COMPR







REP





 

COMPREHENSIVE REPORT

 

The Oil Sands:
A New Energy Vision
for Canada

 

Prepared by the National Task Force on Oil Sands Strategies
of the Alberta Chamber of Resources

 

 

Produced by The National Task Force
on Oil Sands Strategies

of the Alberta Chamber of Resources
Spring 1995

Comprehensive Report
The Oil Sands: A New Energy
Wsion for Canada

ISBN 1-896532-00-4

Appendix A: Technology Report

A Science and Technology Strategy for
Canada?s Oil Sands Industry

ISBN 1-896532-01-2

Appendix B: Environment Report
Securing a Sustainable Future for
Canada?s Oil Sands Industry

ISBN 1-896532-02-0

Appendix C: Fiscal Report

A Recommended Fiscal Regime
for Canada?s Oil Sands Industry
ISBN 1-896532-03-9

Appendix D: Marketing and
Transportation Report

Marketing Opportunities and Challenges
for Canada?s Oil Sands Industry

ISBN 1-896532-04-7

Appendix E: lnformetrica Study
Macro-Economic Benefits of an
Expanded Canadian Oil Sands Industry
ISBN 1-896532-05-5

Appendix F: Background
Canada's Oil Sands Industry:
Yesterday, Today, and Tomorrow

ISBN 1-896532-06-3

For copies, please contact:
Alberta Chamber of Resources
Suite 1410 Oxford Tower
10235?101 Street, Edmonton
Alberta Canada 3G1

Tel: (403) 420-1030

Fax: (403) 425-4623

 

 

Contents

Introduction

Executive Summary

An Oil Sands Primer
The Case for
Oil Sands Development

A New Development Paradigm
The Levers of Development

The Canadian Oil Sands Strategy
ll

Creating Wealth for Canada

The Blueprint for Development
Report Highlights

Recommendations



Condu?on

Glossary of
Oil Sands Terms

 

 

Message from the
Task Force Chairman

I am pleased to present the final report of the National Task Force on Oil Sands
Strategies. This report outlines an exciting new vision for the future of Canada?s
oil sands one that encourages additional investment in the oil sands so that
the industry might double or triple production over the next 25 years. The
strategy developed by the Task Force will unlock the huge potential of Canada?s
oil sands for job creation, wealth creation, and enduring socio?economic and
environmental benefits.

The Task Force was formed in 1993 by the Alberta Chamber of Resources on
behalf of key stakeholders operating companies, government, research
agencies, and suppliers. Our mission was:

To be a catalyst for ?drther development of Canada?s oil sands through identi?cation of a
clear vision for growth and preparation of a plan of action. This will be achieved through
a series of assessments regarding the technological, ?scal and soda-economic, environ-
mental and regulatory, and marketing and transportation aspects of oil sands develop-
ment. The Task Force will identify new concepts, technologies, and strategic approaches,
and make recommendations and communicate the results to key private and public sec-
tor decision-makers.

This new energy Vision is a departure from the old?fashioned approach centred on
building expensive, self-suf?cient, integrated mega-projects. Instead, increased oil
sands production will come from smaller-scale operations and growth will occur
in incremental steps spread out over a longer period of time.

The effort of many sectors will be required to implement this strategy. We must
move ahead with increased emphasis on collaboration and investment in science
and technology, with changes to the fiscal regime and regulatory framework, with
improvements to market access and transportation systems, and with continuing
emphasis on environmental protection. The opportunity exists today.

This report is itself a collaborative effort between industry and government. The
Task Force gratefully acknowledges the keen interest and generous support from
the Hon. Anne McLellan, Minister of Natural Resources, Government of Canada,
and the Hon. Patricia Black, Minister of Energy, Government of Alberta.

My thanks also go to all who participated in the Task Force and its many sub-
committees. As a result of their tireless work and knowledgeable input, we have a
strategy that will lead the oil sands into the next century and provide new oppor?
tunities and new prosperity for all Canadians.



Erdal YILDIRIM, D. Eng. SC.
Chairman,

National Task Force

on Oil Sands Strategies

The Oil Sands: New linergy Vision for (Tanada

 

 

Message from the
Alberta Chamber of Resources

The Alberta Chamber of Resources congratulates the National Task Force on Oil
Sands Strategies on developing an innovative strategy for further development
of one of Canada?s most important natural resources. This is a truly compelling
new vision for the oil sands industry.

In many ways, the work of the Task Force is a culmination of efforts by the
Chamber over the past 18 years. In the early 19705, the Chamber identified
Alberta?s oil sands as the priority mineral resource for further development
during that decade.

An industry/government task force was organized in 1983 to promote oil sands
development. The Chamber proposed new approaches to oil sands development,
initiated several detailed studies, and published reports and position papers.
More recently, we focused on technology requirements for oil sands, which
has led to the formation of a pioneering oil sands science and technology
consortium the Canadian Oil Sands Network for Research And Development
(CONRAD).

Throughout all these activities the oil sands industry and government have
made a strong commitment to working together. The Task Force has built on this
spirit of cooperation. Its report sends a strong signal to policy-makers that a special
focus on the oil sands is in the best public interest.

Time is running out for our domestic conventional light and medium crude oil
and something has to be done to make up the shortfall.

There is only one major, relatively untapped source of petroleum left on the
North American continent the Alberta oil sands.

We must move forward and take advantage of the tremendous opportunity for
prosperity and wealth creation that is possible if we summon the will to unlock
the potential of the oil sands. This report shows the way.

?ax/M

E.P. Newell
President
Alberta Chamber of Resources

 

 

 

   

The oil sands are the largest potential
private sector investment opportunity
for the public good remaining in
western Canada.

 

Introduction

The National Task Force on Oil Sands Strategies began in 1993, as an initiative of
the Alberta Chamber of Resources, with the objective of forming a strategic group,
composed of diverse stakeholders, convinced of the bene?ts of an action plan
leading to a realization of the potential bene?ts of oil sands-based industrial devel-
opment in this country. This report summarizes that work.

The oil sands are the largest potential private sector investment opportunity for
the public good remaining in Western Canada. There is no other major develop-
ment opportunity in the region of equivalent magnitude. The scope in terms of
jobs, wealth creation, and other economic bene?ts is enormous.

The time is opportune today because events have changed substantially over the
past ?ve years. Today, for example, there is a new level of strategic co-operation
on the part of the industry?s major stakeholders. The industry is collaborating on
science and technology, as well as how to facilitate development by building on
each other?s knowledge.

In addition, because of a number of technology successes in the last few years, there
has been a signi?cant reduction in operating costs, coupled with a signi?cant
increase in recovery. Furthermore, technology has overcome distance and cost
issues, leading to the concept of smaller-scale operations with remote mining and
extraction, and in situ operations decoupled from upgrading operations as
opposed to expensive, integrated mining and upgrading mega-projects.

The Task Force has identi?ed a clear Vision for growth and answered af?rmative-
ly the fundamental question: Should oil sands development proceed? The par-
ticipants crafted an appropriate development plan, assessed the main obstacles to
growth, and identi?ed the levers of development to overcome those impediments.
Finally, they prepared strategies to assemble and deploy the resources for future
development, along with a blueprint for the next quarter century.

The Oil Sands: A New Energy Vision for Canada celebrates the achievement of mak-
ing the Athabasca, Wabasca, Cold Lake and Peace River oil sands a fundamental
component of Canadian energy supply and offers a vision of what the future
could hold for the oil sands sector. The conclusions and recommendations are
offered to guide an alliance of commercial and public interests through a long-
term action plan to optimize wealth creation from the oil sands.

The contributors to this report share a common certainty about the potential of
the next 25 years. The oil sands are a natural resource of suf?cient size, scale and
competitive advantage to support the development of an industry that can gen-
erate signi?cant national social and economic wealth.

To get there will require the consensus, commitment and co?ordinated effort of a
large and complex alliance of stakeholders. This report is dedicated to stimulating
that common enterprise.

 

This report represents the collective views of the Task Force. Specific views and recommendations are
not necessarily those of the individual participating organizations.

The Oil Sands: New Vision for Canada

 

 

Executive Summary

In the past ten years, the Canadian oil sands industry has crossed a threshold of
development, with production of bitumen and upgraded light crude oil (often
referred to as approximately doubling to about 400,000 barrels per day.

 

Decisions by developers to construct the Bi-Provincial Upgrader (now the Husky Years of investment in scientific and
Upgrader), expand the Suncor and integrated surface mining and upgrad? technological development, and

ing plants and the Imperial Oil Cold Lake in situ (deep deposit oil sands) bitumen a progression of field projects has
facility, and to bring the Amoco Primrose in situ project to commercial production created a profitable, established and
are signs that the oil sands are poised for a new phase of growth. well-developed industrial basestron foundation for the future.
The resource base 18 1mmense and well-understood. The 011 sands are deposrted in 9

four major occurrences, Athabasca, Wabasca, Cold Lake and Peace River, covering an
area of 77,000 square kilometres in northeast and north-central Alberta. The Alberta
Energy and Utilities Board estimates the in place bitumen resource at 1.7 trillion bar-
rels; the National Energy Board, 2.5 trillion barrels. Authorities agree that about 300
billion barrels are ultimately recoverable. New Canadian technologies that use hori-
zontal well in situ recovery processes are now being used commercially and are
expected to more than double recovery rates. The oil sands represent a third of the
world?s known, useful petroleum resources.

Years of investment in scienti?c and technological development, and a progression
of ?eld projects has created a pro?table, established and well-developed industrial
base, and a strong foundation for the future.

The investment in place includes the major integrated Suncor and plants,
in the Athabasca deposit, which produce 260,000 barrels per day in the form of a pre-
mium crude feedstock for transportation fuels and chemicals. The three largest com-
mercial in situ projects, at Cold Lake, Wolf Lake and Peace River, produce more than
1 10,000 barrels per day of bitumen for direct sales to re?neries and other customers.
More than a dozen other in situ bitumen developments, in various stages of tech-
nology implementation, contribute some current production and the potential for
rapid incremental as they expand or are commercialized.

These operations are supported by a sophisticated infrastructure composed of natur-
al gas and crude oil/bitumen pipelines, power generation utilities, re?neries, chemi-
cal plants, and transportation networks, as well as 3,500 small- and medium-sized
businesses which provide raw materials and ?nished goods and supplies, construc-
tion, engineering, ?nance, adminstration, and management services.

A National Prize

The National Task Force on Oil Sands Strategies has concluded that, at crude oil prices
in the range of $25.00, the Canadian oil sands industry can grow to reach sales
of 800,000 to 1.2 million barrels per day of crude oil and bitumen in the next quar-
ter century. Depending on the decline in conventional light and medium crude oil
output, the oil sands will contribute up to half or more of Canada?s oil supply
when this level is reached.

 

 

 

  

a.

The future of the Canadian oil sands
demands a new, collaborative alliance
of the resources and decisions of all
stakeholders, including government

and the private sector.

While this growth will remain focused on petroleum production, it will be accom-
panied by opportunities to market a range of by?products and co-products.

The bene?cial impact on the Alberta and Canadian economies, in the creation of
new productivity, new jobs, new industrial businesses, revenues for the public trea-
sury and pro?t for investors, will be pervasive. The Task Force has determined that
the impact of $21 billion to $25 billion investment, needed to double or triple cur-
rent production, includes a 0.6 percent increase in Canadian GDP, one million per-
son-years of employment from 1996 to 2020 and 44,000 new permanent jobs there-
after. There will be a $97 billion impact on revenues for governments at all levels.
And Canada?s current account balance will be increased by almost 106 billion from
1996 to 2020.

Alberta?s economy will grow by more than one percent as early as 1998 with the
impact increasing to ?ve percent by 2020 and annually thereafter, and 40 percent of
the permanent jobs will be located in the province. The remaining employment
gains will be concentrated in Ontario and Quebec. All Canadians, however, will
share in the prize because 85 percent of the jobs created will be in manufacturing,
?nance, service and other sectors across Canada.

This enormous prize is, however, still elusive. Success in all of the key areas addressed
by the Task Force (science and technology, ?scal terms, capital formation, environ-
mental, marketing, transportation, regulatory, and stakeholders) will be necessary to
successfully reach the goals laid out in this report. The rewards are clear; they will
also be timely for Canada?s economic and social development in the competitive
global economy of the 215t century.

New Concepts, New Strategies

The Canadian Oil Sands Strategy developed by the Task Force is a radical departure
from the past. The Task Force sees the oil sands differently; no longer is it a marginal
resource with unyielding technological and economic disadvantages to develop-
ment. In fact, the oil sands are a knowledge-based, technology-driven, resource of
substantial quality and value. The production industry is now well?established on a
commercial scale. Like all the world?s mineral resources, development of the oil sands
is capital intensive and is accompanied by risk. In this instance, the risk is techno-
logical. To attract investment, the Task Force has embarked on a carefully calculated,
new course for development.

The mega-projects of the past 30 years, dependent for viability on government equi-
ty investments and continuous special (project-by-project) pleading for ?scal treat-
ment, have been scrapped for private sector-driven, market-responsive development
that builds on existing infrastructure, recruits many new players, large and small, to
the industry and grows in stages until science and technology delivers the break-
throughs for larger grassroots projects. The number of successes in science and tech-
nology has increased the industry?s con?dence, expectations, and belief that, based
on its track record of proven results over the last three years, operating costs will be
further reduced by another signi?cant amount.

The Oil Sands: A New Visirm for (ianuda

 

 

The future of the Canadian oil sands demands a new, collaborative alliance of the
resources and decisions of all stakeholders, including government and the private sector.
It is a made-in-Canada brand of strategic cooperation that will bring success Via the two
envelopes for future growth: incremental and grassroots project development.

The Canadian Oil Sands Strategy

The development strategy will result in a co-ordinated, broadly-based industrial
mosaic, focusing on petroleum extraction and recovery, using high technology,
to produce bitumen and upgraded crude oil blends. As petroleum production
grows, the value-added chain might expand to include a range of synergistic co-
product and by-product industries. The scenario could include:

0 A series of logical, staged, smaller-scale incremental expansions added on to exist-
ing operations. The industry could add up to 14.6 million barrels each year to
achieve a total volume of 800,000 to 1.2 million barrels per day of bitumen and
upgraded crude oil by 2020.

0 A number of remote mining and extraction operations, and in situ plants, linked
to upgraders and heavy oil re?neries in Canada and in the existing market areas
in the United States.

0 A growing petrochemical complex beyond that existing today in Fort
Saskatchewan.

0 Additional research into science and technology to achieve further reductions in
the amount of capital required for grassroots facilities and operating costs. These
techology breakthroughs will be achieved through the collaborative research
efforts of industry, government and academia working together.

- Spin-off co?product operations recovering titanium, vanadium, aluminum,
zirconium, gold, and zeolite.

0 A network of nitrogen and hydrogen plants and operations linked into upgrading
production. This could support the creation of synergistic industries as indepen-
dent suppliers, building on the "Alberta Advantage? of low power costs and vast
reservoirs of natural gas.

