What are the oil sands? These vast deposits of bitumen mixed with sand, clay, and water play a pivotal role in Canada’s economy and the global energy landscape.

Part 1 of a series that examines Canada’s vast oil resources in greater detail.

Canada has the world’s third-largest oil reserves, with 97% of these reserves located in the oil sands. Given the importance of these oil sands to North America’s energy future, investors must have a solid understanding of this resource.

Canada has the world’s third-largest oil reserves. However, 97% of those reserves are in the oil sands. Given the importance of these oil sands to North America’s energy future, investors must have a solid understanding of this resource.

Digging deeper into the oil sands

The oil sands are a mixture of sand, water, clay, and bitumen. While the Canadian oil sands are often referred to as the “tar sands,” bitumen is interchangeable with asphalt. Like asphalt, bitumen is a thick, sticky oil that’s too heavy to flow without being heated or diluted. At room temperature, it’s similar to cold molasses, while in freezing temperatures, it’s as hard as a hockey puck.

Because of these characteristics, refining this heavier oil from the oil sands requires additional investments at refineries. For example, BP (NYSE:BP) spent $3.8 billion to upgrade its Whiting Refinery in Indiana, which processes crude oil from Canada. Similarly, Suncor (TSX: SU) (NYSE: SU) spent well over a billion dollars to upgrade its refining operations to process this heavier crude oil.

How much oil are we talking about?

As I mentioned at the beginning, Canada has the world’s third-largest oil reserves, mainly due to the oil sands. According to the latest count, this amounts to 168 billion barrels of oil. For comparison, the U.S. has oil reserves of 29 billion barrels.

While Canada already has a significant amount of proven oil reserves, some believe that there may be even more oil in Canada. Estimates suggest that the total could be as high as the sum of all the world’s known conventional oil reserves, at 1.7 trillion barrels. The Former CEO of Shell (NYSE: RDS-A) Canada, Clive Mather, believes that Canada’s reserves could total more than 2 trillion barrels. Bottom line, Canada is sitting on a world-class supply of oil, potentially the world’s largest.

In addition to its sheer size, Canada’s reserves are unique for another reason. One of the challenges energy companies face is that 81% of the world’s oil reserves are owned or controlled by national governments, leaving precious few reserves accessible to the private sector for investment. However, 56% of those reserves are located in Canada, which is one of the reasons why many private oil companies have established operations in the oil sands.

This is big for big oil.

As an example of the importance of this, consider the trouble U.S.-based ConocoPhillips (NYSE: COP) has had operating in Venezuela, which holds even more proved reserves than Canada. After investing heavily in oil projects, its investments were expropriated in 2007. Just last week, it was ruled that Venezuela did so illegally. For a major oil company like Conoco, there are few other places in the world where it can invest in developing the vast oil resources critical to growing its business. That’s one reason why Conoco has invested so heavily in Canada’s oil sands.

Conoco, along with partner Cenovus Energy (NYSE: CVE) (TSX: CVE), is investing in several major oil sands projects, including Foster Creek, Christina Lake, and Narrows Lake. In total, Conoco believes it has a resource potential of 16 billion barrels of oil equivalent, representing an outsized portion of its total resource base of 43 billion barrels of oil equivalent. With seven oil sands projects in development, Conoco has plans to grow its production by 16% annually through 2017.

What this boils down to is that the supply of oil in the oil sands moves the needle for “big oil”. Another example is Shell, where oil sands production represented 4% of its total global production, for an idea of the scale of this resource, Shell and its partners in the Athabasca Oil Sands Project plan to pursue regulatory approval to increase the current output of that one project to 770,000 barrels of oil per day, which is approximately the entire current daily output of the Bakken shale in North Dakota.

Final Thoughts

There is a stunning amount of oil in Canada’s oil sands. While extracting this oil is challenging, it’s well worth it for the world’s oil companies. Speaking of the challenges to extract the oil, the next installment in the series provides a deeper look at how oil companies develop the oil sands.

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?

Understanding Oil Sands — A Key to Canada’s Energy & Climate Future

Oil sands are among the world’s largest petroleum reserves. As pressure grows to decarbonize, innovative technologies like Klean Industries’ circular fuel systems are becoming vital complements to traditional energy production.

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