Apocalyptic visions of the 1973 oil embargo still linger: drivers brawling in lineups at the pumps; a neutered US president begging foreign dictators for more oil; prices skyrocketing; and opec, a four-letter word. Today, oil remains the pragmatic root of our society. With world supplies shrinking and the prices marching ever higher, all eyes are now on Alberta, and both the US and China are making a big play for its vast reserves of crude oil. Will Washington take the oil in exchange for a sweeping trade deal with Canada? Alberta Premier Ralph Klein is in the catbird seat as a weak prime minister wonders how to protect the national interest.
In the frozen morning, a parade of buses moves along highway 63 north from Fort McMurray, delivering employees to the oil sands. I am in a Syncrude company truck with two PR people discussing oil, Alberta’s central intoxicant, driver of the economy, fuel for the provincial mythology — that shit-kicking, populist, plain-speaking, debt-free image that is exported with such care. Signs mark the distance to the oil sands projects: Suncor 22 km, Syncrude 35. They are towns, overlit, ceaseless, like Las Vegas containing thousands of hopefuls and billions of dollars. Passing Suncor as the sun rises low in the sky, there is a cloud of steam and smoke that has the viscosity of whipped cream, folding in opulent spiralling funnels that drift east towards Saskatchewan. Farther along, at Syncrude, flares are visible through the dense fog, a product of dozens of stacks emitting steam, sulphur dioxide, nitrogen oxide, and other elements that yield, the former mayor once said, “the smell of money.”
Lights define an exoskeleton that covers hundreds of acres, a scene that evokes both a space station future and an industrial past. There are nascent pyramids of sulphur, brilliant yellow stockpiles awaiting a viable market. Almost 12,000 people currently work at Syncrude: contractors expanding the operation in hesitant, expensive steps, process operators, engineers, nurses, welders, doctors, cooks, bartenders, firemen, truckers — a city contained around a single idea.
In the vast open mine, dozens of 400-ton trucks, the largest in the world, move continuously, dumping the sand into hoppers that take it to the upgrader to be processed. The upgrader is part of Syncrude’s Stage 3 expansion. Budgeted at $4 billion in 2001, the expansion will cost $7.8 billion by the time it’s completed in 2006, an overrun that fits in with the theme of gigantism that is presented out here with a schoolyard pride, and in equivalencies of football fields, or elephants, or the distance to the moon. Twenty-eight billion dollars have been invested in the oil sands since 1996, with another $32 billion committed. There are eighty-one projects either underway or planned.
As part of the tour, I climbed up to the cab of a monstrous electric shovel operated by Alf Poppen, an Ontario emigrant and former dragline man, who strokes his 100-ton bucket against the face of the mine with the touch of a lover. He fills a 400-ton truck in minutes and it joins others rumbling across the bitumen.
The oil sands are the largest hydrocarbon deposit in the world, three separate fields that hold 1.6 trillion barrels of heavy crude. Nearly 174 billion barrels are listed as reserves, meaning oil that is recoverable using existing technology under current economic conditions. It is expensive to get out of the ground — it cost Syncrude $18.61 per barrel last year compared to roughly $1 for Saudi oil — but it represents the world’s most stable supply. When Suncor (then Sun Oil) began production in Fort McMurray in 1967, the oil sands were viewed by much of the industry as experimental folly. But the cost of extraction has steadily declined while the price of oil has gone up.
More critically, supplies of conventional oil are in decline. The US oil supply peaked in 1971, Canada’s conventional supply peaked two years later, and, according to Colin Campbell, author of The Coming Oil Crisis, 2005 represents the year global supply will top out. The peak has been accompanied by escalating consumption as China lumbers into the future. Following China are India, Brazil, and Russia, and the constant unchecked growth of the US. The need for a stable supply has put Fort McMurray at the centre of a global oil chess match. The endgame — a potentially grim Road Warrior future that pairs limited resources with voracious demand — is just decades away. “With the decline in more conventional supplies of crude oil, and continued strength in world demand for oil, the oil sands opportunity is coming to the forefront,” Syncrude Canada CEO Charles Ruigrok told New York investors in February.
The Alberta oil sands have become the Great White Hope of the world’s petroleum supply. But how Canada uses the oil in broader trade negotiations with Washington isn’t clear. Even less clear is who will clean up the environmental mess left behind.
