Overview of Oil Sands Development in Alberta

Numerous stakeholders are involved in shaping oil sands policy

The Alberta government, as owner of the province’s resources, has played the dominant role. Different divisions of the Albertan government are responsible for the various aspects of oil sands policy. The Energy Resources Conservation Board is responsible for regulating the oil and gas industry in Alberta, while Alberta Energy is responsible for granting rights to industry for exploration and development, collecting royalties, and administering the energy sector’s fiscal regime. Alberta Environment. through relevant legislation and guidelines, regulates the impact of oil sands development on air, land, and water in the province. Recently, the Oil Sands Secretariat was created within the Treasury Board to strengthen policy coordination.

To inform policy development the Government of Alberta has also turned to processes involving a multitude of stakeholders. To guide the direction of future growth in the oil sands, the Alberta government created the Oil Sands Multi-Stakeholder Committee to consult with all relevant stakeholders in the province, including the general public. The committee released its report in June 2007. As of the end of May 2008, the government has yet to respond. The Cumulative Environmental Management Association (CEMA) was created in 2000, with the charge to propose a framework for environmental management for the Athabasca oil sands region. For various reasons, its progress has been slow. In January 2008, CEMA did call for a halt to the issuance of new tenures in one area while it continued deliberating. but the provincial government rejected the request, saying it would consider the issue when CEMA delivered its complete report. CEMA released its Terrestrial Ecosystem Management Framework on June 5, 2008.

The federal government’s role in managing the oil sands has been minimal. While the Government of Canada has jurisdiction over waterways, fisheries, Indian lands, and environmental assessments. it has been hesitant to exercise this jurisdiction in a way that would threaten Alberta’s perceived right to develop its resources as it sees fit.

The oil and gas companies involved in oil sands production have been extremely powerful stakeholders in the province. As of the end of December2006 there were 21 companies operating 74 projects in the Alberta oil sands. Some of the companies producing the largest amounts of oil included Imperial Oil, Suncor, Shell Canada Limited and Canadian Natural Resources. Of the 21 producing companies, the largest seven accounted for about 84 percent of production in 2006.

Today, environmental groups are increasingly asserting their concerns regarding oil sands development, and have gone so far as to challenge government policies in court. As the Alberta government remains relatively hostile to these groups’ demands, environmentalists find themselves largely removed from the formal political sphere in this arena.

Finally, the 23 Aboriginal groups that live in northern Alberta are increasingly asserting their right to shape the development of their ancestral lands. Many of their concerns are articulated in the recent First Nations’ consultative process.

All of these stakeholders are attempting to shift the pace, scale and direction of oil sands development in a particular direction that suits their respective needs or interests. To this end, some of the challenges with oil sands exploration – outlined further in this feature – are cited by many of these groups as they attempt to articulate their vision for the oil sands.

The absolute scale of current development in the oil sands, and the consequent environmental, social and economic implications of this development, are massive. Since the mid-1990s, production of oil from the region has increased exponentially. In 2006, oil sands production was at approximately 1.2 million barrels a day – a figure representing about 42 percent of Canada’s total crude output. Accordingly, the potential for future growth is enormous, as to date less than five percent of the established reserves have been produced. Alberta Energy estimates that production could reach five million barrels a day by 2030. As production continues to propel the Alberta economy forward, the policy problems that remain unresolved today will only increase.

Environmental Issues and Impacts of Oil Sands Development

Impact on water, greenhouse gases and on northern Alberta ecosystem a major concern

The Impact on Water Consumption in Alberta

Oil sands production requires an extremely large quantity of water. In general it takes about 2 to 4.5 barrels of water, most of which is withdrawn from the Athabasca River, to produce one barrel of oil. While much of this water is recycled and used many times over, the oil sands use more water per year than the entire city of Calgary. The key policy problem regarding water for this purpose is the need to allocate water supplies in a way that properly balances oil sands production needs with ecosystem and human needs in the region. While the amount of water consumed per barrel of oil produced has been declining, a 2006 Government of Alberta report warned that there simply may not be enough available water to meet the needs of all planned oil sands projects while maintaining adequate stream flows.

