The global commodity boom and innovations in technology have led to an upsurge in the extraction of unconventional resources in Canada. But transporting them to new markets has proven to be more difficult than expected.
Over the past decade, prices of major commodities (e.g., oil, coal, copper, gold, silver, tin, and iron ore) have skyrocketed, igniting a global boom in natural resources. Before this fairly recent development, a common assumption was that the world was entering a period of resource scarcity, most notably for oil, which would accelerate an eventual transition to renewable energy and weaken the reliance on carbon-loaded fossil fuels.
While popular perceptions of oil and gas extraction are marked by explosive gushers needing only to be pumped-think of the 2007 film There Will Be Blood-deposits of commonly used resources are deeper, more remote, require more mining and processing, are more energy- and water-intensive, and more toxic than such images represent.
The shiftto these kinds of deposits, often called unconventional resources, validates part of the scarcity theory. Accessible conventional resources, including light and sweet crude oil found relatively near the surface of the earth in the twentieth century, are no longer keeping pace with global energy demand.
As defense- and energy-policy analyst Michael Klare chronicles in The Race for What's Left, the move into the age of unconventional resources is not limited to energy. It includes many of the aforementioned mineral resources. For example, in extracting gold, mining companies are exploiting grades-the percentage of gold in every ton of ore- below one gram per ton, whereas 70 to 100 years ago, a typical grade was two to four ounces per ton, and could be as high as 20 ounces.
Resource depletion, however, is not the same as resource extinction. Here, the scarcity theory is offthe mark.
Instead of a renewables revolution, the depletion of conventional resources, coupled with the commodities boom, has accelerated the market for lower grades and different varieties of the twenty-first century's dominant extractive resource industries. Mineral and fuel deposits whose geochemistry, geography and political risks made them uneconomical a decade ago are thriving.
Canada and the U.S. Reap the Benefits
Canada's recent resource prosperity has been a long time coming, especially with regard to the Tar Sands in Alberta province, which boast a 1.7 trillion barrel potential, exceeded in scale only by Saudi Arabia.
The Tar Sands' existence was known as early as the 1780s, according to Andrew Nikiforuk, Canada's premier energy journalist. The eighteenth-century field notes were followed by more detailed reports from the 1880s and by failed exploitation efforts in the 1930s and 1960s. Throughout the twentieth century, the market value of oil remained too low for fossil fuel companies to profit from the higher costs of extracting and processing the tar sands.
The discovery of the Tar Sands is not new. The economic viability of mining them is.
Tar sands are a mixture of sand, clay and roughly 10 percent bitumen. As opposed to liquid crude oil, they are a heavier, more viscous hydrocarbon, requiring processing to turn the asphalt-like deposits-90 percent of which are waste-into synthetic crude before it can be piped to refineries to be further refined into fuels. The technologies for mining and pre-processing are expensive and resource-intensive, consuming the equivalent of one barrel of oil and 2 to 10 barrels of water for every three barrels of oil produced from the Tar Sands.
Writing in The New Yorker in 2007, environmental journalist Elizabeth Kolbert reported that the cost of converting tar sands into synthetic crude is roughly $30 per barrel. In the past decade, crude oil prices rose from $25 per barrel to more than $100 per barrel- peaking over $140 in 2008. These margins have made it financially sensible to exploit Canadian tar sands.
This rise in oil prices is not just to Canada's benefit, but to all unconventional fuels, including oil shale deposits in the United States, for which the costs had previously been even more prohibitive. According to a recent forecast from the International Energy Agency, the U.S. oil and gas boom-which has spread across the country from Pennsylvania and Ohio to Wyoming and North Dakota-could turn the U.S. into a net energy exporter by 2030. Enabled by high market prices, this production surge allows for a "new hemispheric outlook," writes energy researcher and author Daniel Yergin, "based on resources that were not seriously in play until recent years, all of them made possible by technological breakthroughs and advances."
Sizing Up the Markets and the Environment
While the potential for unconventional resources to change the geopolitics of energy is great, so are the ramifications for global climate change. As opposed to refining liquid petroleum, extracting oil from bitumen, shale and coal requires turning solid materials into liquids- increasing the energy intensity of production. The full cycle of tar sands development, from extraction to upgrading, refining and combustion, produces 20 percent more carbon emissions than light crude oil.
