Oil Sands Move from the 'Fringe to Center' of Energy Supply

Technological advance in the Canadian oil sands has made Canada the world's second largest holder of recoverable oil reserves, after Saudi Arabia, and "an increasingly important part of the fabric of hemispheric and global energy security," according to a new major study, Growth in the Canadian Oil Sands: Finding a New Balance by IHS Cambridge Energy Research Associates (IHS CERA). "The oil sands have moved from the fringe to the center of energy supply," the study adds.

The oil sands have become one of the most important sources of oil supply growth in the past decade as production more than doubled from 600,000 barrels per day in 2000 to 1.3 million barrels per day (mbd) by 2009. Development of the oil sands has made Canada the number one foreign supplier of oil to the United States and has become an integral part of the deep economic partnership between the two countries, which includes Canada as the largest export market for American goods and services. In one of the three scenarios developed for this study, oil sands production reaches 6.3 mbd by 2035 and Canada accounts for 37 percent of US oil imports -- up from 19 percent in 2008.

The Canadian oil sands are an immense resource -- 173 billion barrels -- and carry the advantage of being located in a politically stable and secure country adjacent to the United States. The oil sands place Canada "number four" among the "O-15" -- IHS CERA's list of the top 15 countries in the world in terms of potential to increase oil production over the next decade. It is one of only two countries in the Western Hemisphere on the list, the other being Brazil.

While contributing to economic growth and energy security, the study observes that oil sands have become a source of contention because their production process is among the more carbon-intensive of oil supply sources.

"The development of Canadian oil sands encapsulates the complexities that the world faces on energy, environment and security," said IHS CERA and Study chairman Daniel Yergin. "The length and depth of the current economic recession, the pace of technological innovation as well as government regulation, particularly in addressing concerns about climate change will all shape the growth of oil sands."

According to the study, total "well-to-wheels" greenhouse gas emissions from oil sands -- from extraction and processing through combustion of its refined products -- are approximately 5 to 15 percent higher than the average crude oil processed in the United States. But comparison to an average can be misleading. Emissions from oil sands can be higher, lower, or on par with other crude oils processed in the United States.

All sources of crude oil emit 70 to 80 percent of their total "well-to-wheels" emissions from the combustion of refined products, such as gasoline. The difference in total carbon emissions from oil sands to that of other crude oil sources occurs mainly in the extraction and processing phases -- also called "well-to-retail pump" or "well-to-pump."

Growth in the Canadian Oil Sands draws on eight months of research and was produced in consultation with many stakeholders, including Canadian and U.S. government agencies, oil companies, and environmental and community groups to present a comprehensive assessment of the key issues and challenges affecting oil sands development. Thirty-seven stakeholder organizations contributed to the study.

Innovation is a central element of the oil sands story. Government-private partnerships have been important in past innovations and will be so in future advancement of technologies to address environmental and efficiency challenges of today and into the future, the study finds. The pace of technological innovation in the production of oil sands has been substantial in the past and improvements will continue.

"The environmental and efficiency challenges for oil sands are classic cases for consistent, long-term government research and development spending," says James Burkhard, Study Director and Managing Director of IHS CERA's Global Oil Group. "Several new technologies in various stages of development have the potential to significantly increase production and the efficiency of oil sands operations, but they must be proven effective and economic at scale."

The study also says that a common Canadian-US framework for regulating GHG emissions would provide a more clear and solid climate for investment in all types of energy compared with a world in which conflicting regulatory schemes emerge. Coordination would also help reduce market distortions and prevent trade conflicts.

"Past cooperation between Canada and the United States on energy issues has been mutually beneficial," says David Hobbs, IHS CERA's Head of Research. "Continued cooperation is in the interests of both countries. Developing a truly integrated approach between the United States and Canada for regulating GHG emissions would be a major milestone in international cooperation to combat climate change."

The report includes three scenarios for oil sands development: New Social Order, Barreling Ahead and Deep Freeze. The three scenarios illustrate different outcomes that capture the range of uncertainty about economic growth, oil prices, environmental regulation, and the pace of innovation. By 2035, the end point of the scenarios, oil sands production ranges from 2.3 mbd to 6.3 mbd. The low growth outcome represents a world of weak economic growth and weak oil prices. The high growth path results from strong world economic expansion and robust oil prices.