Exclusive: Outside the Bitumen Bubble

Politicians may lie, but chemistry never does.

The working rule of investigative reporting is to “follow the money”. But it’s also possible to “follow the molecules” to forensically identify the dangers western Canada’s vast bitumen deposits pose to people and the biosphere.

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It has been calculated that they hold the energy content of about 173 billion barrels of oil. No one seriously questions that estimate.

But competing economic, political, and environmental claims—as well as a blizzard of self-serving lies—obscure most other facts about the tar sands/oil sands.

Yet bitumen chemistry does not lie, because nature will not allow it. It has a molecular signature as distinct as a fingerprint or retina. All oil is not created equal, as the U.S. Geological Survey concluded in an impartial study comparing the chemical content of bitumen to other petroleum signatures.

Compared to conventional crude, bitumen contains 102 times more copper, 21 times more vanadium, 11 times more sulphur, 11 times more nickel, six times more nitrogen, and five times more lead. It also has a much lower ratio of hydrogen to carbon, which significantly reduces its combustion efficiency.

That chemical profile is much different than sweeter, lighter crude tapped from conventional Alberta oil fields, Canadian east coast offshore wells, U.S. shale and southern offshore wells, Persian Gulf oil, or that from countries like Russia, Norway, the United Kingdom, Algeria, Kazakhstan, and Libya.

Those have a much higher percentage of hydrogen, lower carbon content, and far fewer molecules which corrode pipelines or can contaminate the refinery circuits needed to distill petroleum products like gasoline, diesel, aviation fuel, home heating oil, and propane.

The excess of carbon in bitumen, and the levels of sulphur, nitrogen, and heavy metal contaminants, are not just engineering obstacles. They’re all pollutants which are often dispersed by oil industry processing, not destroyed. For example, those 173 billion barrels of oil embedded in tar sands/oil sands deposits also contain some eight billion barrels of sulphur, and comparable combined residues of nitrogen and toxic heavy metals.

Moreover, because actual bitumen makes up only 10% of typical tar sands/oil sands deposits, much more fossil fuel must be burned just to convert billions of tonnes of black, coagulated muck into a transportable pipeline slurry, segregate and off-stack pollutants, inject hydrogen derived from natural gas, then distil the remainder into marketable oil products which emit more pollutants when they are combusted.

The 820 kilograms of greenhouse gas emissions released by extracting, upgrading, and refining a barrel of “syncrude” near the Alberta/Saskatchewan tar sands/oil sands are among the highest in the world. The average among 30 global crude types is 570 kilograms per barrel. But additionally, a larger volume of unrefined bitumen is diluted with a light hydrocarbon condensate, then pipelined to refiners in the U.S. Midwest and on the southern Gulf Coast.

Most alarming, with the blessing of Alberta politicians and Trudeau’s federal Liberals, up to two billion more barrels per year are slated for future export to refiners in Asia. So are the embedded pollutants. If that occurs, Canadian bitumen will leave a dirty global signature which lurks for decades or more.

Chasing the Dream of Asian Markets

The game plan to do that is simple: Build the Keystone XL pipeline so that 830,000 more barrels of unrefined bitumen per day can reach ocean oil tankers loading in the Texas Gulf Coast. Then triple the capacity of the Trans Mountain pipeline route from Alberta to an oil tanker terminal at the port of Vancouver, to 890,000 barrels per day.

The explicit goal for these planned exports is to bypass all U.S. oil refiners, with the steep discounts they demand to process bitumen, and sign decades-long contracts to export 1.7 million barrels of unrefined bitumen per day to Asian ports. The untested premise is that oil traders and refineries in China and India will be so desperate for crude they won’t dare demand the discounts Americans now charge.

If they are, tar sands/oil sands producers will fetch a higher price in Asia for their bitumen, and a tsunami of cumulative profits will flow back to company headquarters.

But the Canadian producers are more likely to find the tables turned, because many of the foreign refiners they hope to sell to profitably are even more desperate to ratchet down costs, riddled with corruption, and serial polluters.