Criticism from academics and activists has primarily focused on the effects of water withdrawals on fish populations, particularly during low-flow months, and the water security of communities within the Athabasca watershed. Alberta’s current regulatory framework has been criticized because the quantity of water withdrawals it authorizes does not adequately ensure ecosystem protection or the long-term conservation of the Athabasca watershed. As the federal government has jurisdiction over fisheries and the Athabasca watershed is shared by the province of Saskatchewan, the Northwest Territories and numerous First Nations communities, there is a large potential for future jurisdictional disputes and power-sharing arrangements. Some affected communities are becoming increasingly vocal with their demands that a moratorium be placed on development, citing the negative effect that oil sands production is having on the region’s water systems. As new projects will require further massive withdrawals of water, the availability of freshwater sources may very well limit the continued expansion of oil sands production.

The Impact on Greenhouse Gases and Climate Change

More than any other environmental issue, the Alberta government is increasingly being criticized for its approach to climate change. Currently, Alberta is responsible for one-third of Canada’s Greenhouse Gas Emissions (GHGs). Specifically, the oil sands are Canada’s largest-growing source of GHGs, and these emissions are expected to increase substantially in the future. It is clear the Alberta government’s intention is to allow total GHG emissions from the oil sands to continue to rise. It recently released a GHG plan that relies heavily on intensity-based targets. which focus on reductions in emissions per unit of production, instead of setting absolute limits on total emissions. The Government of Alberta’s long-term target is a 14 percent reduction in GHGs, below 2005 levels, by 2050. Its most ambitious goal is to have emissions stabilized by 2020.

Like the provincial government, the current federal government’s climate change plan considers carbon capture and storage to be the solution to the oil sands’ ever-increasing emissions, but the concept has yet to be proven technologically or economically feasible. While recent funding announcements for carbon capture research are important, the amount of funding allocated falls far short of what is required to jump-start an industry-wide capture-and-storage program. If carbon capture and storage continues to form the foundation of Alberta’s climate change plan, finding a way to overcome the large associated financial and technological hurdles will prove extremely challenging.

The Alberta government’s lack of progress on mitigating oil sands emissions may prove to be a political liability in the future. Already, vocal international environmentalists have begun targeting the oil sands on the issue of climate change. As perhaps the global environmental issue of the 21st century gains increasing international attention, Alberta’s ability to ignore this growing chorus of voices may prove impossible. At the same time, many predict that a large political showdown between the provincial and federal government is looming; the belief is that it’s only a matter of time before the federal government moves to aggressively limit industrial sources of GHGs in Canada. Recently, the Federal Court of Canada struck down the environmental assessment of a proposed major oil sands project, arguing the project did not have an adequate plan to deal with its GHG emissions.

Even the United States, which buys the vast majority of oil from the region, has begun taking steps that could force the Government of Alberta to take the issue of GHG emissions from the oil sands more seriously. California has enacted legislation to reduce the emissions intensity of its transportation fuels, a move that may limit the ability of oil derived from the oil sands that is to be sold in that state. Moreover, a recent US federal law forbids the US government from purchasing oil from ‘non-conventional’ sources whose production creates greater emissions counts than that of ‘conventional’ oil resources. While the Alberta government lobbied the US successfully to ensure this law did not apply to the oil sands, it is likely that pressure from the US will only increase.

The Government of Alberta’s ability to continue developing the oil sands while largely ignoring growing concerns about climate change, both in the domestic and international political arenas, is uncertain. Public attention to climate change issues is only now beginning to focus on the oil sands, and this attention is only likely to increase.

The Impact of Oil Sands Development on the Northern Alberta Ecosystem

Oil sands development causes large-scale spatial disturbances to Alberta’s northern boreal forest. According to critics. the cumulative effects of deforestation, habitat fragmentation, and species loss caused by exploration, open pit mines, in-situ developments, urban development, forestry, and road clearing in the region are not being adequately managed or even considered.