Every week, Chinese officials, American politicians, possible investors, journalists, economists, and engineers tour Syncrude’s monumental facilities, weighing financial commitments against the world’s uncertainties — chief among them being: how much oil is left worldwide? The question is both technical and political, and figures are wildly divergent throughout the industry. The amount that Organization of Petroleum Exporting Countries (opec) nations can export is based on their reserves, so there is incentive to inflate the numbers, and no independent accounting to challenge their figures. In 1985, Kuwait reported a 50-percent increase in its reserves. Six opec nations followed suit, increasing their own reserves by between 42 to 197 percent, which allowed greater export quotas. And in Saudi Arabia, though stated reserves are 261 billion barrels, its oil minister announced in December that it could grow to 461 billion within a few years. Matthew Simmons, who has advised President Bush on energy, estimates the Saudi reserves to be much smaller, while Mark Anielski, an adjunct professor at the University of Alberta’s School of Business, says flatly, “Middle Eastern reserve figures are notoriously suspect.”
The authoritative Oil and Gas Journal listed Canada’s conventional reserves at 4.8 billion barrels for 2002. A year later, the Journal included oil sands data and showed Canada with almost 180 billion barrels and a world ranking of number two, behind Saudi Arabia. The figure of 174 billion barrels for the oil sands comes from the Alberta Energy and Utilities Board (eub), the result of a commissioned inventory by the provincial government eager for a sales tool it could take to the international marketplace. Corporate estimates are considered more reliable than opec or government figures, but last year Royal Dutch/Shell over-estimated its reserves by 23 percent, leading to the dismissal of top executives. Overall, predictions for conventional oil reserves range from barely ten years to as much as 100 years. Remarkably, little hard data exists for a resource that, as President Bush remarked, is the basis for Western Civilization, elbowing out democracy and the rule of law. Like estimating fish stocks, reporting on oil reserves is an inexact science clouded by politics, self-interest, and voodoo.
If the Chinese take a significant position in the oil sands, it will mean a diversified market for Canada, more foreign investment, and consumer competition — the closest thing to international market leverage the country possesses. It will call America’s bluff as a champion of free markets, which has always been more of a marketing position than an actual strategy. China has been one of the tentative oil suitors in occupied Iraq, and its presence there is seen by Washington as a provocation. Its presence in Alberta is seen as a provocation as well. “The biggest concern for the Chinese in the oil sands is the Americans,” said Keng Chung, “just as the biggest concern for the Americans is the Chinese.”
As the world’s superpower and its emerging rival circle one another in the boreal forest of northern Alberta, the question is raised: what exactly is Canada’s role? Under nafta, the US is guaranteed access to Canadian oil and gas even in the case of domestic shortages. Conceivably, the eastern bastards could freeze in the dark, as Alberta bumper stickers advocated during the 1970s. During his January visit to China, Prime Minister Paul Martin made muted noises regarding Chinese ownership of Canadian resources, expressing concern, trying to find the right political tone in a debate from which he is largely excluded. The federal government doesn’t own the resource, but, through the National Energy Board, it does control exports, and could conceivably limit the amount the Chinese ship home. In that case, China would simply use the sophisticated system of hedges and barters that govern international oil contracts, selling to the US and receiving an equivalent supply from another source.
In 2003, Paul Cellucci, the US ambassador to Canada, said that the time had come “to complete the integration of our energy markets.” One suggestion has been for the US to guarantee a fixed price for oil sands crude going south. In return, the US would get unrestricted access to the resource. A collaborative report from two Canadian and American investment groups state that such an arrangement could give Wall Street investors “the comfort required to commit the billions of dollars necessary for optimal production from the oil sands.”
In Siberia, Japan and China are furiously competing for direct access to Russian oil. France and Russia clashed with the US over oil in Iraq. In December, Venezuela President Hugo Chavez went to Beijing, and the two countries signed several bilateral energy agreements. Like Canada, Venezuela sells much of its exports to the US, though there is an enduring political antagonism between the two countries, exacerbated by what was viewed as American support for the attempted coup against Chavez’s government in 2002.