0 A network of pipelines could be built to facilitate the movement of bitumen from
the producing ?elds to processing facilities as well as to markets. A separate sys-
tem of product pipelines could be built between Fort McMurray and Edmonton,
and possibly linking Cold Lake and Peace River, to handle the shipment of blend-
ed crude oil feedstocks or diluted bitumen ("black oil?).

There are eight key levers for development recommended in this report. They form
the basis of the Task Force?s action plan (see Chapter 4). The Canadian Oil Sands
Strategy hinges on the strength of the levers, and the linkages between them.

 

The industry could add up to

14.6 million barrels each year to

achieve a total volume of 800,000

to 1.2 million barrels per day of bitumen
and upgraded crude oil by 2020.

 

 

 

     



With the right framework including the
aggressive application of science and
technology, appropriate fiscal terms, the
right regulatory environment, market
demand, and appropriate development
paths capital will be attracted to the oil
sands which can then be expanded to
their fullest potential for the benefit of
all Canadians.

The Key Levers of Development

0 New development through science and technology advancement that continues
to lower total supply costs (both capital and operating costs) to achieve an
increasing rate of retum for bitumen and crude oil, in a market in which those
products must take prices set by conventional crude and commodity markets.

0 A new, generic ?scal regime that will apply to all developers, with tax and royal-
ty terms that divide revenues and costs fairly between investors and government,
and are stable and predictable and result in a level playing ?eld for all, including
new entrants.

0 Environmentally sustainable deveIOpment and regulatory compliance that
incorporates in its measure of wealth the continuous reduction of environmen-
tal impacts, and the assurance that development today does not impair the
resource legacy of future generations, including their access to clean air, water
and land.

0 Fair, predictable, timely and competitive regulation, within a framework of
balanced public policy.

0 Aggressive intemational marketing of bitumen, crude oil and minerals and
energy co-products and by-products, with unencumbered access to specialized,
competitive markets.

0 A complete, ?exible ?all-market? and "all products? pipeline transportation
system.

0 Imaginative, diverse, intemationally?based capital formation.
0 Informed, supportive stakeholders in industry, government and the community.

By working together in these areas, oil sands stakeholders can begin to shape the
future. Inherently economic proposals can then be brought forward by the industry
to their investors so that development can proceed in an orderly fashion.

New capital investment will generate signi?cant environmental, social and eco-
nomic bene?ts. With the right framework including the aggressive application of
science and technology, appropriate ?scal terms, the right regulatory environment,
market demand, and appropriate development paths capital will be attracted to
the oil sands which can then be expanded to their fullest potential for the bene?t of
all Canadians.

A National Undertaking

The future development of Canada?s oil sands resource is a national undertaking,
both in the commitment and the cooperation required, and in the scope of its
bene?ts that will result. There are clear roles and responsibilities for all levels of gov-
ernment, regulators, the petroleum industry, the ?nancial sector, the national sci-
ence and technology innovation system, the community as well as the existing oil
sands industry.

The Oil Sands: New Vision for (junuda

 

 

An Oil Sands Primer

During the past ten years, the development of the Canadian oil sands, one of the
world?s largest petroleum resources, reached a threshold of opportunity. As is
often the case with such occasions, the precise moment escaped notice. Indeed,

 

the magnitude of the oil sands industry is understood by a remarkably small In 1994, upgraded light crude oil
number of people, in spite of its potential for creating wealth and dispensing an manufactured from the oil sands
array of benefits to Canada. represented 14 percent of the country's

tal etrole . B?t
Over the last 20 years, the oil sands have grown seven-fold and almost unobtru- suPpy I "men

sively, in the decade following the collapse of the price-induced conventional oil
boom, production from the oil sands resource base doubled to around 400,000 bar-
rels per day. In 1994, upgraded light crude oil (often referred to as but
called ?light crude? or upgraded crude for the balance of this report) manufactured
from the oil sands represented 14 percent of the country?s total petroleum supply.
Bitumen produced from in situ (or "deep deposit?) oil sands plants accounted for
an additional 7.5 percent of Canadian oil production.

produced from in situ oil sands plants
accounted for an additional 7.5 percent
of Canadian oil production.

It is understandable that the acceleration of oil sands economic activity was relative-
ly inconspicuous. Following the Second World War, it took almost two decades of
research into technology, together with expansion of petroleum markets, evolution
of public policy, and maturation of the energy economy before investors with a high
risk appetite undertook the first commercial oil sands projects. By 1967, with the start
up of Great Canadian Oil Sands Ltd.(now known as Suncor Inc.), the production of
bitumen and upgraded light crude had been commercialized. It was followed by the
and Imperial Cold Lake Projects.

Over the following decade the industry generally operated with marginal returns
because of very high supply costs. Oil price spikes during the 1970s raised expec-
tations for large-scale oil sands expansion that were as quickly dashed by the price
collapse of 1986.

Faced by the unavoidable necessity of reducing supply costs, oil sands operators
engaged in a strenuous effort to make incremental improvements in technology
that enabled them to reduce costs. The dramatic success of this endeavour put the
oil sands industry on its current threshold of opportunity.

After all this effort, oil sands development has just begun. In fact, less than one per-
cent of the discovered, recoverable oil sands resources have been produced, and
current commercial integrated and in situ plants will access, throughout their lives,
only two percent of the recoverable resource (300 billion barrels).

This report of the National Task Force on Oil Sands Strategies gives an account of
the means the strategies and levers of development to cross the threshold of
opportunity, to realize a fully-diversi?ed oil sands-based industrial mosaic that
optimizes the creation of wealth from the resource. It capitalizes on what has
already been built, to create an attractive economic milieu, to ?nd the appropriate
investment, and to research and develop the technological tools which will
remove impediments to economic expansion.



 

 

 



The Canadian oil sands are deposited
in four major deposits, Athabasca,
Wabasca, Cold Lake and Peace River,
covering an area of 77,000 square
kilometres in northeast and
north-central Alberta. This is

roughly the same size as Belgium

or Scotland or the province of

New Brunswick.

A Limitless Resource

The Canadian oil sands, located in the Western Canadian Sedimentary Basin, are
large deposits of sands, sandstone or other sedimentary rock and clay, contain-
ing bitumen, a naturally-occurring viscous mixture of heavier hydrocarbons.
Other components vary locally within the deposits, but may include sulphur,
minerals, heavy metals and other non-hydrocarbon materials, some of which
have commercial potential.

Oil sands occur with various levels of bitumen saturation. Sands with more than
ten percent are considered rich; those with less than seven percent are currently
of no economic interest. Oil sands deposits occur at varying depths from surface.
Near-surface deposits, which lie up to 80 metres below the overburden, represent
about 20 percent of the recoverable resource and are mineable. In deeper deposits,
bitumen is recovered by in situ methods.

Based on the past experience of petroleum engineering in all types of deposits
world-wide, as technology becomes more advanced, economic recoveries from
leaner sands and deeper deposits will increase the size of the economically recov-
erable portion of the resource. Rising prices can also increase the size of the eco-
nomic recoverable resource; however, oil sands developers typically do not count
on rising prices for their economic decisions.

Bitumen is bound to the grains of sand by water. It does not normally ?ow freely
until it is heated and is not usable as petroleum until it is physically separated
from the sand. Bitumen is a complex hydrocarbon molecule, with a relatively
high ratio of carbon to hydrogen and other chemical attributes, making it
uneconomic or impossible to process for most refineries. As a result, it has to be
processed by "high conversion? refineries designed specifically for bitumen or
heavy oils, or be upgraded and customized to a light crude oil equivalent.

The Canadian oil sands are deposited in four major deposits, Athabasca, Wabasca,
Cold Lake and Peace River, covering an area of 77,000 square kilometres in north-
east and north-central Alberta. This is roughly the same size as Belgium or
Scotland or the province of New Brunswick.

The Alberta Energy and Utilities Board estimates the in place bitumen resource
range at 1.7 trillion barrels; the National Energy Board, 2.5 trillion barrels.

All authorities agree, however that about 300 billion barrels could be ultimately
recoverable. Currently established ?reserves? (that is, those volumes that projects
currently in operation can produce under existing permits and approvals) are
approximately 4.0 billion barrels. This is greater than the total remaining estab-
lished conventional crude oil reserves in Western Canada.

The oil sands petroleum resource base is well de?ned, and well understood. The
unique petroleum chemistry of the bitumen hydrocarbon molecule and the pres-
ence of minerals and other materials provide additional business opportunities in
recovery, re?ning and processing.

The Oil Sands: A New Energy Vision for (ianuda

 

 

There is a strong foundation for development in the 30?year investment in science

and technology, in situ recovery, mining and extraction, processing, and trans- 

portation. This investment supports the major integrated oil sands facilities of

and Suncor, in the Athabasca deposit, which produce more than two- If a conservative economic multiplier
thirds of the daily output from the oil sands. In 1994, and Suncor pro- of 2.5 is applied, the development
duced approximately 260,000 barrels per day of upgraded light crude oil, account- of the Canadian oil sands has injected
ing for 20 percent of Canada?s light and medium crude output. $125 billion into the Canadian economy

.. ..  . . 
A similar 1nfrastructure has matured for Sltu all of which produce b1tumen for direct sales to re?neries and other customers. The Cold Lake deposits pro-
duce 90,000 barrels per day of bitumen from the Imperial Oil project (with plans
to expand to 129,000 barrels/day by 199 7) and 10,000 barrels per day from
Amoco?s Wolf lake Project. The Peace River deposit, the only commercial project,
operated by Shell Canada Limited, produces 6,000 to 8,000 barrels per day. Other
active small commercial or experimental development projects at various
locations in the Cold Lake deposits now produce more than 26,000 barrels
per day. The announced commercialization of Amoco?s Primrose deposit,
combined with its Wolf Lake operation, is expected to add 40,000 barrels
per day of production over the next ten years. In addition, Koch is plan-
ning to expand its Reita Lake project to a similar level of production in
the same time frame. All 16 in situ projects (including Imperial, Amoco
and Shell) produced about 140,000 barrels per day of bitumen in 1994.

ogy, build and operate the plants,
communities, and supporting

utilities and services.

  
 
 
 
 
 
   
 
  

All of these commercial and experimental plants and projects have
resulted in a multi-billion-dollar investment in infrastructure, service
and supply businesses, power generation systems, transportation net-
works, pipeline systems, research and development facilities, dedi-
cated municipal infrastructure, engineering, construction, and oper-
ational, administrative and financial support. The combined oper-
ating, capital and annual sustaining expenditures, over the last 30
years, in research, development, plants, projects and infrastructure

is estimated to be (Cdn$1994) $50 billion. Well over 20,000 direct
and indirect jobs across Canada are sustained by the industry.

If a conservative economic multiplier of 2.5 is applied, the development of
the Canadian oil sands has injected $125 billion into the Canadian econo-
my (in as-spent dollars) to develop technology, build and operate the plants,
communities and supporting utilities and services. This calculation does not
include the bene?t derived from the sale and export of production, or measuring
the public wealth and social bene?t created from the revenues generated for the
public purse. Nor does it include the bene?t from the reinvestment of the private
dividends to create new capital wealth.

Alberta?s Oil Sands

 

 

 

 

  

7m 

we

The principal risk is that the
full economic and social potential
of the resource will not be realized in

public and private wealth creation.

  

an,

The investment in science and
technology is the equivalent, in the
oil sands industry, to the investment in

conventional oil and gas exploration.

A New Industrial Mosaic

The oil sands provides the economic base for a Canadian centre of resource-based
industry, an industrial mosaic incorporating primary bitumen and crude oil pro?
duction with collaboratively?developed complementary and supplementary busi-
nesses. This will include an innovative system of collaborative private and public
research facilities, dedicated to lowering supply costs and reducing capital inputs,
and connected to an academic establishment deeply involved in training and
developing a skilled and well?trained workforce.

The value-added chain could expand to incorporate opportunities to market a
range of co-products and by-products as well as processing inputs such as natural
gas and hydrogen, secondary resource recovery, upgrading and custom re?ning,
and services such as technology innovation and transportation.

Environmental sustainability will result in the development of an entire sec-
ondary industry that will be one of several with globally-transferable technologies.

The end result will be the creation of productivity and wealth, shared widely
across Canada, that will be a major contributor to the nation?s economic
growth as a resource-based, technologically?sophisticated trading nation in the
let century.

Visions have risks. Oil sands development could stagnate and economic activity
generated by the industry could shrink. The principal risk is that the full economic
and social potential of the resource will not be realized in public and private
wealth creation.

Development Risks

Reasonable Technical Risk

The investment in science and technology is the equivalent, in the oil sands
industry, to the investment in conventional oil and gas exploration. Ef?cient
technology exists today but improvements are needed. Signi?cant step-outs in
technology are achievable. Investment in science and technology bears a reason-
able risk for patient, long-term, forward-looking developers.

Low Geological Risk

The Athabasca, Wabasca, Cold Lake and Peace River deposits are well-delineated,
based on years of evaluation. Unlike conventional petroleum, little investment is
needed to ?nd and delineate further resources, although understanding reservoir
behaviour for in situ reserves remains an area of risk.

Manageable Financial Risk

Oil sands economics are at the high end of the cost curve and are price sensi-
tive. Therefore, projects have been treated as marginal because prices are uncer-
tain. Continuous improvement in efficiency and costs, however, has made eco-
nomics robust to varying crude oil prices.

The Oil Sands: New Vision for (iunzlda

 

 

The Case for Oil Sands Development

The National Task Force on Oil Sands Strategies has asked itself a series of basic
questions that go to the heart of the future viability of the oil sands industry. The
answers to the questions, brie?y summarized, are encouraging.

The oil sands are a reliable, secure oil supply, creating signi?cant wealth. Existing
oil sands operations are safe, reliable, pro?table and environmentally sustainable.
The market for bitumen and light crude oil is growing. Science and technology
development is providing continuous improvement in supply costs.

Nevertheless, the future of this particular resource is not assured. Before stakehold-
ers agree to pay the economic and social costs of new development, they must be
convinced that the prize is worth the investment.

Production of bitumen and crude from the oil sands will take place in a tough
economic environment, featuring low commodity prices, competition from
other oil sources, alternative fuels, technical risks, and long investment lead
times. The resource is publicly-owned and its development must receive broad
public endorsement for expansion to proceed.

New integrated plant projects failed at Alsands and OSLO in the eighties.
Expansions of the two bitumen ?elds, Cold Lake and Peace River, have not pro-
ceeded rapidly outside of the main commercial operations. The credibility of a
strategy for doubling or tripling production is contingent upon demonstrating that
there are fresh approaches to, and new levers for, development.

New concepts, presented in this report, have been developed by the National Task
Force on Oil Sands Strategies, and are elaborated on in this report. These include:

0 The development of an innovative system for research and development that
ensures a suite of step-out technologies to reduce supply costs and capital
inputs, and enhance environmental performance.

0 New generic ?scal terms.

0 A new regulatory philosophy.

0 Developing new market opportunities.

0 A new level of strategic collaboration of the major stakeholders.
These and other levers are discussed fully in Chapter 4.

Oil sands production faces strong competition in the energy market place, but
enjoys important competitive advantages which must be exploited. New
approaches to capital formation are available to be utilized. As incremental devel-
opment continues, the ground work f0r grassroots growth can be laid through the
research and development of new technology that solves environmental issues and
reduces supply costs.

