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Alberta, Canada's energy giant, turns sand into black gold

By Clayton JonesStaff correspondent of The Christian Science Monitor / November 20, 1980

Fort McMurray, Canada

A freak encounter between oil and sand more than 100 million years ago has helped put Canada's western province of Alberta in a position to shape this nation's -- and perhaps the world's -- energy future.

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Estimates vary, but most geologists place Alberta's petroleum resource at 600 to 900 billion barrels, or better than three times the 200 billion barrel known reserves in Saudi Arabia.

But the liquid fuel in these asphalt-like "oil sands" is as difficult to extract as honey from a bowl of sugar. Cost per barrel is about half the world price, based on the experience of two operating plants. Althoug h profitable, that is far more expensive than the $1-or-less cost of pumping a barrel of Saudi sweet crude.

But the high cost and the possibility that world prices may suddenly collapse , have not stopped Alberta from building its economy primarily on profits from oil sands.

Alberta's leaders point out that when the planet's reserves of "cheap" oil begin to run out in the next few decades, the need for liquid fuel will be met by three sources worldwide: an estimated 2 trillion barrels in oil sands, 3 trillion barrels in oil shale, and 12 trillion barrels available from liquified coal.

Alberta rests on a little less than half the world's oil sands, which Canadian experts claim is the largest single source of oil known. Venezuela contains the other large oil sand tract, but US officials estimate only 114 billion barrels are recoverable -- less than one-third of Alberta's recoverable deposits.

But Alberta has two other advantages: It is several years ahead of any other nation in knowing how to transform oil sands into oil, being among a few countries well into a synthetic fuels program; and most experts say the Alberta oil sands process is less expensive and less polluting than turning coal and oil shale into liquified fuel.

Current costs of oil sands production are under $20 per barrel, while estimates for undeveloped shale oil are about $25 a barrel at best and $40 a barrel for coal liquefaction, according to Canadian and US energy experts.

In Canada, almost all pipelines lead to Alberta, where some 85 percent of the nation's domestic "cheap oil" is produced. Before 1950s, Alberta lived off its rich black soil. But since the first oil strike in 1947 near Edmonton, Canadian and foreign firms have drilled more than 50,000 holes to bring up the black "gold."

But Alberta's production of conventional oil has dropped 17 percent in the last six years and will continue to decline, say industry officials, unless they are guaranteed high prices that will enable them to build the expensive oil sands plants.

Canada, however, has been the slowest Western nation to let its consumers feel the full economic and social brunt of rising world oil prices. While other countries generally pay over $30 a barrel, Canadians pay about $16 a barrel.

Canada can do this by keeping a lid domestic oil prices and transferring $4 billion to $5 billion a year from the federal treasury to pay for oil imports, which still make up about 20 percent of Canada's petroleum supplies.

But the resulting high national debt and the desire for energy self-sufficiency by the 1990s have led most leaders to acknowledge privately that domestic oil prices must go up -- a dangerous public stance for national politicians.

Premier Peter Lougheed, whose province contains only 8 percent of Canada's population, claims Alberta provides an "unprecedented subsidy" of about $15 billion a year piping oil to the rest of Canada at prices below world levels. Prime Minister Pierre Trudeau, reflecting the strength of his Liberal Party in Ontario and Quebec, contends the east helped Alberta develop between 1950 and 1973 by paying for oil at prices higher than world levels.

Mr. Trudeau wants to keep federal control over energy prices while taking a greater portion of Alberta oil wealth to ease the national debt.

In another Canada's frequent provincial-federal clashes, Mr. Lougheed challenged Mr. Trudeau in August by unilaterally raising oil and natural gas prices. Mr. Lougheed claimed a constitutional right of the provinces to ownership over their natural resources that supposedly includes a right to set export prices. But in October, Mr. Trudeau placed a tax on Alberta's energy exports. Mr. Lougheed responded with a declaration to reduce Alberta oil production about 15 percent by late next year.

This political conflict, which has slowed Mr. Trudeau's drive to rewrite the Canadian Constitution under stronger federal authority, also has stirred the embers of western separatism. To outside observers, Canada is a model of past and future world energy battles in which oil sands will play an increasing role.