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Great description. If more people saw first hand the activity do you think it would change opposition levels?

Great post!

I love this stuff. Here is a nice National Geographic Megastructures video on the oil sands:


The whole megastructures series is first rate, btw.

I think the whole manufacturing sector versus extraction sector makes sense, because in the extraction sector you have to innovate in order to extract as much as you did last period. In manufacturing, innovation means you produce more.

It makes perfect sense that innovation in gas refining allows you to do so more efficiently with fewer inputs. Therefore you produce more outputs per unit input. That is why refining should go into manufacturing. Mining is part of extraction, and is subject to the curse of extraction, which is not to disparage mining in any way or say that it is not high tech or important.

Similar to productivity, do you think measures of R&D are also distorted? Sometimes I wonder if the very tough engineering in these dirty industries are underestimated, and some guy doing routine software Q&A testing at RIM is considered doing "R&D" and is overestimated.
PS Why do you have to wear long sleeve shirts?

I'm not sure. I think it's a rule for everyone working there: no exceptions.

Nice pics but not a word about climate change or greenhouse gas emissions? Externalities?


And we have a winner for the "First comment complaining that I didn't indignantly denounce the tar sands" contest!

No. Because I've written about that before. I don't have to write about it always and everywhere. Sometimes I just want to learn and understand things. Even if it makes me a bad person.

Well your big question was about the apparent "decline" in productivity in resource extraction, and your new insight is that it's caused at least in part by new regulations that reduce externalities. It seems like the obvious question that follows is what the impact of capturing carbon costs might be on MFP (and whether the particulars of the carbon pricing scheme make a difference), and whether that impact is desirable of a productivity metric.

Were you allowed to take pictures?

Everytime I'm there, I'm not allowed, but that is as staff.

On the long sleeves, it was ridiculous, they had us as treeplanters wearing longsleeves visivests hard hats, and safety glasses miles away from any equipment. I quit pretty quick.

Also what you call muskeg, I'm skeptical. From what I understand, Syncrude has been able to reclaim land allright, but they are having a hell of a time recreating wetlands, which is why David Laidler et al, were up in arms about the feds getting out of inland fisheries. Leaving reserves as the only remaining fed jurisdiction. Not that that gets you much, since last time I was there Fort McKay was trucking in water.

oblivious: Actually, a carbon tax would probably make it more likely that technology improvements would show up in MFP. Most of the GHG emissions from the oil sands comes from the energy generation required to extract and upgrade the bitumen. Innovations that reduce energy inputs would show up in the standard productivity measures.

Edeast: Yes, I asked for and received permission to take pictures. The Syncrude people were the ones who raised the wetlands question, and they seemed to be keen on making the point that they're trying.

Huh, interesting. Honestly I was only thinking of the accounting and had failed to consider how incentives would change. Thanks for responding, I clearly wouldn't know how to think about these things.

Great post!

On SAGD, I think Surmont is going to be the largest in the world, but those records don't last long. Nexen just up the road, is able to recycle water as well, but complains that it is too expensive, and is trying to pull water from the Clearwater, which is a heritage river. CNOOC already owns 35% of it. Also SAGD may not disturb the surface as much, but I think it releases more CO2 per barrel.

I think locals were pissed when Conoco Phillips pulled out of Syncrude and brought in Sinopec, due to the shared tech that Syncrude has developed. Also a lot of locals make the same argument Simon made a couple weeks ago, on what is the rush, they'd prefer a monopoly for a couple centuries.

That's really interesting stuff. If you ever get a chance to speak to someone in the pipeline industry you'll learn some more things that I suspect anyone not in that sector would know about but should. I have a few friends in this industry, a pipeline inspector, a GM for a pipe lining company (an new American FDI one no less), and a side drilling operator. Side drilling is a technology that has become very important. Remember that Simpsons episode, "Who Shot Mr.Burns?" If so or no, one of the jokes was Mr,Burns stealing newly found oil under the school by building an oil drill sideways to get the oil from the school. This is a real method of oil extraction. I am told it gets mostly used when First Nations refuse drilling on their land. I have no doubt the pipeline to Kitimat will be built. Even if lots of it is built underground, which of course is more expensive and why lining is used.