0qu 

wit;

The credibility of a strategy for
doubling or tripling production is
contingent upon demonstrating that
there are fresh approaches to, and new

levers for, development.

 

 

 

   

Oil sands crude oil blends can now
be customized to suit specific
refinery needs, supply feedstocks
to all refineries in its geographical
market, and hold a significant
portion of its regional market

share in Western Canada.

Is there an enduring market for oil sands bitumen and upgraded crude
oil from Western Canada, and a potential market for co-products and by-
products?

Bitumen and upgraded crude oil production face tough competition in the ener-
gy market. Yet production of both has grown more rapidly than conventional
crude in recent years. The oil sands industry has a continuing opportunity to
access markets in areas Where indigenous conventional crude supply declines and
offshore imports face incremental transportation costs.

The remaining Canadian conventional light and medium crude oil reserves will
likely decline over the long term. The large, accessible oil sands resource repre-
sents a secure replacement. The opportunity to access new export markets is a
significant expansion opportunity for producers of oil sands crude oil and bitu-
men. Products produced from upgraded oil sands crude oil are now marketed in
60 countries.

Fossil fuels are expected to continue well into the next century to provide trans-
portation fuels and chemical feedstocks for a rapidly-expanding human popula-
tion. This will be done with increasing technological sophistication in areas such
as fuel efficiency and environmental protection and mitigation. North American
and global energy, chemical and plastics needs suggest that petroleum will be
relied upon as long as resources and reserves are available.

The ultimate test of viability is in the marketplace. There are expanding markets
for bitumen and upgraded crude oil in Canadian and US. refineries. The major
market growth opportunity is in the United States which now imports over 50
percent of its crude oil supply, including six percent (900,000 barrels per day) from
Canada. In an uncertain world, the security of a major oil supply on the same con-
tinent, and in a stable geopolitical environment, could be of major economic
value to the U.S.

Canada?s domestic energy needs represent the base market for oil sands crude
oil production. There are also strong markets for synergistic oil sands prod-
ucts. Canada is a world leader in the amount of hydrogen produced from nat-
ural gas; hydrogen is an important ingredient for upgrading bitumen. Coke is
a major by-product of the current upgrading process and could be developed
as a utility fuel (if markets develop).

There are several ideas to exploit opportunities for co-products and by-products,
including the extraction of minerals such as vanadium, aluminum, titanium, zir-
conium, zeolite, and gold, if their extraction can be made economic.

Can oil sands bitumen and upgraded crude successfully replace and displace
other sources?

Canadian oil sands bitumen and crude oil have developed specific markets
based on their competitive advantages. Oil sands production has grown at a
much faster pace than conventional production. Bitumen finds a ready market,
within a geographical niche, because it is a reliable and inexpensive feedstock.
Oil sands crude oil blends can now be customized to suit specific refinery needs,

The Oil Sands: New linurgy Vision for Canada

 

 

supply feedstocks to all refineries in its geographical market, and hold a signifi-
cant portion of its regional market share in Western Canada. In addition, there is
the potential to supply the US. Paci?c Northwest and California.

Does the market for bitumen and oil sands light crude oil ?work? in an envi-
ronment of low commodity prices?

If research and development continues to deliver a suite of improved technolo-
gies which reduce supply costs, capital inputs and risk, oil sands production can
compete against other energy sources if its supply base expands. Bitumen pro-
duction currently offers the most attractive opportunity for new investment,
judged on technological risk and potential returns.

Current oil sands production can be pro?table because the infrastructure is in place
and continuous improvements in separating costs have lowered supply costs even
in a low price environment. The existing operations can also be expanded because
there are many opportunities for small expansions/debottlenecks at low incre-
mental supply cost. By comparison, profitability for major new developments
remains only ?almost economic?. Calculations done using the best available tech-
nology, including risk, show supply costs (total capital and operating costs) rough-
ly equal to selling price. When other impediments to development are removed,
the profitability of new development may return. The key to expanding the oil
sands is to reduce supply costs through step-changes in technology.

Can the high technological risks be reduced through an effective, efficient
and economic program of research and development?

There will not be significant future exponential growth without step-changes
in technology, which has been, and will continue to be, a fundamental
requirement for development. The good news is that this is one of Canada?s
most successful knowledge-driven industrial sectors: oil sands technology is a
Canadian achievement, now being recognized by owners of similar
resources elsewhere.

Science and technology is the source of continuous improvement and incremen?
tal growth. It provides the step?out changes needed for exponential growth. With
reliable long-term funding and strong focused industry collaboration, technolog-
ical development will be a mainstay of risk and supply cost reduction.

Does the development of the oil sands-based industry ?fit? with Canada?s
energy future?

Combined bitumen and upgraded oil sands crude oil now account for 21 per-
cent of total Canadian crude production. Upgraded crude accounts for 40 to 50
percent of western Canadian refinery runs. From these figures, it is clear that
Canada is committed to and reliant upon energy from the oil sands.

The oil sands resource is so massive that Canada could rely on it for the next
100 years to maintain its competitive position as self-sufficient in petroleum
production and a net exporter of energy.

 

The oil sands resource is so massive
that Canada could rely on it for the
next 100 years to maintain its
competitive position as self-sufficient
in petroleum production and a net

exporter of energy.

 

 

 

 

The functioning of the regulatory
process has become a potential

impediment to oil sands development.

The fairness of the system's decisions
are not in question and there have
been some improvements in recent
years. Concerns still remain regarding
the unpredictability of the process,
the length and cost of the cycle.

Can the environmental consequences of development be contained and
mitigated?

Oil sands development will not proceed unless the environmental conse-
quences are mitigated to a degree acceptable to regulators and the public, as well
as meeting the industry?s own high standard of environmental leadership.

Development that sustains the quality of the environment the air, water, land
and the living ecosystem must also sustain the creation of wealth, permanent
high-quality jobs, and the growth and progress of the economy and society.

The development of in situ bitumen production facilities and integrated mining
and processing plants in Canada have operated with high standards for envi?
ronmental management and impact mitigation. Environmental management is
a significant research focus within the program of technological change. With
this research, and based on the very good track record of continuous improve-
ment in environmental performance, continued environmental improvements
are expected.

Can appropriate fiscal terms be set for development that result in a fair
sharing of both the rewards and the risks of development?

The fiscal terms that presently govern oil sands revenues are not sufficiently
attractive to investors which makes it more difficult to attract the internation-
al pool of petroleum development capital. Nor, for that matter, are they "level"
among all players. Wealth creation and attractive rates of return provide the
incentives for long-term capital commitments needed from domestic and
international investors. A common (?generic?) set of new fiscal terms are need?
ed, and can be achieved if all the parties to development of those terms recog-
nize the interlocking of public and private interest.

Can a predictable, orderly and fair regulatory environment be created
with shorter approval cycles, within which public issues can be thorough-
ly and fairly adjudicated?

The functioning of the regulatory process has become a potential impediment
to oil sands development. The fairness of the system?s decisions are not in
question and there have been some improvements in recent years. Concerns
still remain regarding the unpredictability of the process, the length and cost
of the cycle.

Public issues must be adjudicated thoroughly and fairly in a process that oper-
ates on a more timely basis, and with clearer rules as to the basis of interven-
tion, and the quality and relevance of the evidence submitted by intervenors.
Continued effort is required to streamline the regulatory process, and harmo-
nize the various regulatory requirements into a "single window to the extent
possible.

 

The Oil Sands: New Vision for Canada

 

 

A New Development Paradigm

The success of future oil sands development depends on novel and innovative
development strategies and concepts combining the and advantages
developed over the last' 30 years with resourceful, risk?reducing initiatives so that
new investments meet the objectives of all stakeholders.

The development strategy recommended in this report is based on two distinctive
concepts.

1. The objective of oil sands development is an industrial mosaic with economic
potential surpassing oil production to include the optimum range of products
and value-added activities, including knowledge. This will be achieved initially
through logical, smaller-scale, incremental expansions added-on to existing
operations.

2. The creation of wealth from the oil sands will be optimized through a collabora-
tive group of stakeholders who agree to deploy their individual and collective
resources in a coordinated manner, in order to maximize wealth development for
all.

The players will have well-understood roles and responsibilities: the industry will
be more private sector driven than in the past, and will not seek government hand-
outs. They will build on the existing infrastructure of an established industry.

Evolution of the Development Paradigm

Early oil sands economic research spearheaded first by the Geological Survey of
Canada, then the Alberta Research Council, and later supplemented by private
investment developed around producing a liquid petroleum product, encoun-
tering sometimes insurmountable problems extracting bitumen from the complex
oil sands. Later, after the Second World War, the paradigm expanded around the
following four premises.

0 The surface occurrence of asphalt and oil seeps, observed along the river banks
in oil sands prone regions, were merely a hint of a vast resource beneath the sur-
face.

- Bitumen recovered by early processes would yield its maximum wealth if its
products were developed through a fuel-energy value-added chain.

0 Extracting the commercial value from the bitumen included the development
of co?products and by-products, in addition to its most obvious applications for
fuel energy.

0 The key to the economic use of the oil sands was knowledge: research and
development based on modern engineering and technology.

 

 

 

An Industry Is Born

The 1947 discovery of the Leduc oil field, followed by two decades of exponential
growth of conventional light crude oil production in the Western Canadian
Sedimentary Basin, cooled interest in the oil sands because conventional oil was
a lower-cost energy source.

The oil sands may have been out of sight, but they were not out of mind. An oil
sands conference in 1951, sponsored by the Alberta government, spurred interest
in the great resource. In 1958, Cities Service Company, a major US. re?ner which
had been conducting research on oil sands extraction, opened a pilot plant at
Mildred Lake, with the objective of learning more about mining, materials han-
dling and extraction. This was the direct forerunner to today?s opera-
tion. In the meantime, Great Canadian Oil Sands Ltd. (GCOS) applied to the
Alberta government for a permit to build a plant.

Following go-ahead in 1962, it took five years to complete construction of the
GCOS project (now Suncor Inc., Oil Sands Group). The plant came on stream
in 1967 and in five years the plant reached its authorized productive capacity.
In the meantime, Imperial Oil began work in 1964 on in situ recovery tech-
niques at Cold Lake. In the same year, the consortium that planned and built
was formed. was approved for construction in 1969; the
commercial partners did not commit to construction until 1973 and the plant
was completed in 1978.

In 1974, the Alberta government formed the Alberta Oil Sands Technology and
Research Authority. The growing importance of technology was prompting closer
alliances for pre-competitive research and development.

Rising oil prices triggered mega-project planning for the Cold Lake in situ and
Alsands integrated mining projects in the 19705. The combined effects of the
National Energy Program, high in?ation, and the oil price collapse in the early
19805, forced a retreat from an exponential growth model to one of incremental
growth. Sandalta, Canstar, Petro-Canada Daphne, and Alsands projects were
shelved. A major expansion was also mothballed in the late 19805. One
more unsuccessful attempt was made to raise a grassroots integrated project with
the formation of the OSLO (Other Six Leases Operation) consortium. It was sub-
sequently cancelled in 1991.

Meanwhile, growth of conventional heavy oil and bitumen supply encouraged
the construction of two heavy oil upgraders, at Lloydminster and Regina,
Saskatchewan. In 1990, an Alberta Chamber of Resources study on the develop?
ment of a regional upgrader introduced an important new concept for the poten-
tial incremental growth of the industry through the development of bitumen-
only oil sands leases. Recent decisions to expand the Suncor and the Imperial Cold
Lake plants, and the plans for commercial developments in the Primrose and
Lindbergh areas, pave the way for the next stage.

The Oil Sands: New linergy Vision for Canada

 

 

Elements of the New Paradigm

Incremental Growth

The new paradigm of the National Oil Sands Strategy is based on four directions
for incremental growth:

0 Initial growth through additions to existing production facilities.
0 Growth through taking better advantage of existing infrastructure.

0 Growth through dividing development into chunks of the oil sands building
blocks: mining and remote extraction decoupled from upgrading and
enhanced bitumen recovery for in situ production.

0 Growth through phased development.

Science and Technology Agenda

The new development paradigm has three key items on the agenda for science and
technology, which represents the ?finding cost? of the resource.

0 Technology for incrementally lower supply costs through continuous improve-
ment.

0 Technology that improves environmental performance.

0 Technology that, through long-term commitments, provides step-outs to
growth through step-change reductions in supply costs.

Characteristics

The new development will be operating with characteristics different than those
that shaped the industry in the past.

0 A base industry is well-established in its economics, technology, markets and
infrastructure.

0 As it continues to develop, things will happen faster and more efficiently, pro-
ducing better margins and with less environmental impact than in the past.

0 The industry has a well-developed value-added chain, principally in
Canadian and US. oil refineries.

0 There are several well-developed plans to explore opportunities for co-product
and by-product development, in addition to some synergistic and symbiotic
materials production already underway or about to proceed.

0 There is now a well-developed collaborative research establishment for continu-
ous, incremental improvements, and the break-out discoveries that will trigger
growth.

 

 

 

    

The optimum development of the
full potential of the oil sands is to
create private and public wealth that
will reward investment and provide
benefits to Canada, stimulating
growth and increasing international

competitiveness.

Fundamental Elements

The oil sands development paradigm for the next 25 years has seven fundamen?
tal elements.

1. The optimum development of the full potential of the oil sands is to create pri-
vate and public wealth that will reward investment and provide bene?ts to
Canada, stimulating and increasing international competitiveness.

2. Successful development will utilize a well articulated common vision to orga?
nize resources and coordinate industry decisions among key stakeholders.

3. This paradigm reconciles under one development umbrella two growth
envelopes: incremental growth and rapid growth. It treats these envelopes as
parallel tracks that accommodate one another.

4. All economic activity in this paradigm is customer?responsive and market-
driven. 

5. This development paradigm is technology-based, relying on the research,
development and commercialization of new technology.

6. The paradigm encourages development along the value-added chain, until
every possible energy, mineral and technological product, by-product and
co-product has been exploited (although some of this may require strategic
investments).

7. This paradigm is price robust; its economic activities can survive commodity
price ?uctuations through continuous improvements in operating ef?ciency.

The Stakeholders and the Stakes

Each participant in a strategic alliance for oil sands-based industrial development
has its own measures for success. The new paradigm is designed to meet those
measures. Three stakeholders play the key roles: the developers of projects, and
the governments of Alberta and Canada.

The Private-sector Commercial Developer

Owners and operators of production facilities and pilot projects have nine princi-
pal objectives, which are shared by equity owners, debt-holders, and goods and
service providers in the value-added chain.

0 To reduce supply costs and maintain competitiveness through pro?table
investment in research and development of new technology.

0 To obtain ?scal terms from the government that are profit-sensitive, create a
robust and fair economic regime in all circumstances and divide the wealth
created, commensurate with the respective contributions of the parties.

0 To provide shareholders and investors with wealth creation and an attractive
return on investment.

The Oil Sands: New Vision for (Imuulu

 

 

To achieve appropriate sharing of risk and reward amongst the principal stake-
holders (investors, customers, employees, Aboriginal People, and northern
Alberta communities.)

