The Alberta Oil Sands

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Date: Sept. 28, 2016
Publisher: Gale, a Cengage Company
Document Type: Topic overview
Length: 1,151 words
Content Level: (Level 4)
Lexile Measure: 1110L

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In remote areas of Alberta where, until the 1960s, no roads existed and the only connection was by railway, a geological phenomenon is occurring that will irrevocably change Alberta's socioeconomic climate. Developers and surveyors are flocking to an area formerly used only as trapping posts, drawn by the allure of the reserves of fossil fuels found in Alberta's oil sands. In the fiscal year of 2013 and 2014, Alberta's oil sands brought the government more than $5 billion in royalties.

What are the Oil Sands?

Oil sands, formerly known as tar sands, are a combination of water, sand, and clay saturated with bitumen, a viscous crude oil that will not flow unless heated or diluted with lighter hydrocarbons, and can be separated to yield lighter crude.

Canada ranks third largest in terms of global proven crude oil reserves, after Saudi Arabia and Venezuela. Most of these reserves are found in Alberta's oil sands. While oil in its conventional form has long been found throughout the province, its oil sands are mostly located in three major areas beneath 140,800 square kilometres of northeastern Alberta. Alberta's oil sands are one of the few oil deposits in the world with growing production.

The oil sands yield spectacular results: In 2014, the sands produced over a 2.3 million barrels of oil a day—almost one third of Canada's total oil output. However, to date only about 3.4 percent of the determined oil sands discoveries have been produced.

A recent recalculation has revealed that the amount of oil buried underneath the ground in northern Alberta was not millions of barrels, but trillions. The three largest oil sands deposits in Alberta are the Athabasca, Cold Lake, and Peace River deposits. The Athabasca deposit is the largest, having been measured at 1.3 trillion barrels. It is followed by Cold Lake's 200 billion barrels and Peace River's 130 billion barrels.

None of Alberta's largest oil sands deposits are currently fully utilized. Only land leased by the government is being actively drilled. 66 percent of the Athabasca oil deposit is currently leased, 55 the Cold Lake is leased, and 36 percent of the Peace River is leased. In total, only 64 percent of minable oil sands are being utilized.

Financial Impact

The oil sands have proven a tremendous benefit to Alberta's economy. Between 2013 and 2014, development in the oil sands have brought $5.2 billion million in royalties paid to the provincial government. This success is largely due to the Albertan government's multi-billion-dollar investments in technology and infrastructure. Though approximately $80 billion has been committed to developing the oil sands up to 2016, more than 60 percent of the oil sands remain open.

The returns on this investment have been exponential. In 2005, Alberta's oil sands production accounted for one-half of Canada's total crude output and 10 percent of North American production. By 2015, oil sands production reached more than 2 million barrels a day.

Oil sands development has become a massive source of new employment and has drawn thousands to the area in search of jobs in related industries. Brian Jean, representative of the region in Parliament, has said the oil sands project is "bigger than a gold rush," claiming expectations are that the coming decade will find $100 billion of investment in this area. According to Jean, there is a need for 100,000 workers in the Fort McMurray development site alone, and, despite the chilly climate and isolated locations, specialized positions offer some of the highest salaries in the country.

The International Effect

President George W. Bush once declared that the United States is "addicted to oil." While this may be a growing concern for the global environment, it has proven a financial windfall for Alberta. While American energy concerns have only recently taken full notice of Alberta's oil sands, the province has become the leading supplier of oil to the United States for over six years, exporting over 1 million barrels across the border daily.

The escalating worldwide demand for fuel sources, particularly in China and other Asian markets, has driven Canadian oil producers to aggressively court these international markets. Unlike the turbulent Middle East markets, Canada offers a politically stable environment in which to conduct business and pursue development. Time magazine described the sands as "Canada's greatest buried energy treasure," and imagined they might satisfy the world's need for petroleum for the next century. As a result, Alberta has garnered attention as a viable location for international investment.

Provincial Tensions

Canada's Constitution of 1982 included the institution of federal equalization payments, aiming to ensure that less wealthy provinces will still be able to meet the same basic levels of service as wealthier provinces. With Alberta's sudden influx of wealth, the financial balance among the provinces has been thrown off kilter. Today, Alberta is Canada's only debt-free province, with a budget surplus of around $11 billion.

Massive numbers of workers are migrating to the province, drawn by Canada's lowest unemployment and tax rates. Alberta's population is relatively young, placing less strain on its health care system. Business and technology sectors are thriving. Alberta's robust economy has also resulted in a lauded education system—another draw for young families seeking better standards of living. For what may be the first time in modern Canadian history, a province is, at least theoretically, able to exist autonomously without dependency on the federal system. The result is obviously a fierce debate between provinces and various levels of government over how to handle Alberta's new-found wealth, with no clear resolution presently in sight.

Environmental Fallout

Environmental concerns have generated controversy surrounding the oil sands exploration. Energy generation through oil sands exploration results in rapid climate change and proven spikes in greenhouse gas emissions—as much as 250 percent more than conventional oil production. Environmental awareness groups claim that, in pursuit of profit, the oil companies are transforming Alberta's watersheds into an industrial wasteland. They argue the newfound availability of oil only increases an already dangerous reliance on nonrenewable energy sources.

The Albertan government, with the participation of oil companies, has pledged to encourage responsible development and investment toward the province's environmental future. The oil companies have tried to reassure concerned groups with tree-replanting initiatives and adherence to Canada's protection laws, requiring reduction of greenhouse gases and mine refilling. Alberta's Energy Innovation Strategy offers royalty offsets of up to $200 million over five years for pilot projects pursuing new technologies in environmental recovery and responsible development.

A larger question is what impact this relatively new supply of oil will ultimately have on the world's dependency on oil in coming years. Wars have been waged over fuel resources. The availability of cheap fuel sources in Alberta may change the international political landscape. With the oil sands' huge revenues comes great responsibility, and how the Albertan government navigates this issue today will have longstanding consequence for the future—not just for the province, but for Canada, and the world.

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Gale Document Number: GALE|EJ2181600001