SMOKESTACKS dot the horizon; a whiff of oil hangs in the air; gargantuan vehicles clog the highway. There is a din of heavy machinery, punctuated by blasts from cannons scaring birds away from toxic lakes. But golf courses and suburban housing make the place liveable, and some locals have grown attached to Alberta’s tar sands and Fort McMurray, the town at the centre of them. “I’d like my son and grandson to work here,” says a worker at one of Shell’s mines.
He may get his wish. After a brief hiatus during the economic downturn, world oil consumption is rising again, pushing the price of a barrel towards $100. By 2035, believes the International Energy Agency (IEA), demand may reach 110m barrels per day (b/d), about 20% more than in 2009. For those who exploit the tar sands, which contain the world’s second-largest trove of oil, this is a welcome forecast.
Despite rapid development in the past decade, the sands produce only 1.5m b/d, less than 2% of global supply. However, the Canadian Association of Petroleum Producers (CAPP), an industry group, expects output to be nearly 3.5m b/d by 2025 (see chart). Thirst for fuel is not the only thing in the oilmen’s favour. The cost of production has fallen: a few years ago most firms thought the break-even price was $75 per barrel, but now companies such as Shell say new developments are economical at $50. The provincial and federal governments are unsurprisingly supportive.
There are obstacles too, mainly because of the sheer dirtiness of the business. In America, the main market, objections to the import of more of Alberta’s bituminous oil are loud. And domestic opposition to exploiting the tar sands and building pipelines, which has long been fierce, is gathering momentum.
First, the economics. The IEA believes that global production of conventional oil, the stuff that can be recovered easily using drills and wells, is near or already at its peak, and that only a leap in output from unconventional sources will prevent new leaps in price. Even if countries around the world agree on measures to control carbon-dioxide emissions, says the agency, bituminous crudes like Canada’s must fill a coming supply gap. That the sands lie in Canada is a rare geological fluke in the West’s favour. With 70%-plus of the world’s remaining oil in the hands of OPEC, half of its “free oil” is in the tar sands, notes Peter Tertzakian, chief economist of Arc Financial, an investment firm.
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