To conduct environmentally?sustainable and socially-responsible development.

To expand current markets and develop new customers for bitumen, upgraded
crude oil and other co-products and by-products.

To maximize the economic return from the existing infrastructure.

To commercialize experimental pilot projects, or to expand and extend existing
commercial plants.

To optimize product value-added and to develop synergistic industries.

The Province of Alberta

The province has ownership and jurisdiction over the resource; it also has respon-
sibility for broad economic and social development, and for environmental pro-
tection. Its principal goals are:

To catalyze accelerated development of the oil sands both on the merits of its
market and to help offset possible decline in conventional crude oil produc-
tion.

To contribute to satisfying Canada?s future energy needs, as well as take advan-
tage of export opportunities.

To free the government from direct-investment participation in business.

To develop an important source of provincial tax and royalty revenues, eco-
nomic wealth and social benefit. This will contribute to the "Alberta
Advantage?.

To ensure environmental compliance and sustainable development.

To facilitate and support continuous research, development and commercial-
ization of science and technology that results in economic activity.

To encourage the commercialization of experimental and pilot projects, and the
expansion and extension of existing commercial plants.

To optimize value-added activity in Alberta, and to encourage the development
of the full potential range of mineral and energy co-products and by-products.

To reconcile jurisdictional overlap with the federal government in a cooperative
strategic alliance of responsibilities and resources.

 

 

The Government of Canada

The Federal government has a responsibility for national economic develop-
ment, for environmental sustainability, and for national energy security. It has
a direct financial stake in oil sands development through the federal tax system
and past financial backing of some projects. Some broad Federal government
goals are outlined below.

0 To encourage economic activity that increases national productivity, pro-
duces jobs, and generates federal revenues.

0 To ensure environmentally sustainable and sensitive development.

0 To support effective research and development of new technology within a
national science and technology strategy that encourages increased national
productivity and international competitiveness.

0 To capture optimum value-added activity in Canada.

 

 

The DH Sands: New Energy Vision for (junudzl

 

The Levers of Development

Turning Vision into reality will require money, time and commitment. In its mis-
sion to catalyze the vast economic potential of the Canadian oil sands, The
National Task Force on Oil Sands Strategies concentrated on removing impedi-
ments to progress and growth. The result was the identi?cation of capabilities 
tools to be employed in expansion strategies. Central among these are levers of
development. In addition, there are important strategic resources and competitive
advantages to be deployed.

    

The Levers of Development 
The Task Force identi?ed eight levers for optimum oil sands development during The oil sands industry is a high
the next 25 to 30 years. technology, knowledge-based industry,

. . . . . usin some of the most advanced
0 A market-driven sc1ence and technology 1nnovat10n system that results in sus- 

t'
tainable development, lower supply costs, and technology transfer. an? ac unng an orma Ion

technologies available.
0 New generic, competitive and certain ?scal terms.

0 Diverse, internationally-based capital ?nance formation.
0 Sustainable development and environmental compliance.

0 Aggressive national and international marketing for bitumen, custom blends of
crude oil, and mineral and energy co-products and by-products, with equal
access to specialized, competitive markets, while acheiving economic supply
costs in accessing these markets.

0 A complete, ?exible ?all-market, all product? pipeline transportation system.

0 Fair, predictable, timely and competitive regulation, within a framework of bal-
anced public policy.

0 Informed, committed and supportive stakeholders.

1. Science and Technology

The oil sands industry is a high technology, knowledge-based industry, using some
of the most advanced manufacturing and information technologies available,
many of which were developed by the industry itself.

Investment in science and technology is a key economic lever for oil sands devel-
opment: it represents the "?nding cost" of the resource. New technology is the pri-
mary agent for expansion; it gives access to the resource base and adds value to pri-
mary production. It is the tool to reduce supply costs and capital inputs which is
the key to the Task Force?s goal of expanding the industry. It provides the tools of
continuous improvement needed for incremental growth. It will deliver the break-
throughs required for expansion.

 

 

 

Successful research and development is the best means within our control to make
the oil sands economic pie larger. It paves the way for investment in oil sands leas-
es, plant and facilities, transportation infrastructure and technology export.

With ?scal terms, it is the key lever for investment. It addresses the agenda for
environmental sustainability, and thus lays the groundwork for expeditious, fair
regulation and balanced public policy. It contributes to the advancement of the
transportation system and the creation of new markets

Technology development is central to any effort to increase economic efficien-
cy. The ability to produce the quality of products required by customers, at a
lower unit cost, is key to the success of the oil sands industry. With upwards of
$100 million annually being spent on this activity, science and technology has
helped the industry dramatically cut operating costs. Ten years ago, it cost 
$30.00 to produce a barrel of upgrade crude oil; today it costs $14.00 per
barrel (U.S. $10.00)

For mining operations, recent technological advances (such as large truck and
shovel equipment combined with hydrotransport systems) promise further
reductions in operating costs of the order of $2.00 per barrel. For in situ oper-
ations, technological advances are making it feasible to produce oil from lower
quality reserves.

The application of science and technology presents opportunities for reductions
in capital costs for future grassroots projects. The total supply costs (capital and
operating costs) for new oil sands production has dropped substantially over the
last two or three years, by about 25 percent. Continued work in science and
technology is required to further lower the economic threshold for new grass-
roots plants and to make replacement reserves available. The Task Force believes
that science and technology will be the lever to reduce operating costs for inte-
grated mining operations to $8-10.00 per barrel (U.S. 356?700) and total
supply costs to U.S. $15.00 by 2010.

An appendix, prepared by a working group of oil sands researchers, provides
detailed recommendations for the use of the science and technology lever (see
Appendix A: A Science and Technology Strategy for Canada?s Oil Sands Industry).
Here is a summary of the key messages for development of the science and
technology lever.

0 Expand the scope of oil sands research. Simultaneously pursue a suf?cient
number of high risk/high reward concepts while weeding out dead-ends at
the earliest possible stage.

0 Encourage patient (long-term, committed) research funding.

0 Conduct research using a collaborative alliance of resources and decisions,
based on a broad consensus, that directs funding to the most important
technology needs, including novel upgrading technologies. The oil sands is a
business culture that is based on strategic alliances.

0 A good innovation system will encourage productive competition between
researchers and centralize resources employed to ensure a critical mass of
new ideas.

The Oil Sands: New Energy Vision for (ianada

 

 

Encourage transfer of technologies developed outside of traditional oil sands
i.e. horizontal drilling.

Operate an "S?Curve? management system that incorporates the ?ve research
states: basic research, pre-competitive collaboration, tax credits, government
investment (small dollars, high risk); "proof of concept? research, tax credits, effec-
tive industry partnerships, lease access; Implementation (commercialization of
technological advances); Continuous improvement (diminishing returns); Step out
to the next S-Curve.

Maintain government participation in the early part of the S-Curve.
Government should remain involved with and continue to support basic
research, leaving commercialization of technology to industry.

Governments should maintain an attractive investment climate. Special
attention must be given to a science and technology policy for Canada?s oil
sands. If the research is not done in Canada, it will not get done as the oil sands
are physically located in Canada.

Develop a comprehensive agenda of sustainable development, incorpo-
rating primary production, all aspects of transportation and re?ning, the
search for new products, all synergistic industries, and all co-products and by-
products.

2. Fiscal Terms

The current ?scal regime of combined royalty and tax treatment has been iden-
ti?ed by the industrial members of the Task Force as an impediment to new invest-
ment in the scale and of the scope needed to achieve the full potential of the
resource.

A study by a National Task Force working group of ?scal experts from industry and
government produced a detailed study as an appendix to this report (see Appendix
C: A Recommended Fiscal Regime for Canada?s Oil Sands Industry). It says:

The ?scal framework should allow the industry to expand incrementally.

The terms should be generic, stable, consistent and level the playing ?eld for
investors developing in situ or integrated plants.

The framework should maximize economic ef?ciency, minimize ?scal distor-
tion and be robust over a wide range of prices and in?ation rates.

It should encourage growth in domestic value-added production.

It would provide a balanced share of economic pro?t to governments. The
terms would exclude grants, loans or subsidies; only projects that are funda-
mentally economic should proceed.

  

?e

The current fiscal regime of combined
royalty and tax treatment has been
identified by the industrial members
of the Task Force as an impediment
to new investment in the scale and of
the scope needed to achieve the full

potential of the resource.

 

 

 

     

 

we

Oil sands projects should target the
best capital sources: banks, public debt
and equity markets, private sources,
insurance, mutual and pension funds,

and other sources of financing.

The ?scal system recommended by the industry members of the Task Force is a
combined tax and royalty system that resembles what is known in the jargon as
a pure resource rent tax. The recommended system incorporates the following
combination of key mechanisms.

0 Tax: immediate write-off of all capital; normal 25 percent resource allowance.*

0 Royalty: no gross royalty; net royalty after recovery of costs; no uplifts on oper-
ating and capital costs; interest allowance on costs carried forward indexed to the
long term bond rate; no royalty free natural gas (for processing).

3. Capital Formation

One of the outcomes of a successful ?scal regime is a better ?ow of capital. While
this is a necessary precursor of the aggressive capital formation that will be
required if the Canadian Oil Sands Strategy is to meet its goals, it is not a suf?cient
condition. Oil sands projects need to have inherently good economics in order to
attract capital investment.

The oil sands has a distinctive risk pro?le, and assessment of risk is fundamental
to the in?ux of investment required. The oil sands are capital intensive and invest-
ment requires patient money because there is a long delay between initial project
expenditures and the ?rst cash ?ows. It also takes a considerable time to reach pay-
out; anticipated payout schedules are prone to delay because the risk on oil sands
projects tends to be at the front end.

The risks include construction cost risk, technology risk, environmental risk, man-
agement risk, the risks inherent in gaining regulatory approval, and commodity
price and market risk. Good commercial arrangements for supply, procurement of
materials and services, infrastructure support, transportation requirements, mar-
ket factors, price determinants, competitive forces and regulatory, legislative and
?scal terms are essential to attract new investment capital.

Oil sands project proponents must better understand what lenders and investors
look for in terms of acceptable investment. Based on this understanding, they can
con?gure a project and its economic and commercial underpinnings to source
?nancing in the marketplace.

Oil sands projects should target the best capital sources: banks, public debt and
equity markets, private sources, insurance, mutual and pension funds, and other
sources of ?nancing.

 

At the time of writing this report, the resource allowance was considered a stable feature of the system
that applied to the entire resource sector. In that context, the Task Force believed there was not sufficient
incentive to recommend modifications of this feature. As the report was going to print, the Government
of Canada initiated a review of the resources allowance. Should the resource allowance be reformed, the
Task Force believes an oil sands tax and royalty system can be designed taking into account revisions
while retaining the principles and economic objectives of the Task Force recommendation.

The Oil Sands: New Energy \r?isirm for (igmada

 

 

4. Sustainable Development/ Environmental Excellence

Oil sands development creates large-scale, complex changes to the environment.
Mitigation is an essential ingredient of development. The regulators and public
interest bodies have made it clear they expect more than compliance sustain-
ability is to be a primary value and activity of the industry.

An appendix to this report was prepared by a working group to present a detailed
agenda of environmental and regulatory issues, achievements, challenges and
strategies for mining and extraction, upgrading and in situ operations (see
Appendix B: Securing a Sustainable Future for Canada?s Oil Sands Industry). The fol-
lowing is a summary of the major environmental opportunities and challenges.

  

Atmospheric Emissions and Air Quality ?5

Sulphur emissions and odours have been the principal concerns to date. There is no C02 emissions have been reduced up to
evidence of signi?cant acid rain damage. Moreover, new upgrading technologies 35 percent per unit of production over
have resulted in no increase in 502 emissions while production of upgraded crude oil the past decade, and are being further
rose by 25 percent in the mid-eighties. reduced through energy efficiency

'n ts cl t' act' .
emissions in northeastern Alberta will be reduced by 35-40 percent overall over I ves men an Opera mg pr Ices

the next two years, due to additional environmental investments. While stack emis-
sions are being reduced further, there are possible retro?t opportunities for $02 and
reductions being pursued. The industry is a leader in Canada?s voluntary
approach to achieving internationally agreed upon targets.

Odour control has been continuously improved, particularly the introduction of
technology that eliminated the release of most light hydrocarbons into tailings
areas. Fugitive emissions from processes were reduced and technologies are being
installed for continuous control of odours.

Measures that lower the amount of energy inputs have also reduced and CO2
emissions. C02 emissions have been reduced up to 35 percent per unit of produc-
tion over the past decade, and are being further reduced through energy ef?cien-
cy investments and operating practices. The capture of the remaining emissions
represents a signi?cant by-product value-added opportunity for the industry.

Water Use and Water Quality

With respect to surface mining and upgrading at Athabasca, the Athabasca River
shows essentially no degradation from existing water use and discharge due to oil
sands operation. However, the existing large tailings ponds are toxic to some
marine organisms. Current research indicates a high probability of reclaiming tail-
ings ponds to a non-toxic conditions over a much shorter period.

With respect to in situ bitumen extraction, water management is the main envi-
ronmental challenge for steam-driven processes. The principal current technology
for in situ extraction uses steam to heat the bitumen and mobilize it toward well-
bores from which it is pumped to surface. The process requires seven barrels of
replacement water for each ten barrels of bitumen removed from the reservoir.

 

 

 

   

y.

The oil sands industry has many
examples of reclamation returning
land to a regional ecology more

diverse than originally existed.

Technological development has resulted in a dramatic reduction in water require-
ments through water reuse; as much as 95 percent of the water produced along
with the oil is treated and recycled in commercial projects.

Continuous improvements in water sourcing have been achieved since develop-
ment began. For example, the industry is using brackish water (non-potable saline
water) as a make-up water source for its operations. Water supply and manage-
ment protocols will continue to meet sustainable environmental standards that
have little or no impact on the local water environment.

Land Surface Disturbance and Reclamation

Surface mining of oil sands for bitumen extraction and upgrading to light crude is
the most visible of the environmental impacts generated by the oil sands industry.
Each day more than two million tonnes of overburden from mining, and oil sand
tailings from extraction are moved by and Suncor. This is in the order of
ten times more than the solids movement in all Canadian coal mining. Whenever
temporary environmental disturbance is unavoidable, as in mining, the commit-
ment is to return the land to a stable, biologically self-sustaining state as produc-
tive, if not more so, than it was before development.

These environmental initiatives are well into the implementation stage. The oil
sands industry has many examples of reclamation returning land to a regional ecol-
ogy more diverse than originally existed. In the case of oil sands mining operations,
the objective is to establish permanent, self-supporting natural communities of
plants and animals. The vision for the land being reclaimed includes a combination
of gentle forested slopes, thriving lakes and ponds for aquatic species, wetland areas
for nesting waterfowl, and grassy meadows for native grazing animals such as wood
bison, deer and moose.

As tailings ponds become smaller and more-selective, the size of the disturbed
area at any one time, per unit of production is dramatically reduced and pond
reclamation is simpli?ed. Several effective and environmentally acceptable
reclamation techniques have recently been demonstrated in field trials and will
move to commercial application over the next year. These will see the tailing
ponds integrated into the final reclaimed landscape in an environmentally
sound and economically feasible basis.