Everywhere, there are political alignments, military movement, and antagonisms, but in Canada oil remains purely a commodity as opposed to an instrument of foreign policy. As power struggles gain definition around the globe, our only political issues are domestic; once more, we are at war with ourselves. Any federal interference will revive the animosity in Alberta that was first sparked by the National Energy Program in 1980. Twenty-five years after the fact, Trudeau remains a potent satanic symbol out in God’s country.
When I was a rig worker in the 1970s, breaking up the university year with stints as a roughneck, oil meant money. The reckless, tipsy flow of capital and Calgary’s giddy growth began in 1973, when opec countries imposed an oil embargo on the US to protest America’s support of Israel, and raised prices for Western allies. Within four months, the price went from $3 (US) a barrel to $11.65 (US), and everyone got fat.
My fellow roughnecks were failed farmers, ex-cons, a man who had tired of the killing floor at the Burns plant, and a disturbed local whose hobby was sucker-punching British soldiers stationed at the Suffield base outside of Medicine Hat. On one rig, we sometimes drank rye whiskey on the way to work and began the dangerous night shift in a state of relaxation that gave way to prolonged bitterness. In the course of four summers, I recall a water tanker falling off the flatbed into a rape crop because we had forgotten to chain it down, working short-handed because the day roughneck had driven his 1963 Cadillac into a house after a breakfast of Tang crystals dissolved in vodka, riding in a driller’s pickup truck when he ran into a cow, shooting a rattlesnake, accidentally setting fire to a field of cheat grass, being shot at by a farmer, punched by a motorman, and listening to sad country music in a diner while eating generic Chinese/Canadian food, drinking terrible coffee out of mugs that were half an inch thick, and hoping the big-haired waitress would somehow take me away from all this. The first rig I saw had a sign that read, “This rig has worked 0 accident free days.” Next to it, a man was sitting on a forty-gallon drum, his hand wrapped in dirty gauze that was leaking blood.
Thirty years later, the Syncrude and Suncor plants have signs that advertise millions of accident-free man-hours. The industry is driven by skilled workers, engineers, and strict supervision, but in the evenings in Fort McMurray, there are still a few oil workers on Franklin Avenue who evoke the past, young men with weathered faces and heavy shoulders and a look that says the world can go fuck itself. They have money, youth, the existential loneliness that comes from living in camps with other men, and they seek out Teasers or Showgirls or the Boomtown Casino, looking for a good time that won’t show up in the drug and alcohol tests some companies require, for the remote solace of a stripper. Most of them are part of the city’s shadow population of 7,500, men who live in the camps on-site at Syncrude or Suncor or Shell/Albian Sands. Efforts are made to keep A Calgary company with a large lease in the oil sands turned to China when its American partner pulled out, citing the high cost of extraction. For the Chinese, cost is less of an issue. the shadow population on-site, away from temptation, away from bars that cash your paycheques, where you drink half of it and then get jacked up by a local wingnut for the other half. But despite the amenities and the steaks and big-screen televisions, the camps are dispiriting masculine compounds, while local shelters are filled with the unemployed, men who came north without any real skill, unaligned with any union, to find that this boom was more formal than the 1970s one, and that they weren’t needed.
Fort McMurray is surprisingly sedate, a middle-class bedroom community of 56,000 that is laid out at the confluence of the Athabasca and Clearwater Rivers, and extends up onto forested benchlands in the hills in a pleasant suburban sprawl. It is, people say almost by way of greeting, a good place to raise your children. It is wealthy (the median household income is over $90,000 and houses cost roughly what they do in Calgary), and young (the average age is thirty), a hotbed of volunteerism, and, like most boomtowns, diverse: about fifty ethnic groups as well as displaced Ontarians and, inevitably, a strong community of Newfoundlanders.
Almost half the population is directly employed by oil and thousands more have a secondary or tertiary connection. The infrastructure is overtaxed, the roads clogged, the hospital burdened, and on Thursday nights when the shifts change, there is a stately line of pickup trucks along highway 63 heading to Edmonton. There are two scenic golf courses, but the city is barely holding onto its market share of biker meth, prostitutes, and shackle-kitted Trans Ams. The local citizens are wary of the term boom, coming as it does with its inevitable twin: bust. At a cocktail party, with oil sliding from $55 to $40 (US) in six weeks, there was talk of the fragile equity in their homes, and a few people spoke of escape. In Calgary during the 1970s, oil infected the civic personality and acted as an aphrodisiac, but the mood in Fort McMurray today is more subdued. If it is a party, it is a company party. As conventional oil supplies wane, Fort McMurray may be the last boomtown, and perhaps it is fitting that in the twenty-first century it looks more like Oakville, Ontario, than Sodom.
