Increasingly attention has been focused on the production, import into the United States (U.S.), and use of petroleum products derived from oil sands. Some confusion and much hyperbole surround the role of oil sands and other unconventional oil sources (such as shale and coal-based liquids) in the U.S. energy future.
Whether conventional oil production has peaked or not (which obviously is price dependant), the ultimate amount of petroleum in the world is fixed. In the short- and medium- term, petroleum will continue to be used in the transportation sector and as feedstock for chemical manufacturing because there is no magic wand that allows an instantaneous transition to alternatives to petroleum for the vast majority of uses. In fact, there may be no substitutes for some uses.
Each of the existing sources of petroleum production has its own question marks: environmental impacts, reliability, U.S. economic implications, and security. Venezuela’s production has fallen and the current government is somewhat hostile to the U.S. Mexico’s production has also fallen, domestic consumption has increased, and the relationship between Mexico and the U.S. has varied over time. Saudi Arabia, which has plans for increasing production, is also pursuing Chinese and Indian markets. Internal unrest in Nigeria has limited its exports. If world demand for petroleum increases and the lower-cost sources of petroleum continue to be depleted, the future cost of petroleum is bound to increase.
At the same time, Canadian oil imports to the United States (including increasingly those from oil sands) are responsible for an expanding percentage of the oil supplies in the U.S. Midwest. Oil sands are likely to become the largest source of U.S. crude oil imports in 2010, and could ultimately increase to between 20 and 36 percent of U.S. oil and refined product imports by 2030, according to new research from the Canadian Oil Sands Dialogue Report. Supporters point out that Canadian oil is secure and reliable. Also, the pipelines that transport oil sand petroleum products and the refineries that process this petroleum create jobs in the U.S.
All sources of energy have environmental impacts. In the case of oil sands, concerns include potential harm to boreal forests in Canada where much of the oil sand deposits are located, more energy is required to produce petroleum from oil sands compared to conventional oil, the possibility of toxic residues, and the claim that oil sands greenhouse gas (GHG) emissions (from extraction, refining, distribution, and combustion) may be 5 to 15 percent greater than the average crude oil consumed in the United States (well-to-wheels basis). Both existing technology and innovative technology development work sponsored by the Province of Ontario and industry are targeting reduction or prevention of these effects.
Many environmental groups oppose the import of petroleum from oil sands. For A coalition of environmental and investor public interest groups argue that oil sands emit three times the GHGs of conventional oil, a number disputed by a majority of the oil sands studies. They go so far as to assert that the well-to-wheels ecological damage they attribute to the use of oil sands is greater than the Gulf oil spill and ultimately will come back to haunt investors. These environmental concerns have resulted in protests at the Canadian embassy in the U.S., lawsuits (e.g., a suit to prevent the construction of oil pipelines from Canada into the U.S.), and passage of at least one state statute that, if implemented, will limit the use of petroleum from oil sands (N.B.: A federal district court refused to dismiss the pre-emption and commerce clause challenges to this statutes, see National Petrochemical & Refiners Association v. Goldstene, among other actions.
The tensions between economic growth, environmental concerns, and national security interests described above reflect the difficult decision-making that comes into play in crafting a balanced energy policy, particularly in today’s post-Gulf Spill world.
Some of these tough policy choices are discussed in a recent Pepper Alert, “The North American Energy Summit: The Role of Canadian Oil Sands Imports in the U.S. Energy Future” (Tuesday, June 08, 2010), and will be the subject of a Pepper webinar on July 22, 2010 (click here for more information on the webinar).
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