Balanced appraisal of oil sands impact?

The Oil Drum posted this report on the environmental impact of oil sands, published by the Pembina Institute. I found it interesting reading and it seemed passably fair-minded. I had a quick look on the interweb to find out Pembina's underlying biases, and it was hard to tell (apparently it is an independent institute founded in 1985) - does anyone know anything more?

Oilfield technology is basically good enough

Via Green Sheet, long-time energy investment banker Matthew Simmons doesn't think oilfield technology has much room for improvement (and therefore technological progress is not a good argument against Peak Oil).

The final topic the Gang discussed was the rapid advances in oilfield technology. Sadly, this is the greatest myth of all. I spent four decades as an investment banker to the global oil-service industry, which collectively invented all of this technology. The concept that there are new innovations in this area is false.

In fact, the seeds of this so-called technological revolution -- the ability to exploit oil from deep water or drill horizontally -- were first developed 40 years ago. I personally raised a great deal of the venture capital that helped implement some of the most important technical advances in the industry. Our firm, through advising on mergers, consolidations, reorganizations, and bankruptcies, helped save the oil-service companies that created these great technological advances that help us find and commercially exploit oil and gas.

None of this technology is new -- in fact, it is now quite mature. Sadly, there are few new ideas in the oilfield pipeline to replace advances that were made decades ago.

These ideas may be old, but they are still in the process of being deployed commercially against new reserves, whether deepwater like BP's new Tiber find or onshore unconventional reserves like oil sands and shale oil. To me, the crux of the technology argument is not that a new silver bullet will magically appear on the horizon, but rather that the frontier of existing technology allows us to exploit a wide range of unconventional oil reserves, of whose production potential we have only scratched the surface (e.g. Canada and Venezuela are both estimated to have reserves in oil sands equal to the entire world's reserves of conventional crude). At higher prices, probably, which means lower demand, but not imminent and catastrophic supply shortfall.

The Oil Drum series on Canadian oil sands

The Oil Drum has now posted the second part of its series on the Canadian oil sands (parts one, two). In my view it's overly dismissive of some of the environmental charges against oil sands, but is nevertheless highly informative and useful for anyone interested.

One chart I liked (I had been searching for a good version) was this from CERA on well-to-wheel emissions for different types of crude. Oil sands come out not much dirtier than other oil sources.

CERA is chaired by Daniel Yergin (of The Prize and of recent Peak Oil notoriety) and is a highly knowledgeable, well-respected, and middle-of-the-road energy firm, so I trust their numbers on this to be pretty robust.

China dealwatch: oil sands

China keeps up its terrific pace of resource-related deal-making with a big investment in Canadian oil sands. It's welcome news, from the perspective of the Canadian Globe and Mail:

A major Chinese energy company has delivered a jolt of confidence to the oil patch with a $1.9-billion investment that marks China's biggest entry into Alberta's oil sands.

In a deal that many took as proof of the oil sands' continued attractiveness to deep-pocketed investors, Calgary-based Athabasca Oil Sands Corp. sold a 60-per-cent interest in two of its undeveloped projects near Fort McMurray to the international unit of PetroChina Co. Ltd.

The Globe and Mail notes that the valuation is quite bullish:

For many, however, the Athabasca deal was notable for the value it assigned to oil sands assets, whose worth has been debated ever since Total made a hostile bid for UTS earlier this year that analysts said ascribed no value to its oil reserves. Analysts calculated that PetroChina will pay just over 60 cents a barrel for Athabasca, which marks a return to some of the valuations seen in 2007 and 2008, and implies a value for companies like UTS that is roughly double their current trading price.

Environmental Capital has a hypothesis on why China would invest, given the lack of infrastructure to pipe the crude across the monutains to the Pacific Coast, where it could be shipped to China.

In the meantime, the Athabasca projects might give PetroChina a chance to refine, as it were, its technical expertise with heavy oils—the projects will use the same technology as found in some Chinese domestic projects.

That makes sense to me - China is on a shopping spree not only for foreign resources, but also for the skills that will allow it to fully exploit its own natural endowments.

First U.S. refinery since 1976

Not built quite yet, but well on its way through the permitting guantlet:

The Hyperion Energy Center was issued its air permit Thursday by the South Dakota Board of Minerals and the Environment, a major step toward this project becoming the first new oil refinery to be constructed in the United States since 1976. The board voted unanimously, 9-0.

At first South Dakota appears a bizarre location for a refinery - doubly land-locked, and not particularly near any domestic demand centers either. This one is all about the Canadian oil sands.

"In terms of supply and demand, we're still importing more oil and refined products than we should from outside North America. The need for additional heavy refining capacity is there, and we've always believed North American oil should stay in North America," Phillips said. "Canada is currently the largest exporting country to the United States, and it is in both countries' best interests to create strategic and economic synergies."