In April 2008, the impact on habitat received widespread media attention when hundreds of migrating ducks died in a Syncrude tailings pond. There is also concern about links between habitat loss and declines in populations of at-risk species, such as caribou. The Alberta government, as articulated in its Mineable Oil Sands Strategy. has always maintained this disturbance is “temporary” and that production sites will be reclaimed when projects are completed. Provincial requirements for reclamation, however, are considered by environmentalists to be an inadequate means of ensuring that reclaimed land resembles a functioning ecosystem. In this context, reclaimed land is not actually required to resemble the site as it existed prior to development. Environmentalists point out that ecologically complex wetlands will be replaced with dry tree plantations, though there is uncertainty as to whether trees will even be able to grow on the sites used by oil sands projects.

To date, only one oil sands project has been awarded a reclamation certificate. which means that the reclaimed land has been formally approved by the provincial government. Critics were quick to point out, however, that this site was only minimally disturbed by oil sands activity and is not reflective of the massive land disturbances that take place in most oil sands project sites. Despite uncertainty as to whether the land base can be adequately reclaimed and how much money this will cost in the future, approvals for new oil sands projects continue to be granted. There is concern, however, particularly among environmental groups, that the Alberta government (and thus taxpayers) will be stuck with the future cost of reclamation. Though operators are required to provide the government with “financial security” that can be used if the land is not adequately reclaimed, it is the oil sands companies that tell the provincial government how much this deposit should be. It is also unclear whether this amount of money will be close to the amount required for ecologically sound reclamation, if needed.

Social Policy Issues and Impacts Oil Sands Development

Alberta’s Social Services and First Nations are impacted by oil sands development

The Impact on Social Services in Alberta

There is much concern in Northern Alberta communities about their ability to keep up with the pace of development in the oil sands. In towns like Fort McMurray and Cold Lake, housing costs are spiralling upwards, such that many newcomers cannot find adequate housing. The region’s physical infrastructure, from roads to water and sewage systems, are severely overtaxed, with communities reporting massive infrastructure deficits. Social services, including health care, crime prevention and education, are inadequate and unable to meet the demands of population pressures. Communities in Northern Alberta feel they are absorbing a disproportionately high amount of the negative impacts of oil sands growth while failing to receive their fair share of the benefits. Many mayors, municipal councils, and individuals from these communities outlined their concerns in submissions to Alberta’s Oil Sands Consultations process. While the Government of Alberta has acknowledged there are indeed gaps in social services and infrastructure, few of its own recommendations have been implemented.

To alleviate some of these major social problems, communities have requested large investments from the provincial government and a new arrangement for tax and royalty regimes to ensure communities in the oil sands region can meet both infrastructure and social demands. Despite budgetary surpluses, the Alberta government has been slow to provide these communities with the requested funding. Massive social and infrastructure deficits remain; finding a way to fairly share the economic costs and benefits of the oil sands will remain a politically difficult policy problem for the foreseeable future.

The Impact on First Nations in Alberta

Over 30 different First Nations live in the oil sands region of Northern Alberta. Unlike in most of neighbouring British Columbia, formal treaties cover the area and, as with many resource extraction industries, the oil sands industry has been a mixed blessing for rural First Nations communities. While many First Nations members are indeed employed in the oil sands, there is much concern that oil sands companies are not doing enough to hire local First Nations. That said, the amount of business flowing to First Nations-owned companies (such as trucking and construction) has been extremely large. Furthermore, many of the larger oil sands companies have strategies and targets for hiring specific numbers of First Nations employees, and for purchasing from, and contracting with, First Nations-owned businesses, as outlined in a report published by the National Energy Board in 2004. These economic benefits, however, have not been sufficient to mute the resistance of many First Nations members to the scale and pace of development in their ancestral lands.