The city grew in a series of godless oil booms followed by periods of Calvinist contrition. In 1906 a German, Alfred Von Hammerstein, arrived and spent the next four years drilling twenty-four unsuccessful oil wells, but he founded the Athabasca Oil and Asphalt Company and a town formed around his optimism. The first American interest came in 1917 through a Mellon Institute study that looked at the possibility of commercial development of the oil sands. By 1927, the International Bitumen Company was trying to mine the oil sands, but most of their projects either burned down or were abandoned. In 1946, Canada was importing 88 percent of its oil from the US and Latin America, but that changed the following year with the huge oil discovery in Leduc, Alberta.
After that, the oil sands developed quietly, in the shade of regular oil finds in southern Alberta. In 1953, the Great Canadian Oil Sands Ltd. was formed. Controlled by Sun Oil Co. of Philadelphia, it evolved into Suncor. Eleven years later, Syncrude began production and Fort McMurray boomed. Like other Alberta boomtowns in the seventies, it lurched into the future with a sense of drunken immortality. But in 1982, oil prices collapsed and the money and workers drifted south.
The next boom came in the unlikely form of federal aid from a Liberal government. Jean Chrétien, who had been Trudeau’s lieutenant during the National Energy Program era and who might have been lynched had he come to Fort McMurray in 1980, arrived in 1996 to publicize extensive federal tax breaks for oil sands development. Companies could write off 100 percent of their capital costs, including overruns, in the year they were incurred. The provincial government introduced an incentive package that charged only a 1-percent royalty on oil sands revenues until capital costs were paid off. The effect was immediate: housing starts in Fort McMurray rose almost 300 percent within twelve months, and the leases along the Athabasca River quickly solidified into a checkerboard of international interests.
The oil sands are owned by the citizens of Alberta and managed, in trust, by the provincial government, but as the latter doles out generous tax incentives to private industry, its own revenues diminish in the process. While oil sands production increased by 74 percent between 1995 and 2002, royalties from the oil sands decreased 30 percent, a function of the low 1-percent royalty rate. The royalty jumps to 25 percent of net revenues once the operator has recovered all project costs, but, said Tim Howard of the Sierra Legal Defence Fund, “You have got to believe in the tooth fairy to believe that these companies are going to present their accounts in a way that shows a profit.” One way the companies can defer payment of the 25-percent royalty rate is to expand existing mining operations — Suncor tested the limits of that idea by building a new facility, then arguing that it was an expansion of their original project. The Alberta government sees it as an independent operation, and the matter will be decided by the courts, with the industry watching closely.
Alberta’s Pembina Institute, which does environmental research and policy analysis, has criticized provincial management of the industry, as well as its handling of Alberta’s Heritage Savings Trust Fund, set up by Premier Peter Lougheed in 1976 as a hedge against an uncertain energy future. Similar funds were set up in both Norway and Alaska. In 1996, according to a Pembina Institute report, Alberta’s Heritage Fund had $13.7 billion compared to Alaska’s $26.5 billion and Norway’s $11.1 billion. In 2002, Alberta had dropped to $11.8 billion, while Norway’s had risen to $101 billion. Alaska was at $35.7 billion, but it also distributed an annual oil dividend that was between $1,000 and $1,900 (US) to every Alaskan citizen. Furthermore, the Klein government took in less than half the revenue per unit of oil that the Lougheed government did in the 1970s.
Along with the existing tax break and royalty holiday, the federal government provided $60 million in research and development funding for oil sands projects between 1996 and 2002. During the same period, it allowed Syncrude to reduce its taxes by $507 million, and there are mutterings among Calgary oil analysts that the government will never see a profit on Syncrude. “The oil sands are very heavily subsidized,” said 40 the walrus Tim Howard. Without the tax incentives, analysts say, the oil sands would never have been established, and they remain necessary, or future investment will wither.
The mythology of oil draws from the wildcatter, that romantic Texan symbol of grit and independence, and, importantly, movement. It was sustained by the idea that you would always find more oil, that a big strike would transform your life. That version of the oil man has retreated into fiction, yet the image remains. For all the extraordinary engineering feats in a hostile and remote climate, the oil sands most resemble a government operation — assuming some of the traditional roles of government, and taking on some of its personality traits.
Keyano College has a campus in Fort McMurray named for Suncor and makes money providing training for the oil sands companies. The Syncrude Technology Centre on campus is architecturally the city’s most distinctive building, and the company sponsors the Engineering Technology program. Syncrude spent $107 million in 2004 on local First Nations businesses, it contributes to literacy programs, career initiative programs, scholarships. It funded archeological studies, contributed to community centres, and raised a herd of 300 wood bison. Suncor has a similar record of largesse, and both companies fund environmental initiatives.
The oil sands companies resemble governments in other ways. Due to increased labour costs, questionable management, and a series of miscalculations, the big three — Syncrude, Suncor, and Shell/Albian Sands — have incurred massive overruns on expansion work extending into the billions. When queried about the overruns, the answers were vague and governmental, and there was none of the symbolic bloodletting that free enterprise usually favours, the heads on pikes to assure the markets that things are now in control. As the Klein government retreats into a private-enterprise model, the oil sands companies are becoming bureaucracies—inefficient, supported by tax breaks and research money, but providing jobs, education, and environmental management. They are Big Daddy.
There is an inherent conflict in industry driving environmental policy. Stewart Brand, founder of the Whole Earth Catalogue, once noted that he loved working with the Pentagon because they were the only group other than environmentalists that thought in fifty-year time frames. It isn’t reassuring that the Pentagon presents a bleaker scenario than most environmentalists. A 2003 Pentagon report presented a world changed by global warming, a Darwinian, medieval landscape that could begin taking shape in twenty years. “Humanity would revert to its norm of constant battles for diminishing resources,” the report reads. “Once again, warfare would de•ne human life.” It warns of oil shortages, chaos, the skies •lled with greenhouse gases.
The energy sector is the largest producer of greenhouse gases in Canada, and the oil sands themselves are “the largest terrestrial development in North America, affecting adjacent provinces and downstream areas,” said Tim Howard. The government management of the environment is under the overlapping auspices of the Alberta Energy and Utilities Board (eub), the provincial Ministry of the Environment, and Environment Canada. To proceed with an oil sands project requires a provincial environmental assessment, and depending on what is being affected, possibly a federal assessment as well. “But the responsible authority can set the scope of the assessment,” said Howard. In the case of a TrueNorth Energy proposal, Fisheries and Oceans Canada, which was conducting the environmental assessment, limited its examination to a single creek. “The federal government hasn’t stepped up to the plate on becoming co-regulators,” said Howard.
The environmental impact of the oil sands is unprecedented. “It adds up to more than we’ve ever seen in one place,” said Myles Kitagawa of the Toxics Watch Society. While individual elements are monitored, neither the Ministry of Environment nor the eub deals with the cumulative effects of development. Much of that job falls to the Cumulative Environmental Management Association, a five-year-old organization that gets 90 percent of its $5.5-million budget from industry, and the rest from government. Robert Nowosad, the executive director, is a wildlife biologist who has the silver-haired folksiness of a television naturalist. “People are trying to narrow the problem: that mine, that stack, that creek.” he said. “But it is cumulative and complex. A lot of these things we really don’t understand, quite frankly.”
The biggest issue is water. It takes about three barrels of water to process one barrel of oil, and while Syncrude recycles 75 to 80 percent of its water, it took 31 million cubic metres from the Athabasca River in 2004 (down from 40 million two years earlier). The Tailings Ponds, where residual hydrocarbons and by-products slowly settle, are larger and more plentiful than any of the natural lakes in the area, vast holding tanks that are up to fifteen square kilometres.
