CALGARY, Alberta - As oil companies pump billions of dollars into Canada's northern oil sands to develop the huge but expensive reserves of tar-like crude, it is water - not technology or oil prices - that could cool a boom sparked by the energy-hungry U.S. market.
Investments estimated at between C$50 billion and C$80 billion ($33 billion and $53 billion) are planned over the next 15 years to exploit massive non-conventional oil resources. But an environmental coalition wants to slow development because of concerns over the oil industry's water consumption in Alberta, the center of Canada's oil industry. The western province of three million people has endured virtual drought conditions over the past three years and has been swept by huge wildfires this year because of an abnormally dry winter and spring.
"It's not just one project, it's the fact that they are huge scale and there are a large number of projects going ahead," said Mary Griffiths, a policy analyst for the Pembina Institute, part of the coalition.
"I definitely think we should slow down (approvals) until we've had an assessment of what the water resources are relative to what the need is."
In some projects, water is used in production and processing of oil sands. The sticky mixture of sand and oil, usually mined using gigantic shovels and dump-trucks, can be turned into synthetic crude for refiners.
Northern Alberta's oil sands contain about 300 billion barrels of reserves, about the same as Saudi Arabia, linchpin of the Organization of Petroleum Exporting Countries.
SUPPLY FEARS HELPING BOOM
The boom in multibillion-dollar projects in the Athabasca region, a lightly populated corner of northeastern Alberta covered with bogs and forest, could firmly establish Canada as the top supplier of crude to the U.S. market, ahead of traditional rivals Saudi Arabia, Venezuela and Mexico.
Canadian oil now supplies about 7 percent of the 20 million barrels a day needed by U.S. consumers. Rising oil sands output could help alleviate Washington's concerns over supply security - an ongoing issue because political tensions in the Middle East could disrupt supplies from OPEC.
But petroleum companies' aggressive expansion plans may be delayed or even scuttled if environmentalists are successful at a hearing before Alberta's energy regulators starting yesterday.
TrueNorth Energy, the Canadian subsidiary of Wichita, Kansas-based Koch Industries Inc., is developing the C$3.5 billion Fort Hills oil sands project, designed to produce 95,000 barrels of oil a day by 2005 and 190,000 by 2008.
The coalition wants TrueNorth's efforts put on hold until a study, expected to be completed in 2004 or 2005, determines the effects of the oil industry's use of the Athabasca River.
Oil sands projects by Shell Canada Ltd. , Suncor Energy Inc. and Syncrude Canada Ltd. draw water from the same river. TrueNorth wants permission to siphon off up to 907,000 barrels of water a day.
TrueNorth spokesman Peter Kinnear said his company will use less than 1 percent of the river's flow.
Since TrueNorth will not start operations until 2005, its water license could be amended to reflect recommendations of the study, he said.
A two-or three-year delay "would be very damaging to the project. I can't imagine we would be going forward with that kind of restriction or halt on some decisions by government," Kinnear said.
WATER ISSUE ON THE BOIL
With output from existing, traditional oil fields dropping as they age, companies banging the drum of increased volumes from non-conventional oil sources are marching at double time to develop their projects.
Heavyweight producers Imperial Oil Ltd. , Canadian Natural Resources Ltd. and Nexen Inc. , for example, plan to spend almost C$11 billion over the next decade to crank up heavy oil output by about 325,000 barrels a day.
Energy players are keenly aware water use is a hot button for many in Alberta besides environmentalists, including farmers, boaters, cottage owners and fishermen. The provincial government is working on a new water use strategy, scheduled to be unveiled this fall.
"Water is the big issue," said Pius Rolheiser, an Imperial spokesman. "Given the last number of years where we've had drought or close to drought conditions in many parts of Alberta, we need to acknowledge water is a significant issue for people."
Imperial will rely on increased efficiency to add 30,000 barrels a day of heavy oil production at Cold Lake, Alberta, without increasing its water withdrawals.
The sprawling operation produces about 120,000 barrels of oil a day and uses up to 500,000 barrels of water daily. The water, which is 90 percent to 95 percent recycled, is injected as steam to improve the flow of the molasses-like oil.
Rolheiser said most of the water at Cold Lake comes from sources unsuitable for drinking. About 53,000 barrels of fresh water are used daily, mostly for toilets, showers and fire fighting. A typical Toronto household of four uses about 14 barrels of water a day.
One analyst said northern Alberta contains large underground aquifers in addition to surface supplies so water availability should not constrain the heavy oil bonanza.
"It just doesn't ring true that there is going to be an issue with water," said Brian Prokop, with brokerage Peters & Co. "I think their big concerns are labor costs and rising capital costs."
Heated competition for skilled workers and equipment have resulted in huge cost overruns at booming oil sands projects for Suncor and Shell Canada.:
