Peak oil sands, low EROI, high debt, limited pipeline and refinery capacity

Peak tar sands, a.k.a. oil sands

Techno-opmtimists claim that technology will enable nasty, sour, gunky, expensive, difficult unconventional oil to fill in the gap of declining conventional oil.

Conventional oil is declining too quickly for unconventional to match

But that’s not likely, because the decline in conventional production is between 4–8% annually (Höök 2009), equal to a new North Sea (~5 Mb/d) coming on stream every year to keep present output constant (Fantazzini 2011). This equals 5 new Saudi-Arabia’s  by 2030 just to offset the decline in existing production (Aleklett 2010).

Höök (2009) provides additional data on giant oil field decline rates and finds the average decline rate has increased by around 0.15% per year since mid-1960s – a trend that is expected to continue. Decline rates are even higher for smaller fields. As future production becomes more reliant on non-giant fields, average decline in existing production will increase. The increasing decline rate is seldom discussed and may be as high as 7,000,000 barrels/day by 2030 (Aleklett 2010).

Tar sand crude bitumen is a thick, viscous crude oil that, at room temperature, is in a near solid state. The definition used in the industry is that crude bitumen is “a naturally occurring viscous mixture, mainly of hydrocarbons heavier than pentane, that may contain sulphur compounds and that, in its naturally occurring viscous state, will not flow to a well”. The term crude bitumen generally refers to petroleum with a density greater than 960 kilograms per cubic meter. Much of the bitumen in Canada’s oil sands deposits has densities that exceed 1,000 kg/m3 (API Gravity of less than 10 degrees). Because of its high gravity and high viscosity characteristics, crude bitumen may be blended with a light hydrocarbon liquid (condensate) before it is shipped to markets by pipeline.

Although tar sands production may be as high as 4 million b/d in 2030, the easiest, high quality sands are being mined and melted in situ now. Mining depends on adequate water and natural gas supplies. If either becomes less available. production declines. Meanwhile, the entire infrastructure is rusting and corroding, maintenance costs in the harsh environment will take an increasingly larger toll on Energy Returned On Invested as time goes on. The very low EROI of 5 now doesn’t include the cost to transport and refine tar sands oil in Gulf refineries.  The true EROI is more likely around 3, not even close to the 12 to 14 EROI needed.

There are other limits to growth of Canadian Tar Sands

Capital costs of $2 to $5 billion before the first barrel of oil is delivered.

Low quality resources too poor to be developed. Canada’s oil sands are composed of approximately 80 to 85 percent sand, clay and other mineral matter, 5 to 10 weight percent water, and anywhere from 1 to 18 weight percent crude bitumen. Bitumen content greater than 12 percent is considered rich, while anything less than 6 percent is poor and not usually considered economically feasible to develop.  Reserves need to be at least 7% and more than 3 meters thick.

In-situ: While the resource base is very large, it is worth noting that many in Situ recovery technologies are still in the early development stage and there is still considerable uncertainty about how much crude bitumen will ultimately be recovered.

In situ is reached with boreholes, like drilling conventional oil and sending steam down to warm the oil enough to get it to flow, with usually less than 20% of the oil recovered (and like natural gas, water is not limitless either)

Most of the tar sands are in-situ which probably has an EROI of 3:1. By year-end 2008, about 10 percent (I.e., 170.4 billion barrels) of this volume is recoverable using today’s technology. Of this recoverable bitumen reserves, 18 percent is accessible through surface mining technologies, while the remaining 82 percent requires in situ recovery technologies.

Refinery limits. According to James Burkhard, managing driector of HIS CERA, “Canadian oil sands would eventually hit the limits of existing cross-border capacity by around 2019. Even before that, however, oil sands supply would run up against the capacity limits of Canada’s existing US customers—refineries in the Mid-Continent—to process oil sands production. This could occur as soon as 2015 and is a key reason Canadian producers are seeking access to the much bigger refining market in the US Gulf Coast. To expand the reach of Canadian oil into the U.S. you need a pipeline to the U.S. Gulf Coast which is the largest, most sophisticated refining center in the world” (U.S. SENATE).

It doesn’t flow.  The oil viscosity is too high to flow through a pipeline unless mixed with an equal amount of light crude oil or refining it by breaking carbon-carbon bonds in the large oil molecules and attaching hydrogen to each exposed carbon atom by breaking apart natural gas to get its hydrogen.  Natural gas is limited in the tar sand area however (Deffeyes).