The most notorious are the “teapot” refiners which now dot the China coast. Built virtually overnight, they are owned by a class of buccaneering capitalists who snapped up special import licences granted by Beijing in 2015 to quickly bolster China’s oil refining capacity. The reason? Many large, state-owned refineries were antiquated, highly polluting, and rife with corruption.

Following raids by Chinese federal police and prosecutors, dozens of senior executives with state-owned refining giant PetroChina were arrested for bribery, corruption, political graft, ignoring pollution emissions, and even overriding objections to build a new US$6-billion refinery and petrochemical complex close to where a devastating earthquake hit Sichuan province in 2008. The purge led to showcase trials and convictions, and in one related case to some $14.5 billion in seized illicit assets.

Toilers for the masses had somehow become tycoons.

Some of the PetroChina refineries were closed, or had operations suspended to modernize, or curtailed to reduce incessant pollutant releases. Beijing ordered new state refineries built at a record pace, but also enlisted the private “teapot” start-ups to fill the refining capacity gap and build up vast state stockpiles with cheap imported oil.

The plan worked perfectly—until it didn’t.

In a mere two years, the private “teapot” refiners, with a combined import quota of 1.5 million barrels per day, grew so fast and imported so much foreign oil that they exceeded China’s federal stockpile mandates, and began to cut into PetroChina’s client base and margins. From an apparent dearth of capacity in 2015, China’s combined refinery capacity now exceeds oil imports by some three million barrels per day.

That put PetroChina and the coastal “teapot” refiners on a collision course. Once allies, they are now ardent adversaries, after they both simultaneously racked up big debts building new refineries.

But there was little doubt which Beijing would favour—especially when it was discovered that the capitalist importers were buying the cheapest, high-sulphur oil available, behaving as relentless pollution emitters and cunning tax evaders.

Punishment from Beijing came swift and hard. Early this year, it announced that the “teapot” operators would have their import quotas cut, face a new tax tailored to reduce their profit margins, and be forced to adhere to stiffer sulphur emissions regulations.

Oil imports by the rogue refiners quickly fell in early 2018. Fewer than half are likely to survive the self-inflicted damage. They are belatedly seeking permits to blend domestic ethanol derived from corn with gasoline, to salvage a future in China. Even fewer “teapots” will likely be buying Canadian bitumen.

That leaves PetroChina refineries as the other possible destination for unrefined tar sands/oil sands bitumen from Alberta. That’s where the Canadian product must compete against rising imports of higher-quality oil from Russia, Kazakhstan, Persian Gulf producers using a new pipeline shortcut through Myanmar, and fast-escalating U.S. shale oil shipments. China’s current excess oil refining capacity, full storage farms, and new pipelines importing natural gas mean Beijing can pit all its foreign suppliers against each other, driving down imported oil prices.

The Alberta Advantage? (Not So Fast)

Tar sands/oil sands bitumen may have a unique market portal. Under the now-disgraced executives, PetroChina enacted plans to significantly scale up construction of special coker units at some of its refineries, designed to process the heaviest, high-sulphur oils into finished products like gasoline, diesel, and jet and ship fuel.

That may be good news for Alberta. The bad news is that those coker units, like their counterparts in the U.S., India, and Saudi Arabia, inherently produce vast tonnages of carbonized crud called petcoke. When it’s burned, it has less heat value than coal, yet emits even more greenhouse gases. But these refinery dregs are dirt cheap. So they’re sold to cement kilns, coal generating plants, or glass, steel, and ceramic factories.

Petcoke has by far the dirtiest chemical signature of any combustible oil derivative. When it’s burned, it emits 11% more GHGs per unit of energy than coal, and almost twice as much as natural gas. It also releases more toxic heavy metals such as cadmium, mercury, arsenic, chromium and nickel, carcinogens, and higher amounts of smog pollutants compared to coal.

Yet there’s a largely hidden, global trade in petcoke. Refineries in America have trouble selling it at home, due to stiffer air quality regulations, and current or pending limits on greenhouse gas emissions. So in 2017, they shipped 213 million barrels of petcoke abroad, to industries in developing countries like India, China, Brazil, and Mexico seeking any competitive edge with no questions asked.

