Alberta Oil Sands

Alberta oil sands are recognized as one of the largest reserves in the world, at 174.4 billion barrels (CERI Report page 5 reference 1), and this places Canada’s reserves as second only to Saudi Arabia at 261.8 billion barrels (CERI Report page 5 reference 2). Current production is 1 million barrels a day and based on current projections will reach 4 million barrels per day by 2017 (CERI 2004). With oil at more than $100 US a barrel and recent instability in the world oil supply, there is considerable economic pressure to develop the heavy oil resources of Alberta. According to the Department of Alberta Economic Development (2008), there is over $150 billion in large oil and gas related projects either planned or under construction.

There are two main types of heavy oil production; mining and in situ production. When the reserves are close to the surface it is possible to mine them however when the reserves are deeper, generally about 75 meters, in situ production is required. In situ production involves methods such as steam injection through vertical or horizontal wells (CERI report).

Commercial production of heavy oil in Alberta began in the late 1960’s with the first commercial mining project completed in 1967 and operated by Great Canadian Oil Sand (GCOS), now Suncor Energy Inc. Syncrude had the next commercial mining project which was completed in 1978. The first in situ operation was completed in 1983 by Imperial Oil Resources. Early developments were focused on reserves close to the surface that could be mined but since 1995 in situ production has increased and, as of 2002, surface mining accounted for 64% of production and in situ for the remaining 36% (CERI report page 1 ref 3). In situ recovery is expected to increase since 90% of the oil sands in Alberta are too deep to be mined (CERI Report page 17).

It is important to understand that while oil sands represent 174.4 billion barrels of reserves, all existing Canadian conventional reserves are estimated at only 6.9 billion barrels (CERI Report page 5 reference 1). While the Alberta oil sands represent a large source of reserves, they are more costly to produce than conventional sources and require a price of at least US$18/b to be commercially viable (CERI Report page xviii). With oil prices of US$50, Alberta oil sands are an attractive investment opportunity. However investors may be unwilling to invest in new projects because of recent cost overruns on current projects (CERI Report page 2).

As stated earlier, according to the Department of Alberta Economic Development (2008) there are over $150 billion in large oil and gas projects planned or under construction These projects are all at least $300 million dollars and according to the study conducted by the Strategic Services Division, Alberta Human Resources and Employment (2004) are more difficult to manage and at higher risk of experiencing cost overruns.