The surface disturbance for oil sands production is also greatly reduced through
in silu production methods Where deposits are deep enough for this to be practical.
Vertical wells drilled from pads in clusters of up to 30 wells use little land for devel-
opment. Total land disturbance for wells, roads, and central processing facilities rep-
resents only one percent of the land base. Nevertheless, efforts are underway to fur-
ther reduce land disturbance by in situ operations.

The Oil Sands: New lincrg)? \"isinn for (Xanadu

 

 

5. Market Development

Recently, the North American markets for oil sands bitumen and upgraded crude
oil have grown rapidly. Re?ners in the interior of the continent have expanded
their capacity to process lower-cost heavy oil and bitumen because of declining
indigenous conventional supply and the rising transportation costs of imports.
Recent modi?cations to their facilities to meet more stringent transportation fuel
speci?cations have resulted in simultaneous modi?cations to process increasingly
sour and heavy crudes, because of the addition of hydrotreating technology.

Upgraded crude oil from the oil sands has found a niche in re?neries with limited
sulphur and residuum processing capacity. Bitumen blend is sold in competition
with other heavy oils in specialized markets. Upgrading or asphalt manufacturing
facilities are required to process the product economically. Primary markets for
bitumen blend are in Canada and the northern U.S.

Nevertheless, oil sands production faces a tough competitive environment in the
future. An appendix to this report discusses market challenges and opportunities
in detail (see Appendix D: Marketing Opportunities and Challenges for Canada?s Oil
Sands Indushy).

The principle opportunity for domestic and export sales of oil sands crude is to
North American re?neries, where there has been an increased capability of run-
ning larger volumes of heavy and sour crudes. Future market development might
take the form of petroleum products or petrochemicals, resulting in additional
facilities similar to those found in Fort Saskatchewan, provided these products can
economically compete.

Domestically, the major opportunity is the shift to larger runs of oil sands feed-
stocks in Canadian re?neries, particularly in the west but also in some eastern
Canadian re?neries, such as Suncor?s Sarnia re?nery which is equipped to use
upgraded light crude oil. A parallel and related opportunity may be the produc-
tion, in Alberta re?neries, of re?ned petroleum products.

Export Markets

A secondary export market for both bitumen blends and upgraded crude exists on
the Paci?c Rim. Very small volumes of bitumen have been moved, on an occa-
sional basis, to re?neries in Korea and Japan, as a swing supply. In the future, if
these lower netback markets provide economic sales opportunities, they will offer
the Canadian oil sands industry an upgrading opportunity, in that lower produc-
er netbacks could translate into increased margins for upgraders.

Market expansion in Asia would also be assisted if the value of the oil sands was
more aggressively promoted through an unequivocal open-export policy. In 1993,
the National Energy Board initiated a review of the export of oil sands production,
although Virtually all exports are currently effectively unregulated because they
occur under one-month contracts. It noted during the review, ?investors requiring
longer term certainty with respect to their ability to dispose of oil sands produc-
tion in export markets must obtain a long term license."

  

we

The principle opportunity for domestic
and export sales of oil sands crude is
to North American refineries, where
there has been an increased capability
of running larger volumes of heavy

and sour crudes.

 

 

 

 

The oil sands industry made it very
clear, during the National Energy
Board?s review, that large scale
investment to realize the maximum
development of the oil sands will be
seriously impeded unless the industry
is assured of unrestricted access to

foreign markets.

The oil sands industry made it very clear, during the National Energy Board?s
review, that large scale investment to realize the maximum development of the oil
sands will be seriously impeded unless the industry is assured of unrestricted
access to foreign markets. Certainly, when the production growth potential out-
lined in this report is fully realized, traditional markets for Canadian bitumen
could be saturated, necessitating exports to secondary markets or the develop-
ment of more upgrading capacity in Canada.

Transportation Fuels From Bitumen

The upgrading of light crude oil from bitumen depends on meeting marketing
challenges in the future as transportation fuel formulations change to meet new
clean air-environmental regulations. It is highly unlikely that fossil fuels will be
displaced as the principle source of automobile, aircraft, ship, and train fuel with-
in the next 50 years. It is more likely that new step?change technology will be
developed, mitigating the environmental impact and fuel costs through emissions
reduction and higher fuel ef?ciencies.

As transportation fuel formulations change, upgraders will have to meet new mar-
ket speci?cations for re?nery feed stocks, and this will become an important oil
sands research task. Upgraded oil sands crude has an important advantage over
?unprocessed? crude feedstocks as processing allows it to be tailor-made, or cus-
tomized, to meet changing and more demanding re?ning speci?cations.

6. Pipeline Transportation

Canadian bitumen and upgraded crude have competitive access to major markets
in Canada and the United States through existing pipeline networks. This infra-
structure will have to be expanded to provide unapportioned access to markets
and to reach additional markets, depending on the rate and timing of increased
oil sands shipments and changes in the transportation requirements of heavy and
conventional oil producers. Constraints exist in the local and regional gathering
and shipment of un?nished and ?nished product, and processing inputs, because
of pipeline limitations. More information on pipeline transportation systems is
available in Appendix D: Marketing Opportunities and Challenges for Canada?s Oil
Sands Industry.

Three types of pipeline expansion and development are required to remove trans-
portation impediments.

0 Long distance bitumen, oil sands light crude and transportation fuel pipelines to
transport oil sands-based liquids production to markets in Canada and the US.

0 Regional reversible product pipelines to transport bitumen and upgraded crude
between production sites and upgraders and re?neries at other locations.

0 Local gathering systems to transport oil sands slurry or froth or bitumen from
satellite mines and in situ plants to upgraders.

The Oil Sands: New Vision for Canada

 

 

Long Distance Pipelines

The current pipelines to ship bitumen and upgraded crude to markets in Canada
and the US. were originally developed for conventional oil. As such, the trans?
portation infrastructure is largely in place and provides a signi?cant competitive
advantage in terms of market access to future Western Canadian oil sands-based
bitumen production.

As bitumen and upgraded crude blend volumes increase, it will be necessary to
ensure that unrestricted access to the most pro?table markets is available. Ideally,
the marketplace should determine pipeline capacity requirements, depending on
the rate of decline of conventional oil, crude demands in the primary markets of
Canada and the northern U.S., and market growth opportunities.

Current capacity on the Interprovincial Pipeline (IPL) system is insuf?cient to meet
the requirements of all the crude that would ideally access markets east of the
Prairies. As bitumen and upgraded crude oil volumes grow, it may be necessary to
expand further, if conventional production declines more slowly than forecast.

In the Rocky Mountain area of the US. (PADD IV), demand for Canadian heavy
oil and bitumen is expected to grow as indigenous heavy production in the
Wyoming area declines. As this occurs, expansion of pipeline capacity south from
Edmonton and/or Hardisty will be necessary, particularly if attractive markets for
upgraded crude oil in Salt Lake City or Denver materialize.

Re?nery shutdowns in Vancouver will result in more petroleum product ship-
ments from Edmonton through the Transmountain Pipeline (TMPL) system.
Expansion will be necessary if it becomes attractive to export large volumes of bitu-
men blends or upgraded crude off the West Coast or into the US. Paci?c Northwest
or California markets.

As oil sands production increases, it may also be necessary to expand pipeline
capacity from traditional markets in the south of Chicago area (PADD 11) into the
Wood River market.

Regional Reversible Pipelines

Regional pipelines currently exist from the Athabasca, Cold Lake and Peace River
areas into Edmonton. These may need to be expanded, reversed (or made
reversible), depending on volume growth, future market locations, and locations
of possible new upgraders.

Pipelines from the Athabasca deposit currently ship only upgraded crude oil to
Edmonton. Growth of bitumen production in this area will have access to the two
existing upgraders. Independent bitumen producers will, however, have strong
motivation to develop alternate markets to ensure they are able to sell their pro-
duction at competitive prices. As a result, as their production rates increase they
will require a bitumen blend or ?black oil?) pipeline from the Fort McMurray area
to Edmonton.

 

The transportation infrastructure is
largely in place and provides a significant
competitive advantage in terms of mar-
ket access to future Western Canadian oil
sands-based bitumen production.

 

 

 



To achieve the potential of the oil
sands, shorter, more cost-effective
regulatory processes are required.

This includes procedures that substitute
cooperation to resolve conflicting inter-
ests in place of the current, adversarial

processes.

 
   

Oil sands communities and the public
at large must see the environmental
and economic benefits of the industry
so that they will lend their support to
public decisions that allow it to grow

and prosper.

The development of the "intra-industry? regional transportation system is most
likely to proceed in manageable portions, drawing investment from a combina-
tion of existing pipeline companies, the bitumen and upgraded crude oil produc-
ers, and other third parties.

Gathering Systems

The ?rst satellite mines for bitumen supply for the major integrated upgraders at
Suncor and are just reaching the development stage. This has been made
possible by hydrotransport technology, which has been successfully demonstrat-
ed on a commercial scale at It is likely to change oil sands mining
con?gurations in the future as well as open up new opportunities. Regional
pipelines from the Cold Lake and Peace River areas, to the existing upgraders in
Fort McMurray, would increase the diversity of supply to these operations.

7. Regulation

Governments can ensure the regulatory system is harmonious, ef?cient, fair and
science-based. To achieve the potential of the oil sands, shorter, more cost-effec-
tive regulatory processes are required. This includes procedures that substitute
cooperation to resolve con?icting interests in place of the current, adversarial
processes. Regulatory issues are dealt with in detail in Appendix B: Securing a
Sustainable Future for Canada?s Oil Sands Industry.

The oil sands industry needs a predictable, science-based, regulatory approval
process from the governments involved in this policy process, including a com-
mitment to assess the economic impacts and costs of proposed changes in envi-
ronmental legislation. Industry has an obligation to conduct development in an
environmentally-sustainable fashion. Government has a corollary obligation to
conduct environmental policy in an economically-sustainable fashion.

8. Informed and Supportive Stakeholders

As the oil sands sector creates wealth for its stakeholders, it needs to ensure that
it has their support. Investors must understand the unique attributes of the busi-
ness, and the potential rewards. The private owners and operators of facilities
must have reason to persevere with their investments. Governments and regu-
lators must see the bene?t of even-handed, science-based decisions that inte-
grate economic priorities.

Oil sands communities and the public at large must see the environmental and
economic bene?ts of the industry so that they will lend their support to public
decisions that allow it to grow and prosper. The oil sands industry must work as
hard at informing the stakeholders and shaping their understanding as it does at
market analysis, supply cost reduction and capital formation.

Another essential element is the direct participation of Aboriginal communities,
to ensure their interest in the land is protected, and their in?uence on the regula-
tory process is effective.

 

The Oil Sands: New lincrg)? Vision for Iunudu

 

The Canadian Oil Sands Strategy

The Canadian Oil Sands Strategy is a single, seamless 25-year action plan com-
prehensive, cohesive, consensus-based, exhaustive to assemble the strategic
resources, development levers and competitive advantages of the oil sands-based
industry. The purpose is the maximum development of productivity and wealth
from the 300 billion barrels of potentially recoverable petroleum, and to increase
access to a vast additional resource base which, in human terms, is Virtually inex-
haustible.

The quantifiable target, for the next 25 years, is to increase daily production capac-
ity by two to three times, to reach 800,000 to 1.2 million barrels per day of bitu-
men and upgraded crude oil. In qualitative terms, the objective is a new Canadian
industrial mosaic founded on bitumen and upgraded crude oil.

The value-added chain could expand to incorporate a larger and more complex
range of co-product and by-product industries including ?over the fence? sup-
ply of process aids, secondary resource recovery, upgrading and custom refin-
ing, private and public science, technology and training establishments, new
infrastructure, services and transportation. Also included Will be the govern-
mental, regulatory, financial, administrative and managerial capabilities of the
large cities in the province.

New players, large and small, will be encouraged to diversify industry ownership
and operation, building on the of existing integrated plants, and captur-
ing the entrepreneurial energy of desegregated and decentralized additions to the
present productive capacity.

The Task Force strategy is ?exible and will be adapted and amended, as time goes
by, to provide a continuing catalyst for the development of a unique and invalu-
able resource. This chapter outlines the key assumptions made, the guiding prin-
ciples behind the plan, the key stratagems developed, and the prize to be won if
the strategy succeeds. Chapter 7, The Blueprint, postulates how the strategy could
be applied over the next 25 years to achieve the objectives.

Strategic Assumptions

The Task Force made some assumptions about external and internal factors sur-
rounding development.

0 Fossil fuel energy will remain a major driving force in the world?s economy in
the ?rst half of the 21st century, particularly for transportation industries.

0 The growth in the commodity price of conventional crude oil will remain ?at
at about $25.00 in years to come.

0 Research and development will deliver a suite of technologies that will
reduce supply costs, capital inputs, and improve efficiency and sustainable
development.

 

The Task Force strategy is flexible
and will be adapted and amended,
as time goes by, to provide a contin-
uing catalyst for the development of
a unique and invaluable resource.

 

 

0 The export of bitumen, crude oil and transportation fuels to the United
States and other parts of the world will be free from restrictive government
regulations.

Strategic Principles

The strategies relied on guiding principles which support the goal of orderly devel-
opment and growth.

0 The industry will be private sector-driven; and government grants, subsidies
and ?nancial guarantees will not be required.

0 Supply costs will be reduced through the application of science and technology
and continuous improvement throughout the oil sands industrial mosaic.

- Operators will minimize environmental impact and maximize sustainability.

0 The industry will increase production and new products will be developed to
meet market demand (including the development of new markets).

0 The industry will build on existing and maximum utilization will be
made of existing plant, human capital, goodwill capital, positional capital and
the natural resource.

0 Investment from all potential sources will be encouraged, with no barriers to
foreigners who wish to participate in that investment.

   

Strategies
The size, scale and potential of the 1. Maintain a permanent, formal collaborative alliance of stakeholders in the oil
oil sands makes it a complex national sands industry with a maximum of coordination and cooperation to achieve
resource. Its development will take common goals and common benefits. This will require an ongoing commit-
place in an extremely competitive ment and representation at the highest level from all stakeholders.

world, and there is no assurance that . . . .
The 512e, scale and potentlal of the 011 sands makes it a complex natlonal

resource. Its development will take place in an extremely competitive world,
and there is no assurance that its potential can be achieved without coordi-
nated, cooperative effort. It will require that the stakeholders rede?ne compe-
tition and competitive advantage and separate their business activities into
pre-competitive and competitive elements, and gain individual corporate
advantage through excellence.

its potential can be achieved without
coordinated, cooperative effort.

The template for this alliance is to be found in the development of strategic
cooperation in science and technology through the Canadian Oil Sands
Network for Research And Development (CONRAD). In practice, formal strate-
gic collaboration would function in a series of such speci?c-focus enterprises

The oil sands "universe" is a Canadian-based international network of private
business and financial interests, including producers, service and supply busi-
nesses, value-added businesses, customers, governments, public

 

The Oil Sands: New linergy Vision for (janada

 

 

institutions and regulators. The universe also includes oil sands communities,
Aboriginal interests, and professionals, entrepreneurs and investors who wish
to enter the sector.

