Mining the oil sands
Incremental growth projected for oil sands mining
Oil sands mining is expected to expand modestly in the future relative to oil sands in-situ projects. According to the Canada Energy Regulator (CER), oil sands mining production will increase by 13% in the next 20 years, from 1.5 to 1.7 million barrels per day.
This growth is not expected to come from new projects, as no new mines are under construction. Rather, this growth will come from expanding existing mines. Many of the projects that are producing today are expected to continue to do so through 2040 and beyond.
New vs. existing oil sands production
Source: The Canada Energy Regulator (CER).
Oil sands mining is similar to traditional mineral mining
The general image people tend to have of oil development involves drilling wells and piping the oil out. But in the vicinity of Fort McMurray, Alberta, oil sand deposits are so close to the surface that they can be scooped up by excavators from huge open pits. For this reason, drilling is not needed and the oil sands mines are open-pit operations involving large-scale excavation with heavy machinery, such as haul trucks and scoops, to transport the oil sands to be processed.
In many ways, oil sands mining more resembles traditional underground hard rock mining rather than what many think of as oil extraction. In fact, oil sands mines are some of the largest mines anywhere in the world. The recently proposed Frontier mine, later abandoned, would have been larger than the city of Vancouver.
Oil sands truck
Source: Equipment Journal
Once scooped from the ground, the mined oil sand, also referred as bituminous sand, is trucked to an extraction plant, where steam is used to separate the bitumen from the water and the sand. Mined oil sand normally contains from 7 to 13% bitumen by weight.
Once the oil is separated from the oil sands, the remaining water and sand is referred to as tailings. The oil sands tailings (a mud-like mixture of water, sand, clay and residual bitumen) are generally pumped to enormous holding ponds known as tailings ponds.
Most of the bitumen extracted from oil sands mines, as well as some from in-situ production, are sent to upgrader plants to be converted into a high-quality crude oil, and then sold to the market. Currently, there are five upgraders in Canada, four in Alberta and one in Saskatchewan. In mines without upgraders, the bitumen is mixed with a diluent to allow it to flow in a pipeline, and then it is sent directly to a refinery.
Oil sands mining to lose space in Canadian oil production.
Companies are moving away from new oil sands mining projects as they can be very expensive. These projects often cost more than $10 billion to build and can take more than a decade to produce oil.
As an example, the Fort Hills project, the last major oil sands mine built in Canada, began development in 2002 to only start operating in 2018, and was built at a cost of $17 billion. The recently abandoned and even more expensive Frontier project, first proposed in 2008 was expected to cost $20 billion to develop.
Lower oil prices have forced companies to re-evaluate costly projects like Frontier and Fort Hills that require huge investment and long development times before producing a single barrel of oil. Companies are instead shifting to smaller projects, such as in‑situ projects, as they are quicker to implement and do not require the huge upfront cost before producing oil.
Mining projects in the oil sands region need a higher price of oil to be seen as viable given their high capital costs. In 2019, the breakeven price of oil for new oil sands mines was within the US$75‑85 per barrel range. In comparison, new in-situ projects were viable at US$60, and for expansions at US$52. In addition, while oil sands mines can take many years to produce oil, smaller-scale in-situ expansions can be online in three to five years.
Given lower oil prices and greater uncertainty over the future of the sector, oil sands production from mining projects is expected to decline in Canada. According to the Canadian Energy Research Institute (CERI), the share of bitumen production from mining is expected to decrease from 45% in 2017 to 30% in 2039, with in-situ accounting for virtually all projected increased oil production in the coming decades.
Bitumen production by extraction type (barrels per day)
Source: CERI, CanOils.
Tailings are an environmental challenge for oil sands mining
As mentioned above, tailings ponds are where the water and sand that were excavated are placed after the oil has been removed.
Management of tailings ponds is one of the key environmental challenges for oil sands mining projects. Untreated or unrecycled fluid tailings can take decades to solidify and can be toxic if released to the environment as it contains dangerous metals, salts and chemicals. Tailings ponds also emit methane, a greenhouse gas (GHG) that is many times more potent than carbon dioxide in contributing to climate change.
Technical processes for reducing tailings pond size have been tested. For instance, a two-year pilot project, started in 2019, is looking into releasing treated waste water from the oil sands back into the Athabasca River. The project uses activated carbon and a series of filters to recycle wastewater from tailing ponds.
Source: Government of Alberta.
GHG emissions are a major concern in oil sands mining. The emissions per barrel produced are about 35 kg of CO2 equivalent. Nearly three quarters of the operating emissions result from the combustion of fossil fuels, such as natural gas and petroleum coke for generating heat in separation plants, and the diesel needed for the equipment used in the mining process.
Water use is another environmental challenge for oil sands mining operations. In 2018, oil sands mining required an average of 2.6 barrels of fresh water for every barrel of oil equivalent produced. The industry has pursued technologies to reduce water use, including the use of “produced water” (wastewater from bitumen extraction) and saline groundwater, reducing the need to divert drinking water.
Case Study: Fort Hills
The Fort Hills project is an oil sands project that includes a mine and a bitumen upgrader. The project is situated 90 kilometres north of Fort McMurray, in Alberta. The bitumen resource is estimated at 3.4 billion barrels and will be extracted by open-pit mining. Fort Hills started producing in 2018 and it was built to produce up to 190,000 barrels per day at its peak. The mine’s lifetime is expected to be in excess of 50 years.