As Kolbert notes, until recently, most climate change models did not account for the boom in unconventional resources, underestimating the amount of carbon expected to be burned over the next 100 years by somewhere between 50 and 400 gigatons.
That, however, was six years ago-only a few years into the boom. More recently, data published by British financial analysts and popularized by environmental activist Bill McKibben in an August 2012 article for Rolling Stone, estimated that oil, gas and coal companies already hold in reserve-and hence plan to extract, refine and sell to be burned as "proven reserves"- at least 2,795 gigatons of carbon.
"Proven" reserves, as opposed to "inferred" or "indicated" ones, are the resource deposits companies use to attract investment. Because there are myriad variables and intangibles contributing to the success or failure of an extractive project, investors rely on this classification to speculate on the viability of a company and the projects it claims can be implemented successfully. But proven reserves can easily turn out to be busts if, for instance, the politics or economics of extraction do not unfold according to plan or if something in the geoscience or engineering goes wrong.
Nevertheless, the estimated value of proven reserves for fossil fuels is about $27 trillion. McKibben calls this a carbon bubble. "It won't necessarily burst-we might well burn all that carbon, in which case investors will do fine," he writes. "But if we do, the planet will crater. You can have a healthy fossil fuel balance sheet or a relatively healthy planet-but now that we know the numbers, it looks like you can't have both."
From its inception 25 years ago, the politics of climate change has suffered from a surfeit of numerical projections, jargon and opinions. In the 1990s, the hope was that the public would not need to be responsible for parsing the arithmetic and atmospheric chemistry of climate change. Technocratic international treaties were supposed to take care of this by establishing pollution limits that would be enacted by national governments- a process that involved little public participation.
But multilateral agreements have proven to be toothless. In 2009, UN-administered climate negotiations in Copenhagen, Denmark, produced an accord-but no binding agreement-stating that an increase of two degrees Celsius is the limit of what the atmosphere can withstand. It's a figure many climate scientists consider too lenient: So far, the earth's temperature has risen nearly one degree with devastating consequences.
Nevertheless, to stay below two degrees requires emitting no more than an additional 565 gigatons of carbon into the atmosphere. At current global pollution rates, that's how much carbon will be burned in 16 years.
Moreover, the amount of proven reserves cited by McKibben is five times what the atmosphere can handle if the earth's temperature is going to be prevented from rising more than two degrees Celsius.
After the collapse of the Copenhagen negotiations and the breakdown of U.S. climate legislation under President Barack Obama's administration, environmentalists embraced civil disobedience as an alternate approach, turning their focus to the individual consumer.
Environmentalists Express Concern
Not only are the Alberta Tar Sands flush with energy potential, for the past year and a half they also have been perhaps the world's most intensely disputed unconventional oil fields.
In August 2011, McKibben and fellow activists protested the Keystone XL, a proposed extension of the Keystone Pipeline System owned by the private Canadian firm TransCanada Corporation. Keystone XL is a 1,700-mile project to connect the Alberta oil fields to the refineries of Port Arthur, Texas, enabling faster transport of the tar sands to market.
At the time, most people had not heard of either the Keystone Pipeline or the Tar Sands. Still, the wellattended protests resulted in over a thousand peaceful arrests, turning the pipeline into a popular issue in a way the environmental movement has not had since the 1980s. In response, in late 2011, the U.S. Department of State, which is responsible for granting permits to transboundary pipelines, punted on a final decision, postponing the expected outcome of a verdict to 2013.
Since the initial Keystone protests, the environmental campaign has broadened, including a February 2013 protest against the pipeline that drew more than 35,000 people to Washington DC (the biggest climate change rally in U.S. history), and a fossil fuel divestment campaign modeled on the anti-apartheid movement of the 1980s. The campaign called on universities, colleges and municipalities to cease new investments in fossil fuel corporations, while winding down existing investments in these industries over the next five years. There are active campaigns on more than 250 campuses. Three colleges- Unity in Maine, Hampshire in Massachusetts and Sterling College in Vermont-have divested their portfolios of fossil fuel stocks, while at Harvard, 72 percent of the student body voted to support divestment. In December, the city of Seattle announced that municipal funds would no longer be invested in fossil fuel companies.
