.

It was Professor Wei who presented the two pipeline projects in more detail. Currently, the synthetic oil is transported to the USA through the so called Keystone Pipeline. Now there is a suggestion that new pipeline, Keystone XL, should be built to supply 0.9 Mb/d to refineries near the Gulf of Mexico. The new pipelines will allow increased production of 0.51 Mb/d

Currently there is much talk that Canada's oil sands will make Peak Oil irrelevant so it can be useful to know what production volumes the oil industry itself is discussing. In this case it is an increase of 0.5 Mb/d. At the moment the Keystone XL project has been shelved since President Obama has not allowed it to proceed. A final decision will be made after the presidential election.

For Canada there is an additional project to consider. It is the Enbridge Northern Gateway pipeline, http://www.northerngateway.ca/. This is where China enters the picture. The project is estimated to cost $5.6 billion and they will lay two underground pipelines from Bruderheim, Alberta to Kitimat, British Columbia as well as build a terminal at Kitimat with 14 cisterns.