Economic. If tar sand prices are unaffordable by society, whether from a deflationary low price or a high-demand, high price, “The Market” will be unable to afford to increase oil sand production.  A financial crash would also stop the money from flowing to new production projects.

On average, the oil price needs to be $85 for oil sand companies to break even. With low oil prices and huge debt loads, companies could find themselves unable to get financing:

  1. Canadian Oil Sands Ltd. said Thursday it would further slash its dividend and capital spending budget in response to the sharp drop in oil prices and a rising debt load. The company’s net debt stood at $1.51 billion as of Dec. 31, 2014.
  2. Southern Pacific Resource Corp. and Connacher Oil and Gas Ltd. announced last week that they’d hired banks to help raise cash so the companies can avoid missing interest-rate payments. Trading in the bonds shows investors expect less than half the principal to be paid back from the energy companies in Alberta’s oil sands.
  3. Connacher, with about C$977 billion in debt, said two days earlier that it had hired Bank of Montreal to look at its liquidity and capital structure after saying in November that cash flow may not be sufficient to cover interest payments on debt and it will need to get additional funds next year to stay in business. The company’s August 2018 notes were trading at about 40 cents on the dollar, according to data compiled by Bloomberg.
  4. MEG Energy Corp., a Calgary-based oil-sands developer, said Dec. 4 it reduced its capital budget for this year by a third and plans to keep 2015 spending flat and funded with cash on hand. Canadian Oil Sands Ltd., said Dec. 3 it’s lowering its dividend by 42 percent.
  5. Canadian Natural Resources Ltd., the nation’s largest producer of heavy oil, has set aside C$2 billion it can remove from its budget of C$8.6 billion next year if prices remain low.

Environmental effects

My name is Melina Laboucan-Massimo. I come from northern Alberta, Canada. I am a member of the Lubicon Cree First Nation, which is one of the many communities impacted by tar sands development.

For those of us in Canada who are experiencing the detrimental effects of tar sands, it is encouraging to see that many decision- makers and citizens in the United States are beginning to ask questions around whether or not the tar sands are in the right direction and which we should be pursuing in an already carbon-constrained world. In the past 5 years, I have worked in communities throughout Albert and British Columbia that are very concerned about the approval of tar sands pipelines not only because of potential spills but also because it will increase pressure for more tar sands expansion in Alberta. I personally have felt the impacts of both pipeline spills and tar sands-driven industrialization of the landscape in the north. Last spring, I returned home where I was born to witness the aftermath of one of the largest spills in Alberta’s history, which was 50 percent larger than the oil spill in the Kalamazoo River in Michigan. What I saw was a landscape forever changed where my family fished, hunted, and trapped for generations. Days before the Federal or provincial government admitted that this had happened, my family was sending me messages telling me of headaches, burning eyes, nausea, and dizziness, asking me if I could find out more information as to if it was an oil spill and how big it might be. This was one of the saddest and most frustrating points because my family was not the first, nor the last, to experience these effects. It was alarming to hear that the first phase of the Keystone had already leaked and spilled 14 different times in its first 12 months of operation. Where I come from billions of dollars are taken out of our traditional territories.

Yet, until this day, my family still has no running water. The indigenous communities have lived in these regions for thousands of years and yet are being pushed out, unable to access their traditional territories and unable to practice their treaty rights due to tar sands expansion.

Communities like Fort McKay First Nation can no longer drink the water from their taps and their children are developing skin rashes from bathing in this contaminated water. A cancer study done by Alberta Health Services reveal that there was a 30 percent increase in the community downstream of Fort Chipewyan. Leukemias and lymphomas were increased by three-fold and bile duct cancers increased by seven-fold. Almost all of the cancer types that were elevated were linked in scientific literature to chemicals in oil or tar. We have toxic tailing ponds sitting in the north of Alberta that span over 170 square kilometers, which is equivalent to 42,000 acres.

We have endured decades of promises that have taught us that promises of new technologies that will repair this damage feel like empty words. The reality is that SAGD solutions usually move the problem elsewhere such as pumping the toxic byproduct underground where they can leak into aquifers rather than storing them in tailing ponds from the mines. Meanwhile, the scale of production is increasing and the overall programs are getting worse.

