The fight over Canada’s dirty oil

21-03-14 13:58 | Field visits | Responsible investment | Our work

These years a regular fight on words, facts, feelings and not least over billions of dollars in potential earnings takes place in the old Indian territories in the Canadian Alberta province. Nordea went to Fort McMurray – the epicentre of what may be regarded as the world’s most controversial oil bonanza – to examine the environmental and social impact of a burgeoning industry.

At first sight, the idea of anyone wanting to start a new adventure here seems totally absurd. Fort McMur-
ray, a former homely, tumbleweed-blown town in the middle of Canada, and its surroundings are now a truly depressing place to stay if you are not paid abundantly for it. Fort McMurray itself is not much bigger than a small country town located in the middle of nowhere, but as soon as you venture out into town where the money flows, all your senses are assailed by the heavy industrial haze overhanging the area. There is a constant, long line of heavy trucks moving in and out, the climate is almost brutal, and you get the feeling that people are here only because of the money. And money – lots of it – is precisely what it is all about in these parts of the country.

In an area the size of England many of the world’s leading oil companies are investing in excess of USD 100bn to harvest oil from reserves that are considered to be among the most difficult to extract. And even though producing one barrel of oil here requires three times as much energy as producing one barrel of conventional crude for instance in the Middle East, the high level of oil prices has so far made it a profitable business. The rule of thumb for the multinational oil companies is that if oil prices exceed USD 65 a barrel, there are profits to be made in the area.

The fight seen from above

To be able to grasp what is at stake, you have to see it all from above. Because the area is so huge that it is impossible to fully understand the scope of this industry and its environmental and social impact from ground level. Almost no matter in what direction you fly, it takes more than two hours by helicopter to get away. All over, we see Armageddon-like production sites. The oil resources in the tar sands (oil sands) are just beneath the surface and are extracted using vast amounts of energy and water. Actually, it was a local chemist who in the 1920s dis- covered how to wash oil out of the sand – using his wife’s washing machine! And although the helicopter flight reveals that much has happened since then, the method used to extract oil today is roughly the same. Either hot steam is injected through the sub-surface oil layers or oil sands are mined from unbelievably large open pits that leave the old Indian hunting grounds literally “scalped”. At an altitude of 300 metres above ground level you can see how massive the scenery is. The trucks used in the open mine pits operate 24/7 all year long and are the size of big houses. Also, out in the wilderness a number of landing strips have been constructed that the large oil companies use to fly in fresh supplies of multi-ethnic labour several times a day. With annual salaries in the USD 150,000-200,000 range the companies have no problem filling the seats of their jets.

Words, facts and feelings

But this wilderness bonanza has come under attack from all sides, and in this fight between profits and environ- mental protection the ends justify the means. Greenpeace, the global environmental activist organi- sation and one of the more controversial players, has thrown the spotlight on the environmental hazards involved. And the hazards to highlight by the feared green activists are many. One ticking bomb is the huge artificial lakes, that is, the massive tailings ponds. The tailings ponds contain non-recycled water from the oil production and are thus large pools of toxic sludge from the extraction process. The companies use different methods to clean the water, but even after 40 years they still have not come up with an effective way to do so. In addition to the challenges associated with managing oil sands tailings, there are fears of leakage from some of the old ponds into the drinking water of the local population. Some of the indigenous Cree Indians, who have also themselves become part of the oil industry, are beginning to oppose the fast industrialisation of the area, among other reasons for fears of pollution of drinking water. Many have stopped using tap water following reports of people starting to suffer from eczema, amnesia and in some cases cancer. Instead, they have water containers brought in from elsewhere.

However, with so much going on in the area it is difficult to document and validate the many facts presented by the various parties involved: the powerful lobby of the oil industry, the different factions of the indigenous population, the environmental organisations, the human rights organisations, those who have become rich and those who have become ill. And the mere fact alone that the provincial government of Alberta does not appear to have a good grasp of what is going on is not a good sign. The contrasts between profits and environmental con- sequences are so manifold and diffuse that it will require thorough in-depth analyses to merely understand the basics of this real-life war game.

Big brother is covering the rear, for better
or worse

The US is by far the biggest importer of Canadian oil. Canada overtook Saudi Arabia in 2004 as the number one supplier of oil to the US market. And in one way
it is easy to understand why the Americans favour the expensive oil from Alberta. The massive oil spill in the Mexican Gulf, the worldwide debate on nuclear power and not least the many wars in the Middle East make oil deliveries from the neighbour to the North appear easy and secure. However, several US states have started to apply the thumbscrews to fuel suppliers that leave a jet-black trail of CO2 emissions, and to meet their demands producers have to mix the oil with biofuels. Meanwhile, there are strong protests against the highly controversial Keystone XL oil pipeline that is planned to run from Alberta several thousand kilometres across the US to Texas. Recently, President Obama has postponed the decision until 2013 – after the US presidential election. Canada has responded by threatening to redirect the oil pipeline to the Pacific coast from where the oil can easily be transported to the Asian markets instead. But also here the industry faces almost insurmountable challenges as the indigenous peoples – First Nations, in Canadian terminology – in for instance the neighbouring province of British Colombia strenuously oppose the pipeline, and there are now indications that the parties have reached a deadlock.

Massive growth, CO2 war and a reindeer

Back in the helicopter the global oil giants do not appear particularly affected by the protests raised by their actions. After one hour’s flight we see yet another new investment. The big oil company ExxonMobil is in the process of constructing a huge plant at a cost of more than USD 20bn. Like many of its peers in the oil industry, the company is convinced that demand for energy will exceed supply by a wide margin in future. And many of the big oil companies, including Norwegian Statoil, have been granted a licence to take their share of the spoils. Local economists believe that 600,000 new jobs will have been created in the area before 2020 and that the oil bonanza will be a key growth driver for the Canadian economy going forward.

But nobody denies that the commercial risk involved is huge. If oil prices plummet, as they did for instance in 2008, it could jeopardise the profitability of the projects. Moreover, oil extraction presents other problems.

Canada is under massive pressure to meet international conventions and reduce its rising CO2 emissions. As the first country in the world Canada has responded by with- drawing from the Kyoto Protocol the objective of which is to reduce global CO2 emissions. Officially because the US and China have not signed the agreement.

The biggest threats may be the challenges that are closer to home, including the lawsuits instigated by groups
of First Nation people against the Canadian federal government. The First Nations in Canada have a constitutional right of exclusive use and occupation of the land. If the indigenous people cannot fish in the big rivers or cannot hunt the caribou, the local reindeer, the oil companies’ licences could, in theory, be withdrawn.