It called ‘oil sands’ or ‘tar sands’

Along Highway 63 here the rolling
hills give way to massive open pits, huge waste ponds and tangles of pipes
and refining equipment that spew smoke into the air.

In the pits, shovel trucks load dirt into dump trucks so gigantic that a
driver has to climb a ladder attached to the front grille to get behind the
steering wheel.

The changing landscape reflects an ambitious quest to develop a new source
of oil. Major companies, faced with tougher prospects for developing big new
oil fields around the world, are doing what was once unthinkable: sinking
billions of dollars into projects to wring oil out of deposits of petroleum
buried amid sand and clay.

Until a few years ago, such projects — called ‘oil sands’ or ‘tar sands’
— sputtered at the fringes of the oil industry. But since technological breakthroughs
brought down costs and oil prices have soared, companies have been investing
heavily here. Oil-sands production is now profitable when a barrel of oil
sells in the low $20s, analysts said — far below the recent $50 range.

Just outside this boomtown,
huge machines dig up the earth and remove the oil sands, whose deposits of
a substance called bitumen smell something like roofing tar and are as thick
and sticky as molasses. Companies are mining hundreds of feet deep and running
the unearthed deposits through a complex process to convert them into oil.
Companies move enough dirt and oil sands in two days to fill Yankee Stadium.

Factoring in the oil sands, Canada’s proven oil reserves are reported to
be nearly 180 billion barrels, second only to Saudi Arabia. U.S. energy officials
say Canada’s oil-sands deposits are among the largest in the world. The oil
sands are buried under an area about the size of New York state. Fort McMurray,
the hub of oil-sands activity, boasts on billboards: ‘We have the energy.’

Oil sands also are enriching the province and creating thousands of high-paying
jobs. On the edge of town, a modern museum has interactive exhibits showing
how the mining and refining processes work. One exhibit allows visitors to
smell samples of the oil sands. ‘As we call it: Sniff the smell of money,’
said Bert MacKay, the museum supervisor.

Companies here are producing increasing amounts of oil from this unconventional
source — about 1 million barrels a day. If all of that oil went to the United
States, it would amount to roughly 5 percent of daily consumption. In 1995,
oil derived from the sands was less than half the current amount. Alberta
officials expect production to triple from today’s level by 2020.

Oil companies have been struggling to replace aging fields whose production
has tapered off. Many have been frustrated by oil-rich countries in the Middle
East and elsewhere that refuse to open their doors to Western companies.

‘We are all kind of fighting each other in the rest of the world where oil
production is not increasing,’ said Michael Rodgers, a senior director of
PFC Energy, a Washington-based consulting firm. ‘We have to start thinking
about unconventional resources. A lot of companies are saying, ‘We do have
this option in Canada.’ ‘

Canada was the top supplier of crude oil to the United States last year,
providing about 16 percent of U.S. imports. Even so, development of the
oil sands is not happening fast enough to significantly reduce U.S. dependence
on Middle Eastern oil. Companies such as Exxon Mobil Corp., Chevron
Corp., the Royal Dutch/Shell Group and ConocoPhillips Co. have oil-sands projects
here. China’s oil companies, eager to gain access to supplies to satisfy
the country’s growing energy needs, also are buying into oil-sands projects.

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