Governor Arnold Schwarzenegger and his Midwestern colleagues had better think twice before banning carbon-dirty fuels such as the oil made from Canadian tar sands. If they don’t like the fuel Canada has to offer, their only other choice is to get off the road entirely.

Like it or not, synthetic oil from Alberta’s tar sands is going to figure ever larger at American fuel pumps in the future (provided that it isn’t siphoned off to China by a pipeline to the west coast first).

American oil demand may be diminishing as more and more drivers take the exit lane, but available supply is shrinking even faster. Domestic production, formerly 10 million barrels per day, is already down by half. The longer the U.S. economy has run on oil, the more dependent it has become on energy imports. Only finding those imports is becoming more challenging all the time.

Sources of oil from Mexico are already collapsing, and in a few years’ time that country will cease exporting it at all. The flow of oil at its once-huge Cantarell field, representing almost half the country’s oil production, will soon slow to a fifth of its former peak rate.

And I hope Governor Schwarzenegger isn’t counting on Venezuela, the western hemisphere’s other major oil producer, to fill that gap. The only additional production that country will have to offer is from its Orinoco tar sands, the same stuff he says is too dirty to take from Canada. Moreover, fueling carbon-conscious gringos in California as they cruise down their sprawling freeways probably doesn’t rank high on President Hugo Chávez’s to-do list.

As for the Middle East, it’s not political risk that California’s motorists have to fear. It’s more Ski Dubai and the 7-cents-a-gallon bunker fuel burned to generate electrical power, along with 40-cents-a-gallon pump prices, that they should worry about. OPEC member states already consume almost ten million barrels a day of their own production, and with every rise in oil prices they can afford to consume even more, and in the process export less.

None of this is to suggest that synthetic oil made from Canadian tar sands couldn’t get a lot cleaner. Put a $50 to $60 per ton price on carbon emissions and all of a sudden shareholders of companies like Suncor and ExxonMobil (or its Canadian guise, Imperial Oil) will demand that management find a way of emitting less—the same way putting a price on the millions of gallons of fresh water those companies pollute will suddenly make water conservationists of them as well.

But Schwarzenegger and his fellow governors should realize one thing before they ban dirty fuels. The reason the United States will be so dependent on Canadian tar sands is that there ain’t a whole lot else left.

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  • amdad44

    Excellent analysis underpinned by astute observation. I'd have liked a bit more emphasis on the penultimate paragraph with a headline that would have brought it into better focus something like: How the US could pressure Canada into “greening” the Tar Sand project”.

  • Joseph

    I generally like what you have to say, but some times wonder why you feel the need to be so hyperbolic. For example, “…millions of gallons of fresh water those companies pollute.” I am not sure if that's just your hyperbole at work or if you're actually just misinformed. Why is the amount of water that oil sands companies use such an issue? It's not that much different from most oil production methods and it's far less than others. Why should they pay for the water they use unless all industrial users of water pay for the water they use well? And where you do you get off stating saying they're 'polluting' all this water. The water used in oil sands mining production does not go back into the Athabasca River, the river is not polluted and most of the fresh water that is used is recycled back into the operation. You seem to have a good grasp of the economics and energy security/supply issues of oil sands, but I don't get the sense that you actually know much at all (that is accurate) about the environmental aspects of oil sands development.

  • mattprice
  • davidwdent

    Great analysis Jeff. The decline of cheap, clean crude is an intractable problem. Policymakers can implement a raft of requirements, but the reality is that as oil gets more expensive the rules will gradually be overturned out of economic necessity demanded by the public.

  • http://www.thenucleareconomy.com/ Zachary

    What do you think about nuclear power as an alternative, Jeff? In Haiti, the U.S.S. Carl Vinson is a nuclear-powered aircraft supercarrier that is supplying 400,000 gallons of freshwater daily through desalination. We could replace our diesel ships crisscrossing the globe with nuclear ships, and power electric cars, trains and space heaters using nuclear. Gen-IV designs use alternate fuels like depleted uranium or thorium, and reduce fuel requirements by a factor of 160.

  • marcovth

    I am sure there are plenty of places in the Arctic ocean that have not been explored yet, so there might be some supplies around. But are these potential supplies a better alternative than the tar sands? Environmentally, I don't think so.

    Please let triple digit oil prices come back soon, so that the jobs will finally flow back the North America, and debt death spiral will stop. Making China a super power with our money is the most short sided and idiotic development that will be happening during my lifetime.

    http://www.NotMadeInChina.ca

  • steve

    I respect your opinion because you were one of the first to recognize and talk about peak oil and its implications on the economy. Yet I am perplexed because surely you are intelligent and thorough enough in your research to know that anthropogenic carbon dioxide caused Global Warming is a complete Fraud.

