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1 Suite 214, 9914 Morrison Street Fort McMurray, AB T9H 4A4 (780) (Ph) (780) (Fax) CUMULATIVE ENVIRONMENTAL MANAGEMENT ASSOCIATION Report Disclaimer This report was commissioned by the Cumulative Environmental Management Association (CEMA). This report has been completed in accordance with the Working Group s terms of reference. The Working Group has closed this project and considers this report final. The Working Group does not fully endorse all of the contents of this report, nor does the report necessarily represent the views or opinions of CEMA or the CEMA Members. The conclusions and recommendations contained within this report are those of the consultant, and have neither been accepted nor rejected by the Working Group. Until such time as CEMA issues correspondence confirming acceptance, rejection, or non-consensus regarding the conclusions and recommendations contained in this report, they should be regarded as information only. For more information please contact CEMA at COPYRIGHT # : ***All information contained within this report is owned and copyrighted by the Cumulative Environmental Management Association. As a user, you are granted a limited license to display or print the information provided for personal, non-commercial use only, provided the information is not modified and all copyright and other proprietary notices are retained. None of the information may be otherwise reproduced, republished or re-disseminated in any manner or form without the prior written permission of an authorized representative of the Cumulative Environmental Management Association.***

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3 Oil Sands End Pit Lakes: A Review to 2007 Not to scale

4 Oil Sands End Pit Lakes: A Review to 2007 Prepared by: Fay Westcott, M.Sc., P.Biol. Clearwater Environmental Consultants Inc. Prepared for: The Cumulative Environmental Management Association End Pit Lakes Subgroup Project March, 2007

5 ACKNOWLEDGEMENTS Sincere thanks to the EPLSG members for their aid in the development of the Oil Sands EPLs: A Review to 2007 Document. All graphics in this document were designed by Squeeze Creative. EXECUTIVE SUMMARY The Athabasca Oil Sands are located in northern Alberta, just north of the city of Fort McMurray. Three commercial development projects to mine the oil sands are currently underway and more are planned. End Pit Lakes (EPLs) are a key part of the management, operation and final reclamation landscape of these projects. The purpose of this Oil Sands End Pit Lakes Review Document is to improve the understanding of EPLs for those involved and interested in the oil sands industry. The target audience includes members of the oil sands industry, government regulators, Aboriginal communities and members of the general public. An EPL will be constructed from a mined-out pit at the end of the oil sands project. Its general purpose is to isolate process-related materials, which may include some or all of the following: soft tailings, process-affected water, overburden and lean oil sands. Each EPL will then be filled to the top with water. There will be variations in the appearance, contents and purposes of EPLs. This report describes the features most common to EPLs, and identifies where differences may occur. The construction of an EPL is described, including its sources of soft tailings and water. The physical, chemical and biological features of a general EPL are also outlined, including any expected changes over time. A typical EPL s water balance, discharges, water quality, toxicity and the expected aquatic ecosystem are all described in this document. Graphics are used to help illustrate these concepts and show what an EPL may look like. Several issues and concerns regarding EPLs have been raised by regulators and stakeholders. These concerns include how EPLs will be constructed and how they will function as part of the final reclamation landscape. Many background studies and modelling exercises have been conducted as part of the research on EPLs. However, it is difficult to show that EPLs will be successful and will function as planned, because there are no EPLs currently in existence. The oil sands industry needs to demonstrate that EPLs will be successful, that they will meet regulatory requirements and will not have negative environmental impacts. This document summarizes the research and progress that have been made in addressing the above concerns. It also identifies where information gaps remain and what future steps are needed. The additional research planned for EPLs will help ensure the success of EPLs both as a reclamation tool and as a permanent feature of the post-oil sands landscape. The oil sands industry is confident that it will meet its requirements through continued research, careful monitoring and responsible management. Contingency plans will be in place to revise mine plans, change designs, treat water quality, reduce toxicity and establish plant and animal communities, where necessary. Intensive monitoring during the first decade of EPL operation will be particularly important to make the right changes to design and management plans. The oil sands industry is committed to constructing EPLs that will develop into natural ecosystems and will meet end use goals. By remaining informed, involved and active in EPL issues, industry, regulators, Aboriginal communities and public participants can contribute to the success of EPLs. End Pit Lakes Background Document i Clearwater Environmental Consultants

6 TABLE OF CONTENTS Page ACKNOWLEDGEMENTS... I EXECUTIVE SUMMARY... I TABLE OF CONTENTS... II LIST OF TABLES... III LIST OF FIGURES... III ACRONYMS... IV GLOSSARY... V 1.0 INTRODUCTION TO END PIT LAKES Purpose of Document Definition of an EPL EPL Participants CONTENTS OF END PIT LAKES How EPLs are Constructed Overview and Time Frames Contents Discharge Physical Characteristics Size and Shape Contents Residence Time Stratification and Meromixis Chemical Characteristics Water Quality Toxicity Meromixis Discharge Biological Characteristics Suitable Conditions Colonization Ecosystem Health Changes over Time in EPLs FUNCTIONS OF END PIT LAKES Roles and Uses Performance Indicators KNOWLEDGE BASIS FOR END PIT LAKES Historic Research Current EPLSG Research...32 End Pit Lakes Background Document ii Clearwater Environmental Consultants

7 5.0 KNOWLEDGE GAPS FOR END PIT LAKES Uncertainties and Risks Water Use Water Quality and Toxicity Sustainability Liability Future Research PATHS FORWARD REFERENCES PERSONAL COMMUNICATIONS LIST OF TABLES Page Table 1.1 Summary of Key End Pit Lake Issues... 4 Table 1.2 Roles and Responsibilities of EPL Participants... 8 Table 2.1 Range of Characteristics for Currently Planned EPLs Table 2.2 Water Quality Parameters of Concern within EPLs Table 4.1 End Pit Lake Research Results LIST OF FIGURES Page Figure 1.1 Location of Currently Planned Pit Lakes in the Oil Sands Region... 2 Figure 1.2 Appearance and Contents of an EPL Over Time... 5 Figure 2.1 Water Balance of an EPL Over Time Figure 2.2 Potential Pathways of Bioaccumulation of Process-Related Chemicals in an EPL Figure 3.1 Various End Land Uses of an EPL End Pit Lakes Background Document iii Clearwater Environmental Consultants

8 ACRONYMS AENV ASRD CCME CEMA CT DFO DO EC EIA EPEA EPL EPLSG EUB HADD IFN IRMP km 2 m 3 MFT mg/l μs/cm NAs NWPA RSDS TDS TT Alberta Environment Alberta Sustainable Resource Development Canadian Council of the Ministers of the Environment Cumulative Environmental Management Association Consolidated/Composite Tailings Fisheries and Oceans Canada Dissolved Oxygen Environment Canada Environmental Impact Assessment Environmental Protection and Enhancement Act End Pit Lake End Pit Lake Subgroup Alberta Energy and Utilities Board Harmful alteration, disruption or destruction of fish or fish habitat Instream Flow Needs Integrated Resource Management Plan Square kilometre Cubic metre Mature Fine Tailings Milligrams per litre MicroSiemens per centimetre Naphthenic Acids Navigable Waters Protection Act Regional Sustainable Development Strategy Total Dissolved Solids Thickened Tailings End Pit Lakes Background Document iv Clearwater Environmental Consultants

9 GLOSSARY Aerobic Acute Toxicity Anaerobic Anoxic Bacteria Benthic Invertebrates Bioaccumulation Bioavailable Biodiversity Bioremediation / Biodegradation Bitumen Cap Water Chemocline Chronic Toxicity A process that occurs in the presence of oxygen. Adverse effects on the survival of an organism that occur within a short time following exposure to a chemical. A process that occurs in the absence of oxygen. Lacking in oxygen. Tiny, single-celled organisms found in water, soil and the guts of animals. Aquatic animals without backbones that dwell on or in the bottom sediments of a water body. Examples include mayflies, stoneflies, caddisflies, clams, worms. The build-up of a pollutant in the body of an aquatic organism by uptake in food or directly from the surrounding water. The ability of a water quality parameter (either toxic or essential) to become absorbed into the tissues of an organism. Bioavailability for many parameters varies with the specific water chemistry, particularly ph, dissolved oxygen, hardness and temperature. The number and kinds of organisms or the composition of species in a given area at a given time. The reduction of the concentrations of chemicals and toxic compounds in water and/or sediment, through natural microbial processes. The molasses-like mixture of raw oils extracted from the oil sands. Bitumen is upgraded to a crude oil which is further refined as a conventional oil source. Upgrading and refinement involve separating the oil from the hundreds of other chemicals naturally present in bitumen. The water placed on top of the soft tailings or substrate within an EPL. The small layer in a saline-stratified lake between the mixolimnion and the monimolimnion. The chemocline changes from low densities to high densities in a short distance. Adverse effects on an organism that occur over the long term following exposure to a chemical. Behaviour, growth and reproduction of the organism may be affected. End Pit Lakes Background Document v Clearwater Environmental Consultants

10 GLOSSARY CONT. Consolidated / Composite Tailings Consolidation Decomposition Density Ecosystem Eutrophication End Pit Lake Food Web Functional Ecosystem Habitat Hydrocarbon Inorganic A type of soft tailings that are produced by mixing dense extraction tailings with MFT and a coagulant aid (gypsum). The CT dewater faster than other soft tailings. They are composed of about 50% sand and 50% water. The settling of fine tailings particles to a more solid form, releasing pore water from between the particles. The process of rotting and decay in dead plants and animals. Complex organic material is broken down into simple inorganic elements. These elements are then returned to the water or soil. Aerobic decomposition occurs at a faster rate than under anaerobic conditions. The mass of a substance for a known volume. It is a measure of how heavy the substance is for its size. A community of microbes, plants and animals together with their environment that interact and function as an ecological unit. The enrichment of fresh water bodies by inorganic plant nutrients such as nitrate and phosphate. The process may occur naturally or as a result of human activity. It can be particularly evident in slowmoving rivers and shallow lakes. A man made waterbody constructed in an oil sands mine pit. An EPL may contain oil sands by-products and will receive surface and groundwater from surrounding reclaimed and undisturbed landscapes. EPLs will be permanent features in the final reclaimed landscape, discharging water to the downstream environment. A complex network of feeding relationships within an ecosystem. An ecosystem that supports and maintains a balanced, adaptive system with a species composition, diversity and functional organization that is comparable to that of natural systems. The natural environment or specific surroundings where a plant or animal grows or lives. The surroundings include physical factors such as temperature, moisture and light together with biological factors such as the presence of food or predators. An organic chemical compound composed of hydrogen and carbon. Hydrocarbons range from very simple structures to complex, heavy molecules. A substance of mineral origin, containing no carbon. End Pit Lakes Background Document vi Clearwater Environmental Consultants

11 GLOSSARY CONT. Instream Flow Needs Littoral Zone Macrophyte Mature Fine Tailings Meromixis Microbes Mixing Zone Mixolimnion Monimolimnion Naphthenic Acids Nutrient Organic Overburden The amount of water required in a river to sustain a healthy aquatic ecosystem, or to meet human needs such as recreation, navigation, waste assimilation or aesthetics. The shallow area near the shore of a waterbody, or that portion of a waterbody extending out from the shoreline to the limit of where rooted plants can grow. A large aquatic plant that may or may not be rooted. Examples are pondweed or cattails. Aged fine tailings that form in the deeper parts of the settling basins or tailings ponds. They contain less water (< 80% by volume) than fine tailings. A process that maintains the stratification of a water body. Increased salinity or decreased temperature increases water density of the lower layer and prevents the mixing of upper lake layers with lower lake layers. Very small organisms, including bacteria, protozoa and fungi. A limited area around a discharge where an instream objective may be exceeded. In the case of the chronic protection of aquatic life guidelines, this area is half of the stream width wide and ten times the stream width for length. The upper layer of a chemically stratified (meromictic) body of water. This layer is of lower density (or salinity) than the monimolimnion. The lowermost, non-circulating layer of dense water in a chemically stratified (meromictic) body of water. This layer lies below the chemocline, is usually deficient of oxygen and is of higher density (or salinity) than the mixolimnion. Naturally occurring hydrocarbons found in surface waters in the Athabasca oil sands area. Oil sands process-affected water is toxic to aquatic organisms, and naphthenic acids are the primary group of compounds responsible for the toxicity. A substance taken up by organisms that promotes growth. In aquatic ecosystems, the most important nutrients are phosphorus and nitrogen. A substance usually of animal or plant origin that contains carbon. The surface soil/rock that must be removed to get at a useful natural resource such as the oil sands. End Pit Lakes Background Document vii Clearwater Environmental Consultants