The problems cited by First Nations members regarding oil sands development include: lack of proper consultation and accommodation of First Nations interests; lack of adequate compensation; loss of traditional hunting and trapping territory; habitat destruction (particularly fishing grounds); health concerns relating to surrounding air and water pollution; and general concerns regarding the wide range of environmental issues pertaining to oil sands development. As many of the First Nations affected by oil sands development are located downriver in Saskatchewan and the Northwest Territories, this poses challenges for other governments (provincial and territorial), as well as the federal government. Several First Nations groups, including the Decho, have made high-profile calls in support of declaring a moratorium on oil sands development. Recently, the Assembly of Treaty Chiefs, which is comprised of representatives from all First Nations groups in Northern Alberta, unanimously passed a resolution calling for the provincial government to cease granting approval for new oil sands projects until certain conditions, including the development of a proper water management strategy, are met. While recent consultations with Alberta’s First Nations about the oil sands have concluded, it remains too early to determine how the Alberta government will respond to the issues raised during these proceedings.

Economic Issues and Impacts of Oil Sands Development

The negative impact of oil sands development on Alberta’s and Canadian economy

The Impact on the Alberta Economy

Despite the enormous economic growth that oil sands development has spurred in Alberta, distribution of benefits has been uneven overall. In general, the level of investment and growth in the oil sands has hurt the province’s conventional oil and gas industry. Rising real estate costs and general inflation have hurt sectors such as agriculture and manufacturing particularly hard. Consequently, today there is a growing income split between those Albertans who are employed in the oil sands and those who are not employed by the oil sands – but who are faced with the rising daily cost of living. There is also concern that the economic benefits associated with oil sands development are being concentrated geographically and not diffused throughout the province. Moreover, despite recent changes to the province’s royalty regime. the Government of Alberta has been criticized for not collecting enough economic rent (in the form of royalties ) from the oil sands on behalf of Albertans (the so-called ‘owners’ of the resource), and for allowing the vast majority of oil sands profits to flow to industry. Also worth noting here is that since labour demands for the oil sands are so large, a significant proportion of oil sands employment is going to non-Albertans. Consequently, more oil sands-related economic benefits are flowing beyond Alberta. Accordingly, it has been argued that a more prudent economic strategy would see oil sands development slowed, thereby ensuring Albertans can fill any related jobs and benefit from oil sands employment over the longer period. While economic benefits are the primary motivation behind the current pace and scale of development in Alberta’s oil sands, the manner in which these benefits are distributed within the greater Alberta economy remains a contested policy issue.

Oil sands development to date has been fuelled largely by natural gas. While many factors are contributing to the increase in price of natural gas in Western Canada, it is important to note that massive demand from the oil sands is a major factor. In the future, this rising price trend is likely to lead to large increases in home heating costs. At the same time, many have questioned the logic of using a relatively clean-burning fuel (in terms of greenhouse gases and air pollutants) such as natural gas to aid in the extraction of an extremely dirty form of crude oil for the purposes of export. Faced with the rising cost of natural gas, and expected shortages due to increased demand from the oil sands, as a fuel source, nuclear power is now seriously being considered to help power oil sands extraction.

The oil sands bring economic benefits to other areas of the country outside Alberta. Increasingly, however, development in the oil sands is having an overall net-negative economic impact. Attracted by record profits in the oil sands, investors are pulling their money from other economic sectors and concentrating their investments in the oil sands. This has created problems for other sectors as they struggle to attract required investment. At the same time, the rising Canadian dollar, caused in part by the economics of oil sands growth, is hurting export-orientated sectors. The forestry industry in BC and the Ontario manufacturing industry serve as two prominent examples. As a result, there is increasing discord, with some provinces – such as the Government of Ontario – becoming increasingly vocal in criticizing the federal government for allowing the oil sands to develop so rapidly without considering (or compensating) other important national economic sectors. Indeed, friction between the provinces around this issue, and also between specific provinces and the federal government, is likely to increase following a recent announcement by Conservative Prime Minister Stephen Harper that it is not the federal government’s responsibility to bail out struggling industries.

Sources and Links to More Information

List of article sources and links to more on the development of the Alberta Oil Sands