Each has distinctive roles, responsibilities and rewards. Each is relied upon by
others, and has an obligation to support and sustain the industry, if it is to
grow and develop to its full potential. Enlightened self?interest forms part of
a collective common interest, and provides the basis for alliances that coor- 
dinate the gathering and application of resources and decisions to execute 
this strategy.

  

Expansion and growth will be

2. Manage development within two strategic envelopes: the ?rst for progressive achieved in small-scale increments
incremental growth; the second for based on technological step-outs. of each element necessary to the
The distinction between the two modes of will enable a more rational production of bitumen and upgraded
allocation of resources and determination of risk and reward. Activity in two crude oil. Grassroots growth will be
envelopes will be parallel, co-ordinated and interactive, and most probably will achieved by technological step-outs,
occur in logical, economical and affordable stages. permanent price improvements

th.
Within the incremental envelope, expansion and growth will be achieved in an /Or very arge mar grow

small-scale increments of each element necessary to the production of bitu-
men and upgraded crude oil and its marketing, transportation and infra?
structure. The economics of the incremental-growth envelope are driven by
quality improvements, supply cost reductions that maximize productivity of
existing plant and production facilities and lower capital inputs.
Investments in this envelope can commence almost immediately, as many
opportunities are now within economic reach.

Grassroots growth will be achieved by technological step-outs, permanent price
improvements and/or very large market growth. Immediate activities within
this envelope will be in research and development, to produce the lower sup?
ply costs which are ultimately needed to realize this vision. is also the only
variable within industry control.

3. One of the of the industry is the success of existing integrated opera-
tions, and these should be preserved. They can be complemented, however, by
the diversification of the ownership and operation of new production and
value-added facilities. Specialty contractors can be encouraged to take on an
ever-increasing role in all aspects of the business.

4. Ensure that Aboriginal communities in the region fully develop economic par-
ticipation opportunities, including investment and development of new busi-
nesses and career training, development and employment in the industry.

5. Capture, hold and expand market share for bitumen, heavy oil and upgraded
crude oil.

6. Develop additional transportation systems in response to market growth.
Develop a network of pipelines and storage facilities in Alberta and to external
markets to expedite movement of heavy oil and bitumen from the producing
fields to processing facilities, and to markets.

 

 

7. Develop a new generation of bitumen upgraders that are integrated upgrading
units and re?neries producing oil sands crude, premium crude blends, petro-
chemical feedstocks, and transportation fuels, as the markets for heavy oil and

The industry must develop an active bitumen become saturated, and provided that these facilities can provide

and on-going program to change attractive margins in the regional, continental and international context.

outdated perceptions of the oil sands

 

8. Develop an active and on-going program to change outdated perceptions of
the oil sands industrial sector, to create an informed, supportive public and
to ensure that governments, energy markets and investors understand the
value and potential of the oil sands in the Western Canadian Sedimentary
Basin.

and create an informed, supportive
public that understands the value
and potential of the oil sands.

9. Encourage and nurture the development of synergistic and complementary
by-product industries, such as coke, sulphur and hydrogen and technology
sales; initiate the production of co-products such as minerals.

10. Develop a network of hydrogen production, transportation and storage facili-
ties in Alberta to provide over-the-fence supplies of hydrogen from the pro-
ducers in the Fort Saskatchewan area, and elsewhere in the province, to the
new generation of upgraders and upgrader/re?neries.

11. Investigate the integration into this strategy of heavy oil production, upgrad-
ing, transportation, and marketing from the Canadian Western Sedimentary
Basin.

 

 

The Oil Sands: New Vision for (Ianadu

 

Creating Wealth for Canada

The objective of the Canadian Oil Sands Strategy is to create maximum net wealth
and employment from energy and mineral resources in the oil sands. There are sev-
eral centres of wealth creation.

0 All aspects of primary production, processing and upgrading: engineering, con-
struction and operation of mines, processors, upgraders and in situ facilities.

0 Technology development, commercialization and transfer.
0 Product transportation and storage
0 Supply of energy and processing materials

0 The construction and operation of infrastructure: roads, airports, homes, util-
ities and amenities

0 Other synergistic industries and the production of by-products and co-
products.

0 The development of financial institutions, administrative organizations and
systems.

0 The operation of educational systems and workforce training and development
programs.

0 The re-investment of pro?ts in oil sands or other activities elsewhere in the
economy. 

0 The economic gain, for all customers, from a reliable, preferred source of
energy.

The out?ow of money from oil sands activities creates wealth in the form of com-
munity and social development and cultural enrichment.

Direct Benefits

Why bother with increased oil sands development? Simply put, it will create addi-
tional employment opportunities and new prosperity unmatched any business
opportunity in Canada.

For Canada, the timely expansion and extension of the oil sands sector will
strengthen the nation economically and enhance the benefits of nationhood at a
critical historical period. A study conducted by Informetrica, and available as an
appendix to this report, documents in detail the impact of an ?inside the fence?
investment of $21 billion to increase production to a range of 800,000 to 1.2 mil-
lion barrels per day (see Appendix E: Macro-Economic Bene?ts of an Expanded
Canadian Oil Sands Industry). The following direct bene?ts can be expected in the
next 25 years.

0 Construction and operation of the oil sands would add more than one million
person-years of employment over the period 1995-2025. Much of the employ-
ment would accrue to small- and medium-sized businesses throughout Canada.

 

For Canada, the timely expansion and
extension of the oil sands sector will
strengthen the nation economically

and enhance the benefits of nationhood

at a critical historical period.

 

 

- The new oil sands facilities would create 12,000 permanent jobs across Canada
by the late 19905, 27,000 by 2010, and 44,000 by 2020.

0 40 percent of the employment gains would be created in Alberta. New
employment in Alberta would go up by about 3,600 in the first year of
increased activity, and by 17,000 by 2020.

0 The remaining employment gains would be concentrated mainly in Ontario
and Quebec, whose economies are expected to supply the direct and indirect
machinery and equipment needs.

0 Increased operating expenditures of $4 billion a year by the industry, mostly
spent in Canada.

0 A larger real economy for Canada with an increase in GDP growth of 0.6 per-
cent, directly attributable to the growth of the oil sands.

0 The additions to output, employment, private incomes, and government rev-
enues would be widespread and enduring across the country. Alberta?s GDP
would expand by ?ve percent by 2020.

0 The strong income-generating benefits of producing a high value-added prod-
uct would trigger quick and widespread new employment through consumer
spending and investment by industries not directly related to oil sands.

0 Over time 85 percent of the new jobs would be created in the manufacturing,
?nancial, service and other sectors, with the remaining 15 percent concentrat-
ed in the oil and gas and construction sectors.

0 Government revenues will increase through taxes and royalties, along
with a reduction in expenditures and debt interest. The impact will be $97
billion ($1994).

0 The Federal govemment?s balance would improve by $58 billion and the
provinces? balances would improve by $39 billion, of which approximately
$34 billion would accrue to Alberta.

0 The indirect and induced economic effects of oil sands development would
more than offset modest declines in government revenues during the late
19903 when the oil sands producers, as per the Task Force?s proposed generic
fiscal regime, would generate small tax and royalty losses prior to production.
Between 1995 and 1999, cumulative federal and provincial government
direct, indirect and induced revenues would improve by approximately $680
million nominal).

0 Substitution of domestically-produced oil (or equivalent increased exports) and
reduced interest payments, particularly to foreigners, would lead to a $106 bil-
lion ($1994) improvement in Canada?s current account balance between 1995
and 2025. There would be a signi?cant reduction in foreign borrowing.

 

The Oil Sands: New Energy Vision for (lanada

 

 

Macro Benefits

Impact assessments are limited because they evaluate project-by-project only, and
are usually limited to the impact of ?inside the fence? spending. In the case of the
direct bene?ts cited in this report, not measured are the bene?ts of spending on
infrastructure, transportation systems and re?neries which may reach
an additional $10 to $15 billion above the $21 billion evaluated here.

To fully appreciate the impact of the oil sands on the Canadian economy, one
could include:

0 The bene?t of an estimated $50 billion in as?spent expenditures.
0 The future benefit of technology transfer and pro?t reinvestment.

0 The value of equity appreciation and of goodwill and plant-in-place capital
values

0 The value of investment in an underutilized economy. The next round of oil
sands investment will proceed in steady, sustainable, economic steps over
the next 25 years, adding jobs and wealth to the communities in which the
industry operates.

More social wealth is created when development goes ahead in an economy that
is not fully employed. As these improvements strengthen the economy, it is inter-
esting to note that a stronger economy makes social improvements more afford-
able; the ripple effect will be ramped up by the very economic momentum creat-
ed by the initial investment.

Micro Impacts

Oil sands development has had, and will continue to have, a significant
beneficial impact on the development of local communities including the
Aboriginal People of the Athabasca, Cold Lake and Peace River areas, small busi-
nesses service projects development and operations and specific engineering
and technology sectors.

The development of Fort McMurray in the past 50 years from an isolated fur-trad-
ing fort to a modern urban community of 35,000 people, 1,200 small businesses
and a regional base of an additional 6,000 people, is almost entirely due to the oil
sands industry. Similar communities have emerged at other oil sands centres,
including Cold Lake, Bonnyville, Grand Centre and Peace River, with a combined
total small business base of 3,500 companies.

The infrastructure for all of Northern Alberta, including highways, secondary
roads, parks and recreational facilities, has ?ourished because of oil sands develop-
ment, with the result that a new tourism industry has been nurtured, and devel-
opment of other non-renewable natural resources encouraged.

 

The next round of oil sands investment
will proceed in steady, sustainable,
economic steps over the next 25 years,
adding jobs and wealth to the
communities in which the

industry operates.

 

 

 

 

  

The engineering, technical and
manufacturing base that develops
around the oil sands also serves
other industries and can often
export its knowledge. This base
must be preserved and nurtured
because it is a distinct competitive
advantage for Canadian economic
development.

The Aboriginal communities whose traditional homes are in the oil sands areas
have played a significant role in the economic development of the oil sands. In
the Fort McMurray area, Aboriginal People and First Nations annually receive
direct employment benefits of $23 million. Aboriginal-owned businesses have
enjoyed sustained growth, and the annual value of their contracts is now in the
range of $40 million.

Equally important, Aboriginal employment and business opportunities have
been deveIOped at Cold Lake and Peace River. Aboriginal People now form an
essential and diversified part of the skilled workforce and a strategically-signifi-
cant part of the small business infrastructure that will support the goals set out
in this report.

Oil sands development requires major technical capacity and engages a wide
variety of disciplines. This creates a range of speci?cally-focused business oppor-
tunities for engineers, designers and technicians with skills in mining, extraction,
upgrading, refining, in situ oil drilling, thermal injection and bitumen recovery.

The engineering, technical and manufacturing base that develops around the oil
sands also serves other industries and can often export its knowledge. This base
must be preserved and nurtured because it is a distinct competitive advantage
for Canadian economic development.

The Energy Projects Engineering Contractors Association (EPECA) employed
more than 6,000 people in Alberta during the early 19805, as oil sands project
planning peaked. The number has now declined to 2,500. The technical
resources represented by those highly-skilled personnel can, however, be re-
mobilized.

When EPECA analyzed the bene?t of a $2 billion oil sands expansion project it
found that the direct and indirect monetary benefit would be $3.2 billion in
Alberta and $3.8 billion in the rest of Canada. The direct employment for engi-
neering, procurement and construction would be 8,869 person-years in Alberta
and 9,854 person-years in Canada. Total direct and indirect employment would
be 22,100 person-years in Alberta and 24, 783 person-years for the rest of Canada.
Significantly, the basis of this economic impact is the knowledge and expertise of
a small number of Canadian engineering and technology companies.

 

The Oil Sands: New lincrg)? Vision for (innudu

 

The Blueprint for Development

The success or failure of the Canadian Oil Sands Strategy will be determined in
the next quarter century a very short period in the way time is measured by
oil sands developers. This blueprint represents one possible scenario for the
next 25 years, in one of the largest concentrated and sustained resource indus-
try initiatives in Canada's history. The scenario calls for three overlapping
phases of development, each of 10 to 15 years and requiring in the range of
$20 to $25 billion ($1994) of capital. This does not include the capital for infra-
structure, and contingencies, which could easily require up to an additional
$10 billion ($1994).

The Threshold of Expansion

The blueprint includes investments already announced in early 1995 to raise
production at existing plants by 146,000 barrels per day, over 35 percent above
the current 400,000 barrels per day.

0 Amoco Canada will develop its Primrose bitumen deposit; yield will reach
40,000 barrels per day in ten years.

0 Imperial Oil has commenced a two-year, 30,000 barrels per day expansion of
its Cold Lake bitumen project.

0 Koch intends to increase production at its Lindbergh area project to 40,000
barrels per day.

- Solvex has applied for a 10,000 barrel per day project north of the existing
Athabasca operations.

- Suncor intends to increase production by 10,000 barrels per day and begin
mining a satellite lease.

0 intends to increase its upgraded crude oil production by 16,000 bar?
rels per day by the year 2000, through continuous improvement; additional
expansions are being evaluated.

Assumptions
This blueprint is based on two key assumptions.

1. Expansions and new projects will proceed without relying on rising oil prices
for economic Viability.

2. Technological step-outs will occur in cycles of 10 to 20 years.

 

This blueprint represents one possible
scenario for the next 25 years, in one
of the largest concentrated and sus-
tained resource industry initiatives

in Canada?s history.

 

 

 

The Blueprint: Phase One

The objectives of Phase One are to sustain the current productive capacity,
expand it in increments, supported by new transportation and storage facilities,
and to commercialize well-advanced new technologies.

Expansion of Existing Plants

Element One:

Element Two:

Element Three:

Element our:

Element Five:

Element Six:

Complete announced additions to upgrading capacity of exist-
ing integrated plants with reduced supply costs, and the produc-
tion of a broad slate of products tailored to meet the reformulat-
ed transportation fuels market.

Develop replacement bitumen supplies beyond the year 2000
for existing integrated plants new mines but no incremen-
tal growth), at the current level of 318,000 barrels of bitumen
per day.

Complete a reversible "black oil? transportation and storage
system to move bitumen from Athabasca (Fort McMurray)
to Edmonton/ Fort Saskatchewan. The reversibility of this line
makes Cold Lake and Peace River bitumen available as a feed-
stock to all existing upgraders in the province.

Complete as much as 265,000 barrels per day of new upgrad-
ing capacity to existing integrated oil sands plants, refineries
or upgraders, provided increments are economic on a full-
cycle basis.

Complete as much as 320,000 barrels per day of new bitumen
supply to support the expansion of upgrading capacity.
Expansion in Elements Four and Five should be integrated to
fully utilize the existing infrastructure.

Expand the reversible bitumen transportation and storage sys-
tems for bitumen supplies from Fort McMurray to Edmonton
to a capacity of 600,000 barrels per day of bitumen or 540,000
barrels per day of upgraded crude oil and transportation fuels.

In situ Bitumen Recovery

Element Seven:

Element Nine:

Complete announced capacity additions at Cold Lake (30,000
barrels per day) and develop Primrose (40,000 barrels per day).