The other major environmental issue is natural gas. It takes 1,000 cubic feet of gas to produce one barrel of unrefined oil. Aside from the energy inefficiency, natural gas is expensive ($4 to $5 per barrel of the extraction cost), and in increasingly short supply. Alberta’s own reserve is being depleted, and by 2010, oil sands production could consume all the gas delivered by the proposed Mackenzie Valley pipeline, itself the subject of environmental controversy. Seeking more cost-effective methods, Syncrude spent roughly $40 million on research and development last year. “They don’t want to use natural gas if they can avoid it,” said Chris Severson-Baker, director of the Energy Watch Program at the Pembina Institute.”That’s what’s behind the innovation.”
“The regulated community is gathering and funding the information for the regulators,” said Myles Kitagawa. “On the days that I believe everything I learned about government in Grade 9 social studies, I think it’s a bad thing. But from a pragmatic view, how else will it get done?” Pragmatism is the ruling ethic of the oil industry, which is underpinned by the tacit imperative: we need oil.
The companies point to the innovations they have made, unprodded by government. Suncor takes pride in the narrow, wooded corridor that has been preserved on their mining site, a highway for animal movements, with sightings of fox, wolf, moose, and deer indicated on a map. They are proud of the three million trees they have planted, their wind farms, and the reduction in (per barrel) emissions at their oil sands sites. Jim Carter, the amiable president and chief operating officer of Syncrude, and a longtime resident of Fort McMurray, points to reductions in sulphur dioxide emissions, in energy outlay, in the size of tailings ponds. “Production is going up at a steep rate, and pollution is going up at a less steep rate,” said Severson-Baker, “but it is still going up. Oil companies are trying to get greener, but it depends on how economic it is.”
Getting past the environmental lobby isn’t a burden for oil sands operators, and the five First Nations bands in the area aren’t an impediment. When I asked Roy Vermillion of the Athabasca Tribal Council about his environmental concerns, he sounded like an industry spokesman as he replied, “If you change the word ‘concerns’ to ‘opportunities’…” Native-owned businesses did more than $200 million worth of business in 2003 with oil sands companies. The town is on board as well, due in part to an effective PR campaign and the economic umbrella that every company town lives under.
With Canada equivocating on its Kyoto Protocol commitments (due, in part, to sluggish industry participation and non-compliance), the majority of environmental costs will be passed on to future generations. The oil sands are inching toward the self-regulation that the Texas industry enjoys. Alberta is the perfect host, but there is still a question of who Alberta will play host to.
Alberta Premier Ralph Klein has visited China, enticing them to invest. Syncrude goes to New York. But federal industry minister David Emerson is urging caution. “I think in all honesty we have to be thinking about the overall position of our natural resources, and… over time, the degree to which we want to lose control of our natural resource base, because it is a national endowment.” Paul Martin is at the centre of several contrary forces. There is the value of Chinese trade, a vast, almost pornographic scenario for Canadian industry. On the other hand, there is the overwhelming economic alliance with the US and the push toward complete energy integration. For Alberta, the oil sands aren’t a national endowment, but a God-given provincial one. The oil industry wants Kyoto related costs to be written off against royalties and taxes, and it wants the Alberta government to be the arbiter of whether it is meeting its Kyoto commitments, not Ottawa. The spectre of another east-west pissing match looms. And finally Martin has to consider the electorate, which has yet to rise to the bait (despite occasional lurid headlines about living under the jackboot of communism), but could turn Chinese ownership of Canadian resources into an issue.
Globally, the chess match is approaching its middle game. China deployed 20,000 troops to Africa to protect its oil interests there. India is now claiming massive, albeit largely unproven reserves of its own, and the Indian oil minister was in Calgary in February, trying to lure investors. In January, Libya opened up its oil reserves to the world, putting fifteen blocks on the market; Occidental Petroleum of Los Angeles won nine of the bids. In February, it was revealed that the state-owned China National Petroleum Corp. had provided $6 billion (US) to Russia’s state-owned oao Rosneft in return for guaranteed oil supplies. New alliances emerge weekly as the two major players move their pieces into place.
If Fort McMurray represents the next 100 years of oil, the management of both the resource and the environment will become increasingly important. Ralph Klein has always favoured promotion over management, and sales are booming. But, writes Larry Pratt of the Parkland Institute, “We have become bystanders watching our energy heritage flowing south.” And perhaps to the far east, the “gorgeous East with richest hand,” as Milton wrote in Paradise Lost, that “showers on her kings barbaric pearl and gold.”