Until a few months ago, the dominant global petcoke traffic route—36 million barrels by ship in 2017—was from several U.S. coker units to India. Like all the 213 million barrels American refineries and brokers sold to be dumped abroad last year, it was derived principally from Canadian tar sands/oil sands bitumen.

Then two events exposed and began curtailing this shameful commerce.

First, a series of hard-hitting investigative stories by Associated Press reporters in India and the U.S. laid bare the one-way petcoke dumping, tracing the suppliers, importers, and Indian industrial customers. They also illuminated harrowing stories from Indian cities where the lungs of millions are incessantly assailed, with cricket players wearing masks to filter lethal air. Pollutant levels in the national capital of New Delhi were ten times worse than those in Shanghai last year.

Almost simultaneously, the Supreme Court of India delivered a scathing indictment of the country’s petcoke trade, found a direct link with endemic, deadly smog levels, and ordered an immediate ban on burning the sulphurous, carbonized waste within the New Delhi national capital region and three adjacent states. Noting that most of India’s state-owned refineries were guilty of selling petcoke to domestic industries, as well, the court left little doubt a country-wide ban might follow if the practice was not cleaned up soon.

The ruling sent economic shockwaves across India and ignited an inevitable business backlash. Some prominent, powerful cement and glass makers won short-term reprieves. But a new excise tax on petcoke imports stalled shipments from U.S. refineries, driving up prices for the dirtiest fuel product in India.

Time will tell what long-term impacts the Supreme Court petcoke judgements will have in India. Following the lead of PetroChina, the state-owned Indian Oil colossus has built the world’s largest refining/coker plant, capable of producing 1.3 million tons per year, operates seven more, and has earmarked $480 million for another. They’re all designed to process heavy, high-sulphur oil and collectively produce millions of tonnes of petcoke each year.

Will Indian Oil dare to use Alberta bitumen as its coker plant feedstock now that Canada has been exposed as the original source of the filthy fuel which drew the Supreme Court’s wrath? Will Alberta producers dare to ship there? Or will sending oil tankers with unrefined Canadian bitumen to Indian ports for decades be too tough of a sell, when everyone there knows about petcoke smog and climate-rending emissions that lurk in each barrel?

Adding Up Alberta’s Chances: Slim to None

This three-part series has examined the pollution signature of tar sands/oil sands bitumen, the scarcity of likely future foreign customers, and a lack of direct access to ocean supertankers at the proposed Keystone XL and Trans Mountain pipeline terminals.

Any one of these could be fatal to the expansive oil export ambitions of Alberta and Ottawa. The combination of all three makes the chances of success slim to none.

And “slim” has left the building.

So why do politicians, the pipeline companies, and bitumen producers persist in such folly? Perhaps it can be expressed as this time-tested formula:

(F)olly = Velocity of greed + (P)olitical ambition x (S)peed of sound bites.

The key decisions to ramp up more tar sands/oil sands production, and build the Keystone XL and expanded Trans Mountain pipelines, were made several years ago when global oil prices were on an upward trajectory which eventually peaked at US$107 per barrel.

At the time, it looked as if the world oil price would stay high or climb higher, and global oil demand would compel flat-out crude production from Persian Gulf countries, Russia, the North Sea, Hibernia, Kazakhstan, Africa, and Brazil, among others.

Canadian tar sands/oil sands producers and related pipeline companies—TransCanada, Enbridge, Kinder Morgan—happily joined the party. Studies were started, permits sought, routes to dedicated U.S. refineries with coker units mapped out. Alberta politicians applauded the prospect of more jobs and eternal royalty revenues. Ottawa joined the cheerleading.

Then the unthinkable happened. The $107 per barrel price for crude drove oil-producing nations to ramp up production and search for newer, bigger deposits using the most advanced, precise technology. Among the biggest of many discoveries were new U.S. shale oil deposits, with almost unfathomable volumes of sweet, light crude that are quick and easy to drill, close to the world’s largest constellation of refineries, and at the locus of a national gasoline market which burns 400 million gallons each day.

