I can remember leaving Fort McMurray on a sunny afternoon back in August. It was much different from when I arrived at dawn. I didn't want to leave. But despite wanting to stay for an extended period of time, I'm not sure I would have been ready to face the winter (when temperatures can drop as low as 400 below zero).
During the entire drive home, there was one distinct feeling I kept getting . . .
The Canadian oil sands are going to play a huge role in meeting our oil demand. The question, however, was whether it was too late for investors to get in on the action.
The beauty is that Alberta's oil sands are on the verge of another boom, but I'll get to that in a minute.
For the last few weeks, I've been focusing on two specific Canadian oil plays. Although the investing in Canadian oil sands isn't new to my Energy and Capital readers, a lot of them have had questions.
What kind of host would I be if I didn't fill you in on the different extraction processes?
But before we get into those methods, I want to catch up some of my newer readers . . .
Canadian oil sands are simply a mixture of bitumen, water, sand and clay. Bitumen is a form of thick, heavy crude. Trust me, this stuff has an extremely high viscosity. In other words, the bitumen cannot be produced in the same way as light crude. We'll get into that in a second.
Now, we're talking about a lot of oil. There's an estimated 175 billion barrels underneath Alberta at the Athabasca, Cold Lake and Peace River deposits. That gives Canada the second largest amount of oil reserves in the world. If we take into account that OPEC's oil reserves might not be as high as they claim, Canada may unofficially be at the top.
Again, this isn't the light, sweet crude you're used to hearing about, and getting to the bitumen can get a little tricky.
Canadian Oil Sands Production
Right now, there are two primary ways that producers extract the bitumen: Either mine the bitumen on the surface or use in-situ methods. Although there are 175 billion barrels at stake, only about 20% of that heavy oil can be reached with surface mining.
During the mining process, the oil sands are dug up and sent to a crusher. After the ore is broken up, it's transported to an extraction plant, where the bitumen is separated from the water, sand and clay. The next stop is to the upgrading facility. The bitumen is then upgraded into synthetic crude and shipped to a refinery and processed into a variety of consumer and industrial products.
Believe me, it can get a little more complicated, but that's the nuts and bolts of the surface mining process.
With over 80% of the bitumen too deep to be mined, producers are forced to employ in-situ methods. Since bitumen is so thick, it must first be heated up.
I'm pretty certain you've heard of steam-assisted gravity drainage (SAGD) before. This involves drilling two horizontal wells, one over the other. One of the wells injects steam into the deposit, effectively heating up the bitumen and allowing it to flow through the second producing well. The SAGD technique can recover up to 60% of the oil in the deposit.
Among the other in-situ methods, the premise is the same: soften the bitumen enough to pump it out of the ground. Cyclic steam stimulation (CSS), for example, heats up the bitumen similar to the SAGD process. Others, like the vapor extraction process (VAPEX), try to get the bitumen to flow more easily by injecting hydrocarbon solvents.
Unfortunately, things aren't as easy as they seem.
Trouble with the Oil Sands
Before the Canadian oil sands can take away our oil addiction to Middle Eastern oil, several obstacles need to be overcome.
For starters, extracting the bitumen is an energy-intensive effort. In other words, it takes a lot of energy to produce the energy from the oil sands. Take natural gas as an example. It takes roughly one thousand cubic feet of natural gas to extract a barrel of oil.
Water usage is also another problem. Even though many oil sands producers use a large amount of recycled water, there is still a huge draw from the Athabasca river. In the surface mining process, up to 4.5 cubic meters of water is needed to produce one cubic meter of synthetic crude.
As you can see, extracting the oil sands comes with a significant environmental impact. At least, enough for environmentalists to cry foul.
Canadian Oil Sands: The Investment Opportunity of a Lifetime
Personally, I think the environmental issues will open a huge window for investors. Don't jump on me just yet, however, until you think about it for a couple of minutes.
Imagine how much a company would be worth if it used an extraction method without all of those nasty side effects?
Revolutionary is the term that comes to mine. Stay tuned, because this is the exact opportunity I'll give my readers over the coming weeks.
Until next time,
Keith Kohl
Executive Editor,
P.S. My Energy and Capital readers are already raking in the profits from some of the best players in the Canadian oil sands. If you're interested in finding out our favorite plays, I'd recommend checking out the $20 Trillion Report.
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Given the current economic situation, I wonder if dollars obtained from these investments will have any value as things continue to implode.. Better invest potatoes and carrots - the actual vegetables, not commodity shares....