12 GLOSSARY CONT. Phytoplankton Pore Water Process-Affected Water Productivity Reclamation Reclamation Waters Residence Time Riparian Zone Runoff Salinity Seepage Soft Tailings Sustainable Microscopic floating plants, mainly algae or diatoms, which live suspended in water and drift about. The water occupying the space between sediment particles. Any water that has come in contact with oil sands, and may contain hydrocarbons and other chemicals The rate of growth in an ecosystem. In an aquatic ecosystem, productivity can be limited by nutrients, light, temperature and habitat availability. The process by which disturbed lands are reclaimed back to a beneficial land use. Reclamation includes the removal of any physical structures, closure of tailings ponds and other mine features, and contouring, covering and revegetating disturbed areas. Water that needs to be put through the processes of reclamation during which contaminants are removed. The length of time water spends in a particular location before it moves on or is discharged. The zone in which terrestrial plants grow adjacent to a stream, river, lake or wetland. Precipitation that flows over the ground into streams or lakes. Runoff can collect pollutants from the land and carry them to the receiving waters. The concentration of salts dissolved in water. For the purposes of this document, salinity is equivalent to TDS. The act or process of slowly entering, departing, or becoming gradually diffused. Materials produced during bitumen production, made up of water, hydrocarbons and fine particulates like clay, silt and sand. These tailings enter settling basins or tailings ponds, which allow the particles to consolidate and release water. They are non-trafficable (cannot be driven over) and therefore must be stored. A characteristic of something that allows it to maintain its existence and/or recover from disasters without human intervention. End Pit Lakes Background Document viii Clearwater Environmental Consultants

13 GLOSSARY CONT. Stratification Tainting Thickened Tailings Total Dissolved Solids Toxicity Trophic Level Water Balance Zooplankton The arrangement of a waterbody into two or more horizontal layers of differing densities due to different layer characteristics of temperature, salinity, etc. Stratification is established when there is insufficient energy to mix the layers. An abnormal taste or smell to a fish that develops when it lives in waters containing a variety of oil sands chemicals. Fish tainting is believed to have no effect on the health of the fish or the person eating it. A developing tailings technology that produces tailings with a much lower water content (30 to 70%). This technology removes even more water from the tailings at a faster rate through the addition of chemicals and thickeners. The inorganic and organic salts dissolved in water. Principal components generally include the cations calcium, magnesium, sodium and potassium, and the anions carbonate, bicarbonate and sulphate. The adverse effect on the growth, reproduction or survival of an organism. The sequence of steps in a food web, from producer to primary, secondary and tertiary consumer. A complete accounting of all inputs and outputs of water to a system. Animal life, usually microscopic, that floats or drifts in the water column. This forms the bulk of the primary consumer link in the aquatic food chain. End Pit Lakes Background Document ix Clearwater Environmental Consultants

14 1.0 INTRODUCTION TO END PIT LAKES 1.1 Purpose of Document The Athabasca Oil Sands are located in northern Alberta, just north of the city of Fort McMurray. These bitumen deposits are an important natural resource. There are currently three commercial developments to mine the oil sands, as approved by various government regulatory agencies. More oil sands mines have been planned and approved, but are not currently in development. End Pit Lakes (EPLs) are a key part of the management, operation and final reclamation landscape of the Athabasca oil sands development. An EPL will be constructed in a mined-out oil sands pit. Approximately 27 EPLs have been planned to date within the Athabasca oil sands area. Figure 1.1 shows the EPLs that are currently planned. With the potential for more oil sands projects in the future, additional EPLs will likely be planned over the next few decades. Although oil sands mining is ongoing, no EPLs have been constructed yet. The first EPLs will likely begin construction in the next few years, with their development continuing over several decades. All EPLs will be permanent features of the landscape once the oil sands mine areas have been reclaimed. Several issues and concerns regarding EPLs have been raised by regulators and stakeholders. Table 1.1 outlines some of these specific concerns. These concerns arise partly from the lack of information on how EPLs will be constructed and how they will function as part of the final landscape. EPLs will be very complex systems; their hydrology, chemistry and biology design requirements need to be better understood. Many background studies and modelling exercises have been conducted as part of the research on EPLs. However, because there are no EPLs currently in existence, it is difficult to show that they will be successful and will function as planned. The oil sands industry needs to demonstrate that EPLs will be successful, that they will meet regulatory requirements and will not have negative environmental impacts. The Oil Sands End Pit Lakes Review Document has been prepared for the End Pit Lakes Subgroup (EPLSG). This group is one of many working groups within the Cumulative Environmental Management Association (CEMA). CEMA is a multi-stakeholder group that works to address environmental issues identified within the Wood Buffalo Region of Northern Alberta. This region includes the Athabasca oil sands area. Members of CEMA include oil sands developers, federal and provincial government departments, and Aboriginal, environmental and community groups. Several of these groups also have representatives on the EPLSG. The mandate of the EPLSG is to undertake scientific research to address technical EPL issues. Industry and government regulatory agencies will then implement the EPLSG recommendations. The purpose of this Oil Sands End Pit Lakes Review Document is to improve the understanding of EPLs for those involved and interested in the oil sands industry. This document will summarize the research and progress that has been made in addressing the above concerns. It will also identify where information gaps remain and what future steps are needed. End Pit Lakes Background Document 1 Clearwater Environmental Consultants

15 Figure 1.1 Location of Currently Planned Pit Lakes in the Oil Sands Region LEGEND ROADWAYS RIVERS AND STREAMS PROJECT AREA PIT LAKE AREA NOTE: THESE ARE CONCEPTUAL DRAWINGS BASED ON INFORMATION FROM LONG-RANGE PLANS PROVIDED IN APPLICATIONS, EIAs AND OTHER UPDATE DOCUMENTS LOCATION OF PLANNED PIT LAKES IN THE OIL SANDS REGION REFERENCE ALBERTA NTDB DIGITAL DATA OBTAINED FROM GEOMATICS CANADA, AUGUST DATUM: NAD 83 PROJECTION: UTM ZONE 12 FIGURE: 1-1 End Pit Lakes Background Document 2 Clearwater Environmental Consultants

16 The EPLSG has recently developed a Technical Guidance Document for EPLs (Clearwater 2007). This Technical Guidance Document will be used by industry, government, Aboriginal communities and other stakeholders to guide planning and research into the design, development and management of EPLs. The technical document summarizes existing research and will provide updates as new information emerges. It identifies additional questions and research required to fully understand the science and management needs of EPLs. This Oil Sands End Pit Lakes Review Document may be used as a companion report to the EPL Technical Guidance Document. The Review Document will provide a basis for understanding EPLs, including their physical, chemical and biological characteristics. By comparison, the Technical Guidance Document is more detailed in its content and geared toward design, management and implementation. The target audience for this EPL Review Document includes several diverse groups: EPL Subgroup membership: This document will aid in retaining information within the membership. Any new members to the subgroup can use the document to familiarize themselves with EPL issues and background information prior to their participation in the group. CEMA and CONRAD membership: Members of CEMA, CONRAD (Canadian Oil Sands Network for Research and Development) and other regional research groups can use this document to remain up-to-date with EPL research and information. Aboriginal Communities: This document will allow Aboriginal communities, including First Nations and Métis members, to participate meaningfully during consultation within the oil sands approval process. It will aid in preparation for meetings with regulators and industry, and provide a basis for discussion. General Public: This document will allow members of the general public to become informed and educated on EPL issues. This background could help in their active participation in EPL discussions and in the oil sands approvals process. Members of the general public include local communities, the media, secondary and postsecondary institutions, environmental groups and policy managers. In order to reach all members of this diverse target audience, this document must be accessible and understandable. To achieve this, the use of jargon is minimized. However, terms that are part of the general EPL language are introduced, with definitions provided in the text and in the Glossary and Abbreviations sections. This common language and understanding can be used as a basis for future discussion and collaboration among the oil sands industry, regulators and stakeholders. More technical readers should refer to the primary literature or the EPL Technical Guidance Document (Clearwater 2007) for a greater scientific approach to EPL issues, and where insufficient details are provided here. Graphics have been included in this document to aid in the visualization of sometimes complex scientific concepts. These graphics are intended to provide a vision of what EPLs may look like, including changes over time. It is important to note that these graphics are conceptual only and are not to scale. No EPLs currently exist, and planned EPLs vary greatly in size, shape and content. These graphics show just one example; there will likely be many different configurations when the EPLs are actually constructed. End Pit Lakes Background Document 3 Clearwater Environmental Consultants

17 Table 1.1 Summary of Key End Pit Lake Issues Physical Issues Chemical Issues Biological Issues Sociological Issues Specific Issue or Concern EPL design (depth, surface area, etc.) Volumes and depths of process-affected water Volumes and depths of soft tailings Oxygen content Residence time Shoreline erosion Pore water release from soft tailings Self-sustaining water balance (volumes and rates of inflows and outflows) Toxicity of soft tailings Toxicity of water Toxicity of sediments Salinity Bioremediation (decay rates of toxic compounds) Meromixis (water column mixing/stratification) Extent and stability of littoral zone Ecosystem development and sustainability Biodiversity (number of species) Productivity (population growth rates) Ecosystem and population level risks Bioaccumulation of toxic substances within the food web Productive capability Aboriginal use Access Fish tainting Recreational use Safety 1.2 Definition of an EPL An EPL will be a man-made lake constructed within the Athabasca oil sands area. A good definition is provided by the EPLSG: an EPL is an engineered water body, located below grade in oil sands post-mining pits. An EPL may contain oil sands by-product materials and will receive surface and groundwater from surrounding reclaimed and undisturbed landscapes. EPLs will be permanent features in the final reclaimed landscape, discharging water to the downstream environment. An EPL will be constructed from a mined-out oil sands pit. Its development will be progressive, as shown in Figure 1.2. The figure also provides a general idea of a cross-section of an EPL. Depths and volumes of the pits will vary, but some may be more than 50 m deep, more than 10 km 2 in area and more than 400 million m 3 in volume (Table 2.1) (Golder 2006a). The oil sands by-products held within an EPL could include various combinations and concentrations of process-affected water, runoff and seepage. Process-affected water is any water that has come in contact with oil sands, and may contain hydrocarbons and other chemicals. Some EPLs also plan to store soft tailings at its bottom. Soft tailings are produced during the oil sands mining process. These soft tailings are composed of water, fine particles like clay, silt and sand, some residual hydrocarbons and other chemicals. Soft tailings are non-trafficable, meaning they can t be driven on, and therefore need to be stored appropriately. Each oil sands mine will produce different types of tailings, with differing proportions of the above components. Several different types of tailings may be placed with an EPL. End Pit Lakes Background Document 4 Clearwater Environmental Consultants

18 Figure 1.2 Appearance and Contents of an EPL Over Time Not to scale. End Pit Lakes Background Document 5 Clearwater Environmental Consultants

19 Cap water will be placed on top of the soft tailings (if present) to fill the lake to the top. This cap water may come from a variety of sources, including Athabasca River water, process-affected water, surface runoff and precipitation. The amount of cap water compared to soft tailings will vary for each EPL. In general, there will be much more tailings than cap water. Table 2.1 summarizes the range of characteristics expected for EPLs in the oil sands region. The appearance of an EPL will change over time (Figure 1.2). Initially, the EPL will look like an empty pit that will become increasingly filled as process-related materials (such as soft tailings) and cap water are added. The filling stage of an EPL will occur following mine development when it will be surrounded by disturbed lands. Once filled, an EPL will look like a pit filled with water. Over time and as reclamation progresses (intermediate stage), the disturbed landscape will develop into a more natural landscape. Trees, shrubs and grasses will be planted and streams and wetlands will be constructed. In the far-future stage, an EPL will look essentially like a natural lake. It will be surrounded by a vegetated landscape and will contain a variety of plants and animals. An EPL will serve several purposes, which will also change over time (Gibbs and Brown 1998, Golder 2001, MacKinnon 2004). Initially, during filling, an EPL will serve as a holding site for excess oil sands process-affected materials, such as soft tailings, process-affected water, overburden and lean oil sands. Over time, the process-affected materials within the EPL will be bioremediated. Bioremediation is the reduction of the concentrations of chemicals and toxic compounds through natural microbial processes. Successful bioremediation will result in nontoxic water that will have no negative environmental effects once the EPL is connected to surrounding streams and wetlands. Finally, in the far future, the EPL will be a permanent feature of the reclaimed landscape. It will support a self-sustaining aquatic ecosystem. A variety of lakes, wetlands, and drainage systems will be linked to the EPL, and ultimately, it will be connected to the Athabasca River. The EPL will also support wildlife habitat, recreation and traditional Aboriginal uses in the far-future. See Section 3.1 for more detail on the roles of EPLs. 1.3 EPL Participants Numerous stakeholders have been and will continue to be involved in the process of EPL planning, development and implementation. Participants range from regulators, environmental and community groups to Aboriginal communities and the oil sands industry. See Table 1.2 for a summary of the participants and their expected roles and responsibilities. Because EPL implementation will occur over an extended period of time, there may be changes to the roles and responsibilities of the participants listed here. The key participant in the EPL process will be the oil sands industry. Each oil sands mining company will be responsible for designing, managing and implementing EPL plans for their respective projects. Long-term monitoring and adaptive management will be key responsibilities for industry to ensure that EPLs are being designed and managed properly. Changes to these plans must be made when appropriate. The oil sands industry is also responsible for ongoing research into EPLs. EPL science and predictions must continually be improved to demonstrate that the technology will be successful. The industry must also show that the goals identified for EPLs will be reached. Industry will continue to collaborate to share technology, resources and research. Federal and Provincial regulators will be continually involved in EPL development and implementation. Federal regulatory agencies include Environment Canada (EC), Transport Canada and Fisheries and Oceans Canada (DFO). These regulators will be responsible for End Pit Lakes Background Document 6 Clearwater Environmental Consultants