Canada Flexes Its Muscles
As much as Keystone XL, the Tar Sands and the divestment movement have stirred environmental activism, they have also awakened people to a reality known very well inside Canada, but recognized by few outside the country: Canada has emerged as a serious energy player. Still hooked on the image of Canada as its gentler northern cousin, most U.S. citizens and other neighbors to the south are not familiar with Prime Minister Stephen Harper's ambitious description of Canada as an "energy superpower." Nor are they aware that his majority Conservative Party, rooted in oil-rich Alberta, declared recently, "We will never bring forward a carbon tax that will kill jobs and drive up the cost of everything."
In the brief history of climate change politics, going back to the early 1990s, there were always two working assumptions: first, Canada was advancing climate policy more rapidly than the U.S., and second, just as soon as the U.S. put a price on carbon-whether through a tax or emissions trading system-Canada would follow in lockstep. back to the early 1990s, there were always two working assumptions: first, Canada was advancing climate policy more rapidly than the U.S., and second, just as soon as the U.S. put a price on carbon-whether through a tax or emissions trading system-Canada would follow in lockstep.
But Canada is decades removed from its post-World War II reputation as an internationalist broker of peace and cooperation. When it comes to the exploitation and export of raw natural resources, its interests are rooted less in lofty ideals and more in the potential of its oil, gas and mineral wealth.
An October 2012 report by the Canadian International Council (CIC) observes that in 2011, natural resources were the top Canadian export to every one of its major trading partners. In addition to being the leading supplier of oil and gas to the U.S., Canada is the world's leading producer of potash and titanium, second in uranium, third in gas, aluminum, sulfur, and tungsten, fourth in diamonds, fifth in platinum, nickel and asbestos, sixth in crude oil, and eighth in gold. "From its mining base," the report concludes, "Canada has built a financial and legal industry that has global clout."
It also has a tax policy that reinforces the export of raw resources without providing incentives for adding value through processing, refining and manufacturing. Over the summer, this led Canada's official opposition leader, New Democratic Party Member of Parliament Thomas Mulcair, to suggest that Canada is suffering from Dutch disease-an over-emphasis on resource extraction and exports that drive other sectors of the economy into decline.
The focus on extraction for export has resulted in intense lobbying by Canada for the U.S. to increase its imports of Tar Sands oil, efforts that started long before environmentalists began focusing on this issue. Alberta's minister of international relations and Canada's ambassador to the U.S. visit every relevant company, labor union and state and municipal government south of the border, going door to door, providing endless junkets to visit the Tar Sands and building the case for expanded extraction and piping. The country's most influential news company, Postmedia Network Canada Corp., ridicules anybody who questions the value of the Tar Sands, calling critics the "anti-modern life coalition," "ecological hysterics," and the "church of massive hypocrisy."
Within Canada, this focus on the Tar Sands is, again, not news. Shortly before his unsuccessful effort to lead the centrist Liberal Party to power by campaigning on green tax shifts during Canada's 2008 elections, former Environment Minister Stéphane Dion said, "There is no environmental minister on earth who can stop the oil from coming out of the sand, because the money is too big."
Still, it alarmed Americans when, in the autumn of 2011, even before Obama could officially kick the can forward, the Canadian government had also already issued a threat: if the U.S. did not approve Keystone XL to transport its resources to Texas, then the products of the Tar Sands would be shipped to China through the Northern Gateway pipeline, a proposed $6 billion-dollar construction project by Alberta-based Enbridge, Inc. The twin pipeline would end at the Pacific Coast port of Kitimat in British Columbia.
Domestic Opposition Persists
As much resistance as the proposal for the Keystone XL pipeline has met in the U.S., opposition to transporting tar sands inside Canada may be more fierce.
