Last night was another sleepless night. The second one so far this week. So here I am, wide awake at 4:30 A.M., wondering if this is because of those four years of working third shift during college. I'm restless, but passing the time until the sun comes up is easy.

In those few hours I have before work calls, I can't stop dwelling on a recent memory.

Three months ago, a friend and I took a grueling forty-hour journey across the U.S. and two Canadian provinces. And I can distinctly remember my first reaction one mile after reading the sign welcoming us to Fort McMurray . . .

"Field, where the hell is the town?"

Granted, the last twelve hours leading up to this picturesque snapshot of the Canadian horizon was fueled with caffeine and marked by near fatal collisions with the local deer population (my high-pitched scream from coming within a few inches of hitting a deer is something my cohort will never let me live down). Rest assured, the town was quite visible once the fog dissipated.

Something yesterday had set my mind on my trip to Canada. Maybe it was the three inches of snow I had scrape off my car to get to work. There was just something fueling my excitement, forcing my thoughts to focus on the Canadian oil sands.

Then again, 174 billion barrels of oil will do that to you.

Alberta Oil Sands

Whenever I ask people what they imagine when I say the word oil sands, the answer is always the same: Thousands of house-sized shovels and trucks digging and hauling bitumen. Massive open-pit mining operations raping the natural landscape.

That doesn't paint a pretty picture, does it?

But there's a problem with that depiction: Mineable oil sands only account for about 20% of the recoverable oil. Remember, it's been 40 years since the Great Canadian Oil Sands Company (now Suncor Energy Inc.) officially started producing oil from the sands.

The future in Canadian oil sands, however, isn't in those huge mining operations, considering that 80% of the oil will be extracted using in-situ methods.

But one thing is for certain . . .

Oil sands are going to play a major role in the future.

In 2005, oil sands production reached 1.1 million barrels per day. Initial estimates had production rising to three million barrels a day by 2015, which was later revised to 2.7 million barrels per day.

If I even mention the words "oil sands," critics are quick to point out some of the obstacles facing producers. Take water usage, for example. In a typical mining operation, it takes between 2 and 4.5 cubic meters of water to produce one cubic meter of crude oil. That puts a significant strain on nearby water resources. I've seen reports indicating that with the current rate of water taken from the Athabasca River, there won't be enough to support all the mining projects currently scheduled.

In-situ extraction, however, is much more water-efficient. The SAGD (Steam Assisted Gravity Drainage) method uses water to produce steam to heat up the oil underground. About 90% to 95% of that water can be reused.

One of the remaining problems, however, is the large amount of natural gas needed for in-situ methods. It takes approximately 1,200 cubic feet of natural gas to produce one barrel of bitumen.

2015 and Beyond

There's going to be a rapid increase in oil sands projects over the next few years. According to Canada's National Energy Board (NEB), over $125 billion dollars are going to be spent developing oil sands projects between now and 2015.

One way to mitigate the energy intensive extraction process could be nuclear power. Last week, Canada's only private operator of a nuclear power plant, Bruce Power LP, agreed to acquire Energy Alberta Corp. I wouldn't be surprised to see a nuclear plant up and running by 2020.

So where does that leave us?

The key for investors like us is going to be finding the companies that will drive future production. Believe me when I tell you this: Companies will find a way to overcome production challenges. In fact, most of my readers are profiting from those kinds of plays right now. Stay tuned, because on Tuesday I'm going to show how you can join us.

Until next time,

Keith Kohl

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Hi Kieth, just read your article and comment about all the natural gas the oil sands projects are going to need, (and Alaska waiting in the wings to supply their needs?)not a chance! Check out what Opti Nexen is bringing on stream with their new gasifier, they will produce all the synthetic gas they need for their entire process on site with some for export. At the same time reduce the cost of their oil produced from approx. $26 bbl to $06 bbl.
They will be coming on stream this spring with about 70k bbl per day, lets see what happens to their stock $

oilsands-bc-alberta-sask.teritories and where I work north of fort nelson bc. now talk of a nuke plant and shells talk of microwave tech to replace steam injection.this I believe will reduce dirty production-reduce gas usage but also up nuke waste.mabe the investment should watch the elect company. being from up north(yukon) in the gold fields the service companies always do well when the boom is on.thanks Kirk

Hi
Good article however I think you will find the money to be spent over the next number of years will be a little more than $125 million!
The million probably should read
BILLION. Many facilities currently under way are in the billions each.
My other point is thatI'm not very good on the computer so not sure how to properly tune in as you request so please send the info to the avove email or give me a hand with how to completely tune in.
Thanks,
Max

For the family that can handle the North,be tough we have -20 to-50 degrees for 2-3 months.That is why we in Canada are polite people if you don't help someone in these temperatures you freeze.

Good Stuff Gentlemen keep it coming,the obvious mistake in the 125m number was clear glad it was clarified. Have been investing directly for years in O&G domestically in U.S. The attracation is bouth the tax benefits and the ultimately earnings from the investment cash on cash. Would a strategy of buying onto deals directly for the tax benefits first then reinvesting in the public compainies stocks as the ascend make sense in these matters. It seems like a power boost way from a pure available applicable investment dollars on an annual basis to be deployed in the energy sector. Your comments would be much appreciated. I know that your remarks have alway been towards the growth of the stock investment specically adding the tax twist shuffle to the the available portfolio dollars seems to be viable.

money spent will amount to 125 BILLIONS not 125 millions as you indicate in your article

"There's going to be a rapid increase in oil sands projects over the next few years. According to Canada's National Energy Board (NEB), over $125 million dollars are going to be spent developing oil sands projects between now and 2015."
You are missing three zeros in this statement. I know the number of oilsands projects currently proposed is estimated to cost over $100 BILLION dollars.

It's billions not millions till 2015, who cares about a measly 125 million...

Dear Sir,
I would think that a figure of $125 million invested in the 'Sands' by 2015 is a bit low. Try $125 billion??? or $125 trillion ?????
It seems that the sky is the limit.
Thank you. Kevan Hanlen.

Thought you'd catch this but here goes anyway - it's $125 Billion not million to be spent. They're just about going through $125 million per week.