Commence a 25-year development (in Phases One to Three) of
new and replacement bitumen capacity, through the expansion
of existing plants and the commercializing of pilot projects.

 

The Oil Sands: New Vision for (Tanadu

 

New Technologies

Element Ten: Commercialize horizontal well technologies, such as Steam
Assisted Gravity Drainage (SAGD) technology, as well as other
primary and secondary recovery technologies.

Element Eleven: Continue to develop the emulsion cracking technology, emul-
sion upgrading with high fines and other bitumen extraction
and upgrading methods that combine or eliminate costly steps
in current extraction and upgrading. Continue research and
development that will produce technologies to support later
grassroots expansion.

Phase Two

The objectives of Phase Two are to add upgrading capacity, supported by expand-
ed and/or new bitumen production facilities, transportation and storage systems;
and to conduct research and development that will produce technologies to sup-
port Phase Three grassroots expansion.

Element One: Build new upgrading capacity of from 40,000 to 110,000 barrels
per day of bitumen.

Element Two: Develop 48,000 to 132,000 barrels per day of new bitumen sup-
ply for the upgraders.

Element Three: Expand existing pipelines and build new ones towards develop-
ment of a transportation network to facilitate the free move-
ment of bitumen from Athabasca, Cold Lake and Peace River to
upgraders and markets outside Alberta.

Element Four: Give priority, in the innovation system, for research and devel-
opment of a suite of technologies that, in the last 10 to 15 years
of the blueprint can be used in integrated grassroots projects
with improved economies.

Element Five: Continue 25-year development of new and replacement bitu-
men capacity, through the expansion of existing plants and of
pilot projects.

Phase Three

The objectives of Phase Three are the development of new, grassroots bitumen
upgraders and bitumen refineries; new bitumen production facilities; and an
expanded bitumen pipeline transportation network and storage system.

Element One: Build a grassroots regional upgrader of 80,000 barrels per day
capacity, or a bitumen refinery of the same size.

Element wo: Develop 80,000 barrels per day of bitumen production capacity to
match the supply requirement for the new upgrader/re?nery.

 

 

Element Three: Expand the transportation and storage systems for the 80,000
barrels from the new production to the new upgrader and
markets.

Element Four: Expand the new upgrader in increments by up to 80,000 bar-
rels per day, with expansions of bitumen supply, transportation
and storage.

Element Five: Complete bitumen capacity additions, replacing 1995 levels of
125,000 barrels per day and adding up to 325,000 barrels per
day of new capacity.

Overview of Additional Facilities

In addition to the integrated plants, in situ facilities, refinery upgraders, trans-
portation systems and storage facilities enumerated, this blueprint entails the
development of the following:

0 Hydrogen production transportation and storage facilities for upgraders pro-
ducing hydrogen-rich transportation fuels

0 Additions to petrochemical facilities
0 Co-product and by-product facilities where markets warrant

0 Co-generation of electrical power with steam by-product for use at in situ
operations.

 

 

The DH Sands: New linerg)? Vision for ?Lmudu

 

Report Highlights

   

0 If all strategic thrusts achieve their goals, then Canadian oil sands-based 
bitumen and upgraded crude oil production might double or triple to
between 800,000 and 1.2 million barrels per day in the next 25 years, with Oil sands development will require
a direct investment of $20 to $25 billion. a new and unique made-in-Canada

0 By 2020, at the end of this stage of growth, the oil sands will have emerged conaboratwe an'ance 0f StakehOIders?

as a new resource industrial complex. It will incorporate a mosaic of primary
production, synergistic industries and infrastructure, complementary and
supplementary by-products and co-products, an innovative science and tech-
nology system, transportation and other infrastructure, an expanded capital
base, and sophisticated administration and management systems.

cooperating at a level not seen before
in this nation, with a well-articulated

vision.

The Case for Development

0 Aggressive oil sands development fits well with overall Canadian petroleum,
and energy requirements, is practical and achievable, is driven by the mar-
ket, can be economically successful and meets important public policy and
business development tests.

0 The consequence of delayed development or non-development will be to
leave a large resource commodity and potential source of wealth and job cre-
ation locked in the ground providing no value to anyone.

The New Development Paradigm

0 The industry will grow through staged, incremental, smaller-scale expansion
which would lead to multi-lease, multi-mine/extraction plants feeding large
central upgraders.

0 The objective of oil sands development will be a complete resource-based
industrial mosaic.

0 Oil sands development will require a new and unique made-in-Canada col-
laborative alliance of stakeholders, cooperating at a level not seen before in
this nation, with a well-articulated common vision.

Levers of Develpoment

0 Canadian oil sands development requires a market-driven, private-sector led
government-supported technology innovation system that results in
sustainable development, lower supply costs and capital inputs, and pro-
ductive technology transfers into and out of the oil sands sector.

0 Oil sands development requires generic, competitive and fair fiscal terms.
0 Oil sands development requires diverse capital formation.

0 Oil sands development must be environmentally sustainable.

 

 

 

 

Recommendations

History shows us that no single lever for oil sands development is suf?cient for
growth. All levers in?uence investment decisions. To illustrate this point, the suc-
cess of the science and technology lever is dependent on the success of other
levers such as the regulatory framework and ?scal regime, which are used strate-
gically to marshal and deploy resources and co-ordinate important decisions.
Consequently, the Task Force has developed a strategy for the oil sands that
involves action in all eight areas.

The Task Force presents its recommended actions as part of a co?ordinated plan to
foster industry ef?ciency and growth. Only in this fashion will Canada be able to
take advantage of the synergies that exist among the key levers to development.

Science and Technology

0 Investment in science and technology and collaborative research activities
through CONRAD and other partnerships should be expanded. The indus-
try will work with government and CONRAD to ensure that science and
technology priorities are industry?focused and industry-driven.

0 The emphasis in science and technology will focus on critical enabling tech-
nologies in mining and extraction, on enhancing in situ production, and on
upgrading and environmental protection.

0 Governments should continue to support pre-competitive research and devel-
opment via expanded industry-led collaborative research activities, under
CONRAD and other partnerships. Governments should maintain an attractive
investment climate for science and technology efforts in the oil sands.

Fiscal Terms

0 The Federal and Alberta governments (Finance Canada, Natural Resources
Canada, Alberta Treasury, and Alberta Energy) should develop a generic set
of harmonized tax and royalty measures based on economic profits. Such a
system will provide a consistent fiscal framework for all oil sands projects
and result in a balanced sharing of profits. These common fiscal terms are
necessary for the future development of Canada's oil sands.

Capital Formation

0 Oil sands proponents must better understand what lenders and investors
look for in terms of acceptable investment. Based on this understanding,
they can con?gure a project and its economic and commercial underpin-
nings to source financing in the marketplace.

0 Oil sands projects need to have inherent economics to attract a diverse port-
folio of capital investment.

 

'l he Oil Sands: New Vision for (languid

 

Sustainable Development/Enviromental Exellence

0 The industry must continue to invest in environmental 8: and must remain
on top of all new developments and trends and technology opportunities in the
environmental area, particularly in land use and reclamation, energy conserva-
tion, greenhouse emissions, air quality, and water conservation.

0 The industry must remain committed to the principle of sustainable devel-
opment, recognizing that improvements in process and energy efficiency
will simultaneously enhance environmental and commercial performance.

0 The industry must continue to improve its operational performance, as it has
in the past.

Market Development
0 Development of the oil sands should be market-driven.
0 Government should ensure that oil sands export restrictions are removed.

0 Individual companies need to continue to improve their marketing activities
to access new markets, including meeting customer refinery needs in the
light of reformulated fuel specifications.

0 The industry should promote a cost-effective infrastructure which provides
synergistic benefits to all industry participants.

0 Liquid petroleum will be the dominant product from the oil sands, but
opportunities to competitively market by?products and co-products should
continue to be explored.

Pipeline Transportation

0 The industry will work with pipeline companies to improve and restructure
the pipeline system.

0 As new bitumen production increases and comes on-stream, market access
should be provided by optimizing the existing infrastructure and/or building
new pipelines. The collaborative efforts of various participants may be required
to provide an effective solution.

0 As supply increases, additional pipeline capacity may be required east, west,
and south of Edmonton in order to access new markets.

Regulatory Framework

0 The industry will work with government agencies (Alberta Energy and Utilities
Board, Alberta Environmental Protection, and Environment Canada) to develop
a one-window review and decision process that harmonizes the current process-
es run by the Alberta and Federal governments. Efforts will cenUe on eliminating
duplication between environmental assessments and approvals done at both the
Provincial and Federal levels and between departments at the provincial level.

 

 

 

- All stakeholders must work together to establish the standards the industry
needs to access the resource.

Informed and Supportive Stakeholders

0 Oil sands proponents must expand communications to change outdated
perceptions of the oil sands with a well-articulated common vision.

0 The oil sands industry should work as hard at informing its stakeholders,
and sharing their understanding, as it does in market analysis, supply costs,
and capital formation. This will build support for the industry's vision and
confirm recognition of the oil sands industry as an entity.

0 Constant communications with all stakeholders (investors, government,
regulators, local communities, employees, Aboriginal Peoples, customers,
and the public-at-large) will be required so that they see the benefits of the
industry and lend their support to public decisions that will allow it to grow
and prosper. Some existing processes, such as consultative meetings, town
hall discussions, etc., should be continued and expanded to build an
informed and supportive constituency of stakeholders.

0 Aboriginal communities should be invited to fully participate in all oil sands
economic opportunities.

 

The Oil Sands: New Vision for (Izmmlai

 

Conclusion

Canada?s oil sands offer huge potential for wealth generation and enduring
social benefits. Putting in action the plan developed by the National Task Force
on Oil Sands Strategies will help to unlock this potential and realize the benefits.

By taking these actions, the attraction of an oil sands investment will increase
because the fiscal regime will be stable, predictable and sensitive to investment
in the oil sands; the product will be in increasing demand; the basic infra-
structure is already in place and expandable for reasonable additional invest-
ment; and there are imminent breakthroughs in technologies that will lower
production costs further by 20-30 percent.

New capital investment will generate significant environmental, social and eco-
nomic benefits. With the right framework including the aggressive applica-
tion of science and technology, appropriate fiscal terms, the right regulatory
framework, market demand, and appropriate development paths capital will
be attracted to the oil sands which can then be expanded to their full potential
for the benefit of all Canadians.

The real opportunity is national prosperity. The oil sands already represent
investment in a high value product, and further growth in investment translates
into thousands of skilled jobs across Canada, expansion of government rev-
enues, collaborative development of exportable technology, spin-offs to small-
and medium-sized businesses, and improvements to Canada?s trade balance.

The prize is worthy of a national effort. A unique window of opportunity is open
to us. Because of the long lead-times required to build oil sands plants, and the
potential market opportunities that are emerging today, the time to take the next
step to put the Task Force?s strategy into action is now.

 

The oil sands already represent
investment in a high value product,
and further growth in investment
translates into thousands of skilled
jobs across Canada, expansion of
government revenues, collaborative
development of exportable technolo-
gy, spin-offs to small- and medium-
sized businesses, and improvements
to Canada?s trade balance.

 

 

 

 

National Task Force on Oil Sands Strategies

 

ACR Board
Eric Newell,
President

 

 

 

 

 

 

Steering
Committee

 

National Task Force on
Oil Sands Strategies
Erdal YILDIRIM,

Chair

 

 

 

Don Currie
Managing Director

 

 

 

 

 

 

 

Overall Strategies
Phil Lachambre

 

 

 

 

 

Marketing and Science and Environment and Government and Fiscal and Materials/Services
Transportation Technology Regulatory Communications Socio-Economic and
Coalition Building
Chairs: Pat Daniel Duncan Stanners Richard Sendall D?Arcy Levesque AI Bernie Coady
(IPL) (Shell) (Amoco) (Delta Catalytic)
Members: Gerry Manwell Bert Lang AI Ken Bradley John Anders David Tuccaro
(Suncor) (Suncor) (ADE) (Gulf) (Neegan)
Terry Kemp David Brown Maureen Cormier Richard Dupuis Bob Bruce Jim Popowich)
(Gibsons) (Suncor) (Imperial Oil) (Suncor) (Fording)
Bernie Bradley Roger Bailey Sue McGregor Lisa Hart Bruce Elder Dan Klemke)
(AOSPL) (ADE) (Imperial) (Suncor) (Klemke)
Carl Purdy John Clark Tom McCann Mark Ladouceur Richard Sendell
(McCann Assoc.) (Fording Coal Ltd.) (Amoco)
Ian Walker Bill Dawson Patricia O'ReilIy Song Sit
(Imperial) (Suncor) (AEC)
Dave Deveny Miles Shaw Ian Walker
(Gulf) (Imperial Oil) (Imperial)
Jim Hawkins Richard Wilson Bob Wilson
(Imperial) (Alberta Energy) (Imperial)
Dietmar Berger Peter Marshall Mary Gibson
(Berger Assocs.) (Treasury)
Martin Turnan Paul Precht
(ADE)
Anton Walker Terry Roberts
(Paradex) (ADE)
Ferrers Clark David Swain
(NRC) (CIBC)
Peter Quinn Bill Thorns
(HRI) (Finance)
Ross Vani

Kevin Stecyk

Carl Purdy


 

The Oil Sands: A New Energy Vision for (Xanadu

 

Steering Committee
National Task Force on Oil Sands
Strategies

Dr. David Brown
Canadian Centre for Mining and Energy Technology

Ferris Clark
National Research Council

Bernard Coady
Delta Catalytic Corporation

Don Currie
Alberta Chamber of Resources

Pat Daniel
Interprovincial Pipe Line Ltd.

Howie Dingle
Imperial Oil Resources Limited

Phil Lachambre
Canada Ltd.

Bert Lang
Suncor Inc. Oil Sands Group

Greg Lindsay
Suncor Inc. Oil Sands Group

Norm MacMurchy
Alberta Industrial Gas Consumers Association

Eric Newell
Canada Ltd.

Paul Precht
Alberta Energy Department

Peter Quinn
HRI Research and Engineering

Terry Roberts
Alberta Energy Department

David Swain
Canadian Imperial Bank of Commerce

David Tuccaro
Neegan Development Corporation

Ross Vani
Natural Resources Canada

Dr. Erdal YILDIRIM
Canadian Occidental Petroleum Ltd.

 

 

 

 

Alberta Chamber of Resources

Acres International Limited

Alberta Chamber of Commerce
Alberta Energy

Alberta Energy Company Ltd.

Alberta Mine Safety Association
Alberta Pacific Forest Industries Inc.
Alberta Power Limited

Amoco Canada Petroleum Co. Ltd.
APEGGA

Apex Geoscience Ltd.

Argus Machine Co. Ltd.

Babco Electric Engineering Ltd.
Banister Majestic Inc.

Bank of Montreal - Oil SI Gas Dept.
BHP Minerals Canada Ltd.

Brown 81 Root Limited

Harry 

Centre for Frontier Engineering Research (C-FER)
C.W. Carry (1967) Ltd.

