When early industrialists first came to the oilsands, they didn’t know what to make of them. They believed there were large reservoirs of conventional oil under the oilsand deposits and tried drilling through it. This was not the case. They soon realized the bitumen in the sand held potential. An oil-like substance as thick as tar, to be used as a fuel, it would first have to be separated from the sand and clay, then upgraded into heavy conventional oil.

In 1930, Robert Fitzsimmons built a small oilsands mine deep in the northern Alberta bush. Extraction techniques were crude: shovels and small dump trucks moved the oil-soaked dirt out of the mine. The sand was then fed into a boiler in a wooden separation plant, where the bitumen was skimmed off the surface and the sand and clay sank to the bottom. By the late-1930s, Fitzsimmons was producing 450 hard-won barrels of oil a day at a place called Bitumount, 80 kilometres north of Fort McMurray. In 1936, another company built the Abasands Mine further south. The place burnt down twice in the ’40s.

The oilsands languished as a marginal, hard-to-develop and barely profitable resource for years, while pools of lighter oil in the south were rapidly pumped out of the ground. With oil prices skyrocketing, however, times have changed.

Now, the oilsands produce more than a third of Canada’s crude oil — out one million barrels every day. By some predictions, production will triple in the next 10 years, and the oilsands will one day supply the United States with half its oil.

“We’re going to need everything we can get, including oilsands,” says Frederick Lawrence of the Independent Petroleum Association of America. “Oilsands are a very important development. It shows that unconventional reserves are out there.”

However, skyrocketing commodity prices and a worker shortage have caused several companies to delay oilsands projects. Several refineries needing upgrades to handle bitumen from the oilsands have been blocked from building new facilities by environmental groups. Tough new laws in the U.S. are making it harder to sell heavy oil, whose production releases more carbon than its conventional counterpart. The oilsands are on track to become the continent’s most important energy provider, but a series of major challenges threaten to prevent this from happening.

THE OILY NORTH

The oilsands underly an area the size of New Brunswick beneath the forests of northern Alberta. North of Fort McMurray, the area’s largest settlement, Suncor, Syncrude and Petro-Canada mines have torn up the forest exposing black dirt and creating tailings ponds.

These operations have just scratched the surface: only 10 per cent of the oilsands are suitable for mining. The balance of deposits are far underground, and must be extracted using steam assisted gravity drainage (SAGD), which entails shooting steam into the ground to liquify the bitumen before pumping it to the surface.

“We’ve recently completed our expansion to bring us to 350,000 barrels per day,” says Suncor spokesperson Brad Bellows. “We’ve got plans laid out to 2012.”

In four years, Suncor hopes to produce half a million barrels per day. Its larger neighbour, Syncrude, has plans to pump 550,000.

Down the road, a joint venture led by Shell hopes to one day produce 750,000 barrels per day. Nearly every major Canadian oil company — from Imperial to EnCana — has a stake in the sands, and a few international companies are vying to get in, too. The boom is also creating jobs, drawing everyone from roughnecks to tradespeople to geologists.

Lakhvinder Bamotra, an engineer, moved here two years ago to take a job with Syncrude. He says people as far away as India know about the oilsands and come here looking for work. “[Indian] engineers in Toronto, they have a labourer job. In Fort McMurray, they can get a good job, a professional job,” he says.

This interest is partially motivated by international concerns. Conventional oil everywhere is running out. The oil that comes from the sands is heavier and harder to process, but there’s lots of it. The oilsands contain at least 170 billion barrels of oil, putting Canada’s reserves second only to Saudi Arabia. Plus, the world’s largest oil consumer is right next door.

Canada is the United States’ largest supplier, providing just under 20 per cent of its oil. According to the U.S. government’s Energy Information Administra-tion, as much as half of this comes from the oilsands. By 2030, U.S. demand for oil is predicted to grow to 33.4 million barrels per day. If current trends continue, Canada could be selling over 2 million barrels per day to the U.S. alone.

“The Canadian oilsands are very important and strategic resources to the U.S. in terms of our current and future energy supplies,” says U.S. Energy Department spokesperson Angela Hill.

Other countries are also interested. Enbridge and PetroChina are planning to build a pipeline to transport 400,000 barrels of oil to the West Coast to be shipped to China and East Asia.

INDUSTRY UNDER THREAT

In May 2007, Synenco Energy announced it was reassessing its Northern Lights oilsands project, which had initially been projected to produce oil by 2011 and yield 114,000 barrels of bitumen per day. Within a few months, the company was bought out by Total. Synenco was the first of a string of companies to slow down or hold back their production schedules. Over the next year, Imperial and Norway’s Statoil announced that they wouldn’t be producing nearly as quickly as they’d planned.

