Keystone XL and Canadian Oil Sands

The Canadian oil sands have been known for decades. Until the recent protests against the Keystone XL pipeline that labeled these oil reserves “Canadian Oil Sands,” they had been variously known as unconventional oil or crude bitumen, the Canadians use oilsands as a single word. These oil sands had been surfaced mined in Canada with drag lines and power shovels since the late 1960’s, but until oil prices rose and technology improved these oil deposits were too expensive to exploit beyond the limited scope of surface mining. Advances in technology in both oil sand extraction and refining techniques and rising oil prices altered the economics and have made the extraction of oil sand possible.

The crude bitumen contained in the Canadian oil sands is a semi-solid or solid in natural deposits. It is a thick, sticky form of crude oil, so heavy and viscous that it will not flow unless heated or diluted with lighter hydrocarbons. Decades ago Canadian oil companies discovered that if they removed the sand filters from the well pumps and pumped as much sand as possible with the oil, production rates improved remarkably. This technique became known as Cold Heavy Oil Production with Sand (CHOPS). Pumping out sand opened "wormholes" in the sand formation which allowed more oil to reach the well improving production rates and recovery from around 6% to 10%. However, it produced large quantities of sand with oil residue that need to be disposed of, the recently used method has been to dispose of them in underground salt caverns.

More advances in drilling techniques and the use of steam injection have allowed the Canadians to expand their recoverable oil. In Cyclic Steam Stimulation (CSS) steam at extremely high temperature is injected into a well over a period of weeks to months; then, the well is allowed to rest while the heat to soaks into the formation. Finally, the hot oil is pumped out of the well for weeks or months until the production rate falls off. Once the production rate falls off, the well is put through another cycle of steam injection, rest and production. CSS and has a recovery rate around 20 to 25%; the disadvantage is that the cost to inject steam is high.

Steam Assisted Gravity Drainage (SAGD) was developed after improvements in directional drilling technology made it possible. In SAGD, two horizontal wells are drilled in the oil sands, one at the bottom of the formation and another about 15-20 feet above it. Groups of wells are typically drilled off a central pad and like fracking wells can extend for miles in all directions. This reduces surface disturbances of the land and the footprint of the area to be reclaimed under the environmental license (the Canadian version of a permit). In each well pair, steam is injected into the upper well melting the bitumen, which flows into the lower well and is pumped to the surface. SAGD was the breakthrough that has quadrupled recoverable oil reserves and moved Canada into second place in proved world oil reserves. SAGD is cheaper than CSS, allows very high oil production rates, and recovers up to 60% of the oil in place. There are refinements in the technology using in-situ hydrocarbon dilution under development that could reduce cost and energy used in mining even further, and could further reduce the cost of extracting oil sands. It is the SAGD method, however; that has created the need or desire for a pipeline to deliver the oil to the American markets.

Like all petroleum production, oil sands operations can adversely impact the environment. In the past open pit mining of oil sands projects have impacted the land when trees, brush and overburden have been removed for the mining site. As a condition of licensing, projects are required to implement a reclamation plan, but reclamation is a slow process. The mining industry asserts that the boreal forest will eventually recolonize the reclaimed lands. In addition, large amounts of water are used for oil sands operations for the steam in the current SAGD method. Despite recycling, most of the water ends up in tailings ponds. The Alberta provincial government limits how much water oil sands companies can remove from the Athabasca River to avoid impact and newer treatment methods have reduced the treatment and recovery time for tailing ponds. Still environmental regulations need to evolve with technology. Last winter the Canadian press reported that Wikileaks released a cable written by the U.S. Ambassador to Canadian Environment Minister in 2009 that revealed that the Obama administration had inquired about a possible moratorium on new oil sands development. Former environment minister Jim Prentice responded (in 2009) to the U.S. Ambassador that he was prepared to step in and impose tougher regulations on the oil sands if the industry damaged Canada's green reputation and said that if industry did not take voluntary measures and the provincial government did not set more stringent regulations, he would step in and press federal environmental legislation.

Recently, the current Canadian Environment Minister Peter Kent announced that Ottawa will introduce environmental regulations to address oil sands and reduce greenhouse gas emissions without implementing a cap-and-trade program. Canada has committed to reducing greenhouse gas emissions by 17% below 2005 levels by 2020, the same target that the United States has committed to. Environmentalists contend that emissions trends suggest the expansion of the oil sands will prevent Canada from hitting its targets, unless tougher environmental rules are put in place, and strongly oppose further development of oil sands until a stronger regulatory framework is in place . These groups are fighting to stop the Keystone pipelines to the United States and western Canadian ports as a method of stopping the expansion of oil sands production. The Pembina Institute in Alberta states: “Filling the proposed KXL pipeline with oil sands will result in nearly a 50% increase in oil sands production. Until environmental management of the oil sands is improved, KXL will cause significant environmental harm due to increased oil sands production.”

In June 2010 the first phase of the Keystone Pipeline System went into operation moving crude oil from Canada to market hubs in the U.S. Midwest. Keystone Cushing (Phase II of the pipeline) extending the pipeline went into service in February 2011, connecting the storage and distribution facilities at Cushing, to the Midwestern hubs. The proposed Keystone XL, is an approximate 1,660 mile, 36 inch crude oil pipeline that would begin in Alberta and extend southeast through Saskatchewan, Montana, South Dakota and Nebraska continuing through Oklahoma to an existing terminal not far from Port Arthur, Texas. The oil would arrive at the Texas refineries and ports for American market and export. The U.S. State Department is the lead handling the issue because the pipeline crosses national boundaries, but President Obama has made it clear he will make the final decision on whether to approve the pipeline.

Recently, the Canadian Prime Minister Harper told reporters the project would create a vast number of jobs in Canada and the United States, and he fully supported the project. President Obama has said environmental issues would weigh just as heavily in any decision as job creation and energy security. The pipeline was originally planned to run through the Osgallala aquifer in Nebraska, a very important water source to mid-west agriculture. On Monday in response to U.S. State Department indications that the pipeline needed to avoid the Osgallala aquifer and the Sand Hills area, TransCanada (the pipeline owner) announced it had reached a tentative deal with Nebraska officials to move the proposed route of its Keystone XL pipeline away from Osgallala aquifer. After the announcement the U.S. State Department made it clear that another environmental assessment would be necessary and would take 12 to 18 months, pushing the decision to 2013. A decision should never be made too soon or too late.