In quick succession, Russia ramped up oil production in Siberia and the Caspian region to challenge Saudi Arabia as the top global oil producer. Iraq’s oil exports accelerated as war-ravaged oilfields were repaired. Libya began exporting again, following the downfall of Gaddafi’s despotic regime. And Iran began exporting huge volumes of cheap, high-quality oil when international nuclear sanctions were lifted.

The apparent global oil shortage turned into a surplus so quickly that Saudi Arabia, most OPEC members, and Russia were forced to restrict output when the world price plunged below $40 per barrel, just as the U.S. Congress ended a four-decade ban on oil exports. It has since rebounded to about $65—barely more than half the price oil fetched four years ago.

These whipsaw events left even countries with the biggest untapped reserves of low-cost, high-quality oil with financially stranded oil assets. They will be the first to open the spigots if oil prices climb and demand intensifies. One example: Bahrain just announced a new offshore oil discovery estimated at 80 billion barrels. That is equal in size to the entire proven oil reserves of Russia.

But those hoping to expand Canadian tar sands/oil sands output are at the back of that queue. Their bitumen is too costly to develop, the quality is inferior to almost all other grades of crude, and the deposits are far from tidewater.

These oil supply dynamics are obvious to anyone who isn’t heavily invested in the bitumen bubble. They explain the recent exodus of many Big Oil players. In the first half of 2017, $22.5 billion in tar sands/oil sands assets were dumped. Money talks when it walks.

Those still in denial are the legacy tar sands/oil sands producers and pipeline companies whose pursuit of profits defies even their own ledgers, and provincial and federal politicians who have hitched their electoral fortunes to a dark star that is imploding.

Being dead certain in defiance of all facts is a form of hubris. Now it has turned malevolent. It has politicians:

• Claiming that the best way to decarbonize is to accelerate exports of carbon-laced bitumen to earn the cash to pay for green investments at home. By that bizarre logic, the more bitumen Canada exports and burns, the better.
• Pretending that the province with escalating emissions and plans to export a delayed-fuse carbon bomb is a paragon of carbon-tax virtue. Unrefined bitumen exports evade Alberta’s vaunted carbon tax.
• Vowing that Canada will keep its Paris pledge to reduce carbon emissions nationally while some provinces go totally rogue. The math is simple. If tar sands/oil sands emissions rise, other provinces will have to shoulder deeper carbon cuts.
• Applauding bitumen exports as a matter of shared national prosperity and honour, while its embedded toxic and climate-damaging chemicals merit not even a stage whisper.

Tar sands/oil sands advocates like Alberta Premier Rachel Notley and Prime Minister Justin Trudeau have even taken to nation shaming—with whiffs of extortion and panic—those who dare question immediate pipeline approvals or fail to fall in line with their demands.

Their main target has been B.C. premier John Horgan, for merely insisting that scientific studies on the potential effects of a coastal oil spill be conducted before acceding to the Trans Mountain pipeline construction. This has been decried as craven political posturing, kabuki theatre designed to preserve his own electoral skin, a deep affront to neighbouring Alberta, and an act of Constitutional sabotage which might rend the fabric of Confederation.

The high-decibel drama has included threats to boycott B.C. wines and hydropower, shut off oil and gas to Vancouver, suspend federal program funding, and initiate Supreme Court showdowns over provincial trade rights. That would pit the province which has led Canada towards a low-carbon future against the worst emissions laggard and its federal enabler.

Despite new ultimatums from Ottawa, Alberta, and Kinder Morgan, take a deep breath, Premier Horgan. Hold your ground. Follow the molecules, not the money. When the bitumen bubble inevitably bursts, it will be obvious that your most abrasive opponents were full of sound and fury, signifying nothing in the way of scientific honesty, international ethics, or even viable exports.

Paul McKay is an award-winning investigative reporter and author. His reports have appeared in the Ottawa Citizen, Globe and Mail, Toronto Star, and Vancouver Sun. He can be reached at: paul@paulmckay.com.