20 reviewing and approving EPL plans as part of the oil sands mine projects. EPLs must also meet several federal guidelines and planning initiatives. These include the Canadian Environmental Quality Guidelines (CCME 1999, updated 2006) and the Habitat Conservation and Protection Guidelines (DFO 1998). Provincial regulatory bodies include Alberta Environment (AENV), Alberta Sustainable Resource Development (ASRD) and the Alberta Energy and Utilities Board (EUB). Approvals for the oil sands projects and their EPLs must be received by these agencies. The province has also developed specific plans for development within the oil sands region. These include the Regional Sustainable Development Strategy (RSDS) (AENV 1999a; 1999b) and the Integrated Resource Management Plan (IRMP) (AEP 1996, ASRD 2005). Following approvals, federal and provincial regulatory agencies are responsible for determining whether the oil sands operators meet the terms and conditions throughout EPL development. They will also be involved in the reclamation certification process. This process will determine whether the final landscape for each oil sands mine, including any EPLs, has been fully reclaimed. Once the landscape and its EPLs have been certified, the responsibility for EPLs changes from the oil sands industry to the government, specifically ASRD. Aboriginal communities are key participants in the EPL process. In the Athabasca oil sands region, these Aboriginal communities include several First Nations and their Industry Relations Corporations, the Athabasca Tribal Council, and Métis groups. Aboriginal consultation for oil sands mine plans, including EPLs, is the responsibility of the Alberta government. Alberta has a duty to consult with First Nations where land management and resource development have the potential to adversely impact First Nations rights and traditional uses of Crown lands (Government of Alberta 2005). During consultation, Aboriginal communities can communicate their concerns and goals for EPLs and what end uses they would like for the reclamation landscape. The general public also has an important role in oil sands and EPL development. Too numerous to fully list here, they include community groups, environmental groups and individuals. These public groups participate throughout the approval process for an oil sands mine. There are several opportunities to voice concerns and opinions about EPLs during this process. The public groups can review EPL plans. They can then forward any concerns and their expertise during public meetings and hearings that may be held. Public open houses are held by industry and government agencies throughout the planning and approval process for an oil sands mine. Ultimately, the land belongs to all Albertans, and some consensus must be achieved regarding its use. The regulatory, consultation, and hearings processes try to achieve this agreement. While stakeholders may differ in their opinions about the risks and level of success expected for EPLs, the important factor is that everyone is given the opportunity to voice their opinions and be actively and meaningfully involved in the planning and implementation of oil sands development. This EPL Review Document will provide information to facilitate a discussion among industry, regulators, Aboriginal communities and the general public regarding EPLs and their role in Alberta s future. End Pit Lakes Background Document 7 Clearwater Environmental Consultants

21 Table 1.2 Roles and Responsibilities of EPL Participants Participants Oil Sands Industry Oil Sands Mine Project Proponents Federal Regulators Fisheries and Oceans Canada (DFO) Environment Canada (EC) Transport Canada Roles/Responsibilities Prepare an Environmental Impact Assessment (EIA) for any oil sands mine or major expansion, including its EPLs Develop clear plans for any EPLs, including construction, operations and far-future scenarios Define the process-affected materials that will be stored Become a member of the EPLSG and actively participate in its mandate Construct an EPL in accordance with approved development plans Implement all reclamation and monitoring activities from the cessation of mining to reclamation certification, including EPLs Hold open houses and communicate with Aboriginal communities and the general public regarding concerns and questions, including EPLs Collect and submit EPL monitoring data and evaluation of any fish stocking or introduction success Ensure the EPL meets its end use goals and final reclamation plans Approve all major projects with potential impacts on fish and fish habitat in accordance with the Fisheries Act, including oil sands mines and their EPL plans Prohibit the unauthorized harmful alteration, disruption or destruction (HADD) of fish habitat under Section 35(1) of the Fisheries Act Alternatively, authorize a HADD of fish habitat under certain provisions, requirements and compensatory activities Administer the integration of environmental considerations through the environmental assessment process as a part of the Canadian Environmental Assessment Act Ensure the protection of water quality, sediment quality, aquatic organisms and human health from toxic substances and pollutants via the Canadian Environmental Protection Act, including EPLs and their discharges to the environment Recommend levels for toxic and potentially toxic substances within water, sediment, and tissue via the Canadian Environmental Quality Guidelines, including within EPLs and their discharges Administer Section 36(3) of the Fisheries Act prohibiting the discharge of deleterious substances in waters used by fish, including EPLs and the waters to which they will discharge Administer the Navigable Waters Protection Act (NWPA) in order to protect the public right of navigation by prohibiting the building or placement of any work in, upon, under, through, or across a navigable water without authorization Approve the construction and operation of an EPL and its connection with other navigable waters End Pit Lakes Background Document 8 Clearwater Environmental Consultants

22 Table 1.2 Roles and Responsibilities of EPL Participants Cont. Participants Provincial Regulators Alberta Environment (AENV) Alberta Sustainable Resource Development (ASRD) Alberta Energy and Utilities Board (EUB) Aboriginal Communities First Nations Métis General Public Environmental Groups Community Groups Non-governmental Organizations Individuals Roles/Responsibilities Integrate the protection of air, land, and water by implementing the Environmental Protection and Enhancement Act (EPEA). EPEA requires an Environmental Impact Assessment (EIA) to be prepared for any oil sands mine or major expansion, including its EPLs Approve construction and operating procedures for EPLs Approve reclamation procedures for EPLs in reclamation certification under EPEA Ensure approvals and compliance with applications under the Water Act are completed by industry, including any required for EPLs o Approve any water withdrawal licenses required, including EPL filling requirements o Approve any discharge requirements, including EPL discharges Provide input for the development of the oil sands area using the framework of the Regional Sustainable Development Strategy Approve any changes or modifications to the beds and shores of watercourses through the Public Lands Act Complete a Water Body Management Strategy and Risk Analysis for EPLs prior to any fish stocking Approve any fish stocking or introductions to EPLs Review EPL monitoring data provided by industry Provide the reclamation certification approvals under the Public Lands Act Following reclamation certification, be responsible for ongoing management of EPLs Evaluate EIAs for their social, economic, and environmental effects in order to determine if the project is in the public interest Provide mine permits to each approved oil sands mine, including EPL plans Participate in the government consultation process Review and comment on EIAs prepared for each oil sands mine Review and comment on reclamation plans, including EPLs Participate in hearings with industry and regulators Communicate expectations and desired end land uses for EPLs Review and comment on EIAs prepared for each oil sands mine Review and comment on reclamation plans, including EPLs Participate in communications and hearings with industry and regulators Communicate expectations and desired end land uses for EPLs End Pit Lakes Background Document 9 Clearwater Environmental Consultants

23 2.0 CONTENTS OF END PIT LAKES 2.1 How EPLs are Constructed Overview and Time Frames An EPL will be constructed in a mined-out oil sands pit and its development will be progressive (Figure 1.2). After a mine is excavated, process-related materials (soft tailings, process-affected water, overburden and/or lean oil sands) will be placed at the bottom of the pit which will then be filled to the top with cap water. Following this, the EPL will stabilize, mature and start to develop a viable ecosystem. Finally, in the far-future, the EPL will be a biologically active, self-sustaining and functional aquatic ecosystem. Within the reclaimed landscape, the EPL will be connected to a series of wetlands, streams and other waterbodies. A long-range view of an EPL is that it will be a lake containing soft bottom materials that discharges and recharges from the surrounding landscape. The progressive stages of EPL development will occur over a variety of time frames. Filling is expected to last several years, and will be completed during the last stages of oil sands mine operations or during early reclamation. Expected filling rates for an EPL range from 1 to 20 years, with a median of about 8 years (Table 2.1) (Golder 2006a). The duration of the intermediate phase will be more variable, and will be dependent on the design features of the EPL. This will include the time necessary to establish a fully functional aquatic ecosystem. During this time, cap water may be released to downstream aquatic environments, if its quality meets established criteria. This will be dependent upon the initial toxicity of the soft tailings and cap water, and the rate of biodegradation within the EPL (see Section for more details). This intermediate phase could take several decades; planned residence times range from about 1 to 150 years, with a median value of about 20 years (Table 2.1) (Golder 2006a). The EPL will last indefinitely, as it will be a permanent feature of the reclaimed landscape Contents Soft Tailings During the extraction of bitumen, the oil sands industry generates large volumes of soft tailings. These soft tailings consist of fine solids like clay, silt and sand, as well as water. They also contain some residual hydrocarbons and other chemicals. In many cases, these soft tailings will be stored in the bottom of the mined out pits. The total volume of process-related materials (including soft tailings) within a filled EPL will vary from none to approximately 400 million m 3, with a median volume of around 70 to 100 million m 3 (Table 2.1) (EPLSG, pers. com.). The soft tailings will be placed in the pit after they have aged for a time in a settling basin or tailings pond. Within the settling basin or tailings pond, the fine materials in the soft tailings slowly settle to the bottom, releasing water that is then reused within the oil sands mining process. This settling process is called consolidation. The consolidation rate of the soft tailings is slow, and can range from months to years in tailings ponds (Guo et al. 2004). This consolidation rate is the subject of considerable research. Ways to minimize or even eliminate the need for these tailings ponds are being identified. When the soft tailings have consolidated, they will be removed from the settling basins and tailings ponds and placed within the pit (Figure 1.2). There, the soft tailings will continue to consolidate over time. Full consolidation of the tailings could take centuries (MacKinnon 1989). End Pit Lakes Background Document 10 Clearwater Environmental Consultants

24 The water they release as they consolidate is called pore water (Figure 2.1). See Section 2.2 for more information on soft tailings. Cap Water Once all the process-related materials (such as soft tailings) have been placed at the bottom of the pit, water will be added to fill the pit to the top, creating the EPL. The total volume of water within a filled EPL will vary from about 4 to over 400 million m 3, with a median volume of just over 100 million m 3 (Table 2.1) (Golder 2006a). An EPL will need to have a self-sustaining water balance. A water balance is a complete accounting of all inputs and outputs of water in a system. Figure 2.1 shows how the water balance within the EPL will be established and how it will change over time and the course of development. The cap water will come from a variety of sources, as shown in Figures 1.2 and 2.1. Initial natural sources include surface water, groundwater seepage and precipitation. Surface water sources could include local rivers as well as the Athabasca River, which would be piped into the EPL. Groundwater seepage may come from both surficial and basal aquifers, and would enter passively through the walls of the pit. Surficial groundwater is found relatively close to the surface, and its water quality is generally similar to surface water. Basal groundwater is located at much greater depths, and can be highly saline (contain high concentrations of minerals and salts). Precipitation (rain and snow) will enter the EPL naturally from the environment. In addition to these natural sources, initial sources of cap water may include waters containing hydrocarbons and other process-related chemicals. Water may be discharged from local tailings ponds into the EPL. Groundwater seepage from local containment and tailings ponds could also enter the EPL. Surface runoff will enter the EPL naturally from undisturbed, disturbed and/or reclaimed lands, depending on the state of the watershed around the EPL. These initial sources of water will all influence the water quality within the EPL. During the intermediate stage, recharge waters will continue to maintain water levels in the EPL (Figure 2.1). Sources of recharge water will include runoff and precipitation. Continued groundwater seepage from local containment and tailings ponds could also enter the EPL. Groundwater seepage from basal and surficial aquifers to the EPL will be minimal once the water levels in the EPL exceed the groundwater source, and are not expected to contribute substantially to recharge in the EPL (M. MacKinnon, pers. com.). In the far-future, the EPL will be part of a network of interconnected wetlands, lakes and streams (Figure 2.1). The EPL will receive water inputs from upstream lakes, rivers and wetlands, and will discharge water to those downstream, ultimately reaching the Athabasca River (Section 2.1.3). Other inputs during the far-future will include surface runoff and precipitation. Sediments Initially, the bottom sediments of an EPL will consist of the process-related materials, such as soft tailings, overburden or lean oil sands. In EPLs without process-related materials, the sediments will be the bottom substrate of the mined out pit. Over time, organic and inorganic sediments will enter the EPL through surface runoff. As the EPL begins to establish an aquatic ecosystem, dead organic material will settle to the bottom. Organic material may also be added to the EPL. These processes will develop natural bottom sediments on top of the soft tailings (Figures 1.2 and 2.1). End Pit Lakes Background Document 11 Clearwater Environmental Consultants

25 Figure 2.1 Water Balance of an EPL Over Time Not to scale. End Pit Lakes Background Document 12 Clearwater Environmental Consultants

