Baltimore, MD—The end of cheap oil is just further proof that peak oil is occurring. And when analysts are done blaming speculators, wars and weather, they'll soon realize that the only thing left to blame is our own reckless consumption.

Twilight and evening bell,
And after that the dark!
And may there be no sadness of farewell,
When I embark;

            -Alfred Tennyson, "Crossing the Bar"

I don't want to rant endlessly about oil prices breaching the $78 a barrel mark.

But don't think it's easy for me.

When I pulled out of  my garage this morning, the sweltering heat in my car was easily twenty degrees hotter than the temperature outside. During the drive, my mood had worsened.

Today was not the day I wanted to discover that my A/C was busted.

By the time I walked into the office, I was ready to write about the peak oil catastrophe before us. I had seen that oil prices were a short hop from $80 a barrel. Furthermore, everyone was clamoring for it to rise during the winter. I was eager to lay down the hellfire and brimstone.

So what stopped me?

Well, you did.

I had looked over a few messages from readers. They were mostly the same. Briefly, they all agreed (and some expressed quite a shock) about the state of our world's dependence on oil.

And you all wanted to know the same thing, though...

Yes, it's a fact that the age of conventional oil is coming to a rapid close. Cheap oil is a thing of the past. And it's also true that our use of fossil fuels isn't going to diminish. 

So naturally, your question was: "Where will we get our energy from?"

I know we've had a multitude of new Energy and Capital readers. And the veterans know I'm huge on Canadian oil sands. But lately I've gotten a lot of questions asking me to go into further detail.

Canadian oil sands hold the potential to eliminate our addiction to Middle Eastern oil. But I also want you to think about the possibilities they hold for you, too.

Back in 1986, oil prices had fallen dramatically. This posed a major problem for oil sands producers. Oil prices were too low to economically develop the rich oil sands. Many projects were scrapped or put on hold. When oil prices began taking off a few years ago, it's no surprise there was a renewed interest in oil sands.

We weren't seeing oil costing $20 a barrel anymore. And it isn't the latest record close that has me excited about the future in oil sands. It's the fact that we can expect prices stay over $60 a barrel (the magic number that OPEC had decided on).

So what exactly are oil sands?

From Bitumen to Barrel

Essentially, there are two ways to extract the oil from the oil sands.

One of the most popular methods is to surface mine the oil sands using massive trucks  and power shovels. I'm talking about a lot here. It takes two tons of oil sands to make just one barrel of oil.

The mined oil sands is then transferred to an extraction plant, where it is mixed with hot water to create a slurry.  The slurry is then separated into sand, water and bitumen. The bitumen is taken and sent off to be processed.

Since a majority of oil sands are too deep to be surfaced mined, companies also use an in situ technique. Steam is injected into the oil deposit, causing the heated bitumen to move towards the wells. This method requires a huge amount of natural gas—almost 0.4 million cubic feet of natural gas to produce one barrel of crude oil.

The problem is that bitumen is a complex hydrocarbon, consisting of a long chain of molecules. The bitumen's hydrocarbon molecules are rich in carbon, with small amounts of hydrogen. This is different from smaller hydrocarbon molecules.

So in order to refine it into a synthetic crude oil, producers must use a number of processes to remove some carbon while adding more hydrogen. Coking allows them to remove carbon and break down the large molecules. Distillation and catalytic conversions help sort the mixture and transform the hydrocarbons. Then hydrotreating is used to remove contaminants such as sulfur, nitrogen, etc. The resulting synthetic crude oil can then be sent via pipelines to refineries and turned into jet fuels, gasoline and other refined products.

This is just the beginning, however. We still have a massive opportunity to invest into Canadian oil sands. On Thursday, I'm going to show you the single largest deposit of oil in the world. And here's a hint...

It's nowhere near the Middle East.

Until next time,

Keith Kohl