Companies will leave irreparable damage to our lands and our homes, and the Alberta government claims to reclaim the land. However, many prominent scientists dispute that this is possible. Just last week, a report was published in the proceedings of the National Academy of the Sciences of the United States of America stating ”any suggestion that oil sands reclamation will put things back to the way they were is greenwashing.”

First Nations in British Columbia are also adamant that the Enbridge pipeline will not be built through their territories. Over 100 First Nations have signed on to this declaration to oppose the construction of the Enbridge pipeline and its associated supertankers on the west coast of Canada and First Nations are willing to pursue litigation if the Enbridge pipeline is approved in Canada as they have constitutionally protected rights under Section 35 of the Canadian Constitution.

Companies will leave irreparable irreversible damage to the land and our homes. The Alberta government claims otherwise, vowing to “reclaim” the land – however, many prominent scientists dispute that this is even possible. As of December 2010, only 0.15% of the land devastated by tar sands mining operations has been certified as reclaimed. The Proceedings of the National Academies of Sciences of the United States of America published research just last week stating that “companies have no obligation to restore or compensate for the destroyed wetlands” and “any suggestion that oil sands reclamation will put things back the way they were is greenwashing.,,

First Nations are not the only ones to oppose this pipeline. In British Columbia, surveys show that 80% of British Columbians oppose super tankers on the Pacific West Coast. Many people do not think the pipeline or super tankers will benefit the province of BC especially with a thriving fishing and eco-tourism economy, which brings in over $1 Billion dollars to BC annually.

As we see the landscape change, my father who is a Cree hunter has more and more difficulty in finding moose to feed our family and community. A couple of years ago, he found 3 tumors in the carcass of a moose while hunting in our traditional territory. Pristine forest, wetlands, bogs and fens are torn up and destroyed which will be replaced by acidic soil, end cap lakes and tree farms – a mere shadow of what once was.

Tailing ponds contain a whole slew of toxic chemicals from arsenic, cyanide, mercury, lead, benzene, ammonia, polycyclic aromatic hydrocarbon and naphthenic acids some of which are known carcinogens.

Last week I was visiting the community of Fort McKay, which is completely surrounded by tar sands mines and in situ projects. They have been advised NOT to drink water or cook with the tap water or take long showers. Children are developing sores on their bodies from exposure to the water they have to bathe in. The First Nation has had to cart bottled water in from Fort McMurray for community members, which is just under an hour’s drive away. Communities are also pulling mutated fish with tumours and boils on them out of the various rivers and lakes in the region and unable to consumed these as a part of their diet. We are also seeing elevated rates of cancers in the north of Alberta. I myself have had family members live and die with cancer. And we are also seeing increased rates of respiratory illnesses such as emphysema, asthma, and chronic pulmonary disease due to the increased level of sulfur dioxide, and hydrogen sulfide. A cancer study done by Alberta Health Services revealed that there was a 30% increase in cancers in Fort Chipewyan compared with expected over the last 12 years. Leukemias and lymphomas increased by 3-fold and Bile duct cancers increased by 7-fold and other cancers such as soft tissue sarcomas, and lung cancers were elevated. Almost all of the cancer types that were elevated have been linked scientifically to chemicals in oil or tar.

Many types of cancers have also been linked in scientific literature to petroleum products, including VQCs, dioxin-like chemicals, other

Extracting oil from the tar sands is one of the most expensive and most environmentally destructive ways to produce oil in the world. While open pit mines are more visually horrifying, SAGO is far more carbon-intensive, water-intensive, and energy-intensive, which will be 80% of the way tar sands will be produced.

Continuing to produce this type of fossil fuel in an already carbon distraught world – is essentially carbon suicide. Not only are we producing CO2 emissions at an unsustainable rate, but we are also fragmenting and destroying one of the last intact boreal forests in the world that helps us to keep carbon in check. And this is the path that the Harper government wants to keep us on for the next 50 to 100 years.

We have a choice to change the direction we are taking in the world. We could become world leaders in the clean, renewable energy solutions that meet our energy needs without undermining the health of our communities and ecosystems. We won’t get there, however, if we try to attach techno-fixes onto what is, at every stage, a profoundly destructive form of energy. The reality is that the tar sands are managed to maximize profits, and not to protect the environment or downstream communities like the one where my family lives. We have endured decades of broken promises, which has taught us that corporate promises of new technologies that will repair this damage are simply empty words – greenwash intended to reassure people like yourselves that this time it will be different.

I urge you to look beyond what is good for the oil companies’ next few quarterly profits, and think about what is in the best interest of the next generation.