26 2.1.3 Discharge In order for an EPL to function as a natural lake, it must have a defined discharge. An EPL would not achieve a water balance if there were no outputs to balance the inputs (see Figure 2.1). During the filling stage, the only water losses would be from evaporation at the surface of the EPL. During the intermediate and/or far-future phases of EPL development, outputs would need to balance inputs, in order to maintain the water level of the lake. This discharge is essential for an EPL to exist into the future without human management. Once the EPL becomes part of the reclaimed environment, it will receive inputs from a variety of connected wetlands, lakes and streams. At this point, losses only from evaporation would be insufficient for the lake to maintain a balance. The EPL will need to discharge water to the surrounding environment. However, before this happens, Alberta Environment will need to set limits for several important water quality parameters. The water quality in the EPL will have to meet these criteria before it can be discharged. These discharge criteria have not been established yet for any planned EPL. 2.2 Physical Characteristics Size and Shape The physical characteristics of an EPL will be based on the specific mine plans for each oil sands development. EPLs will have a range of physical characteristics, in terms of their area, depth and volume. Table 2.1 list the characteristics for EPLs planned to date, including the median (middle value), minimum and maximum values for several different measures. As new oil sands projects come along, these values will change to reflect the specific plans for each new mine. Table 2.1 Range of Characteristics for Currently Planned EPLs EPL Characteristics Minimum Value Median Value Maximum Value Surface Area (km 2 ) Depth (m) Water Volume (million m 3 ) Process-Related Material Volume (million m 3 ) A 0 ~ ~400 Years to Fill (y) Residence Time (y) Initial Salinity (mg/l) Inflow Salinity (mg/l) Inflow (million m 3 /y) Outflow (m 3 /s) From Golder (2006a), except A: Estimated values (EPLSG, pers. com.) As shown in Table 2.1, the surface area of an EPL will range from about 1 to 13 km 2, with a median of almost 4 km 2. To compare these sizes with natural lakes in the area, Kearl Lake is almost 6 km 2 and Gregoire Lake is almost 26 km 2 (Mitchell and Prepas 1990). The depth of an EPL will vary from 6 m to 55 m, with a median depth of 27 m. In comparison, Kearl Lake is very End Pit Lakes Background Document 13 Clearwater Environmental Consultants

27 shallow, with a maximum depth of just 2.5 m, while Gregoire Lake has a maximum depth of just over 7 m (Mitchell and Prepas 1990). The depth of the oil sands resource and the surrounding geology will influence the size and depth of the pits. The size, depth and shape of an EPL will be determined by the extent of mining in each specific pit area. Some EPLs will have very steep sides, while others may have a more flattened, dish shape to them. Because all EPLs will be constructed to include a littoral zone (see Section 2.4), at least some of the EPL will have gently sloping sides to allow for aquatic plant growth. The cross sections of Figures 1.2 and 2.1 show the variation in steepness that may occur, both among different EPLs or within the same EPL. The substrate along the sides and bottom of an EPL will be consistent with the local geological conditions. The regional geology consists of the silts and shales of the Clearwater Formation, overlain by sand, gravel and till deposits (Baird 1996). The McMurray Formation is the name of the formation where the Athabasca oil sands are found. Because EPLs will be established in a mined-out pit, the bottom substrate may vary between clays and tills, lean or exposed oil sand, tailings sand, clay rejects and/or limestone (MacKinnon 2004). As a result, some naturally occurring bitumen may seep into the EPL from its sides and bottom. Some maintenance structures may be part of the initial physical features of an EPL, such as breakwaters. Breakwaters may be necessary to minimize wave erosion within an EPL (Albian Sands 2005). However, features such as dams and other structures that require maintenance will not be allowed in the reclaimed landscape (Government of Alberta 2005) Contents The soft tailings contents of an EPL have been discussed in Section 2.1, but more detail on their physical properties is described here. The types of soft tailings found in the pits will vary, depending on the source materials in the mine and the specific processes used to remove the bitumen from the sand. Soft tailings change in composition over time. Therefore, the age of the tailings when placed within EPLs will affect the contents of the EPL. The types of soft tailings that may be present in EPLs include mature fine tailings (MFT), consolidated/composite tailings (CT) and thickened tailings (TT). MFT are aged fine tailings that form over the years in the bottom of settling basins or tailings ponds. They contain less water (< 80% by volume) than the original fine tailings. CT contain even less water than the MFT. CT are produced by mixing dense extraction tailings with MFT and a coagulant, such as gypsum. The CT consolidate faster and will be able to be deposited in an EPL earlier than the MFT. TT are a new technology still in development that removes even more water from the tailings at a faster rate. The process that generates the TT is also called paste technology. The fine materials are settled quickly (over several hours) through the addition of chemicals and thickeners that produce the TT. TT have a much lower water content (30 to 70%), depending on the amount of sand in the tailings (Guo et al. 2004). The removal of water from the soft tailings is important in mine management and efficiency. It allows for more water recycling within the mine, which reduces withdrawals from surface waters like the Athabasca River. The drier the soft tailings, the smaller the volumes of soft tailings produced. The required settling basins and tailings ponds can then be fewer and smaller. Producing TT also uses less energy and reduces greenhouse gas emissions compared to the other types of soft tailings (Alberta Research Energy Institute website). The TT technology is still End Pit Lakes Background Document 14 Clearwater Environmental Consultants

28 in the research and demonstration phases, but work continues to take it to the operational stage. Regardless of the type of soft tailings present in the EPLs, they all consolidate further over time and release pore water to the cap water. The pore water will contain process-related chemicals, and will likely affect the water quality of the cap water. The shape and size of an EPL will affect the degree of mixing between the soft tailings and the cap water above. In shallower EPLs, and those receiving enough wind and/or solar energy, the soft tailings could mix with the lower layer of the cap water. The higher the water content of the soft tailings, the more they will partially mix with the cap water layer. Any process-related chemicals in the resuspended soft tailings could then affect water quality in the EPL. This mixing can be minimized by changing the shape and depth of the lake (Power et al. 1989). By reducing the distance that wind can blow across the EPL, the amount of wind energy received by the lake can be minimized Residence Time The length of time that the cap waters are contained within the EPL before they are discharged to the environment is called the residence time. The size and shape of the EPL will influence its residence time. Larger and deeper EPLs will have longer residence times. Residence times in planned EPLs range from about 1 year to 100 years, with a median residence time of about 20 years (Golder 2006a). The longer the residence time, the more time there is for biodegradation of process-related chemicals (see Section 2.3). The toxicity of process-affected waters and soft tailings has been found to decrease as residence time increases from several months to several years (MacKinnon et al. 2001) Stratification and Meromixis Lake stratification is another important physical feature of an EPL, and occurs when the water becomes arranged in layers with different characteristics. Stratification can occur in natural lakes as well as EPLs (Figure 1.2), depending on their temperature or chemical regimes, and is part of the natural seasonal cycles. Differences in water density within a lake can lead to stratification. Density differences result from differences in water temperature or water chemistry within the different layers of the lake. In general, warmer water is less dense than cooler water. Therefore, warmer water will float on top of cooler water. The exception to this relationship is water between the temperatures of 0 to 4 C. At 4 C, water is at its most dense. Below 4 C, the molecular structure of water changes and water becomes less dense. This means that you could find cooler water of 1 C on top of warmer water of 4 C. This is also why ice floats on top of water. The density of water also depends on its salinity, but in a more straightforward relationship. The higher the salinity, the more dense the water. Less saline water will always float on top of more saline water. Natural lakes generally show seasonal variation in their stratification. In Alberta, lakes generally mix twice a year, once in the spring and once in the fall. They can become stratified in the summer and winter. In the spring, after the ice melts, the lake water is about the same temperature from the surface to the bottom. Wind allows circulation and mixing of the water, so that the lake has similar water chemistry throughout. During the summer, the sun warms the water at the surface of the lake, End Pit Lakes Background Document 15 Clearwater Environmental Consultants

29 making it less dense. The amount of heat provided by the sun decreases as the depth of the lake increases. Therefore, the water at the bottom of the lake receives less heat and is cooler and denser. The lake has become stratified. The establishment of this stratification prevents complete lake mixing during the summer. Wind circulates the surface water, but there is not enough energy to mix the upper warm, light water with the lower cold, dense water. In the fall, less energy from the sun and cooling air temperatures cause the water temperature of the upper lake layer to drop. Eventually, the upper layer becomes about the same temperature as the underlying layer, and there is enough energy to mix the layers together. In addition, the surface water, which is in direct contact with the cold air, gets cooled faster than the water below. This cold, dense water sinks and further helps to mix the lake. As winter approaches, the temperature of the surface water drops below 4 C. At this point, the surface water no longer sinks, but begins to change its molecular structure and become less dense. As water temperatures at the surface reach 0 C, ice begins to cover the lake. During the winter, the ice cover prevents wind from mixing the waters, and the lake becomes stratified again. Just under the ice is a layer of low density water between 0 and 4 C. Below, the lake consists of a layer of denser water usually near 4 C. As spring approaches, the ice melts, the lake mixes and the seasonal cycle begins again. In EPLs, this density gradient and stratification may be established not only through temperature differences, but also through differences in salinity. As described above, the density of water depends not only on temperature, but also on salinity. In most Albertan lakes, there are not enough differences in the salinity of waters entering the lake to greatly influence its density. However, in EPLs, some of the process-affected waters added to the cap water may be highly saline. Other sources of water or inflows, such as natural surface runoff and precipitation, are generally much less saline than the process-affected waters. This situation could establish the potential for substantial differences in salinity within an EPL. Table 2.1 shows the ranges in initial and inflow salinity predicted for EPLs (Golder 2006a). The permanent stratification of a lake due to the establishment of a salinity or thermal gradient is called meromixis. Meromixis occurs when there is insufficient energy to dissipate the density gradient. While seasonal temperature differences are easily disrupted in the spring and fall, a saline-stratified lake can be much more difficult to mix. In the case of EPLs, the density gradient would likely be the result of chemical stratification from layers of differing salinities. This stratification would create three layers within an EPL, an upper, less dense and less saline layer (the mixolimnion) and a lower, denser and more saline layer (the monimolimnion) (Figure 1.2). In between these two layers would be another small layer that changes from low densities to high densities in a short distance, called the chemocline. Under meromixis, these separate layers could remain indefinitely. The potential for meromixis to occur in an EPL is dependant on a combination of factors. These include the lake characteristics (surface area, depth), wind speed and direction, water exchange rates (recharge, discharge and residence time), ice cover (thickness and duration) and the salinity of the inputs to the lake, including the cap water, tailings pore water and runoff (see Section 2.3.1). Only some EPLs will have the combination of factors required for meromixis to become established. EPLs that will be deep (> 50 m), with a small surface area, with low inflow salinity and high initial lake salinity will be most likely to develop meromixis. In contrast, shallow EPLs with a large surface area, high inflow salinity and low initial lake salinity will be less likely to stratify. EPLs with a combination of the above characteristics could have only partial mixing. See Golder 2006a for more details on their research into meromixis. End Pit Lakes Background Document 16 Clearwater Environmental Consultants

30 Once established in an EPL, meromixis will prevent the stratified layers from mixing. The lack of mixing can result in differences in water quality between the mixolimnion and monimolimnion (see Section 2.3.1). These water quality differences and the isolation of the monimolimnion could have consequences on the aquatic ecosystem (see Section 2.3.3). The potential for meromixis to occur within an EPL is expected to change over time, as the EPL becomes more established. Some EPLs would be meromictic in one year, but then become partially mixed or completely mixed by the fourth year. All EPLs are expected to become more mixed over time in the far future (Golder 2006a). 2.3 Chemical Characteristics Natural lakes in the Athabasca oil sands area generally contain high concentrations of minerals and ions. Their waters are generally hard and well-buffered due to the presence of limestone. These boreal lakes can contain high nutrient concentrations and be very productive, despite limitations from the cold climate, and are often highly coloured in the summer (Mitchell and Prepas 1990). Initially, the water chemistry of EPLs will differ substantially from natural lakes. Changes over time within the EPLs will tend to make their characteristics more similar to natural lakes Water Quality The water quality of an EPL will depend on the water quality of the cap water sources. Sources of cap water include Athabasca River water, precipitation, surface runoff, process-water inputs and seepage from tailings ponds and reclaimed areas. In most EPLs, the majority of the cap water will be from the Athabasca River, and will be the primary influence. Athabasca River water is needed because reliance on the other sources would take much too long for the EPL to fill. The water quality within the EPL will determine the timing and ability for sustainable aquatic populations to become established. Surface runoff, process-water inputs and seepage can add process-related chemicals to the EPL. Pore water releases from the soft tailings and resuspension of the soft tailings will also introduce process-related chemicals to the cap water. Aquatic organisms can exist within a certain range of environmental conditions. Conditions outside that natural range may not be able to sustain the species diversity, population dynamics and growth rates found in local natural lakes. The key water quality concerns for an EPL are listed in Table 2.2 (MacKinnon et al. 2001). One of the biggest water quality concerns is the concentrations of salts that may be found within an EPL (MacKinnon 2004). Many process-affected waters are highly saline, as are the pore water releases from the soft tailings. This elevated salinity is due to the high concentrations of sodium, chloride and sulphate that are usually added as part of the bitumen extraction process, and end up in the process-affected waters. Sodium concentrations in process-affected waters can be 60 to 80 mg/l higher than natural surface waters (MacKinnon 2004). The initial concentrations of salts in the cap water will determine the concentrations in the EPLs. Other important factors are hydrological processes like precipitation, evaporation and ice formation. Precipitation can dilute salts, while evaporation and ice formation can increase the salt concentrations in the water. The seepage of high salinity waters from tailings ponds or from the pore water released by the soft tailings at the bottom of the EPL can also increase salt concentrations in the cap water. End Pit Lakes Background Document 17 Clearwater Environmental Consultants

