Alberta, Canada's energy giant, turns sand into black gold

A freak encounter between oil and sand more than 100 million years ago has helped put Canada's western province of Alberta in a position to shape this nation's -- and perhaps the world's -- energy future.

Estimates vary, but most geologists place Alberta's petroleum resource at 600 to 900 billion barrels, or better than three times the 200 billion barrel known reserves in Saudi Arabia.

But the liquid fuel in these asphalt-like "oil sands" is as difficult to extract as honey from a bowl of sugar. Cost per barrel is about half the world price, based on the experience of two operating plants. Althoug h profitable, that is far more expensive than the $1-or-less cost of pumping a barrel of Saudi sweet crude.

But the high cost and the possibility that world prices may suddenly collapse , have not stopped Alberta from building its economy primarily on profits from oil sands.

Alberta's leaders point out that when the planet's reserves of "cheap" oil begin to run out in the next few decades, the need for liquid fuel will be met by three sources worldwide: an estimated 2 trillion barrels in oil sands, 3 trillion barrels in oil shale, and 12 trillion barrels available from liquified coal.

Alberta rests on a little less than half the world's oil sands, which Canadian experts claim is the largest single source of oil known. Venezuela contains the other large oil sand tract, but US officials estimate only 114 billion barrels are recoverable -- less than one-third of Alberta's recoverable deposits.

But Alberta has two other advantages: It is several years ahead of any other nation in knowing how to transform oil sands into oil, being among a few countries well into a synthetic fuels program; and most experts say the Alberta oil sands process is less expensive and less polluting than turning coal and oil shale into liquified fuel.

Current costs of oil sands production are under $20 per barrel, while estimates for undeveloped shale oil are about $25 a barrel at best and $40 a barrel for coal liquefaction, according to Canadian and US energy experts.

In Canada, almost all pipelines lead to Alberta, where some 85 percent of the nation's domestic "cheap oil" is produced. Before 1950s, Alberta lived off its rich black soil. But since the first oil strike in 1947 near Edmonton, Canadian and foreign firms have drilled more than 50,000 holes to bring up the black "gold."

But Alberta's production of conventional oil has dropped 17 percent in the last six years and will continue to decline, say industry officials, unless they are guaranteed high prices that will enable them to build the expensive oil sands plants.

Canada, however, has been the slowest Western nation to let its consumers feel the full economic and social brunt of rising world oil prices. While other countries generally pay over $30 a barrel, Canadians pay about $16 a barrel.

Canada can do this by keeping a lid domestic oil prices and transferring $4 billion to $5 billion a year from the federal treasury to pay for oil imports, which still make up about 20 percent of Canada's petroleum supplies.

But the resulting high national debt and the desire for energy self-sufficiency by the 1990s have led most leaders to acknowledge privately that domestic oil prices must go up -- a dangerous public stance for national politicians.

Premier Peter Lougheed, whose province contains only 8 percent of Canada's population, claims Alberta provides an "unprecedented subsidy" of about $15 billion a year piping oil to the rest of Canada at prices below world levels. Prime Minister Pierre Trudeau, reflecting the strength of his Liberal Party in Ontario and Quebec, contends the east helped Alberta develop between 1950 and 1973 by paying for oil at prices higher than world levels.

Mr. Trudeau wants to keep federal control over energy prices while taking a greater portion of Alberta oil wealth to ease the national debt.

In another Canada's frequent provincial-federal clashes, Mr. Lougheed challenged Mr. Trudeau in August by unilaterally raising oil and natural gas prices. Mr. Lougheed claimed a constitutional right of the provinces to ownership over their natural resources that supposedly includes a right to set export prices. But in October, Mr. Trudeau placed a tax on Alberta's energy exports. Mr. Lougheed responded with a declaration to reduce Alberta oil production about 15 percent by late next year.

