Shell, ExxonMobil, others cope with environment in Athabasca.

Implications: Rob Gilles with the Associated Press in Fort McMurray, Alberta reported in the August 26 issue of the International Herald Tribune that Shell is rapidly expanding oil sand production from Muskeg river open pit mines in the Athabasca region of Alberta. They are joined by ExxonMobil, Chevron, Imperial Oil and others in a development that covers an area the size of New York State. Current daily production of 1.5 million bbl/day will triple by 2020. Alberta, with 175 billion potential barrels has more oil than Venezuela, Russia and Iran. Because of immense water requirements to extract the crude oil, environmentalists are deeply concerned. Oil sand operations produce 4% of Canadian greenhouse gas emissions. Tailing ponds next to rivers threaten fresh water streams with chemical pollution. The oil companies are fully aware of both the criticism and the real dangers involved. Measures are necessary to make operations acceptable to the public. The government cannot ignore the new jobs.

Analysis:  As of right now, any attempt to reduce the expansion of oil sand projects is certain to be defeated. High crude oil prices sustain them and the employment they create. The only way out is to increase extraction budgets to improve the environment. At a minimum, potable water supplies must be projected. The land must remain habitable for wildlife. Extraction costs today are approaching the $50/bbl mark. What will the costs be to satisfy the public and prevent the projects from becoming nuisances? Possibly $5/bbl. Add in another $5/bbl for a publicity campaign to convince the non-believers that, indeed, the projects are beneficial in every way to the economy and the environment. Oil from the mines thus becomes even more than costly than it already is. With a substantially higher extraction cost, oil from sand becomes a primary target for shut in if and when crude oil prices drop below $100/bbl. The world is approaching an energy situation where energy extraction costs collide with consumer’s pocket books. This is no small consideration in an international economy that depends on modestly-priced fuels.