31 Table 2.2 Water Quality Parameters of Concern within EPLs Water Quality Parameters Concern or Potential Impact Elevated sodium, chloride and sulphate Appropriate range required to support concentrations aquatic life Elevated total dissolved solids and Appropriate range required to support conductivity concentrations aquatic life Elevated ph and alkalinity concentrations Potential influence on metals toxicity Appropriate range required to support aquatic life Lower calcium and magnesium concentrations Appropriate range required to support aquatic life Potential influence on metals toxicity Elevated trace metals (i.e. boron, arsenic, Potential toxicity to aquatic life strontium) concentrations Elevated ammonia concentrations Potential toxicity to aquatic life Lower dissolved oxygen concentrations Minimum levels required to support aquatic life Elevated dissolved organics, and Potential toxicity to aquatic life hydrocarbons (including naphthenic acids) Potential influence on metals toxicity Elevated other acute and chronic toxicants Unknown interactions Potential toxicity to aquatic life The salinity of the EPL is important because it can limit the growth and survival of aquatic plants and animals. Some aquatic organisms are very sensitive to salinity. Different aquatic plant and zooplankton populations have been found in experimental ponds in the Athabasca oil sands areas when compared to natural lakes. The differences in plant species composition and zooplankton abundance have been linked to the high salinity in the experimental ponds (Harris 1998). Elevated salt concentrations in EPLs will also result in high conductivity and total dissolved solids (TDS) concentrations. TDS is the concentration of salts dissolved in water, including calcium, magnesium, sodium, potassium, carbonate, bicarbonate and sulphate. In general, TDS can be considered a measure of salinity. Conductivity is the ability of the water to pass an electric current through it, which is dependent on the salt concentrations in the water. The higher the conductivity, the higher the salt concentration. Process-affected waters will have conductivity values that are higher than natural waters (MacKinnon 2004). The conductivity of process-affected waters will range from about 1,000 to 1,500 μs/cm, in contrast to natural waters, which generally range from 100 to 500 μs/cm (van Meer 2004). Due to the addition of process-affected waters, EPLs may also have higher ph values than natural lakes. During oil sands processing, caustic chemicals with high ph values can be added to help remove the bitumen from the sand. Process-affected waters containing caustic chemicals can have a ph of 8.3 to 8.8 (MacKinnon 2004). The disposal of these waters into an EPL may increase its overall ph. Aquatic organisms can generally tolerate a range of ph from 6.5 to 8.5; so it is unlikely that the ph of process-affected waters would limit the species that can thrive in an EPL. However, ph can also influence other water chemistry, such as the toxicity of several metals and ammonia (see Section 2.3.2). End Pit Lakes Background Document 18 Clearwater Environmental Consultants

32 Process-affected waters can also contain elevated concentrations of dissolved organic compounds and hydrocarbons. The specific parameter of concern in this large and varied group is naphthenic acids. Naphthenic acids and their potential impact on the water quality of EPLs are discussed below in Section The dissolved oxygen concentration within an EPL is another key water quality issue. The minimum oxygen concentration required to protect aquatic life is 5 mg/l (AENV 1999c). Low or insufficient oxygen levels in the EPL would hamper the ability of aquatic organisms to develop sustainable communities. In EPLs that may be highly productive, the decomposition of large amounts of organic material will use up oxygen, and may result in low oxygen concentrations during the summer and fall. During the winter and under ice conditions, low oxygen concentrations may occur in an EPL. Oxygen concentrations also depend on whether the EPL is stratified. In a stratified EPL, oxygen concentrations in the upper layer are expected to remain high enough to support aquatic life (Golder 2005). However, oxygen concentrations within the lower layer and bottom sediments can get very low due to the lack of mixing and no replenishment of oxygen from the upper layer Toxicity The concentration of toxic compounds in EPLs is another primary water quality concern (MacKinnon 2004). The potential toxicity within an EPL and its discharge will depend on the volume and composition of the soft tailings and cap water. The residence time of water within the EPL will also affect its toxicity. EPL toxicity is primarily due to the presence of naphthenic acids (NAs). NAs are a complex group of hydrocarbon compounds found naturally in bitumen. They are highly soluble in water and are easily taken up into the tissues of aquatic organisms. Their solubility also means that NAs are easily lost from biological tissues. NAs are found naturally in surface waters in the Athabasca oil sands region, but in very low and non-toxic concentrations (< 1 to 4 mg/l) (Golder 2006b). Concentrations of NAs can be substantially higher in process-affected waters. Active tailings containment ponds contain NAs that range between 60 to 120 mg/l (Holowenko and Fedorak 2001, MacKinnon 2004). These values are acutely, or immediately, toxic to aquatic organisms, including bacteria, plankton and fish (MacKinnon 2004). NAs come in several forms, which differ in their toxicity. Some forms are more acutely, or immediately, toxic. Other forms may have chronic effects, or long-term negative impacts on their growth, reproduction or behaviour. These chronic effects can indirectly affect the survival of an aquatic population. These chronically-toxic NAs may also bioaccumulate within the tissues of aquatic organisms, and may be passed up the food web (see Section 2.4.3). They may also cause tainting problems in fish, giving the fish an abnormal taste or smell. These different forms of NAs also differ in their ability to biodegrade. The acutely toxic forms can be bioremediated over time. In comparison, the forms that have more chronic, tainting and bioaccumulative effects are not easily degraded (Golder 2006b). NAs in natural waters are assumed to be the chronically toxic, non-degradable form, but more research is required to determine whether this is accurate. NAs in process-affected waters are assumed to contain both the chronically toxic, non-degradable form and the acutely toxic, End Pit Lakes Background Document 19 Clearwater Environmental Consultants

33 degradable form. Again, the actual composition of NAs in process-affected waters still has to be determined, and may vary for each oil sands mine and EPL. The amounts of NAs from natural sources and from process-related sources will vary for each EPL (Golder 2006b). In most EPLs, the primary source of NAs will be process-affected waters, rather than natural sources. When added to EPLs, these process-affected waters are expected to increase the NA concentrations above those of natural lakes in the region. In the far future, bioremediation will reduce the concentrations of NAs and their toxicity in the EPLs (Clemente and Fedorak 2005). Because some of the NAs are not easily broken down over time, concentrations of the chronically toxic form are expected to stay between 1 and 13 mg/l (Golder 2006b). These higher concentrations could have chronic effects on aquatic organisms within the EPLs. Other toxic compounds potentially found in EPLs include elevated concentrations of some trace metals and ammonia. In comparison to NAs, these water quality parameters are a lesser concern. The toxicity of many metals depends on their bioavailability. Bioavailability is the degree to which the metal can be absorbed into the tissues of an organism. The portion of the metal that is dissolved in the water is more bioavailable, and therefore, more toxic to aquatic organisms. In comparison, the portion of the metal that is attached to small particles within the water or found in the sediments has a lower toxicity and bioavailability. In natural waters and in the EPLs, most metals can be expected to be in the particulate form and therefore, less toxic. Toxicity of the dissolved metals is also dependent upon the ph and hardness of the water. An EPL with high concentrations of trace metals combined with lower hardness could have chronic effects on aquatic organisms. Process-related waters and soft tailings can also contain ammonia (MacKinnon 2004). Recharge waters may also be high in ammonia, and will likely be the primary source of ammonia to EPLs on an ongoing basis. Ammonia concentrations can be very toxic to aquatic life. High enough concentrations can have acute effects on aquatic organisms. This toxicity varies with the ph and temperature of the water. In most natural waters that have sufficient oxygen concentrations, ammonia is quickly converted to nitrate, which is an important nutrient for plants and animals. Ammonia concentrations in EPLs can be expected to decrease quickly, with little potential for acute or chronic effects on aquatic organisms. Further studies are being conducted to determine these risks Meromixis The potential for an EPL to stratify or be meromictic will have great implications on its water quality. One of the biggest influences will be on the dissolved oxygen and nutrient concentrations in the EPL. Depending on the depth of the EPL, the monimolimnion will likely have insufficient light for plants to grow and produce oxygen. The decomposition of organic material at the bottom of the EPL will also reduce any available oxygen. Without mixing with the mixolimnion, the monimolimnion will eventually become anoxic (lack oxygen). Future organic decomposition will occur anaerobically, or in the absence of oxygen, which is much slower than aerobic (with oxygen) decomposition. If organic material accumulates at a faster rate than bacteria can decompose it, the sediment will build up nutrients and organic material. Without thorough mixing to provide the surface water with nutrients from the bottom, the productivity of the mixolimnion could be affected, as in a typical organic system. Meromixis can also impact the rate of bioremediation of process-related chemicals within the soft tailings. Bioremediation of toxic compounds, including naphthenic acids, occurs much faster End Pit Lakes Background Document 20 Clearwater Environmental Consultants

34 in the presence of oxygen. The anoxic conditions of the monimolimnion could therefore slow down the decrease of toxic concentrations in the soft tailings. These conditions could also cause a build up of toxic compounds in the sediments of an EPL. Meromixis may therefore hamper the reclamation and water quality goals of an EPL. In contrast, an EPL that is not stratified but experiences turnover, would have high oxygen levels throughout the lake. This oxygen would accelerate decomposition and bioremediation (Golder 2005). However, turnover would also mix the poorer quality water at the bottom of the EPL that is next to the soft tailings all throughout the lake (Golder 2005). This could have negative impacts on water quality within the EPL. It is unclear whether meromixis will be positive or negative for the function and sustainability of an EPL. In natural lake systems, meromixis is generally considered to result in poor water quality, due to the lack of oxygen in the monimolimnion. In EPLs, meromixis and the lack of turnover would result in the same anoxic conditions in the monimolimnion, but would also isolate the soft tailings (if present) and any other process-affected sediments from the rest of the water column. The lack of turnover between the soft tailings/process-affected sediments and cap water would potentially build up any toxic compounds in the sediments, but would also prevent them from entering the rest of the water column. The process-affected sediments and their potentially toxic effects would be isolated, reducing the potential for toxic impacts on the aquatic life. The potential impacts of meromixis on the ability of an EPL to support a naturally diverse, self-sustaining aquatic ecosystem are unclear and require further study Discharge The water quality of an EPL at its time of discharge will depend on the original content of the EPL (its soft tailings and cap water quality). Its water quality will also depend on the residence time, as this will affect the level of bioremediation. Additional treatment of water within the EPL may be required to improve water quality before it can be discharged. The water quality of an EPL will also improve once it begins to discharge, as the remaining cap water will be diluted from surface runoff. Therefore, the water quality discharged from the EPL to downstream surface waters will also improve over time. Some oil sands projects have listed the projected dates for EPL discharges to local surface waters. However, the actual discharge dates will be determined by the ability of the discharge to meet water quality criteria. These criteria have yet to be established by regulators and will be set under the regulatory approvals for each oil sands project. Different criteria will be set for each water quality parameter of concern, such as trace metals, naphthenic acids and other hydrocarbons. These criteria will be based on available treatment technology as well as acute toxicity guidelines, chronic guidelines or human health guidelines. Mixing zone restrictions must also be met in the downstream waters that receive the EPL discharge. Alberta s surface water quality guidelines (AENV 1999c) must be met downstream when the EPL discharge has mixed fully with the receiving stream (AEP 1995). End Pit Lakes Background Document 21 Clearwater Environmental Consultants

35 2.4 Biological Characteristics Initially, an EPL will resemble a large pit filled with water surrounded by a disturbed landscape. In the far-future, the goal is for an EPL to have a self-sustaining aquatic ecosystem that will be connected to the reclaimed landscape. The ultimate goal is for an EPL to look and function just like a natural lake. Natural lakes in the Athabasca oil sands region are often high in nutrients, which can support large plankton and algal populations. Fish communities in the region can include Arctic grayling, mountain whitefish, northern pike, goldeye, yellow perch, lake trout and several sucker and forage fish species. Waterfowl that commonly use the lakes in the region include mallards, American widgeons and common loons (Mitchell and Prepas 1990). Mammals include beaver, muskrat and moose Suitable Conditions For an EPL to reach its reclamation goal, sediment and water quality must be good enough to support aquatic life. Ideally, this would mean that the EPL would meet both sediment quality guidelines and water quality guidelines established by Alberta (AENV 1999c) and the Canadian Council of Ministers of the Environment (CCME 1999, updated 2006). This may not be realistic in the immediate or short term. Several sediment and water quality parameters may not meet these guidelines for decades or even longer. While modelling has predicted that water quality would be suitable for sensitive aquatic organisms within one or two years following capping of soft tailings (EMA 1993a), additional research is needed. Any acute and/or chronic toxicity within the EPL environment would prevent or slow the establishment of both plant and animal life. The oil sands industry will be required to minimize the toxicity of the soft tailings and process-affected waters within the EPL. Habitat availability, oxygen concentrations, nutrient concentrations, salinity, mixing profiles and temperatures in EPLs will also limit the plant and animal species that can live in them. The design and construction of an EPL will have to include different types of habitat features, such as deep water and shallow water environments. Most EPLs are expected to have relatively low nutrient concentrations, which will limit biological productivity (EMA 1993b). Dissolved oxygen concentrations should be high in the mixolimnion, but low in the monimolimnion. Research on test environments in the oil sands region indicates that careful design is needed for aquatic life to become established and self-sustainable in EPLs. Excessive salinity, trace metals, hydrocarbons and temperatures could prevent sensitive species from surviving and reproducing within an EPL, as described above in Sections and As an EPL s ecosystem becomes established, ongoing monitoring of aquatic communities will be needed to better understand the requirements for population establishment Colonization Once conditions are suitable to support life, plants and animals will slowly colonize the EPL. Bacteria and microbes will enter the EPL, seeds will establish plants, and animals will begin to use the area. Colonization will depend on the presence of plants and animals in the immediate area, which may be limited in a mined out landscape. Natural colonization may take a very long time in this type of environment. The oil sands industry may be required to seed, plant and stock preferred microbial, plant and animal species to speed up the process. End Pit Lakes Background Document 22 Clearwater Environmental Consultants