The other interesting fact I've learned is the main reason we're seeing these pipeline leaks is because the pipes are simple old and need to be replaced like any old infrastructure. I asked one of these friends why lining isn't used for over-ground pipes to help prevent leaks. I'm told over-ground leaks are easy to stop normally and can be quickly. It's just when old pipes are being used it becomes a pain. Mostly since you can't predict a leak anymore than you can predict your dishwasher from not working suddenly. I still think the piping industry for political reasons should consider using lining. Obviously they can just pass the cost on the consumers.

Never knew about the sulfur. Would it be worth sending it through a pipeline? I read it's used for fertilizer. Sell it to China, India, and Africa. Offer it for free to anyone who buys our oil maybe.

Actually, there was a certain amount of pipeline talk during the trip, but since I knew essentially nothing about it, I don't have a lot to say. One thing I did learn - much to my surprise - is that there already *is* an oil pipeline that can take western Canadian oil to eastern Canadian markets: Line 9.

Nice post. I'm in the oil business (not on the Canadian tar sands, though) and can answer the question about the long sleeves. It is a pretty simple safety issue, you want anyone on the site to have their arms and legs protected. A coverall won't protect you from something serious, but it can be a handy barrier to prevent anything from nasty or hot liquids, sunburn, mosquitos, hot surfaces, or sharp bits of metal from coming into direct contact with you. Almost every modern oil and gas facility in the world has this rule in place, and everyone within the restricted area has to abide by it. A lot of it doesn't make sense to an outsider, but to somebody in the industry it is as common as wearing a seatbelt.

Nice post! I learned a lot from it. Thanks!

Great post. I've always wondered about the oil sands. It's great to learn something new. Thanks!

One thing I did learn - much to my surprise - is that there already *is* an oil pipeline that can take western Canadian oil to eastern Canadian markets: Line 9.

Threats to cut off the flow of Alberta crude to eastern Canada in the 1980s NEP dispute would have rung hollow with no pipeline.

If you want to look at MFP more comprehensively, a few suggestions:

1) The big decline in the red line, 1973 to 1982, coincides with a boom/bust in the O&G sector. A number of dynamics happening.

2)Mostly mining in oil sands prod up to end of graph period (2000). More SAG-D and boom in overall oil sands investment in next decade (2000-2010)

3)The few year lag in between cap investment and production would be a minor shift downward on MFP graph, and will balance out over time (new projects come on production as newer projects enter development). And should diminish as you get a larger installed baseline of operating facilities.

I would suggest you relocate to Fort McMurray for at least 5 years. Make sure to drink the water from the Athabasca river and eat the fish from there. If you don't get cancer after that, I will support the tarsands project.

Would you do that where you live?

A few interesting, and as Stephen notes, slightly off topic, comments about the environmental effects of the tar sands.

Wendy Waters writes: "Great description. If more people saw first hand the activity do you think it would change opposition levels?"

and Stephen Kessels writes: "I would suggest you relocate to Fort McMurray for at least 5 years. Make sure to drink the water from the Athabasca river and eat the fish from there. If you don't get cancer after that, I will support the tarsands project."

Although I think that the immediate and local environmental effects are important, I worry that Wendy's observation is pointing out the way in which we as a society miss the point about these things. The big danger to me here is global warming. The amounts of energy required to get this stuff out of the ground and process it, the reclamation of the tar sands once the mining is complete, and the effect of the supply of oil on prices and consumption are to me much more important.

The problem with the more serious, but "silent" killer of global warming is that it is not just the responsibility of Albertans and the oil companies, but of all of us who use energy, vote for politicians at the Federal level who might be able to do something about carbon taxes on a broader scale and are engaged in discussions about the policies around this stuff.

