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What role should oil sands play in the world’s future energy mix?

Oil sands and heavy oil production are essential to meeting global energy demands. According to the International Energy Outlook world energy consumption is projected to increase 49% from 2007 to 2035. To meet global demand all sources of energy production will have to grow dramatically including light oil production, heavy oil production, nuclear energy, coal, CTL, GTL, renewables, natural gas, as well as alternatives such as electric vehicles and wind energy.

The world oil supply has peaked, consumption from the emerging markets of China and India is increasing while the new discoveries of conventional oil have been decreasing. There are different estimates of conventional proven oil reserves ranging from 400 billion barrels to 1.3 trillion, which would equate to a 14 year or 43 year supply of oil. For geopolitical and economic reasons OPEC producing countries have been incentivized to overstate reserves (in order to produce more under OPEC quotas) so we think the actual number is closer to the lower estimate. Thus the production of unconventional oil reserves such as heavy oil are needed to come online in order to meet global energy demands.

The production of tar sands comes with a high cost, both financially and environmentally with production about 3 times as carbon intensive as conventional oil production, and the environmental pollution in the tail ponds often leading to high levels of mercury, arsenic, lead and other contaminants creeping into rivers and waterways near tar sand production sites. There is also air pollution and carbon dioxide emission.

About 6 years ago I led an effort by our office with the gameplan to buy heavy oil reserves throughout the United States. At the time we evaluated acquiring heavy oil both in Utah, Texas and elsewhere onshore in the US. We had identified, analyzed and submitted bids on heavy oil fields with a few billion barrels of reserves and with very similar characteristics in terms of API, and oil quality as the Opti Canada/Nexen field in Canada. However the challenge was knowing with certainty that we could get the environmental permits, and then that the environmental impact would not be devastating to the surrounding area. In highly populated areas like Utah and Texas using conventional SAGD technologies we found the prospect of acquiring, and producing the heavier oil such as 2 API oil would have been a challenge using conventional existing technology and given the environmental impact. Bottom line is we shelved the project, as we could not stomach the potential environmental liability. As such Genoil, an energy tech company we have both funded and developed which has a heavy oil hydroconversion upgrading technology (which is much less polluting than conventional coking methods of upgrading heavy oil) also has environmental technologies and oil water separation technologies that separate oil from water and help clean up and prevent environmental pollution. Governments have and will continue requiring oil companies to become socially responsible and invest in clean up technologies and efforts.

Many of the heavy oil projects that are economically and environmentally viable right now are in more remote and less populated areas either in Alberta, Canada or Siberia, Russia. Governments, as well as environmental groups are constantly monitoring pollution from tar sands projects and measuring the cost benefits. The contaminated dovetails can be cleaned up and governments have been working with oil producers to ensure a cleanup of the pollution created, especially after reports that birds in the area were dying after swimming in the polluted waters.

The bottom line is we need oil sands projects to come online aggressively to meet global energy demands and unless most of the world wants to go back to riding camels and horses rather than automobiles and planes the world needs to be cognizant of the environmental impact oil sands production can have and work to minimize the impact to water (which many oil producers have done with water recycling and cleanup efforts) and reduce the CO2 emissions (which many tar sands producers have started to do with carbon capture and storage programs whereby the CO2 emissions from their heavy oil projects are captured and stored underground). Driving a car pollutes the environment more than riding a horse but most people would still prefer to drive their car than ride the horse. As such the public must not blame the oil producers for polluting the environment but must realize that our lifestyle choices make us all collectively responsible and that in a developed society we are all working to achieve the global balance of environmental harmony while satiating the world’s thirst for oil.