Several things have caused the slowdown, including the rising cost of steel and heavy machinery and a longer process for government approval, says Pierre Alvarez, president of the Canadian Association of Petroleum Producers. “With growth in other countries, like China and India, there will be periods of cost pressures,” he says. “Costs have continued to escalate.”

The lack of skilled labour has also contributed to the slowdown, as have infrastructure problems. There aren’t enough pipelines to pump all the oil out of northern Alberta, and most refineries don’t have the machinery to process the heavy oilsands crude.

In at least two cases (a BP refinery in Whiting, Indiana and a ConocoPhilips facility in Wood River, Illinois) environmental groups have blocked oil facility expansion, alleging they will release more pollution than legally allowed.

Suncor and Syncrude’s strip-mining — which has literally deforested hundreds of kilometres of land — have long raised the ire of environmentalists, but the growth of oilsands operations have caused even more opposition recently.

“In the last five years, there’s been more acknowledgement of the environmental issues. It’s a recognition that the oilsands are a fundamentally different source of oil than the other resources around the world,” says Dan Woynillowicz, with Calgary environmental thinktank the Pembina Institute.

Environmental campaigners almost stopped Imperial Oil’s new Kearl Project, a proposed $8 billion mine and upgrading plant north of Fort McMurray, through a challenge via the government’s approval process last year. Earlier this month, the British Advertising Standards Authority ruled that a Shell ad that characterized its oilsands operations as “sustainable” was misleading. In the United States, state and municipal governments are looking at laws that would restrict the importation of oil from the oilsands.

“When people go up there and see what the landscape looks like, they come back horrified,” says Josh Mogerman, a Chicago activist with the National Resources Defense Council, an American environmental group. “We’re seeing more in the way of a public outcry against the environmental impacts both in Canada and here Stateside.”

California has imposed a law that restricts the importing of fuels, including the oilsands, that release more CO2 than conventional oil, and the state is encouraging the rest of the country to do the same. In June, the U.S. Conference of Mayors passed a resolution to stop using oilsands fuel for city vehicles, and asking the federal government to consider an outright ban.

First Nations have also stepped forward to register disapproval of the industry. The Beaver Lake Cree First Nation and the Chipewyan Prairie Dene First Nation (CPDFN), which are both located in the southern area of the oilsands, have launched lawsuits asking the government to stop developments on their traditional territory.

Both suits are based on the premise that, under Treaty 8, the government has to give First Nations a say in anything that could affect their ability to hunt and fish on their traditional land. Such treaty-based challenges have often been successful in recent years. Vern Janvier, chief of the CPDFN, contends that since the oilsands moved in, animals have been getting sick, and he fears the game his band hunts will one day be inedible. “We tried to talk to them, we wrote them letters and everything, but no one was paying attention,” he told Fast Forward shortly after the band launched the suit last June. “They’re saying ‘just a bunch of Indians, get out of the way.’”

FUEL FOR THE WORLD

In CAPP’s most recent projection, oil production will triple to three million barrels per day by 2017, and Alvarez doubts that the U.S. can really afford to slow the industry down with environmental laws. “I don’t think the U.S. [regulations] have had any effect,” he says. “They need to think about where they’re going to get their production from.” Alvarez contends that Albertan oil is still far easier for the U.S. to access than oil from sources such as Venezuela or the Middle East. He also argues that the environmental effects of the oilsands are overblown, and the industry is making strides to improve its environmental record.

“Why isn’t there more dialogue between industry and environmentalists?” says Guy Boutillier, the MLA who represents the oilsands region and a former environment minister. “Alberta will become the Silicon Valley of environmental technologies.”

Suncor’s Bellows points out that the company has reduced its use of water by 40 per cent and, since 1991, has reduced the amount of carbon released when producing a barrel of oil by 44 per cent.

“Things will have to change to [extract oil] in a more environmental and socially responsible way,” says Siren Fisekci, a Syncrude spokeswoman. “Right now, there are some misrepresentations that are floating around.”

Woynillowicz, however, says the industry is lagging behind in its environmental initiatives. “There has been some incremental improvement in the environmental performance, (but) across the board, impacts to the environment have increased,” says the environmental expert, who argues companies have only made improvements that don’t hurt their bottom line.

Cindy Schild, refining issues manager for the American Petroleum Institute, says that, regardless of what the United States does, the value of the resource means it will find a market. “If it doesn’t go to the United States, it will go somewhere,” she says. “It would be a real missed opportunity.”