Canadian Association of Petroleum Producers

2030 production changed from 6.4 million b/d to as low as 4.3 million b/d to as high as 5.3 million b/d 835,000 b/d lower oil sands in situ, 33,000 b/d oil sands mining, and 260,000 b/d conventional oil.

Oil Sands production

  • 2014: 2,200,000 b/d (912,000 mining 1,200,000 b/d in situ)
  • 2030: 3,000,000 b/d to 4,000,000 b/d

Conventional oil

  • 2015: 1,400,000 b/d
  • 2020: 1,300,000 b/d

Delayed projects

  • Royal Dutch Shell Plc: Carmon Creek for 2 years that will produce 80,000 barrels a day.

Canceled  projects

  • Royal Dutch Shell Plc: 200,000 barrel-a-day Pierre River mine
  • Total SA: C$11 billion Joslyn mine producing 160,000 barrels-a-day
  • Cenovus Energy said that it would reduce investment spending by 27%, and set aside plans for two oil sands project expansions.

June 17, 2015. Oil-Sands Megaproject Era Wanes as Suncor Scales Back. by R. Penty. Bloomberg.

The era of the megaproject in Canada’s oil sands is fading. Canadian oil-sands spending is poised to drop 30% to $19 billion this year while total oil production will be 17% lower in 2030 compared with last year’s estimates.

High cost, low crude oil prices, tax increases, lack of pipelines, etc., are causing producers such as Suncor Energy Inc. and Imperial Oil Ltd. to shift to smaller projects like cheaper, bite-sized drilling programs that deliver quicker returns and require less labor.

With crude 46% below last year, companies globally have delayed or scrapped about $200 billion in big projects according to a June 16 report from Ernst & Young LLP.

“New oil sands projects, especially the mining projects, are very difficult,” said Amir Arif, an analyst at Cormark Securities Inc. in Calgary. “It’s hard to make the economics work.”


Feb 2, 2015. Lower Oil Prices Strike at Heart of Canada’s Oil Sands Production By I. Austen. New York Times. 

For as long as 400-ton dump trucks have been rumbling around the open pit mines of Canada’s oil sands, crews from Kal Tire have been on hand to replace and repair their $70,000, 13-foot diameter tires. But the relationship, going back over a decade, didn’t spare the company when oil prices began plummeting.

Canada’s oil sands prompted an unprecedented expansion over the last decade. But the roughly $155 billion spending spree left the industry with unusually high production costs.

Now, oil sands operators are scrambling to limit the damage, as crude prices hover near 7-year lows.

Suncor, the largest oil sands operator, announced plans to eliminate about 1,000 contract jobs. Shell Canada said it would cut its oil sands work force by about 10%. Cenovus Energy said that it would reduce investment spending by 27%, and set aside plans for two oil sands project expansions.

The enormous projects are difficult to switch off. Companies must keep pumping crude to cover the sizable debt on their multibillion-dollar investments.

Imperial Oil, controlled by Exxon Mobil, said 4th-quarter earnings dropped by 36%.

While production may keep humming along, the big question is whether oil sands producers can break even at current prices.

An oil sands project takes five to 10 years to design and build, and they have a life span of 25 to 50 years. Fort Hills, a project now under construction in a partnership led by Suncor, has a budget of $10.7 billion.

Once such projects are up and running, the expenses are significant, given the process needed to get the oil-laden bitumen from the ground. It must either be dug up or blasted from under the ground using steam. Two energy-hungry steps are then needed to separate the bitumen from the sand and to turn it into usable oil known as synthetic crude.


Aleklett, K., et al. 2010. The Peak of the Oil Age – analyzing the world oil production Reference Scenario in World Energy Outlook 2008. Energy Policy, 38(3), 1398-1414. DOI:

Fantazzini, D., et al. 2011. Global oil risks in the early 21st Century. Energy Policy, 39(12), 7865–7873. DOI:

Höök, M., et al. 2009. Giant oil field decline rates and their influence on world oil production. Energy Policy, 37(6), 2262–2272. DOI:

U.S. House. Serial No. 112-128. March 20, 2012. The American Energy Initiative Part 17: A focus on the future of energy technology with an emphasis on Canadian oil sands. House of Representatives. 203 pages

U.S. SENATE. Jan 31, 2012. U.S. Global energy outlook for 2012. S. HRG. 112-378.

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