Tar sands, however, bear little resemblance to the conventional oil fields which these companies have long exploited. They must be treated in various energy-intensive ways to be converted into a transportable liquid and then processed even further into usable products. Some tar sands can be strip-mined like coal and then "upgraded" through chemical processing into a synthetic crude oil -- SCO, or "syncrude." Alternatively, the bitumen can be pumped from the ground after the sands are exposed to steam, which liquefies the bitumen and allows its extraction with conventional oil pumps. The latter process, known as steam-assisted gravity drainage (SAGD), produces a heavy crude oil. It must, in turn, be diluted with lighter crudes for transportation by pipeline to specialized refineries equipped to process such oil, most of which are located on the Gulf Coast.
Extracting and processing tar sands is an extraordinarily expensive undertaking, far more so than most conventional oil drilling operations. Considerable energy is needed to dig the sludge out of the ground or heat the water into steam for underground injection; then, additional energy is needed for the various upgrading processes. The environmental risks involved are enormous (even leaving aside the vast amounts of greenhouse gases that the whole process will pump into the atmosphere). The massive quantities of water needed for SAGD and those upgrading processes, for example, become contaminated with toxic substances. Once used, they cannot be returned to any water source that might end up in human drinking supplies -- something environmentalists say is already occurring. All of this and the expenses involved mean that the multibillion-dollar investments needed to launch a tar-sands operation can only pay off if the final product fetches a healthy price in the marketplace.
And that's where geography enters the picture. Alberta is theoretically capable of producing five to six million barrels of tar-sands oil per day. In 2011, however, Canada itself consumed only 2.3 million barrels of oil per day, much of it supplied by conventional (and cheaper) oil from fields in Saskatchewan and Newfoundland. That number is not expected to rise appreciably in the foreseeable future. No less significant, Canada's refining capacity for all kinds of oil is limited to 1.9 million barrels per day, and few of its refineries are equipped to process tar sands-style heavy crude. This leaves the producers with one strategic option: exporting the stuff.
And that's where the problems really begin. Alberta is an interior province and so cannot export its crude by sea. Given the geography, this leaves only three export options: pipelines heading east across Canada to ports on the Atlantic, pipelines heading west across the Rockies to ports in British Columbia, or pipelines heading south to refineries in the United States.
Alberta's preferred option is to send the preponderance of its tar-sands oil to its biggest natural market, the United States. At present, Canadian pipeline companies do operate a number of conduits that deliver some of this oil to the U.S., notably the original Keystone conduit extending from Hardisty, Alberta, to Illinois and then southward to Cushing, Oklahoma. But these lines can carry less than one million barrels of crude per day, and so will not permit the massive expansion of output the industry is planning for the next decade or so.
In other words, the only pipeline now under development that would significantly expand Albertan tar-sands exports is Keystone XL. It is vitally important to the tar-sands producers because it offers the sole short-term -- or possibly even long-term -- option for the export and sale of the crude output now coming on line at dozens of projects being developed across northern Alberta. Without it, these projects will languish and Albertan production will have to be sold at a deep discount -- at, that is, a per-barrel price that could fall below production costs, making further investment in tar sands unattractive. In January, Canadian tar-sands oil was already selling for $30-$40 less than West Texas Intermediate (WTI), the standard U.S. blend.
The Pipelines That Weren't
Like an army bottled up geographically and increasingly at the mercy of enemy forces, the tar-sands producers see the completion of Keystone XL as their sole realistic escape route to survival. "Our biggest problem is that Alberta is landlocked," the province's finance minister Doug Horner said in January. "In fact, of the world's major oil-producing jurisdictions, Alberta is the only one with no direct access to the ocean. And until we solve this problem... the [price] differential will remain large."
Logistics, geography, and finally timing. A presidential stamp of approval on the building of Keystone XL will save the tar-sands industry, ensuring them enough return to justify their massive investments. It would also undoubtedly prompt additional investments in tar-sands projects and further production increases by an industry that assumed opposition to future pipelines had been weakened by this victory.
A presidential thumbs-down and resulting failure to build Keystone XL, however, could have lasting and severe consequences for tar-sands production. After all, no other export link is likely to be completed in the near-term. The other three most widely discussed options -- the Northern Gateway pipeline to Kitimat, British Columbia, an expansion of the existing Trans Mountain pipeline to Vancouver, British Columbia, and a plan to use existing, conventional-oil conduits to carry tar-sands oil across Quebec, Vermont, and New Hampshire to Portland, Maine -- already face intense opposition, with initial construction at best still years in the future.
The Northern Gateway project, proposed by Canadian pipeline company Enbridge, would stretch from Bruderheim in northern Alberta to Kitimat, a port on Charlotte Sound and the Pacific. If completed, it would allow the export of tar-sands oil to Asia, where Canadian Prime Minister Stephen Harper sees a significant future market (even though few Asian refineries could now process the stuff). But unlike oil-friendly Alberta, British Columbia has a strong pro-environmental bias and many senior provincial officials have expressed fierce opposition to the project. Moreover, under the country's constitution, native peoples over whose land the pipeline would have to travel must be consulted on the project -- and most tribal communities are adamantly opposed to its construction.
Another proposed conduit -- an expansion of the existing Trans Mountain pipeline from Edmonton to Vancouver -- presents the same set of obstacles and, like the Northern Gateway project, has aroused strong opposition in Vancouver.
This leaves the third option, a plan to pump tar-sands oil to Ontario and Quebec and then employ an existing pipeline now used for oil imports. It connects to a terminal in Casco Bay, near Portland, Maine, where the Albertan crude would begin the long trip by ship to those refineries on the Gulf Coast. Although no official action has yet been taken to allow the use of the U.S. conduit for this purpose, anti-pipeline protests have already erupted in Portland, including one on January 26th that attracted more than 1,400 people.
With no other pipelines in the offing, tar sands producers are increasing their reliance on deliveries by rail. This is producing boom times for some long-haul freight carriiers, but will never prove sufficient to move the millions of barrels in added daily output expected from projects now coming on line.
The conclusion is obvious: without Keystone XL, the price of tar-sands oil will remain substantially lower than conventional oil (as well as unconventional oil extracted from shale formations in the United States), discouraging future investment and dimming the prospects for increased output. In other words, as Bill McKibben hopes, much of it will stay in the ground.
Industry officials are painfully aware of their predicament. In an Annual Information Form released at the end of 2011, Canadian Oil Sands Limited, owner of the largest share of Syncrude Canada (one of the leading producers of tar-sands oil) noted: