Academic journal article Energy Law Journal

Canada's Role in the United States' Oil and Gas Supply Security: Oil Sands, Arctic Gas, Nafta, and Canadian Kyoto Protocol Impacts

Academic journal article Energy Law Journal

Canada's Role in the United States' Oil and Gas Supply Security: Oil Sands, Arctic Gas, Nafta, and Canadian Kyoto Protocol Impacts

Article excerpt


Canada is the United States' largest foreign supplier of oil, natural gas, and electricity. This includes 15% of gross oil imports and 14% of the total natural gas supply.1 Prospects for continuing and increasing these relatively secure energy supplies are strong in view of proposed major natural gas pipelines from the Arctic and continued development of Alberta's oil sands. The oil sands hold estimated reserves of 2.5 trillion barrels (bbls) with ultimate recoverable reserves of 315 billion bbls.2

However, there are several clouds on the horizon. One concern is the declining of the oil and natural gas reserves and production in the historically productive Western Canada Sedimentary Basin (WCSB). A second concern is the regulatory and financial burdens and overall economic effects that Canada's December 2002 ratification of the Kyoto Protocol on greenhouse gas emissions reduction will have on the petroleum industry in general, and on future oil sands development, in particular. Regulatory uncertainty and investment chill are already observable, and lengthy and uncertain constitutional litigation between energy-producer provinces and the federal government is a possibility.

A third concern is the potential cost and delay resulting from complex environmental regulation and the implications of aboriginal interests for the proposed Arctic natural gas pipelines. The final concern is the growing unease of the Canadian public about the long-term national energy supply in view of the energy trade provisions of the North American Free Trade Agreement (NAFTA) and developing United States North American energy policies. These issues will be assessed. First however, Canada's oil and natural gas reserves, supply, and export potential will be reviewed. Attention will be given to the massive unconventional oil reserves represented by the bitumen deposits of the oil sands.


A. Oil

The WCSB, located primarily in the province of Alberta, has been the principal source of conventional oil, i.e., light crude (density <900 Kg/m^sup 3^) and heavy crude (density > 900 Kg/m^sup 3^). Minor producing areas include Ontario, the Newfoundland Grand Banks, the Scotian Shelf, and the Northern Frontier region. Figure 1 shows the location of these producing areas and includes the location of oil sands deposits that are discussed below.3

In its 1999 report, Canadian Energy: Supply and Demand to 2025, the National Energy Board (NEB) estimated conventional crude oil resources "to be 34 billion cubic metres (m^sup 3^) of original oil-in-place, of which about 9.2 billion m^sup 3^ (27 percent) is estimated to be ultimately recoverable."4

B. Western Canada Sedimentary Basin

Eighty-two percent of the estimated 3.6 billion m^sup 3^ of ultimately recoverable light crude reserves in the WCSB have been discovered, and of these, 23% remain as established reserves and future improved recovery reserves. Similarly, "[f]or conventional heavy oil, some 1.1 billion m^sup 3^ (82 percent) of the estimated ultimate recoverable resources have been discovered, and of these discovered resources, 0.5 billion m^sup 3^ (50 percent) remain in the established reserves and the future improved recovery [reserves]."6 This is clearly a portrait of a relatively mature production basin.

Remaining WCSB established reserves are in decline as shown by Figure 2.7 While the number of producing wells has increased, crude oil production has declined as shown by Figure 3.8

The Alberta Energy and Utilities Board (AEUB) has documented the decline in average well productivity. In 2001, approximately half of the oil wells produced less than 2 m^sup 3^/day per well. These 16,100 wells operated at an average rate of 1 m^sup 3^/day and produced only 13% of total Alberta crude oil.9

C. Arctic and East Coast Offshore Frontier Areas

By contrast, there is considerable reserve potential in the relatively unexplored frontier areas. …

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