This political conflict, which has slowed Mr. Trudeau's drive to rewrite the Canadian Constitution under stronger federal authority, also has stirred the embers of western separatism. To outside observers, Canada is a model of past and future world energy battles in which oil sands will play an increasing role.

In 1978, Saudi Arabian Oil Minister Sheikh Ahmad Zaki Yamani trekked through the giant "oil mines" being developed in the northern wilds of Alberta to see firsthand the resource that surpasses the oil pools under his own Middle East nation.

As a leader who has helped raise world oil prices ten- fold since 1974, Sheikh Yamani is viewed as Alberta's benefactor. Even the lower Canadian oil prices have brought an economic boom to this province.

Two oil sand plants built so far have only scratched the surface of the vast oil supply. "If Canada is to be energy self-sufficient, it would need 20 of these plants," states James Guthrie, construction vice-president of Syncrude Canada Ltd., the government-backed oil sands plant.

This energy factory unearths and processes about 129,000 barrels of oil a day. It has m ade a profit because the federal government has allowed synthetic oil, unlike conventional oil, to be sold at world prices.

The Syncrude plant, which began pumping oil south to Edmonton refineries in 1978, is the larg est mining operation in the world. Officials say some 250,000 tons of material are removed daily. Only 7 percent of Alberta's four large oil sand deposits can be surfaced mined -- but that is still enough to keep Canada going for decades.

Three new plants slated to open by the 1990s will use techniques such as underground steam-soaking of the oil to reach the deeper, unminable sands. With price tags above $7 billion each, however, only one of these huge projects can be constructed every three or four years.

The giant Syncrude "oil mine" is modeled after a plant half its size just down the road near Fort McMurray. Begun in 1967, this pioneering project was a private venture by Sun Company, based in Radnor, Pa. The company invested $350 million in perfecting a cheap extraction technique -- despite initial doubts by engineers. Not until 1975 were prices were high enough for the plant to turn a profit.

Making crude from oil-coated sand is a dirty business, requiring giant extraction machinery and cooking quartz sand in hot water.

At the Synthetic plant, which took 7,000 workers five years to build at a cost of $2.5 billion, one barrel of oil is produced for every two tons of sand shoveled out. The first step entails stripping the wet bog ground cover and storing it. Then, four US-made "draglines," or scooping cranes with booms longer than football fields and buckets the size of trucks, tear into layers of black sand that can be 150 feet thick.

Spread across Syncrude's 2-by-3-mile stripmine are 18 miles of conveyor belts which carry the sullied solids into large vats, where the heavy crude is separated.

Known as bitumen, the oil is partially refined, or "cut," into four types of sythetic petroleum, from jet fuel to diesel. The energy consumed in the whole operation is equal to about one-third of the amount produced.

Reclamation of the land, including the replanting of 60,000 trees, will not begin for another five or 10 years, financed by a special $50 million company fund that has been set aside. When the oil is taken out, the bleached white sand assumes twice the volume of its oil-compacted state. For several years, the sand will be allowed to settle in "ponds" twice the size of the mining pits.

A second pollution problem is an abundance of coke, a sulfur-laden hydrocarban byproduct now dumped in huge piles and expected to gather up to 15 billion tons in the next decade until a recycling use is found.

In 1981, the Synthetic project will produce one-fourteenth of Canada's oil demand, or less than 1 percent of US demand. The company's area contains 1.2 billion barrels of oil out of 86 billion barrels that can be stripmined in Alberta. It is located in the largest of Alberta's oil sand deposits, known as the Athabasca basin, where an estimated 300 billion barrels are considered recoverable.

The oil sand operation is also the livelihood of Fort McMurray, a former trading post invaded by so many oil sands workers in the past 15 years that a census is still required every year.

Walter Hill, who has run a drugstore on the main street since 1922, recalls watching early experimenters trying to explode, melt, and spin the oil out of the sands. "Cree Indians used to use th gooey ooze to patch their canoes," he says. Today, the Good Fish Indian tribe is in the dry cleaning business, a sign of the Fort McMurray boom.