Calgary Mineral Exploration Group Society
Canadian Energy Developments Inc.
Canadian Imperial Bank of Commerce
Canadian National Railways

Canadian Occidental Petroleum Ltd.
CleanNater Welding Fabricating Ltd.
Coal Association of Canada

Colt Engineering Corporation
Cominco Chemicals St Fertilizers
Comstate Resources Ltd.

Coneco Equipment Ltd.

The Coopers Lybrand Consulting Group
Dabbs St Hallett Publishing Co. Ltd.
Michael Day

Delta Catalytic Corporation

Dow Chemical Canada Inc.

Duncan 81 Craig

E.J.P. Associates Inc.

EBA Engineering Ltd.

Echo Bay Mines Ltd.

Edmonton Chamber of Commerce
Edmonton Economic Development Authority
Edmonton Journal

Edmonton Power

Esco Ltd.

Explosives Limited

Field Field Perraton Masuch
Finning Ltd.

Fluor Daniel Canada, Inc.
Fording Coal Limited

Garlock of Canada Ltd.

GKO Design Consultants Inc.
Gulf Canada Resources Limited
H.A. Simons Ltd.

Halferahl Associates Ltd.
Harnischfeger Corp. of Canada Ltd.
HBT Agra Earth Environmental
Hi-rate Drilling (I 985) Ltd.
Bruce Hunter

Husky Oil Operations Ltd.
Imperial Oil Resources Limited
Inland Cement

International Cooling Tower Inc.
Interprovincial Pipeline Ltd.
Japan Canadian Oil Sands
Keyano College

Kilborn Western Inc.

T.A. Klemke Son Construction Ltd.
KIohn-Crippen Consultants Ltd.
Korite Minerals Ltd.

Krupp Canada Inc.

Ledcor Industries Limited
Lorchem Industries Limited
Dennis E. Love

Lucas, Bowker White

C.N. Lund

Luscar Ltd.

Manalta Coal Ltd.

McDougalI Secord Limited
McGregor Construction Ltd.
Miller Office Group

Mobil Oil Canada

Mobile Augers SI Research Ltd.
Monenco Agra Inc.

Monopros Limited

Mount Royal College

Barry Munro

National Research Council

Neegan Development Corporation
Nilex Geotechnical Products Inc.
North American Construction Group
Northward Developments Ltd.
Northwest Hydraulic Consultants Ltd.
Northwestern Utilities Ltd.

Harold Page

PanCanadian Petroleum Limited
PCL Industrial Constructors Inc.
Allister Peach

Petro-Canada Inc.

Premay Equipment Ltd.

Reid Crowther Partners Ltd.
Shell Canada Limited

Sherritt Inc.

H.A. Smith

Smoky River Coal Limited

H.H. Sommerville

Spartan Controls Ltd.

Sperry Sun of Canada Limited
Stanley Industrial Consultants Ltd.
Sulfotech Research

Suncor Inc., Oil Sands Group
Canada Ltd.

Talisman Energy Inc.

Texaco Canada Petroleum Inc.
Thurber Engineering Ltd.

Tintina Mines

TransAIta Utilities Ltd.

TransCanada Pipelines Limited
Transition Management Ltd.
Transwest Dynequip

Darshan Tuli P. Eng.

UMA Engineering Ltd.

University of Alberta

Veba Technologie GMBH

W. Sopher Construction Services Ltd.
Wajax Industries Limited (Mining Div.)
WeIco Expediting

Westquip Diesel Sales (Alberta) Ltd.
Weyerhaeuser Canada Ltd.
Wirtanen Electric (1 962) Ltd.

 

The Oil Sands: New Vision for (Xanadu

 

Glossary of Oil Sands Terms

Barrel: Generally accepted measurement of oil. One barrel of oil equals 159 litres
or approximately 35 Imperial gallons or 42 US. gallons.

Bitumen: Naturally occurring Viscous mixture of hydrocarbons that may contain
sulphur compounds. In its natural state, it is not recoverable at a commercial rate
through a well because it is too thick to ?ow. Bitumen makes up about 18 percent
of oil sand and occurs in deposits of varying degrees of saturation.

Blend: As in blended feedstocks. Upgraded crude oil consists of a blend of naph-
tha and gas oils. By varying the amount of the naphtha and gas oil, upgraders
can produce customized blends for their customers. Customized blends may
have a different gravity and contain different amounts of sulphur, nitrogen, aro-
matics, etc., resulting in a different Cetane number.

Bucketwheel Excavator: Mining machine that uses toothed buckets mounted on
the rim of a revolving wheel to scoop up oil sand and deposit it on a conveyor
system.

Bucketwheel Reclaimer: Similar to a bucketwheel excavator, used to recover mined
oil sand from Windrows and move it to a conveyor system.

Cetane Number: A measure used to describe the combustion characteristics of a
diesel fuel. A high Cetane Number indicates a better fuel.

Coke: Solid, black hydrocarbon, resembling ground-up asphalt, which is left as a
residue after the more valuable hydrocarbons have been removed from bitumen
by heating the bitumen to high temperatures.

Condensate: Mixture of extremely light hydrocarbons recoverable from an
underground reservoir. It is gaseous in its reservoir state but condenses to a liq-
uid at atmospheric pressure and temperature. Condensate is also referred to as
natural gas liquids or NGLs.

CONRAD: Canadian Oil Sands Network for Research And Development.
A research alliance between industry and other research partners including gov-
ernment and academia.

Consolidated Tails: See Engineered Tails.

Conventional Crude Oil: Mixture mainly of pentane and heavier hydrocarbons
recoverable at a well from an underground reservoir and liquid at atmospheric
pressure and temperature. Unlike bitumen, it ?ows through a well without
stimulation and through a pipeline Without processing or dilution. In Canada,
conventional crude oil includes light, medium and heavy crude oils, like those
produced from the Western Canada Sedimentary Basin. Crude oils containing
more than 0.5 percent of sulphur are considered ?sour?, crudes with less than
0.5 percent are "sweet".

Cracking: Process of breaking down the larger, heavier and more complex hydro-
carbon molecules into simpler, lighter molecules.

 

 

 

Dragline: Mining machine that drops a heavy, toothed bucket on a cable from
the end of a boom into the oil sand, then drags the bucket through the deposit,
scooping up the sand. Once full, the bucket is raised and emptied onto a
windrow.

Engineered Tails: A terms used to describe a mixture of mature fine tails and
coarse tails. Also referred to as "Consolidated Tails".

Established Recoverable Reserves: Reserves recoverable under current technology
and present and anticipated economic conditions, specifically proved by
drilling, testing or production, plus that portion of recoverable reserves that is
interpreted to exist, based on geological, geophysical or similar information,
with reasonable certainty.

Extraction: A process, unique to the oil sands industry, which separates the bitu-
men from the oil sand using hot water, steam and caustic soda.

Fines: Minute particles of solids such as clay or sand.

Fine Tailings: A gel-like material resulting from the processing of clay ?nes con-
tained within the oil sands. "Muddy water? residue from the bitumen extraction
process consisting of about 85 percent water and 15 percent fine clay particles.

Fiscal Terms: Royalty and tax terms under which the industry operates.

Fraction: Separate, identifiable part of crude oil, the product of refining or dis-
tillation. Crude oil is divided into hundreds of fractions, forming gases, fuels,
oils, asphalt and coke.

Heavy Crude Oil: Oil with a gravity below 22 degrees API. Heavy crudes must be
blended, or mixed, with condensate to be shipped by pipeline.

Hot Water Extraction: An extraction process whereby oil sand, hot water, steam
and reagents are mixed to extract bitumen at a temperature of about 

Hydrocarbons: Organic chemical compounds of hydrogen and carbon atoms
that form the basis of all petroleum products. Hydrocarbons may be liquid, solid
or gaseous.

Hydrocracking: Refining process for reducing heavy hydrocarbons into
lighter fractions, using hydrogen and a catalyst. Typically used in upgrading
of bitumen.

Hydroprocessing: An upgrading process for reducing heavy hydrocarbons into
lighter fractions through the catalytic addition of hydrogen.

 

'l?hc Oil Sands: New Energy \rv'isirm for (Ianudu

 

Hydrotransport: A slurry process which transports water and oil sands through a
pipeline to primary separation vessels located in an extraction plant. Also called
ore hydraulic transport.

Hydrotreater: Unit that stabilizes and removes sulphur and nitrogen from the
components of crude oil by the catalytic addition of hydrogen. A final
stage in upgrading process.

In Situ: In place. In situ recovery refers to methods to extract the bitumen compo-
nent of a deposit without removing the rock matrix from its bed. In situ deposits
are buried too deep to be practical for mining.

Initial Established Reserves: Established reserves prior to the deduction of any
production.

Injection Well: In enhanced recovery procedures, a well through which air or
steam is injected to create heat and pressure necessary to force the oil to a well
bore.

Lease: A legal document with the Province of Alberta giving an operator the right
to extract bitumen from the oil sand existing within the specified lease area. The
land must be reclaimed and returned to the Crown at the end of operations.

Light Crude Oil: Liquid petroleum with a gravity of 28 degrees API or higher.
A high quality light crude oil might have a gravity of about 40 degrees API.
Upgraded crude oils from the oil sands run around 33-33 degrees API (compared,
to 32-34 for Light Arab and 37-40 for West Texas Intermediate).

Medium Crude Oil: Liquid petroleum with a gravity between 23 and 28 degrees
API.

Middlings: Mixture of water, clay, sand and bitumen that remains between the
bitumen froth at the surface and the sand at the bottom of a primary separation
vessel at the end of the extraction stage. Further processing is required to maxi-
mize bitumen recovery.

Oil Sands: Bitumen-soaked sand, located in four geographic regions of Alberta:
Athabasca, Wabasca, Cold Lake and Peace River. The Athabasca Deposit is the
largest, encompassing more than 42,340 square kilometres. Total deposits of
bitumen in Alberta are estimated at 1.7 to 2.5 trillion barrels.

Overburden: A layer of sand, gravel, and shale between the surface and the
underlying oil sand. Must be removed before oil sands can be mined.
Overburden underlies muskeg in many places.

Petroleum: A substance composed of a number of hydrocarbons in various com-
binations. Its most familiar form is crude oil.

 

 

 

Pilot Plant: Small model plant for testing processes under actual production
conditions.

Pool: Natural underground reservoir containing an accumulation of oil and/or
natural gas.

Process Gas: Gas produced from the upgrading process which is not distilled as
a liquid. Usually burned as a fuel.

Proven Recoverable Reserves: Reserves that have been proven through produc-
tion or testing to be recoverable with existing technology and under present
economic conditions.

Reclamation: Returning disturbed land to a stable, biologically-productive state.
Reclaimed property is returned to the Province of Alberta at the end of operations.

Remaining Established Reserves: Initial reserves less cumulative production.

Royalty: The Crown?s share of production or revenue. About three?quarters of
Canadian crude oil is produced from lands, including the oil sands, on which
the Crown holds mineral rights. The lease or permit between the developer and
the Crown sets out the arrangements for sharing the risks and rewards.

Crude Oil: A high quality, light, sweet crude oil, manufactured by
upgrading bitumen extracted from oil sands. Mixture mainly of pentane and
heavier hydrocarbons derived from crude bitumen through the addition of
hydrogen or the removal of carbon. Also referred to as upgraded crude oil.

Tailings Settling Basin: The primary purpose of the tailings settling basin is to serve
as a process vessel which allows time for tailings water to clarify, and silt and clay
particles to settle, so the water can be reused in extraction. The settling basin also
acts as a thickener, preparing mature ?ne tails for ?nal reclamation.

Truck and Shovel Mining: Large electric or hydraulic shovels are used to remove
the oil sand and load 240-ton trucks. The trucks haul the oil sand to dump pock-
ets where the oil sand is conveyed or pipelined to the extraction plant. Trucks
and shovels are more economical to operate than the bucketwheel reclaimers
and draglines they have replaced at oil sands mines.

Ultimate Potential: An estimate of the initial established reserves that will have
developed in an area by the time all exploratory and development activity has
ceased, having regard for the geological prospects of that area and anticipated
technology and economic conditions. Ultimate potential includes cumulative
production, remaining established reserves, and future additions through exten-
sions and revisions to existing pools and the discovery of new pools.

 

The Oil Sands: New linei?gy Vision lor (Tanada

 

Unconventional Crude Oil: Crude oil which is not classified as conventional.
An example would be bitumen.

Upgraded Crude Oil: See Crude Oil.

Upgrading: Conversion of bitumen into a lighter, sweeter, high-quality crude oil
either through the removal of carbon (coking) or the addition of hydrogen
(hydrocracking).

Viscosity: The ability of a liquid to ?ow. The lower the Viscosity, the more easily
the liquid will ?ow.

Western Canada Sedimentary Basin: Petroleum is often found in a sedimentary
basin where, millions of years ago, plants and animals sank to the bottom of
ancient bodies of water. Sediments which covered the remains became thicker
with time and pressure from the sediments turned the remains into oil and nat-
ural gas. The Western Canada Sedimentary Basin (WSCB) extends from British
Columbia in the west, eastward through Alberta, Saskatchewan and Manitoba,
and include portions of the Northwest and Yukon Territories. The WSCB covers
approximately 580,000 square miles.

 

 

 

Acknowledgments

The Steering Committee for the National Task Force on Oil Sands Strategies
wishes to thank the following companies for their generous financial support
towards the preparation and launch of this report:

Amoco Canada Petroleum Interprovincial Pipe Line Inc.
company Ltd- Manalta Coal Ltd.

Alberta Energy Company Ltd. Mobil 011 Canada

Alberta Power Limited Mullen Trucking Ltd.

Canadian Imperial Bank Of Neegan Development Corporation

Commerce North American Construction Group

Canadian Occidental Petroleum Ltd. premay Equipment Ltd.

Canadian Utilities Ltd. Shel} Canada Ltd,

City Lumber Stanley Industrial Consultants Ltd.

Continental PIR Communications Suncor Inc, 011 Sands Group

Delta Catalytic Corporation Canada Ltd.

Finning Ltd. The Klemke Companies

Fording Coal Limited. TransCanada Pipelines Limited

HRI Research and Engineering UMA Group

Imperial Oil Resources Limited VICOM

Inland Cement

The following organizations and individuals provided advice, research and
resources:

Alberta Department of Energy, Oil Sands and Research Division

Canadian Centre for Mineral and Energy Technology

Canadian Energy Pipeline Association

Canadian Oil Sands Network for Research and Development

Hillary and Associates Inc.

International Energy Agency

National Energy Board

National Research Council

Petroleum Communication Foundation

Petroleum Monitoring Agency

United States Department of Energy, Energy Information Agency

Woodside Research Ltd.

Florence E. Murphy

Heather Robertson

R. Campbell Todd

Judy Wolfe

The Steering Committee members extend their appreciation to Frank W. Dabbs,
president of Dabbs Hallett Publishing Co. Ltd. Mr. Dabbs acted in the reporter
capacity during the two-year deliberations of the National Task Force on Oil
Sands Strategies.

The Oil Sands: A New Energy Vision

Editors: Frank W. Dabbs, Peter F. Marshall

The Oil Sands: New linergy Vision 

 

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