Shifting Sands

Apocalyptic visions of the 1973 oil embargo still linger: drivers brawling in lineups at the pumps; a neutered US president begging foreign dictators for more oil; prices skyrocketing; and opec, a four-letter word. Today, oil remains the pragmatic root of our society. With world supplies shrinking and the prices marching ever higher, all eyes are now on Alberta, and both the US and China are making a big play for its vast reserves of crude oil. Will Washington take the oil in exchange for a sweeping trade deal with Canada? Alberta Premier Ralph Klein is in the catbird seat as a weak prime minister wonders how to protect the national interest.

In the frozen morning, a parade of buses moves along highway 63 north from Fort McMurray, delivering employees to the oil sands. I am in a Syncrude company truck with two PR people discussing oil, Alberta’s central intoxicant, driver of the economy, fuel for the provincial mythology—that shit-kicking, populist, plain-speaking, debt-free image that is exported with such care. Signs mark the distance to the oil sands projects: Suncor 22 km, Syncrude 35. They are towns, overlit, ceaseless, like Las Vegas containing thousands of hopefuls and billions of dollars. Passing Suncor as the sun rises low in the sky, there is a cloud of steam and smoke that has the viscosity of whipped cream, folding in opulent spiralling funnels that drift east towards Saskatchewan. Farther along, at Syncrude, flares are visible through the dense fog, a product of dozens of stacks emitting steam, sulphur dioxide, nitrogen oxide, and other elements that yield, the former mayor once said, “the smell of money.”

Lights define an exoskeleton that covers hundreds of acres, a scene that evokes both a space station future and an industrial past. There are nascent pyramids of sulphur, brilliant yellow stockpiles awaiting a viable market. Almost 12,000 people currently work at Syncrude: contractors expanding the operation in hesitant, expensive steps, process operators, engineers, nurses, welders, doctors, cooks, bartenders, firemen, truckers—a city contained around a single idea.

In the vast open mine, dozens of 400-ton trucks, the largest in the world, move continuously, dumping the sand into hoppers that take it to the upgrader to be processed. The upgrader is part of Syncrude’s Stage 3 expansion. Budgeted at $4 billion in 2001, the expansion will cost $7.8 billion by the time it’s completed in 2006, an overrun that fits in with the theme of gigantism that is presented out here with a schoolyard pride, and in equivalencies of football fields, or elephants, or the distance to the moon. Twenty-eight billion dollars have been invested in the oil sands since 1996, with another $32 billion committed. There are eighty-one projects either underway or planned.

As part of the tour, I climbed up to the cab of a monstrous electric shovel operated by Alf Poppen, an Ontario emigrant and former dragline man, who strokes his 100-ton bucket against the face of the mine with the touch of a lover. He fills a 400-ton truck in minutes and it joins others rumbling across the bitumen.

The oil sands are the largest hydrocarbon deposit in the world, three separate fields that hold 1.6 trillion barrels of heavy crude. Nearly 174 billion barrels are listed as reserves, meaning oil that is recoverable using existing technology under current economic conditions. It is expensive to get out of the ground—it cost Syncrude $18.61 per barrel last year compared to roughly $1 for Saudi oil—but it represents the world’s most stable supply. When Suncor (then Sun Oil) began production in Fort McMurray in 1967, the oil sands were viewed by much of the industry as experimental folly. But the cost of extraction has steadily declined while the price of oil has gone up.

More critically, supplies of conventional oil are in decline. The US oil supply peaked in 1971, Canada’s conventional supply peaked two years later, and, according to Colin Campbell, author of The Coming Oil Crisis, 2005 represents the year global supply will top out. The peak has been accompanied by escalating consumption as China lumbers into the future. Following China are India, Brazil, and Russia, and the constant unchecked growth of the US. The need for a stable supply has put Fort McMurray at the centre of a global oil chess match. The endgame—a potentially grim Road Warrior future that pairs limited resources with voracious demand—is just decades away. “With the decline in more conventional supplies of crude oil, and continued strength in world demand for oil, the oil sands opportunity is coming to the forefront,” Syncrude Canada CEO Charles Ruigrok told New York investors in February.

The Alberta oil sands have become the Great White Hope of the world’s petroleum supply. But how Canada uses the oil in broader trade negotiations with Washington isn’t clear. Even less clear is who will clean up the environmental mess left behind.

Every week, Chinese officials, American politicians, possible investors, journalists, economists, and engineers tour Syncrude’s monumental facilities, weighing financial commitments against the world’s uncertainties—chief among them being: how much oil is left worldwide? The question is both technical and political, and figures are wildly divergent throughout the industry. The amount that Organization of Petroleum Exporting Countries (opec) nations can export is based on their reserves, so there is incentive to inflate the numbers, and no independent accounting to challenge their figures. In 1985, Kuwait reported a 50-percent increase in its reserves. Six opec nations followed suit, increasing their own reserves by between 42 to 197 percent, which allowed greater export quotas. And in Saudi Arabia, though stated reserves are 261 billion barrels, its oil minister announced in December that it could grow to 461 billion within a few years. Matthew Simmons, who has advised President Bush on energy, estimates the Saudi reserves to be much smaller, while Mark Anielski, an adjunct professor at the University of Alberta’s School of Business, says flatly, “Middle Eastern reserve figures are notoriously suspect.”

The authoritative Oil and Gas Journal listed Canada’s conventional reserves at 4.8 billion barrels for 2002. A year later, the Journal included oil sands data and showed Canada with almost 180 billion barrels and a world ranking of number two, behind Saudi Arabia. The figure of 174 billion barrels for the oil sands comes from the Alberta Energy and Utilities Board (eub), the result of a commissioned inventory by the provincial government eager for a sales tool it could take to the international marketplace. Corporate estimates are considered more reliable than opec or government figures, but last year Royal Dutch/Shell over-estimated its reserves by 23 percent, leading to the dismissal of top executives. Overall, predictions for conventional oil reserves range from barely ten years to as much as 100 years. Remarkably, little hard data exists for a resource that, as President Bush remarked, is the basis for Western Civilization, elbowing out democracy and the rule of law. Like estimating fish stocks, reporting on oil reserves is an inexact science clouded by politics, self-interest, and voodoo.