36 The first biological community to develop in an EPL will be the microbial community, made up of many different kinds of bacteria. Some bacteria will be present in the soft tailings when they are deposited in the EPL (Holowenko 1999). These bacteria will be very important for soft tailings bioremediation and will also establish the beginnings of the EPL s aquatic ecosystem. The next community to develop will likely be phytoplankton, made up of algae and diatom species. In order for phytoplankton to grow, the EPL must have sufficient nutrient levels and light availability. Once the phytoplankton community has established, zooplankton may follow. This will be the beginning of the aquatic food web, as the zooplankton will eat the phytoplankton. Runoff containing silt, soil and organic material will enter the EPL after its construction. This will settle over the soft tailings, forming the lake s sediments. Additional organic material will fall to the bottom of the EPL, as the plankton dies. Organic material may also be added as part of the EPL design to accelerate sediment development. This sediment layer will act as a barrier for potential mixing between the soft tailings and the cap water. It will also provide habitat for bottom dwelling organisms. It will be a source of nutrients for the EPL once the organic material has been decomposed by the microbes. Rooted aquatic plants (macrophytes) will begin to grow in the sediments, creating the littoral zone. The littoral zone is the area from the shoreline out into the lake where macrophytes can grow. The extent of the littoral zone will depend on suitable substrates as well as light availability. The maximum depth of the littoral zone will vary in each EPL, but beyond about 4 m in depth, there is not enough light for plants to grow (Golder 1995). The extent of the littoral zone will be one of the more important factors in the development of a natural aquatic ecosystem. Most EPLs plan to have about 10 to 30% of their surface area as littoral zone. Plants like cattails, bulrushes, rushes and sedges will grow along the shoreline to where the EPL is 1 m in depth. Other plants, like pondweed, water milfoil and water lilies, will grow to about 4 m depth. The growth of plants in the littoral zone is expected to be patchy, limited by waves and the availability of nutrients in the EPL (Golder 1995). The development of the littoral zone will provide more habitat for different species. Benthic invertebrates will begin to colonize the sediments and littoral zone. The plankton, aquatic plants and benthic invertebrates will provide food for fish and wildlife. There will be no opportunity for natural colonization of fish until the EPL is connected to other local streams and lakes in the far-future. Stocking with approved fish species may therefore occur in some EPLs. The decision to stock fish, and which species would be appropriate, will be made in consultation with ASRD, DFO and local stakeholders, including Aboriginal communities and environmental and community groups. The landscape adjacent to the EPL will become vegetated through planting and seeding efforts during reclamation. The riparian zone is the plant community found immediately next to a waterbody. Riparian plants are terrestrial, not aquatic, but they do contribute to the aquatic system. They provide shade and cover for aquatic species. Riparian leaf litter is important as food and habitat for benthic invertebrates as well as a source of nutrients once decomposed. The riparian plants also provide habitat and food for terrestrial wildlife and birds. An EPL will be part of a larger drainage basin, once it is connected to the surrounding landscape. It will receive inputs from upstream lakes, wetlands and streams and will discharge downstream. Some of the drainage from the reclaimed land will be directed through constructed End Pit Lakes Background Document 23 Clearwater Environmental Consultants

37 wetlands before entering an EPL (Imperial Oil 2005). This will provide additional bioremediation of any process-affected waters entering the EPL. The EPL will receive resources, such as nutrients and organic material from upstream sources, and will contribute the same downstream. Individual species like plankton, benthic invertebrates and fish may passively drift or actively migrate throughout the drainage basin. At this point, the EPL is expected to receive reclamation certification from the Alberta government, and will be considered a natural lake Ecosystem Health For an EPL to be a sustainable, natural aquatic ecosystem, it must be healthy. This means that it must be able to maintain its ecological structure and function over time. Natural lakes are formed as the result of natural processes and gradual changes over time. EPLs will encounter the same naturally occurring processes. EPLs must establish a water balance and be capable of supporting life in a dynamic environment. In addition to natural variables, EPLs will be influenced by human disturbances. Human disturbances specific to the Athabasca oil sands region include climate change, acidification, eutrophication and resource use. One of the potential risks to ecosystem health in an EPL is the presence of toxic process-related chemicals. These potentially toxic chemicals may enter an EPL through the soft tailings at the bottom of the EPL or through surface runoff from disturbed lands. Discharges or seepage from tailings ponds could also introduce process-related chemicals into the EPL. These toxic substances can build up in both the sediments and the cap water. As mentioned, natural microbial processes will help to degrade these chemicals and reduce their toxicity over time. However, it is likely that plants and animals will start to colonize the EPL before complete bioremediation has occurred. This will expose organisms to these chemicals, which could have acute or chronic toxic effects, depending on the concentrations and types of chemicals present. Figure 2.2 shows the pathways through which these chemicals could enter plants and animals in an EPL. Water containing process-related chemicals could enter aquatic plants, plankton, benthic invertebrates or fish directly through their tissues. Chemicals in sediments could be taken up by plants growing in them, and by benthic invertebrates that eat them. Fish and wildlife that eat these plants, plankton and benthic invertebrates would also ingest the chemicals stored in their tissues. If humans eat these animals or plants, they may also ingest some of the chemicals. When plants and animals die, they will fall to the bottom of the EPL. The chemicals in their tissues will be released during decomposition. This returns the toxic substances to the sediments and water, starting the process over again. The process of transferring toxic substances from species to species is called bioaccumulation. There are many factors that could affect the potential for bioaccumulation in EPLs. These include: The type, quantity and concentrations of process-related chemicals entering the EPL The rate at which bioremediation will occur within an EPL The timing for the colonization/introduction of plants and animals to the EPL The species and sensitivities of plants and animals in the EPL The ability of the chemicals to enter and leave plant and animal tissues End Pit Lakes Background Document 24 Clearwater Environmental Consultants

38 The storage locations (skin, liver, muscle etc.) of these chemicals within animal tissues There is little known about the potential for bioaccumulation in EPLs specifically. In laboratory experiments, naphthenic acids have been found in fish when they were exposed to naphthenic acids in the water. Naphthenic acids were also found in fish when they were fed food containing naphthenic acids (Young et al. 2006). This means that these process-related chemicals can enter animal tissues both passively (through the water) and actively (through ingestion). Another issue of concern is the potential for fish tainting. This is when a fish living in processaffected waters acquires a taste or smell that is noticeable by humans. Fish tainting is likely a purely aesthetic concern and is believed to have no effect on the health of the fish or the person eating it. The tainting odour and/or flavour have been linked to several different chemicals in oil sands process waters. These chemicals include a variety of different hydrocarbons and byproducts (Alberta Research Council 2005), some of which are found naturally in surface waters in the Athabasca oil sands region. It is currently not known whether naphthenic acids contribute to fish tainting (Young et al. 2006), but research is continuing. The potential for fish tainting has been modelled for the Athabasca River as well as major rivers like the Muskeg River. These studies indicated that there is very little potential for fish tainting to occur as a result of the Athabasca oil sands industry. However, the potential for fish tainting in EPLs is not as well understood. People would be prevented from fishing in EPLs and fish would be prevented from leaving the EPLs, until there was no risk to human health and no potential for fish tainting. 2.5 Changes over Time in EPLs Because of its progressive development, the content and appearance of an EPL will change substantially over time. Changes in its physical, chemical and biological properties will occur as an EPL progresses from filling, through the intermediate phase to the far-future (Figures 1.2 and 2.1). Many of the changes expected to occur over time have been described in the sections above and are summarized below. Physical changes over time include: o o Soft tailings will consolidate, releasing pore water to the cap water The inputs to and outputs from an EPL will change, with a water balance achieved in the far-future: Initial water inputs to fill the lake will include Athabasca River water, surface runoff, precipitation, groundwater seepage and process-affected discharge and/or seepage from tailings ponds Intermediate and far-future water inputs will include surface runoff, precipitation and process-affected seepage from tailings ponds Initial water outputs will be limited to evaporation End Pit Lakes Background Document 25 Clearwater Environmental Consultants

39 Intermediate and far-future water outputs will include evaporation and discharge to other surface waters, but only when water quality meets discharge criteria o o Sediments will develop on top of the soft tailings In meromictic EPLs, the mixolimnion and monimolimnion will not mix, creating a highly saline, dense lower layer and a less saline, less dense upper layer over time Chemical changes over time include: o o o o o Soft tailings will biodegrade, reducing concentrations of toxic substances, including naphthenic acids Toxicity and salinity of the cap water may initially increase, as pore water is released from the consolidating tailings Acute and chronic toxicity in the soft tailings and cap water will decrease In meromictic EPLs, the monimolimnion will become increasingly anoxic EPLs will become less meromictic and more mixed into the far-future Biological changes over time include: o o o o Biological communities will become established, including microbes, plankton, benthic invertebrates and fish The littoral zone and riparian zone will develop A self-sustaining, complex aquatic ecosystem will develop into the far-future Wildlife will begin to use the EPL into the far future, including waterfowl and mammals These physical, chemical and biological changes will require careful monitoring by the oil sands industry. Monitoring will document the transitions within the EPL, during its development toward meeting the end goals. Section 3.0 discusses the various end land uses and goals for EPLs. The status of an EPL will be closely monitored during initial construction and filling. Monitoring of structural components may include geotechnical stability, depth, filling rates and soft tailings content. Once filling is complete, monitoring will likely switch to water and sediment quality. This will include the potential toxicity of the soft tailings, process-affected waters and the EPL itself. In the intermediate phase and into the far future, monitoring programs will track the development of the aquatic ecosystem. These monitoring programs will need to determine the composition, abundance and diversity of aquatic life, including plankton, aquatic plants, benthic invertebrates and any fish stocked in the EPL. End Pit Lakes Background Document 26 Clearwater Environmental Consultants

40 Figure 2.2 Potential Pathways of Bioaccumulation of Process-Related Chemicals in an EPL Not to scale. End Pit Lakes Background Document 27 Clearwater Environmental Consultants

41 3.0 FUNCTIONS OF END PIT LAKES 3.1 Roles and Uses The disturbed areas within an oil sands mine will need to be reclaimed to a state that will meet the needs of future generations. The decision to include certain end uses for an EPL will require co-ordination between industry and regulatory agencies (Gibbs and Brown 1998). Communication with variety of stakeholders, including Aboriginal communities and environmental and community groups, will also be required to develop appropriate end uses. One vision of what the final EPL landscape could look like is shown in Figure 3.1. The oil sands industry has committed to a suite of reclamation goals. These include economic, cultural, regulatory, physical, land use, chemical and biological goals. Key roles and uses for EPLs include (Golder 2001): Safe, efficient and effective option to fill in mined-out pits with aquatic habitat Reclamation and storage of process-related chemicals Support a self-sustaining, naturally diverse aquatic ecosystem Part of an aesthetically pleasing and functional landscape Provide wildlife habitat Provide Aboriginal land use and traditional activities Provide recreational activities As an EPL matures, its roles and uses will change. An EPL s first role will be to fill in mined-out pits. It will also be a final remediation solution for process-affected waters. EPLs will provide a site for operational by-products, seepage and runoff to flow into prior to remediation and release to the surrounding environment. Through bioremediation of these process-related chemicals (MacKinnon 2004), an EPL will minimize the impact of release waters on receiving streams, wetlands and rivers (Golder 2001). A key to reclamation is the ability of an EPL to function as a natural lake and develop a stable and naturally diverse aquatic ecosystem. Over time and with support from stocking and planting efforts, a biological community will develop. An EPL will need to contain several different habitats to support diverse aquatic communities. Littoral vegetation will develop within an EPL, as will microbial, plankton and benthic invertebrate communities (Section 2.4.2). Species expected within an EPL include fish, amphibians, birds, semi-aquatic mammals and terrestrial wildlife (Gibbs and Brown 1998). Once water quality is suitable for discharge, an EPL will become part of the surrounding landscape. It will be linked both upstream and downstream to other natural and man made streams, wetlands and lakes. Ultimately, the EPL will be connected to the Athabasca River. Industry proposes to do this by designing drainage routes that minimize changes to natural flow patterns. Then, a biologically productive landscape will be constructed. These drainages will need to be able to handle natural disturbances such as flooding, bank erosion and sediment End Pit Lakes Background Document 28 Clearwater Environmental Consultants

