The environmental impact of oil sands development remains a central concern in the energy transition conversation, raising questions about emissions, land disturbance, and water use.

Canada has a lot of oil, but is its extraction worth the environmental risks?

Canada has a wealth of oil locked within the oil sands of Alberta. However, when oil is combusted, it produces harmful greenhouse gases, and the oil sands are a particularly dirty form of oil. Furthermore, extracting oil from the oil sands is more environmentally challenging, which raises concerns. It has many wondering if these environmental risks outweigh the benefits.

Investors must understand the environmental risks relating to the development of the oil sands. It’s crucial to understand what could go wrong and what oil companies are doing to mitigate those risks. If companies don’t take these risks seriously, it could permanently impact the development of the oil sands, as well as the profits of companies devoted to developing the sands. Specifically, there are three key environmental risks to watch: Air, water, and land.

Air

In 2011, Canada was responsible for 2% of the world’s greenhouse gas emissions, with oil sands production accounting for approximately 7.8% of the country’s overall emissions. Overall, the oil sands are about 9% more carbon dioxide intensive than the average barrel of oil refined in the U.S. There is no doubt that the oil sands are dirtier. That being said, the industry is improving its performance in reducing the greenhouse gas emissions associated with every barrel of oil produced, with emissions dropping by 26% from 1990 to 2011.

Not only that, but the industry is taking steps to reduce its carbon footprint. For example, Royal Dutch Shell (NYSE: RDS-B) has proposed the Quest Carbon Capture and Storage project. This fully integrated project would capture, transport, and store one million tonnes of carbon dioxide per year, equivalent to taking 175,000 cars off the road. Projects like this one from Royal Dutch Shell will help improve the environmental impact of Canada’s oil sands.

Water

Another environmental issue that oil sands producers are trying to overcome is water usage. In 2011, the average oil sands mining project used 2.7 barrels of water to produce every barrel of oil. Meanwhile, the average in situ project used 0.4 barrels of water to produce every barrel of oil. To combat this issue, producers such as Devon Energy (NYSE: DVN) and Cenovus Energy (TSX: CVE) (NYSE: CVE) are recycling more water while reducing the overall water used to produce the oil.

Devon Energy, for example, was the first company to use only non-potable saline water for its oil sands production. Furthermore, the water is recycled up to nine times before being injected deep into the ground for storage. Projects like this enable oil sands producers, such as Devon Energy, to recycle up to 95% of the water used in oil sands operations.

Cenovus Energy, on the other hand, focuses on keeping its steam-to-oil ratio, or SOR, among the lowest in the industry. The SOR is the amount of steam needed to produce a barrel of oil.  Less steam means less water.  Like Devon, Cenovus
primarily uses brackish water that isn’t suitable for human or animal consumption. Further, by keeping its SOR down, it can keep a lower environmental footprint and can build smaller plants that consume less energy. Best of all, this improves the returns it earns for investors and shows that green can also be profitable.

A final example is Imperial Oil (TSX: IMO) (NYSE: IMO). The company’s Cold Lake in situ operation has reduced its water usage per barrel of oil produced from 3.5 barrels in 1985 to just 0.5 barrels today. Furthermore, Imperial Oil recycles 95% of the water it uses.

Land

A final area of concern is the impact that mining the oil sands has on the land. It is estimated that 20% of Canada’s oil sands are close enough to the surface that they can be mined in open-pit operations. Open-pit mining operations have a significantly disruptive environmental footprint. Nevertheless, only 3% of the land containing the oil sands will be impacted, and the industry can extract approximately 90% of the original oil in place, which is three times what conventional oil drilling can recover.

Mining operations create large tailings ponds that contain the leftover sand, water, clay, and residual oil. One major issue is that this mixture isn’t fit for consumption, so the industry must keep birds from these tailing ponds. Companies like Suncor (TSX: SU) (NYSE: SU) have gone to great lengths to deter birds from landing on the ponds, including the use of radar detection and sounding cannons to scare the birds away.

Once an open-pit mine has exhausted its oil reserves, it must be reclaimed to its original state or better. This includes tailings ponds, and here again, Suncor has become a leader in reclaiming the land it has mined. For example, Wapisiw Lookout was one of its first tailings ponds in the 1960s. However, it is being reclaimed to include both wetland and dry landscapes. Overall, just 0.02% of Canada’s boreal forest has been disturbed by oil sands operations over the past forty years, with 10% of that already being reclaimed and returned to public use.

Final thoughts

Canada may be sitting on a world-class oil resource, but it cannot overlook the environmental issues surrounding its development. Thankfully, it isn’t. The government, in conjunction with producers, is going the extra mile to ensure the impact on the environment from developing the oil sands is mitigated.

Learn more: 

• Part 1: Oil Sands 101: What Are the Oil Sands Anyway?
• Part 2: Oil Sands 102: How Does Oil Come from Sand?
• Part 3: Oil Sands 103: What Companies are Key to Developing Canada’s Oil Sands?
• Part 4: Oil Sands 104: Are the Environmental Concerns Worth the Risk?
• Part 5: Oil Sands 105: What is Diluent and Why is it Important?

Balancing Energy and Environment — Is There a Sustainable Path for Oil Sands?

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