Canada, the USA and Oil

In this week's Economist there is an article about how much oil the US is getting from Canada and how much of it comes from the tar sands.   In the last decade Canada has gone from the 15% of their imported oil supply to 22%.   Canada is now the primary oil supplier to the US ahead of Saudi Arabia.  Canada is supplying almost twice the oil the Saudis do.

From the Economist August 7th 2010

The increase of this oil is almost completely due to the tar sands.   The funny part is that this very dirty oil is some of the only imported oil the US buys that does not come from a country that is not a suspect nation.

The issue with the tar sands is that they will be mined as long as there is a demand for oil.  Realistically for the next couple of decades there will continue to be a demand for oil and this will mean more and more of it coming from the tar sands.   There are only two ways to deal with this.

1) Reduce the demand for oil, this can happen as new energy sources come on online and are cheaper than oil.   Cheap solar power will come in the future and will eventually provide us with a large percentage of our energy needs.

2) We have to recognize that the tar sands are being mined and figure out the technologies needed to reduce the impact of them.   The issue is water pollution and CO2 emissions, reducing these is what needs to be considered, not trying to shutting down the tar sand mines.  Gains made in making tar sands cleaner in Canada will make that technology available to the companies working in the Venezuelan tar sands.   These are the tar sands we need to really worry about.

As the US becomes more and more dependent on Canadian oil, the more important we will be politically in Washington.   The Canadian government needs to figure out how to make use of this new political reality for the benefit of Canada.

Below is the text of the article:
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Canada's energy industry

Tarred with the same brush

The Gulf spill has focused American minds on pollution from Canadian oil producers. But cleaning up the tar sands will not be easy

Aug 5th 2010 | OTTAWA

“A GOOD neighbour lends you a cup of sugar,” read an ad in the Washington Post last month. “A great neighbour supplies you with 1.4 million barrels of oil a day.” Ed Stelmach, the premier of the energy-rich province of Alberta, certainly knows how to make the case for Canadian petroleum. Buying from Canada neither props up an authoritarian regime nor exposes the United States to political manipulation of its energy supply. Little wonder, then, that Canada is the biggest exporter of oil to America, with 22% of the total. The runners-up, Mexico, Saudi Arabia and Venezuela, have just 11-12% each. And the country’s potential seems limitless: Canada’s 179 billion barrels of oil and gas reserves rank second in the world.

There is, however, a catch: Canadian crude is dirty. Just over half the country’s oil comes from tar sands, a mixture of water, sand, clay and bitumen—an extremely dense and thick form of petroleum, which usually must be melted before it can be extracted and refined. It takes up to four barrels of water to generate one barrel of tar-sands crude, and 20% of Canada’s natural gas (a clean fuel) is used to produce oil (a dirty one). Mining the sands also strips forest and creates vast ponds of toxic byproducts. According to America’s Environmental Protection Agency (EPA), producing Canadian tar-sands oil generates 82% more greenhouse-gas emissions than does the average barrel refined in the United States.

In the wake of the Deepwater Horizon spill, and of a pipeline rupture that shed 19,500 barrels of Canadian oil into Michigan’s Kalamazoo river last month, concern in America is growing over the environmental consequences of oil exploration. Federal government agencies were banned from buying tar-sands oil in 2007. Henry Waxman, chairman of the House Committee on Energy and Commerce, calls it “the dirtiest source of transportation fuel currently available”. This year he was one of 50 lawmakers who complained to Hillary Clinton, the secretary of state, that her department had not analysed the environmental impact of a proposed pipeline extension that would more than double imports from the sands. The epa then recommended that the department, which must approve international pipelines, consider alternatives to Canadian crude. On July 26th the department extended its review of the project by 90 days.

Changing the status quo, however, will be hard. The oil industry’s economic importance to Canada has consistently trumped green concerns. Energy, including natural gas, conventional oil and coal, makes up a quarter of Alberta’s $211 billion economy. The rest of the country benefits from service and supply contracts with energy companies, and from the government’s redistribution of Alberta’s wealth to poorer provinces. At the peak of the commodity boom in 2008, energy was Canada’s largest export. As a result, the sands have only been lightly regulated. Instead of being 6% below 1990 levels of greenhouse-gas emissions by 2012, its commitment under the Kyoto protocol, Canada will be 30% above.

Stephen Harper, the prime minister, built his political career in Alberta and shares its energy-friendly attitudes. He has refused to implement a new emissions policy until America does. Given the Democrats’ recent decision to drop a cap-and-trade bill in the Senate, that seems a long way off. It also means the environmental costs of the sands’ oil are not about to be reflected in their price. In fact, the political fallout from the Gulf spill might actually increase America’s dependence on Canadian supplies, if demands for new limits on offshore drilling are met.

Moreover, efforts to press Canada into cleaning up the business would face stiff resistance from America’s energy lobby, since many operators in the sands are based in the United States. One of the draft energy bills floating around the Senate this year even proposed removing the ban on government purchases of tar-sands oil. And even if America does try to reduce its imports, China will be more than happy to take them. Chinese firms have already begun investing heavily in the sands.

The best hope to reduce pollution from the sands is probably finding alternative energy sources or cutting consumption. Transforming tar sands into crude is costly as well as dirty: the process only becomes profitable with oil prices in the $60-85 range or higher. Indeed, the recession put 70% of proposed investment there on hold, although half of that has since restarted, according to Jackie Forrest of IHS CERA, an energy-forecasting firm. With just a modest fall in oil prices, the sands’ production would start to go.