Well-Oiled Machine

Correction Appended: June 3, 2008

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Oil in the Sand

Standing on a wooden platform located deep inside his open-pit mine, Pat Crisby, a plainspoken Newfoundlander, makes a startling observation. "We move enough dirt to fill the SkyDome in 48 hours," says Crisby, a fiftyish manager at Syncrude Canada Ltd., a company that is the Incredible Hulk of North America's biggest and richest resource deposit: Alberta's oil sands. The idea of filling the 60,000-seat home of the Toronto Blue Jays (now called Rogers Centre) with sticky, bitumen-laced soil from the Aurora North mine in a weekend is mind-boggling. But it puts the business conducted on this chunk of boreal real estate into perspective: there are 173 billion bbl. of crude contained in an area roughly the size of Florida. It just has to be dug up.

Syncrude, headquartered just north of Alberta's booming Fort McMurray, is a consortium of U.S. and Canadian oil companies including Imperial, Petro-Canada and ConocoPhilips that produces 350,000 bbl. of light, sweet crude per day from tar sands at three mines on the banks of the Athabasca River. About two-thirds of that gets piped to the U.S. Syncrude accounts for about 27% of the 1.3 million bbl. extracted by oil companies every 24 hours from this stark landscape of jack pine, spruce and poplar forests shot through by a bright northern light.

But it pales by comparison with what's just around the corner. Canada is poised to become Venezuela north--without the loopy President and the deadweight national oil company as unwanted partners--as the biggest oil boom in North American history hits terminal velocity. An estimated $124 billion will be invested from 2007 to 2012, according to the Athabasca Regional Issues Working Group, an industry association. Production in Alberta's oil sands will more than quadruple, to about 5 million bbl. daily, by 2015; Canada currently exports an average of 1.9 million bbl. daily (from all sources) to the U.S., more than any country, including Saudi Arabia. That's about 20% of total U.S. imports. "Canada has emerged as an energy superpower," says economist Peter Tertzakian of Calgary-based ARC Financial Corp., an energy-investment firm with a nearly $1.9 billion asset portfolio. He adds that going forward, 10% to 15% of the world's incremental oil production will come from Canada's oil sands.

And you have ExxonMobil to thank (or blame) for it. The U.S. giant got hammered by investors following its first-quarter earnings report. Profits were $13 billion, but production was falling. Yet in Canada, Exxon has muscled aside some of its Syncrude partners and parachuted in a new management team to meet aggressive expansion targets. "Everything up here is American, pretty much," says an oil worker earning $130,000 a year, a fairly typical salary in Fort McMurray, which has earned the nickname Fort McMoney because it has the nation's highest average income. The timing seems right for Canada too. Carpenters and truck drivers are fetching six-figure wages in Alberta--and working in -50°F (-46°C) temperatures in the winter--but Canada's traditional manufacturing hub of southern Ontario is suffering, ironically, because of its ties to the U.S. auto industry. And Canada's strengthening loonie has shed its huge cost advantage to the dollar.

The bulk of Canada's new energy will get pushed through an expanded pipeline network straight to waiting U.S. upgrading plants and refineries, a majority of which are located in such Midwestern states as Minnesota, North Dakota and Ohio. Shell, Chevron, British Petroleum and Total S.A. of France, along with about 20 smaller but no less ambitious players, are also transforming Alberta's boreal oil patch into the primary supplier of feedstock for an integrated North American energy market. "Canada is extremely important to U.S. energy security," says Rob Routs, executive director of oil sands at Netherlands-based Royal Dutch Shell PLC, the world's No. 2 oil company, with annual revenue of $355.8 billion, which plans to boost production in Canada's north nearly fivefold, to 700,000 bbl. per day, by the middle of the next decade.

Somewhat surprisingly, Canada has been reluctant to acknowledge its newly minted status as an energy power broker. "We need to start acting like an OPEC-level player with an ability to change the world economy," says Ross Jacobs of Fort McMurray, a Liberal who was recently defeated in a bid to represent his district in Alberta's provincial legislature. "Canadians need to start thinking globally."

Yet they can't even think nationally. Relations between the maverick western province and Ottawa have always been stormy. In the 1970s, at a time of skyrocketing fuel prices, leftist Prime Minister Pierre Trudeau promoted a National Energy Program of self-sufficiency and Canadian ownership of oil and gas development, which ignited a turf war with Alberta. Alberta won, which means so did the U.S., because the oil could be freely traded.

No one working in the oil sands complains about the big paychecks, but beyond the project a serious backlash is growing against the economic and environmental pressures that come with maxing out oil production. A shortage of housing in Fort McMurray has pushed the price of an average home to more than $600,000. Two-bedroom apartments rent for about $3,500 a month. "The tar sands are being developed in an unsustainable fashion from virtually every point of view," says Jack Layton, leader of the New Democratic Party (NDP).

The bigger issue for Canada is that Alberta will get locked into the upstream rungs of an integrated North American energy market, while high-tech jobs head south, along with raw bitumen. "A Wild West approach to development is raising costs and acting as a disincentive for big energy companies to invest in upgrading and refining operations in Alberta," says Gil McGowan, head of the Alberta Federation of Labour, the province's largest union, representing 140,000 workers.

But Ed Stelmach, premier of Alberta, has little time for McGowan and other critics. "If you take Alberta out of the equation, there's very little growth in Canada," says Stelmach, whose Progressive Conservative Party has a cozy relationship with Big Oil. But Stelmach's critics are getting louder as concerns mount over outsize greenhouse-gas emissions from the oil sands. At a recent fund-raising dinner in Edmonton for his party faithful, two Greenpeace activists rappelled from the ceiling of a hall, unveiling a banner that read $TELMACH: THE BEST PREMIER OIL MONEY CAN BUY. It was Greenpeace's typically great political theater, but Stelmach won't entertain any cries for a moratorium on new projects.