Months before the Keystone protests were conceived, the Yinka Dene Alliance, a coalition of First Nations communities who own a quarter of the land that the Northern Gateway would cross, rejected billions of dollars in revenue sharing by refusing to collaborate with Enbridge. They argued that the pipeline posed too great a risk to other natural resource sectors, particularly the salmon fisheries of the Fraser and Skeena Rivers. The First Nations have been joined by labor unions and the New Democratic Party.
Last August, Canada's largest credit union divestedits holdings from Enbridge, citing a one-million-gallon bitumen spill into the Kalamazoo River in Michigan, which sprouted from a different Enbridge pipeline connecting the Tar Sands to the U.S.
The circumstances in Canada became more volatile last July. At that time, the Canadian government approved the $15 billion sale of Calgary, Alberta-based Nexen, Inc., to China's state-owned energy company China National Offshore Oil Corporation (cnooc). At the same time, a $5 billion deal was concluded with Petroliam Nasional Berhad (petronas), a Malaysian state-owned oil company, for Calgary-based Progress Energy Resources Corp. Both acquisitions increased foreign direct investment (FDI) and control over tar sands production.
As the CIC report notes, Canada's quest for resource superiority is marked by two different trends.
In its foreign mining adventures, Canada is strong. Its mining companies hold 8,000 properties in 100 countries and control more metals production globally than China-though this is expected to change. Inside Canada, however, foreign companies earn nearly 50 percent of all profits for oil and gas and more than 70 percent of minerals. Given the government's plan to expand production with $650 billion in projects over the next 10 years, the question is how much of this growth will be developed through FDI and, by extension, who would really be served by the two proposed pipelines.
Charting a Path Forward
Conventional wisdom says the Obama Administration will eventually approve the Keystone XL pipeline, if only because it will be more rational to refine the tar sands in Port Arthur than in China. "The bitumen is coming out of the ground one way or another," Bloomberg News editorialized last November, echoing Daniel Yergin's statement from a year ago that "If the additional supply [from the Tar Sands] doesn't come here, then it will go to China."
And at the beginning of March, the State Department released a new environmental impact statement concluding that the Keystone pipeline was "unlikely to have a substantial impact" on the tar sands or the climate, a conclusion widely disputed by environmentalists but nevertheless potentially signaling the Administration's support for the project.
But the politics of pipelines and the Tar Sands are developing quickly. And that may be the real problem. A zero-sum mentality now envelops discussions about mining the Tar Sands and other unconventional resources. Suppose their extraction is inevitable. Does this mean we have no control over how we extract? "One answer is remarkably simple, yet politically vexing: slow oil sands development," writes Taylor Owen, who holds twin appointments at the Columbia University Graduate School of Journalism and University of British Columbia.
"There could be two potential policy paths," Owen concludes. "First, the Enbridge and Keystone XL pipelines could be stalled. Not because this will halt oil sands development, but rather to temper some of the short-term rapid 'gold rush' growth that will be enabled by these transport lines. Second, what is clearly needed is a meaningful pricing strategy."
Rather than merely surrendering to the boom, blowing past tolerable carbon limits, introducing mining techniques that are still inefficient, and flooding the market, the U.S. and Canada would be well served if they took the time to establish the regulatory systems for both the market and the environment. As the price of oil rises and the technology becomes more efficient, the margins for unconventional resources will only improve.
Can't hold offany longer: President Barack Obama arrives at the TransCanada Stillwater Pipe Yard in Cushing, Oklahoma, in 2012, facing pressure to make a decision on the $7 billion proposed Keystone Pipeline.
Not on my watch: Environmental activist Bill McKibben speaks out against the Keystone XL Pipeline to the House Natural Resources and Energy Committee in Vermont.
Easy answers to a tough issue: A demonstrator protests against the Keystone XL Pipeline in front of the White House.
Still hooked on the image of Canada as its gentler northern cousin, most U.S. citizens are not familiar with Canada as an "energy superpower."
Conventional wisdom says the Obama Administration will approve the Keystone XL Pipeline, because it will be more rational to refine tar sands in Port Arthur than in China.
Shefa Siegel has written about resources and religion in Ha'aretz, Ethics & International Affairs, Sojourners, and Environment 360, has worked for the Earth Institute and United Nations, and holds a PhD in resource policy from the University of British Columbia.…