I was thinking that your hosts would probably be happier if you didn't refer to the place as Mordor.


Certainly emphasizes th negative more than Stephen does.

Stephen: I would drink water from Lac Rapide and eat fish from the Moisie river. In fact , I do.
That's why I fought against the uranium mine 500 metres from the city's freshwater source...

Jon's post - re Business Insider article.

Those photos and descriptions are fascinating, and give a better picture of the mine operations.

I think that Stephen's report, based on his tour, did not have an obligation to discuss the negatives of the oil sands project that he toured, and I'm not sure that the Business Insider article did either. I think that the difference is that Stephen had a tightly controlled tour, put on by the company. In that context perhaps more discussions of the "tightly scripted" component could have been mentioned/discussed, but he did say it was a tour by them and he was under their control. In this case it is classic reporting - what did you see and hear?

However, Stephen's economic analysis is interesting and a useful part of the conversation.

Stephen does recommend that anyone offered a trip to the oil sands take it. I would wonder if perhaps a tour is a less useful way of understanding the oil sands than a broader view offered by pictures, videos and other sources that aren't just from the proponents/opponents. Plus, flying to Fort McMurray burns an awful lot of hydrocarbons.

If you do end up in Fort McMurray, my buddy is the pilot in the business insider article. I think it only costs a couple hundred dollars to rent the plane.

Nice post Stephen!

The picture of the Sulphur pile just scares me. For decades, there has been a much smaller pile in North Vancouver (visible from much of downtown Vancouver and Stanley Park.) I still recall the year it caught fire. Sulphur has a high ignition point, but burns very hot. The main combustion product is SO2, a colourless gas that is odorless at lethal concentrations (as anyone who has worked in pulp mill will recall.) The Vancouver Fire Department had trouble handling this type of fire, as pouring water on it converts the SO2 into H2SO4 (i.e. Sulphuric Acid, a highly corrosive acid.)

You've really got to hope that the private and public sector people in charge understand the environmental and safety challenges this poses.

"One the important things to understand about the Syncrude operation is that time there is measured in decades: two or three decades of extraction, another couple of decades of reclamation, and then another couple of decades to make sure that the ecology of the reclaimed land is sustainable."

Do we (literally) have to be stupid think this is likely to happen?

Could the other readers please comfort me by pointing out other examples of large projects that humans successfully manage on such time scales, when decades of large-scale expenditure are required at the back end to offset negative externalities created during the exploitation phase?
(Anyone? Anyone? Bueller?)

If I were to advise a CEO, I would have to argue that his/her fiduciary responsibility to shareholders required them to pay out as much as possible to shareholders during the extraction phase, lever up with debt, and go bankrupt during the remediation phase. If I were to advise a politician, I would have to point out the potential benefits of postponing costly remediation efforts to future administrations while remaining firmly committed to their goals.

That makes it hard for me to be optimistic....perhaps someone can point out what I've failed to consider.

That makes it hard for me to be optimistic....perhaps someone can point out what I've failed to consider.

The impact of public awareness/pressure to clean up the operations.

ERCB Directive 074: February 3, 2009
Tailings Performance Criteria and Requirements for Oil Sands Mining Schemes

One example of a company responding to the new directive/regs:


How effective the changes are over time remains to be seen.

A clarification on Line 9: The pipeline was originally built to handle west -> east flow, but was then reversed in the mid-1990s to move imported waterborne crudes. Now, with the surge in inland North American crude production, a re-reversal has been proposed and approved; I'm not certain if it is yet in service. Approvals were granted this summer.

Interesting that you call the diluent "solvent." Primarily, the diluent is natural gasoline, one of the natural gas liquids recovered from shale drilling in "wet" U.S. plays (Eagle Ford, southwest Marcellus). Natural gasoline is railed from Texas and Pennsylvania to Canada, blended with bitumen and then piped to Chicago area refineries.

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