42 deposition. An EPL will have the same characteristics as a natural drainage system. It will be dynamically stable and robust and will have self-healing mechanisms (Albian Sands 2005). The recreational activities designated for an EPL will depend on its ability to meet acceptable water quality and toxicity criteria. Access will also be important. Once it is safe and stable, an EPL may be used by both visitors and residents of local communities. Some activities within and adjacent to an EPL may include natural resource use. Such activities could include hunting, trapping, fishing, forestry and harvesting. Non-consumptive activities of an EPL and its surrounding landscape could include camping, hiking, canoeing, boating, cross-country skiing, dog sledding, off-highway vehicles, snowmobiling and wildlife observation (Gibbs and Brown 1998). An EPL and its surrounding landscape will also provide Aboriginal communities with traditional opportunities. The land will be able to be used for fishing, hunting, trapping and harvesting, such as gathering medicinal plants (Gibbs and Brown 1998). These activities are an important part of the Aboriginal lifestyle, especially for the preservation of culture and spiritual events. Many traditional fishing, harvesting and trapping areas have been or will be disturbed due to oil sands mine development. After reclamation, these areas will become accessible again for traditional use (Golder 2001). The specific location and features of each EPL will determine which goals will be appropriate (Golder 2001). An EPL s roles will depend on the allocation of land uses in the surrounding landscape. Pre-mining conditions for certain uses will need to be resumed. Commercial forestry may affect EPL development (AENV and ASRD 2005). Other land uses surrounding EPLs may include natural and conservation areas, agriculture, residential and commercial and recreational developments (Oil Sands Mining End Land Use Committee 1997). These may all influence an EPL s ability to reach goals for water quality, biological productivity and access for human use. Regulatory agencies (Alberta Environment and the Alberta Energy and Utilities Board) must approve the proposed EPL end use submitted by the industry. These agencies will decide if the proposed use is realistic and appropriate. They will also determine whether the plans are in accordance with policy, guidelines and codes. Stakeholder input will be received during this process. Once the EPL objectives and end use have been determined, industry will be responsible for reaching each intended goal. When the EPL is operational, its performance will be monitored by industry and reviewed/approved by Alberta Environment and other stakeholders. Once the goals are achieved, the industry can apply to Alberta Sustainable Resource Development for a reclamation certificate. End Pit Lakes Background Document 29 Clearwater Environmental Consultants

43 Figure 3.1 Various End Land Uses of an EPL Not to scale End Pit Lakes Background Document 30 Clearwater Environmental Consultants

44 3.2 Performance Indicators EPLs will be dynamic systems. Their roles will change over time until they reach their final end uses. As an EPL matures, it will require active management by the oil sands industry. During filling and development of the EPL, intensive control, management and monitoring will be needed. Monitoring will also occur into the far future, when active management and control are expected to cease. The purpose of this intensive management is to ensure that an EPL will reach its long term goals: to function and be used as a naturally occurring lake. Performance indicators may be used to assess whether an EPL is on track and meeting the goals outlined in Section 3.1. A performance indicator is a measure of how well something is performing relative to expectations. Performance indicators for an EPL may include measures of some or all of the following: Achievement of predicted milestones (construction, filling, discharge times) Correspondence with modelling predictions (water quality and meromixis) Rate of biodegradation of soft tailings Water quality and sediment quality and their conformance with guidelines Acute and chronic toxicity and tainting potential Population level information for key indicator species (microbial, plankton, macrophytes, benthic invertebrates and/or fish species) Creation and productivity of fish habitat Suitability for wildlife, recreational and traditional use The long-term monitoring plans and performance targets for each EPL should be determined prior to construction. While the general goals of an EPL will be similar throughout the region, each EPL will likely have specific targets. Monitoring should be carried out throughout the life of the EPL, until the performance results match the stated goals. If an EPL is behind schedule or isn t performing as expected, then changes can be made to its management or design. This will help ensure that the goals established by the industry, regulators, Aboriginal communities, environmental groups and the general public will be met as expected. End Pit Lakes Background Document 31 Clearwater Environmental Consultants

45 4.0 KNOWLEDGE BASIS FOR END PIT LAKES The information in the previous sections of this document is based on current research into EPLs. Numerous reports, studies and investigations have been completed over the last few decades to help develop EPLs as a reclamation tool for oil sands development. For more detailed information on EPL research, refer to the primary literature and resources cited in this document (Section 7) or to the EPLSG s Technical Guidance Document (Clearwater 2007). 4.1 Historic Research EPL research began in the 1980s and was initially led by Syncrude Canada. Research began with laboratory testing and field testing pits for Syncrude s conceptual development of using wet landscapes in reclamation. This eventually led to demonstration ponds in the 1990s. In order to predict the ability of EPLs to produce healthy aquatic ecosystems, on-site large-scale test pits have been developed. Syncrude s wet landscape field research facility includes seven small experimental pits, two large experimental pits, Demonstration Pond, four composite tailings pits, Mildred Lake, South Bison Pond, Settling Basin Seepage Pond and the West Interceptor Ditch (Harris 1998). In addition, Syncrude s Base Mine Lake will be in full operation in While not a typical EPL, Base Mine Lake will be the best available approximation of an operational EPL (Golder 2004). Information collected from the lake may be used to verify EPL predictions and better understand EPL functions and processes. The concept of capping EPLs with water has been heavily researched. Syncrude has constructed a series of experimental test ponds that have been capped with both natural and/or process-affected water and tailings water. Conclusions generated from the results of these experimental test pits with varying cap waters are shown in Table 4.1 (EMA 1993b, MacKinnon et al. 1995, Harris 1998). Further research done by Syncrude Canada and other companies in the oil sands area have identified and examined key physical, chemical, biological and toxicological issues (Friesen 2005). These studies have identified several factors that must be considered in the design of a viable and biologically productive EPL ecosystem (Nix and Power 1988). These factors include the optimum depth for cap water, lake shape, littoral zone extent and shoreline construction. Possible nutrient limitations, biological characteristics of the soft tailings and the influences of groundwater have also been investigated. Other studies on the experimental test pits have focused on the aquatic species within them. The University of Waterloo compared the phytoplankton, zooplankton, macrophytes, benthic invertebrates and fish communities of Syncrude s test pits to other natural lakes in the region. The key findings from these studies are shown in Table 4.1 (EMA 1993a, Golder 1995, Harris 1998). 4.2 Current EPLSG Research This historic research provides an excellent basis on which to understand EPLs, but many questions remain. More research is needed to design and manage EPLs to ensure they meet all their goals and develop into functional lakes. To address these issues, the EPLSG has developed research programs for meromixis and toxicity. Once these studies are complete, the EPLSG research will focus on water quality and biological issues. End Pit Lakes Background Document 32 Clearwater Environmental Consultants

46 To date, the EPLSG has commissioned several studies that have focused on the conditions under which meromixis is likely to develop in an EPL. Several key parameters (depth, surface area, initial salinity, inflow salinity) were investigated using sophisticated computer models. Several different computer models were developed or refined in order to address different EPL design scenarios. These models were then applied using real data from lakes in the northern Alberta region. The models determined the relative contribution of the dominant controlling factors required for mixing to occur annually. These factors included lake circulation, shoreline characteristics, depth, shape, salt rejection, ice melt, inflow/outflow velocities, salinity and climate. These models demonstrated the likelihood of meromixis occurring within an EPL under a variety of different characteristics. The key results are summarized in Table 4.1 (Golder 2004, 2006a). Table 4.1 End Pit Lake Research Results Experimental Test Pit Cap Water Experiments Experimental Test Pit Ecosystem Experiments Meromictic Modelling Experiments Research Results and Conclusions Water quality of EPLs may be affected by pore water released from the soft tailings into the cap water Aquatic populations have the potential to become established in EPLs, but may be limited by poor water quality Little to no acute or chronic toxicity within EPLs will occur Low nutrient concentrations in EPLs will limit their productivity EPLs will show seasonal temperature profiles that are similar to natural shallow lakes Fish may have difficulty surviving the winter in shallow EPLs, due to low dissolved oxygen concentrations EPLs will be able to support phytoplankton, zooplankton and benthic communities; but species composition may depend on the concentrations of toxins and suspended solids in the water The time to establish these communities will depend on EPL contents, such as the ratio of natural cap water to process-affected water The biological effects of poor EPL water quality will decrease with time and with the establishment of a variety of lake habitats Vegetation growth in EPLs will be limited by water quality; but its establishment can be helped by introducing organic material to tailing sands Time is needed for a complex food web to develop. Prey populations should be established prior to the introduction of predator species Fish communities in EPLs require suitable habitat such as littoral zones and coarse bottom material to support spawning, rearing and feeding Fall is the most important season for influencing meromictic potential An EPL will become meromictic under the following conditions: deep (more than 50 m), small surface area, low inflow salinity and high initial lake salinity An EPL will mix completely each year under the following conditions: shallow depth, large surface area, high inflow salinity and low initial lake salinity An EPL 5 m deep or less will mix completely regardless of any other characteristics (i.e., surface area or salinity) Meromictic EPLs will generally become more mixed over time Sources: EMA 1993a, EMA 1993b, Golder 1995, MacKinnon et al. 1995, Harris 1998, Golder 2004, Golder 2006a End Pit Lakes Background Document 33 Clearwater Environmental Consultants

47 5.0 KNOWLEDGE GAPS FOR END PIT LAKES 5.1 Uncertainties and Risks As described in Section 4.0, the last few decades have seen substantial advancements in the understanding of EPLs, and the EPLSG is directing future research needs. Despite this research, many uncertainties remain regarding the function and success of EPLs. With these uncertainties comes risk, as the outcomes and future of EPLs have not been demonstrated or fully predicted. The oil sands industry is committed to ongoing research that will help close the information gap and reduce the risks of EPL implementation. Some of the key uncertainties regarding EPLs are: Water quality and toxicity Sustainability Liability While water use is not a major concern for EPLs, it is discussed here because of its importance in terms of regional issues Water Use Water use in the Athabasca oil sands is one of the region s greatest concerns. This issue is relevant to EPL management because water from the Athabasca River will be used for EPL capping in many cases. Without water from the Athabasca River, a reliance on other sources of cap water would cause the EPLs to fill over an excessive length of time. The river will not be used to maintain water levels in the pit once it has been filled. The lower Athabasca River below Fort McMurray follows a typical seasonal cycle of high flows from May to September and low flows from October to April. During low flow periods, the amount of habitat available for aquatic organisms is reduced and can limit resources for food, space and oxygen. In most years, there is enough water in the lower Athabasca River to support the aquatic ecosystem. Withdrawals of up to 20% of the flow could be sustained in most years (AENV 2006). Currently, total allocations exceed 10% of the low flows in the Athabasca River. There are concerns that increased water withdrawals from the river, particularly during times when the river is naturally low, could negatively impact the aquatic ecosystem. Stresses on the aquatic system would be most likely to occur during the low flow winter months or drought years (AENV 2006, Pembina Institute 2006). Impacts on the sustainability of aquatic populations, such as fish, under these sensitive low flow conditions could lead to long-term effects. Some stakeholders are concerned that negative impacts may not only be seen in the Athabasca River, but also further downstream in the Peace-Athabasca Delta (Pembina Institute 2006). These issues can be addressed in terms of the river s instream flow needs (IFN). The IFN is a threshold representing the minimum amount of water flow required to maintain the health and functions of the river s ecosystem. In January, 2006, Alberta Environment developed an interim framework for the IFN of the lower Athabasca River (AENV 2006). The purpose of the framework s management system is to protect the aquatic ecosystem of the lower Athabasca River and ensure that development will not affect its long-term sustainability. The framework End Pit Lakes Background Document 34 Clearwater Environmental Consultants

48 provides recommended and mandatory management actions for oil sands operations during three zones of instream flows. These three zones range from high to low instream flows. The actions are based on the potential severity of the environmental impact. During the green zone, flows in the Athabasca River are high, no impacts on the aquatic system are expected and water is available for withdrawal within the conditions of the licenses. During the yellow zone, flows are lower, with withdrawals resulting in low to moderate impacts on the aquatic environment. Withdrawals would still be allowed during the yellow zone, but water use efficiencies should be implemented. These efficiencies would limit the reduction in Athabasca River flows to 10% of available flows. During the red zone, flows are very low and ecosystem health could be impacted. Withdrawals would be allowed, but managed to minimize changes in the frequency and duration of lowered flows. Senior license holders (such as Syncrude and Suncor) would voluntarily limit their withdrawals where possible, while recent license holders (Albian, CNRL, Shell, UTS, for example) would be required to use stored water to offset 50% of their withdrawals. Any new license holders would use storage to offset their withdrawals by 50% or more during the red zone (AENV 2006). This framework and recommended management actions could have implications on the removal of Athabasca River water to cap EPLs, even though EPL capping will comprise a tiny amount of the total water withdrawn for oil sands mines. Some solutions to the above timing restrictions include removing water during the Athabasca River s high flow period and storing it in large basins. When water is required during the low flow period, it could be taken from the storage basins, rather than from the river. In addition, water could be released from the basins back to the Athabasca River to supplement low flows (Golder 2004). Some stakeholders are concerned about the effectiveness of the above management actions and the way in which IFN thresholds for the Athabasca River were determined (Pembina Institute 2006). By continuing to work on this issue, the government will establish an IFN program for the lower Athabasca River. This program can then be implemented by all its water users, including the oil sands industry Water Quality and Toxicity The water quality within EPLs is a key concern. The quality of the water discharged from EPLs to connecting surface waters is another issue, particularly because these flows will eventually reach natural waterbodies like the Athabasca River. The water quality criteria for discharged EPL waters have not been established yet. These limits will likely be based on existing water quality guidelines, such as Alberta s Surface Water Quality Guidelines (AENV 1999) for the protection of aquatic life and the CCME environmental quality guidelines (CCME 1999, updated 2006). Some chemicals, like naphthenic acids, have not been sufficiently researched and do not have any published guidelines or limits. It is not known what the discharge limits will be for the water quality parameters that lack guidelines (Pembina Institute 2005). Both the toxicity within the EPL and the toxicity of the water being discharged from the lake to adjacent surface waters must be considered. These have been modelled for several oil sands mine projects (Imperial Oil 2005, Golder 2006b). Research predicts that water quality would be suitable for sensitive aquatic organisms within one or two years following capping of the soft tailings (EMA 1993a). However, additional work is required to fully understand the potential for toxicity in EPLs and the potential impacts on the developing aquatic ecosystem. Further research and understanding is required into the changes over time for acute and chronic toxicity, the mobility and fate of toxic substances, and natural detoxification rates and End Pit Lakes Background Document 35 Clearwater Environmental Consultants

