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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (133039)	11/6/2001 11:54:44 AM
From: sun-tzu	Read Replies (2) \| Respond to of 436258

FROM ARABIE TO THE SANDS OF CANADA The Daily Reckoning Presents: A DR Guest Essay from resource man John Myers, on the scene in the Athabasca oil fields in way north Canada... FROM ARABIE TO THE SANDS OF CANADA by John Myers Northern Alberta, Canada. A security gate. And a construction site that looks like any other. Workers stand around wearing hard hats and steel-toed boots. On their breaks, they smoke cigarettes and watch the steam rise from their coffee mugs. But if things turn ugly for America's oil-rich allies in the Middle East, it may turn out to be one of the most valuable locations in the world. On a cloudy Canadian afternoon two weeks ago, I paid this site a visit. It sits just outside Fort McMurray, a small and remote Canadian mining town. It doesn't look like much. But this is the epicenter of the Athabasca Oil Sands, the largest oil shale resource in the world. In case you're not familiar with the term, oil shale is essentially a piece of surface rock and sand saturated with oil. Unlike pockets of raw crude that used to shoot up from Texas oil wells, there is no pressure building in a field of oil shale. The oil has already seeped to the surface and collected in pools of molasses-like bitumen. The Athabasca's Oil Sands contain an estimated 1.7 trillion to 2.5 trillion barrels of bitumen. From that, an estimated 300-plus billion barrels of oil are recoverable with current technology. That's no small cache. The U.S. and Russia combined have less. Even Saudi Arabia reports "only" 200 billion barrels in reserve. But harvesting processed oil from a shale deposit is dirty work. It requires massive equipment. And up until recently, it's been too expensive to be considered an alternative to the cheaper, more volatile oil resources we get from the Middle East. But all that has changed. As we were about to find out: "Each wheel on these trucks has its own electric motor," said Howard, our tour guide and a retired engineer, "...And wait until you see the shovels. They cost $19 million each." He pointed to a 400-ton monstrosity, riding on tires that were each bigger than our full-sized tour van. We couldn't see the shovels yet. They were busy on site at the Steepbank Mine, where they could rip 100-ton chunks of shale from the earth, to send off for processing. It only takes a few hours to transform each load into oil. The shovel loads are dumped into the massive trucks. The trucks, in turn, dump everything into crushers. The result is delivered to a primary extraction plant where separation begins. The bitumen that results is injected with steam. Then it's diluted with naphtha and piped into a refinery. There, it's purified and sent off yet again to be processed into diesel, light sweet or sour crude. One 100-ton load of shale yields about 50 barrels of oil, which is ultimately shipped to markets all over North America via pipelines. This may be a long way from the days of Dallas and oil- rich Americans. But with pressure mounting in the Middle East - and domestic oil production in America at its lowest level in 40 years - the shale-oil industry could hand resource investors their biggest profit since the 1970s. Especially now that extraction technology has forced processing costs to plummet. When Suncor began operations in 1967, the cost of producing oil from oil shale stood at more than $30 a barrel. Even at the height of the Yom Kippur War, oil on the open market fetched only $12, making shale oil irrelevant. In 1984, it cost $25 to get a barrel of oil from shale. But the market price per barrel was $15. Now, however, the metrics have changed. Suncor's per- barrel extraction costs are down to $10.67 a barrel, thanks entirely to new technology and economies of scale. With $3.25 billion Canadian in new investment, costs could plunge still further - as low as $9 a barrel. That's on par with what it already costs America to tap dwindling resources of conventional crude. It's also well below the current cost of oil on the open market - at $21.85 as of this writing. And Suncor is prepared. In 1999, their oil-sands project produced 85,000 b/d in 1999. By the end of 2002, they expect to produce 225,000 to 250,000 b/d - or $5.5 million worth per day - even if oil prices don't rise a penny. With Middle East volatility spreading and pressure increasing, oil prices will head upward. Fast. And Suncor's profit margin will only get wider. Shell and Syncrude already invest heavily in adjacent properties. In fact, by 2015, Athabasca's Oil Sands will produce 2.5 million b/d, or 60% of Canada's total oil production. This creates huge opportunity for shrewd resource investors. How so? First, unlike oil trapped in underground deposits, oil shale reserves are easily discovered. They seep to the surface. Costly exploration budgets carried by conventional oil producers aren't part of the equation. Second, the U.S. market is locked in. George W. Bush has made it clear that the U.S. reliance on Middle East oil will shift to reliance on Athabasca's Oil Sands. And third, new technology and economies of scale continue to reduce production costs, making shale-oil recovery more viable by the day. A mining town as remote as Fort McMurray isn't the first place you'd expect to see a cameraman from CNN. But is this Canadian hinterland worth watching? From where I stood just two weeks ago - amid massive machinery, the rumbling hum of diesel engines, and towering refinery smokestacks - it certainly seemed so.