The is a testament to the confidence refiners have in the oil sands as a source of supply going forward - in general the refining industry is facing overcapacity and terrible margins, so it's striking that someone would choose to build a new refinery now (although the capacity is not specified, so could be tiny).

On the topic of oil sands, which are not as dirty as people think and I believe should be a major mitigator of Peak Oil fears, here's a story with some interesting details at The Oil Drum. This is obviously PR, but I was nevertheless impressed by this photo of an oil sands mine in the "intermediate stage" of reclamation:

The latest Peak Oil spat

A reader has asked for me to weigh in on the recent Peak Oil spat; in truth I was meaning to do so, but the commentary has piled up and I felt increasingly intimidated by the task of commenting on it. But here's an attempt at a quick synopsis:

To warm up, on Monday, Daniel Yergin (author of The Prize, the best book about oil I've ever read) wrote a piece in FP saying basically that Peak Oil fears are overblown because the combined response of technology and demand will adjust the world to declining conventional supply.

Then, main provocateur Michael Lynch published an NYT op ed calling Peak Oil "a waste of energy" and making the aggressive claim that oil is destined for $30/bbl in the long term.

The response was quick and furious; not one but two point-by-point rebuttals from The Oil Drum, as well as one by Morgan Downey (the author of the best book about oil I haven't finished reading yet, Oil 101 - I got diverted but it has received great reviews from very credible sources). And from the complete other end of the spectrum, Climate Progress took Lynch to task, going so far as to offer a bet:

Here’s my bet to Lynch. Let’s take the average price of oil from 2010 to 2015. For every $1 a barrel it is below $40, I’ll pay you $200, if you pay me a mere $100 for every $1 a barrel it is above $40.

That should be a no-brainer since I am giving him 2-to-1 and spotting him $10 a barrel off of what he says the right price is.

As I've mentioned before, I fall somewhere in the middle - I think $30/bbl is implausible, but the combination of 1), massive unconventional reserves (oil sands in Canada and Venezuela, deepwater in Brazil and who knows where else) that can be produced at a cost around $50-100/bbl, and 2), the power of high prices to destroy demand and incentivize development of alternative energy sources makes it unlikely that prices will settle much higher than $100/bbl in the next decade. Now, there may be volatility and prices spikes driven by supply shocks - we may have one coming, in fact, as the current recession has slammed exploration capex - but these will only last as long as it takes to deploy additional capital like it was deployed in 2007/2008.

(There is the chance that major geopolitical chaos could result in sustained higher prices, but that isn't the mechanism Peak Oilers are betting on.)

Peak Oil is many things - a mathematical tautology, an effective gimmick:

But regardless of the holes in Hubbert’s theory, peak oil, the gimmick, still serves to remind us that some day the oil will be gone, out of our reach, or most likely of all, extraordinarily expensive. Peak oil, as a way of understanding the real costs–political, economic, environmental–embedded in oil production regardless of the day’s market price per barrel, needs to live on.

... but I do not see it as a rigorous analytical argument that justifies energy alarmism in the short term.

Oil is dirty, from oil sands or otherwise

Environmental Capital reacts with skepticism to two new reports (funded by the Alberta Energy Research Institute, not a disinterested party given that Alberta is the epicenter of oil sands production) that say that petroleum from oil sands only emits about 10% more greenhouse gases than other sources:

That’s not because the much-maligned oil sands are getting cleaner (though there’s plenty of scope for just that, the reports say). Rather, it’s because newer studies scrutinize more closely the environmental footprint of crude production everywhere else, from Nigeria to Venezuela, which is more energy-intensive than the easy-to-extract oil in Saudi Arabia.

In other words, everything’s getting dirtier — so Canada’s oil sands don’t look so bad in comparison. The clean-energy think tank Pembina Institute responded: “Rather than lowering the bar by comparing oil sands to other pollution-intensive sources of oil, we should be assessing how the oil sands compare with technologies like advanced biofuels and electric vehicles.”

Sounds nefarious, but I actually come down on the side of the reports here, because I have seen the same results elsewhere. The key simple truth is that most petroleum emissions come from the combustion of the refined product (gasoline, diesel, jet fuel, fuel oil, etc.). If we say combustion emissions are 100%, oil sands production adds about 15% on top of that, whereas more traditional production methods average out to about 5% extra. So the difference is 115% vs. 105%, or about 10%.

Pembina’s recommendation should be broadened – we should compare ALL oil (not just oil sands) to other energy technologies. But we should 1), be objective in how we assess the results (for example, if land use change is taken into account, corn ethanol may emit as much as oil sands); 2), keep in mind that many of these technologies are not yet deployable at commercial scale; and 3), recognize that, carbon price adjustments like cap-and-trade aside, energy consumption decisions will be driven overwhelmingly by the raw economics, not environmental considerations.