    Why do you continue to talk about carbon taxes? I also watch Matt Simmons and notice that he never says that Global Warming is a Fraud but instead avoids talking about it and says peak oil is a far more serious and imminent problem.

  • robert

    Hi Jeff you're the best oil analyst out there and that's why i bought your book recently, good job thanks . Now I need your opinion on NAT GAS because right now I'm invested in oil stocks right up to my eyeballs because i believe in the peak oil theory . What worries me the most right now is if the USA turns to NAT GAS for transportation starting with the big trucks like bone pickens has been promoting a lot these days . Could that bring oil demand down big and push oil prices to the ground . Thank you . Cheers.

  • C.

    Ah, yes, … there is no turning off the tap! If only tarsands production was so simple, …

    According to the Canadian Energy Research Institute (CERI), last year’s average tarsands derived oil production of 1.4 million barrels of synthetic crude and bitumen a day will next increase to 1.7 million by 2015, 4.5 million by 2030 and a staggering 5.3 million by 2041. These are, of course, revised numbers since as late as January 2006; projections for 2012 were a staggering 3.0 million barrels, for example. The Alberta tarsands comprise of the second-largest known oil reserve in the world, comprising of 42 percent of Canada’s total crude output (Government of Alberta). And all of this production certainly has not come without its rewards; the tarsands are our #1 source of revenue, producing in excess of $7 Billion in royalties since 1990 (Government of Alberta).

    And so, why not be optimistic? Alberta’s tarsands, free from its rocky encrustation, its light molecules of oil and gas long evaporated, are firmly in place in North-Eastern Alberta, all around the city of Fort McMurray. What is there is this thick, tarry sludge not fit for a northern lake water front. This thick, tarry sludge lay fallow for years until the Canadian Government started to aggressively subsidize its development. In 1995, the Canadian Federal Government announced that oil companies could write off 100 percent of their expenses. This represents a clear case of entrepreneurial spirit, turbocharged by public welfare.

    Of course, that thick and tarry tarssands derived oil can not be conventionally carried down through a pipeline. Treatment first, with natural gas and other petroleum products, is mandatory, and not just with a little bit of it either, but with over five times more of these precious, conventional, petroleum products than, say, a regular-conventional heavy crude normally requires. Another important point to remember is that for each barrel of oil sands derived oil, no less than two tons of sand and clay must be mined, through open pit mining. This process contributes greatly to the fact that once one barrel of oil sands derived oil is … finally, “barreled”, the equivalent of two-thirds of its energy content was already consumed “barreling” it! And never mind, that about six times more carbon dioxide than producing a barrel of, say, conventional oil is produced in the process! But who keeps accounting for the emissions: carbon dioxide, sulphur dioxide, nitrogen oxides, volatile organic compounds, fine particulate matter?

    Alberta produces one third of Canada’s total greenhouse gas emissions (GHGs), and the tarsands are Canada’s largest growing source of GHGs (Best et al.). The Stelmach government’s recent plan on climate change is next to nonexistent: “… it does not even call for a levelling off of emissions until 2020, which will ultimately result in a paltry 14 percent reduction in 2005-level emissions by 2050” (Gillespie 71). Setting absolute limits on total emissions is the only method that will actually work, of course.

    From about 1996, the start of major expansion of oil sands development, to 2011, about $100 billion will be spent by industry on the development of Alberta oil sands (Gillespie 67). Yet, the latest projections state that only about 1.7 billion barrels per day of oil sands derived oil will be produced by 2015 (CERI)! Imagine.

    But, as I stated at the outset, “There is no turning off the tap!”, despite the fact that tarsands processing gorges on about one quarter of Alberta's fresh water — each barrel of tarsands derived oil needs about six barrels of water to flush it out. As Gillespie specifies, “The amount of water the tarsands plants use is equal to about 40% of Toronto’s [5.5 million people] yearly water consumption” (71). This massive water consumption is certainly having a recognizable effect on Alberta. A 2006 Alberta Government report warns that there simply may not be enough water available to meet the needs of planned tarsands projects, while maintaining adequate stream flows, even though the amount of water per barrel of oil is declining (Best et al.). This massive withdrawal of water is affecting aquatic species populations, mainly fish, and also the communities within the Athabasca watershed. To further exacerbate this problem, the government’s regulatory framework permits quantities of water withdrawals that do not adequately ensure conservation and protection of the Athabasca watershed.

    In addition to the large water consumption, the tarsands plants burn up in the process about one-fifth of the entire nation's natural gas supply. This presents yet another problem as not only is the availability of natural gas diminishing, but it is getting costly too (LCA Oil Sands Project).

    Furthermore, the tarsands developments are gobbling up the land at an alarming rate. Someone has to keep an eye on this development, if only for one reason, to reduce the environmental damage that tarsands development causes. However, not much is being done. Deforestation, habitat fragmentation, loss of species caused by exploration, open-pit mines, in-situ developments, urban development, forestry and road clearing are not being adequately managed (Best et al.). Development cannot under any circumstances be allowed to “run-free” as it will stop at nothing to use all of the land that it wants.

