Oil Sands: Achieving Balance between Energy Security and Environmental Concerns

Mackubin T. Owens

March 1, 2008

World demand for oil continues to grow—and is likely to keep on climbing. While economic growth in China and India is the source of much of this increase in demand for oil, US demand is also part of the equation.

Americans currently consume about 20 million barrels of oil daily, of which about 60% is imported. The Energy Information Administration (EIA) expects imports to reach 70% by 2025. The reason: domestic oil production is projected to fall 17% by 2025 (assuming no production from the Arctic National Wildlife Reserve). To make matters worse, the world’s spare production capacity is at its lowest level in 30 years, equal to only one percent of world demand, making the market extremely sensitive to political and economic uncertainty, hurricanes, and terrorism.

This situation threatens US energy security. Energy security is not to be confused with “energy independence.” While energy independence is a pipe dream, energy security is achievable. The key to enhanced energy security is an increase in the supply of energy. Unfortunately, energy security is often sacrificed because of environmental concerns.

A case in point is the exploitation of “oil sands,” geologic formations containing deposits of bitumen (heavy crude oil)—a viscous, solid or semisolid form of crude oil that does not easily flow at normal ambient temperatures and pressures, making it relatively difficult and expensive to process into gasoline, diesel fuel, and other products. Canada possesses substantial oil sands. Indeed, Canada’s oil sands reserves are approximately equal to the world’s total reserves of conventional crude oil.

According to oil industry analysts, 174 billion barrels of crude oil is trapped in the oil sands of Alberta. Since Canada is our No. 1 source of imported oil, the Alberta oil sands constitute a vast, secure, and reliable supply of crude oil, which also creates thousands of well-paying jobs.

Currently, about 1 million barrels per day are piped from Alberta to U.S. refineries in the Midwest and Gulf Coast, and several refineries and pipelines are investing heavily to increase their refinery and pipeline capacity so they can use more of the Canadian oil sands, with planned expansion to three million barrels per day by 2015. Such investments will increase America’s energy security and reliability, reducing the risk of supply disruptions.

But the exploitation of oil from oil sands oil typically requires enhanced extraction and refining methods, which has led environmental groups and some public policy makers to raise concerns about the environmental consequences both of the Canadian oil sands mining process and expansion of petroleum refineries capable of refining crude oil from oil sands, particularly in the Midwest. Arguing that expanding the use of oil from oil sands will result in the destruction of the Canadian Boreal Forest and increase greenhouse gases, environmental groups have issued challenges to the environmental permits required for oil sands extraction and refinery expansion.

Such environmental challenges to the expanded use of oil sands pose a real danger to U.S. energy security, while doing little if anything to reduce global greenhouse emissions. Since refining oil sands is capital intensive, refiners need to have certainty regarding the availability of the resource. Such regulatory roadblocks make it less likely that oil companies will make the necessary investments to exploit this vast resource. In addition, challenges by environmentalists are likely to be used as precedents for hampering development of tar sands in California and the substantial deposits of oil shale in the American West.

The fact is that it is possible to extract, refine, and transport crude oil from oil sands in an environmentally responsible manner. Oil companies have developed mitigation measures that conform to permit constraints based on current rules and regulations. The public must understand that the additional mitigation measures demanded by environmental groups may make the exploitation of oil sands less economically viable, undermining US energy security.

Of course, environmental concerns are valid, but they need to be placed in proper context. All economic decisions involve “trade-offs.” Unfortunately, environmentalists often act as though the value of a pristine environment is infinite, permitting no trade-offs at all. When such a view takes hold in policy debates, the consequences can be severe. Environmental concerns have become a centerpiece of the US political economy, but they must be balanced against the requirement for affordable energy and energy security.

Mackubin T. Owens is an Adjunct Fellow of the Ashbrook Center, a professor of national security affairs at the Naval War College in Newport, RI, and editor of Orbis, the journal of the Foreign Policy Research Institute.