    Reclamation is another issue. The Alberta government has always maintained that disturbances are “temporary”, that the sites will be reclaimed following project completion (Best et al.). However, I believe that provincial requirements for reclamation are inadequate in ensuring restoration of the ecosystem. Reclaimed land is not required to resemble the site that existed before development of the project (Best et al.). The sites need to be reclaimed to what they were before the development took place.
    But, as I stated at the outset, “There is no turning off the tap!” – shoot, I'm repeatin' myself.

    Anyway, … what I mean is, in a nutshell, that if the United States is planning to get all – most, of the oil from Albeta's tarsand, … they are dreaming!

    C.

    Works referenced in compiling above post:

    Best, Jordan et al. Alberta’s Oil Sands: Key Issues and Impacts. 2008. Mapleleafweb. Web. 29 Nov. 2009.

    Gillespie, Curtis. “Scar Sands”. Canadian Geographic 128.3 June 2008: 63 – 78. Print.

    Government of Alberta. Alberta Department of Energy. Alberta’s Oil Sands 2006 (Updated December 2007). 2007. Print.

    Government of Alberta. Alberta Environment. Alberta’s 2008 Climate Change Strategy: Responsibility / Leadership / Action. 2008. Web. 1 Dec. 2009.

    The University of Calgary. Life Cycle Assessment of Oil Sands Technology. 2006. Web. 27 Nov. 2009.

  • http://twitter.com/tgaspar Mr. T

    Hi Jeff, Your price projection back in 1999 of $100 oil price is prophetic. A view that was not heeded by the Canadian Goverment, had they listened to your insights perhaps the Northern Ontario Economic Collapse, would've been impacted differently. Keep up the great work for keeping the world informed.
    Mr T.

  • http://www.crudeoilpeak.com/ Matt Mushalik

    “anthropogenic carbon dioxide caused Global Warming is a complete Fraud”

    CO2 concentration in the atmosphere was several 1000 ppm 100s of millions of years ago. And temperatures were much higher than now, with no ice caps in the polar areas. That CO2 was geo-sequestered into coal, oil and gas. We are digging it up and burning it, and going straight back to the Jurassic. Go on my website and use the external link “the incredible journey of oil”

  • http://www.crudeoilpeak.com/ Matt Mushalik

    The web site in that box didn't come up. It's http://www.crudeoilpeak.com

  • C.

    Germane to this thread:

    We've only just begun
    To slide
    White lace and promises
    A kiss for luck and we're on our way. – Carpenters

    … down to, oh, ~U$40/bbl, I reckon?

    .”.. Iraq faces a period of output growth unparalleled in the history of the oil industry: a quintupling of production capacity to nearly 12 million barrels a day by 2017, about the same level that Saudi Arabia, the world’s biggest producer, is forecast to reach in the next few years.”

    Iraq’s production bonanza may fuel a slide in oil
    http://business.timesonline.co.uk/tol/business/…

    C.

  • bradley johnston

    In the Book it discuss Oil Sands need for NatGas and the shortage this could cause yet there seems to be a view we have abundance of NatGas from Unconventional/Shale.

  • http://www.tnns.org/energy Walt

    We will not need the tar sands, and, Global Warming is a NON-Issue . . . because . . we have overwhelming reasons to get off of fossil fuels anyway – Affordable / viable quantities are about gone, and the pollution is killing us anyway, AND, WE HAVE THE CLEAN RENEWABLE TECHNOLOGY TO DO SO – at about the same or lower cost, as well.

    There are many good developing techs, but one company alone has the means for powering cars, AND homes with clean solar energy for similar or less than current costs. Right now they are offering a program using & saving 100% of your Federal income taxes – acquiring equity in their solar power plant at NO COST – no out of pocket expense. Installations are being built now. More Info here: http://www.tnns.org/energy

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  • D Watt

    How true is this: “the USA has 3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation”? This is according to the USGS release at : http://www.usgs.gov/newsroom/article.asp?ID=1911 Why is the public not hearing more about this vast reserve?

  • D Watt

    How true is this: “the USA has 3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation”? This is according to the USGS release at : http://www.usgs.gov/newsroom/article.asp?ID=1911 Why is the public not hearing more about this vast reserve?

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  • Iryan

    Thats not the only oil that Canada has.And she is rich in natural gas. However it is the biggest source . They are working feverishly to clean up the operation so hopefully it won”t be long before the oil will be much cleaner. If the US doesn”t like it they will soon have a lot of ships docked and mothballed with no fuel. And how  about the Air force.. Their arrogance may cause a problem if Canada sells to China. Gee and  the Muricans may discover theres more to Canada than they thought.