49 processes. Both water quality and ecosystem monitoring will track these changes within the EPL over time. Monitoring will also determine how close the results correspond to the modelling predictions. Like water quality, the sediment quality of the EPL must be modelled and monitored. Sediment quality has been studied and modelled for soft tailings within EPLs (Imperial Oil 2005). Less research exists for the natural sediments that will develop over time within the EPLs. The interaction of the soft tailings with the sediments and the potential for toxicity within the developing sediments are unclear. The influence of pore water release and resuspension of the soft tailings on sediment toxicity also requires attention. The safety of the EPL landscape for future human use is another concern. Consumptive activities such as hunting, trapping, fishing and plant harvesting will place humans within the EPL food web (Figure 2.2). Humans could potentially bioaccumulate process-related chemicals if they ate plants or animals with these chemicals in their tissues. These types of human uses will only be permitted once EPLs have been proven safe and once there are no significant risks to human health. While not a human health concern, the potential for fish tainting in EPLs is another issue that needs to be resolved. While process-related chemicals may not necessarily be at toxic concentrations in the far-future, their presence may lead to tainting. The end use of an EPL for recreation and fishing may be affected by the presence or even the suggestion that fish within it are tainted. This would also reduce stakeholder confidence in the reclamation of EPLs (van Meer 2004) Sustainability There are several questions regarding the long-term stability and longevity of EPLs. One of the most important considerations is the stability of the pit which will contain the EPL. The pit needs to be geotechnically stable, to minimize leaching and erosion. Shoreline erosion must also be minimized. The consolidation and complete biodegradation of process-related chemicals of the soft tailings within an EPL could take decades or even centuries (MacKinnon et al. 1995). An EPL will therefore be required to store these materials safely over the long-term. All these longterm functions require an EPL to persist indefinitely. These issues are a matter of proper planning and design, into which more research is needed. The sustainability of an EPL will also depend on its ability to develop a stable water balance. This water balance needs to be maintained without any human intervention over the long-term. Much of an EPL s water balance can be modelled (see Figure 2.1). However, some components are not well predicted at this time. In particular, the roles of groundwater and seepage into and from EPLs are poorly understood (McKenna 2002). While Syncrude has collected a database of the permeability of their tailings sand, other producers will need to fully understand the properties of their own tailings. There is also the expectation that an EPL will eventually have all the processes and functions of a natural lake. This includes the development of a sustainable aquatic ecosystem. Water quality will need to meet guidelines for healthy populations to become established. A variety of habitats will be needed for different trophic levels to develop (Gibbs and Brown 1998). Connectivity must be established between the EPL and its surrounding landscape (Golder 2001). The EPL will need to contribute to local wildlife populations by providing a sustainable resource base. It is End Pit Lakes Background Document 36 Clearwater Environmental Consultants

50 unknown how long it will take for an EPL to fulfil all these functions and when it would be considered a sustainable ecosystem Liability The initial responsibility for each EPL will rest with the oil sands company that will plan, construct and develop the EPL. Each oil sands mine in the Athabasca region is expected to have at least one EPL, with some mine plans including several EPLs. Each company will be responsible for the ongoing design, implementation, management and monitoring of its EPLs. The Alberta government requires that all oil sands companies hold a reclamation bond. These bonds are in place in the event that an oil sands company abandons its project prior to reclamation certification. In this situation, the company would forfeit the bond, which would then be used by the Alberta government to cover the costs of reclamation. The reclamation bond varies for each company. Future reclamation costs involving EPLs specifically are difficult to estimate, but the total reclamation costs have been estimated to exceed $1 billion in the oil sands industry (McKenna 2002). There are concerns that these reclamation bonds do not accurately reflect the full cost of reclaiming the landscape, and that Albertans may be responsible for paying for full reclamation (CPAWS et al. 2005). Responsibility for an EPL will change from the oil sands company to the Alberta government, once the reclamation certificate has been issued. ASRD will then assume responsibility for the EPL. At this point, the EPL will be considered a natural self-sustaining lake. While monitoring of the aquatic ecosystem may still be conducted within a reclaimed EPL, no active management should be required. Since no EPLs have yet been constructed, it is unclear what the reclamation timeline will be and when this shift in liability will occur. 5.2 Future Research Research programs and policy development continue to address these ongoing questions and concerns. The EPLSG s mandate is to identify and understand technical issues regarding EPL implementation. The group has committed to understanding the functions, values and range of end uses for EPLs. They have identified the characteristics and key factors required in the establishment of EPLs, which have been the basis for research plans (Golder 2002). Based on the research to date, a Technical Guidance Document has been produced (Clearwater 2007). This Technical Guidance Document will be used by industry and government to help in the development and management of EPLs. It will also be updated as additional conclusions and information about EPLs become available. Much progress has been made in terms of understanding the physical characteristics of EPLs, including meromixis. The issues that the EPLSG will address in the future include (Golder 2002): The development of quantitative models to assist in predicting the conditions in EPLs The identification of methods and procedures to assess the performance of EPLs Water quality, toxicology and biological research Discussion of the goals and results of the EPLSG with stakeholders, including Aboriginal communities End Pit Lakes Background Document 37 Clearwater Environmental Consultants

51 The meromictic modelling done to date (Section 4) has raised questions requiring additional research. These include a better understanding of partial mixing in EPLs, the effects of climate, the effects of different filling scenarios and the effects of seepage of process-affected waters into an EPL. The effects of meromixis on water quality and the aquatic ecosystem also require further study. The potential for toxicity within EPLs and the impact on aquatic organisms is a key concern. The EPLSG will be conducting toxicity and biophysical modelling in the future. The goals of the toxicity modelling are to determine the interactive effects of EPL meromixis and water quality, including oxygen, naphthenic acids, acute and chronic toxicity. The EPLSG s toxicity results will be available by the end of The intent of the EPLSG s planned biophysical modelling is to design an EPL that has a fully functional, self-sustaining ecosystem. Modelling will have to address habitat types, surface area of habitats, establishment of different trophic levels, and the toxicity of an EPL s water and sediments to aquatic life. This biophysical modelling will relate the physical and chemical characteristics of an EPL to its biological potential. This biophysical research will be completed by the end of Other technical working groups within the Athabasca oil sands region are researching issues relevant to EPLs. Their research will complement the work done by the EPLSG. For example, CEMA s Sustainable Ecosystem Working Group will study biodiversity, wildlife and fish issues. Research conducted by CONRAD s (Canadian Oil Sands Network for Research and Development) Fish Tainting Committee is currently gathering information on the oil sands chemicals that contribute to fish tainting. CONRAD also has a Tailings Research Group. Various research programs on tailings management and water quality are also conducted by individual oil companies. The challenge will be for this research to proceed in a coordinated and timely manner before construction of EPLs begins in the Athabasca oil sands region. 6.0 PATHS FORWARD Oil sands companies will be responsible for ensuring that their EPL designs and management plans are appropriate and working. Contingency plans will be in place to revise mine plans, change designs, treat water quality, reduce toxicity and establish plant and animal communities. Intensive monitoring during the first decades of EPL operation will be particularly important in supporting model predictions and making appropriate changes to design and management plans. Through these measures, the oil sands industry is committed to constructing EPLs that will develop into natural ecosystems and will meet end use goals. Clearly, more work is needed to ensure the success of EPLs both as a reclamation tool and as a permanent feature of the post-oil sands landscape. The oil sands industry has committed to this responsibility. The industry is confident that it will meet its requirements through continued research, careful monitoring and responsible management. Despite this assurance, some stakeholders and regulators concerns remain. By remaining informed, involved and active in EPL issues, all parties can contribute to the success of EPLs. End Pit Lakes Background Document 38 Clearwater Environmental Consultants

52 7.0 REFERENCES Alberta Energy Research Institute website. Accessed October, Alberta Environment (AENV). 1999a. Regional Sustainable Development Strategy for the Athabasca Oil Sands Area. Pub. No. 1/754. ISBN: Alberta Environment. 1999b. Technical Support Document for the Regional Sustainable Development Strategy for the Athabasca Oil Sands Area. Pub. No. 1/754. ISBN: Alberta Environment. 1999c. Surface Water Quality Guidelines for Use in Alberta. Environmental Assurance Division, Science and Standards Branch. ISBN: Alberta Environment Interim Framework: Instream Flow Needs and Water Management System for Specific Reaches of the Lower Athabasca River. Draft. Alberta Environment and Alberta Sustainable Resource Development Fort McMurray Mineable Oil Sands Integrated Resource Management Plan, Draft. Alberta Environmental Protection (AEP) Fort McMurray-Athabasca Oil Sands Subregional Integrated Resource Plan. ISBN: Alberta Research Council Inc A Quantitative Means of Assessing Tainting of Fish Exposed to Oil Sands Waste Waters. Final Report. Prepared for the CONRAD Wetlands and Aquatics Working Group Fish Tainting Committee. Prepared by Toxicology and Environmental Health, Alberta Research Council, Vegreville, AB. Alberta Sustainable Resource Development (ASRD) Fort McMurray Mineable Oil Sands Integrated Resource Management Plan. Draft. Albian Sands Energy Inc Muskeg River Mine Expansion Project Application and EIA. Baird and Associates Base Mine Lake Shore Erosion Study. Prepared for Golder Associates and Syncrude Canada Ltd. Oakville, Ontario. Canadian Council for Ministers of the Environment (CCME) Updated Summary of Existing Canadian Environmental Quality Guidelines. Canadian Parks and Wilderness Society (CPAWS), David Suzuki Foundation, Dogwood Initiative, Greenpeace, Pembina Institute, Prairie Acid Rain Coalition, Sierra Club of Canada, SageCentre, Toxics Watch Society, West Coast Environmental Law and World Wildlife Federation Managing Oil Sands Development for the Long Term: A Declaration by Canada s Environmental Community. Clearwater Environmental Consultants Inc End Pit Lakes Technical Guidance Document. Prepared for the Cumulative Environmental Management Association (CEMA) End Pit Lakes Subgroup. End Pit Lakes Background Document 39 Clearwater Environmental Consultants

53 Clemente, J.S. and P.M. Fedoruk A review of the occurrence, analyses, toxicity and biodegradation of naphthenic acids. Chemosphere 60: Environmental Management Associates Ltd. 1993a. Draft Report on End-Cap Lake Water Quality Assessment. Calgary, Alberta. Environmental Management Associates Ltd Suncor/Syncrude Wet Landscape Simulation Model 1992/93. Prepared for Suncor Inc. Oil Sands Group and Syncrude Canada Ltd. Calgary, Alberta. Gibbs and Brown Landscape Architects Ltd and Westworth Associates Environmental Ltd Base Mine Lake End-Use Assessment. Prepared for Syncrude Canada Limited. Golder Associates Ltd Draft Report on the Effect of Littoral Zone Area on Lake Productivity. Calgary, Alberta. Golder Associates Ltd End Pit Lake Background Information Summary. Prepared for the CEMA End Pit Lake Working Group. Calgary, Alberta. Golder Associates Ltd Terms of Reference. Oil Sands End Pit Lake Sub-Group. Golder Associates Ltd Water Supply Security for Oil Sands Mines by Upstream Offsite Storage. Presentation at CONRAD Oilsands Water Usage Workshop, February 24/25, Fort McMurray, Alberta. Golder Associates Ltd Phase II 2005/2006 Pit Lake Work Plan. Prepared for EPL Sub- Group, Reclamation Working Group, Cumulative Environmental Management Association. Calgary, Alberta. Golder Associates Ltd. 2006a. Interim Technical Report on Pit Lake Modelling Phase II Task A. Validation and Refinement of Existing RMA10 and DYRESM Pit Lake Hydrodynamic Results. Prepared for EPL Sub-Group, Reclamation Working Group, Cumulative Environmental Management Association. Calgary, Alberta. Golder Associates Ltd. 2006b. Summary of Naphthenic Acids Predictions for the Oil Sands Region. Prepared for the CONRAD Wetlands and Aquatics Working Group. Calgary, Alberta. Government of Alberta Alberta s First Nations Consultation Policy on Land Management and Resource Development. Guo, C., R.J. Chalaturnyk, J.D. Scott, and M. MacKinnon Densification of oil sands tailings by biological activity. 57th Canadian Geotechnical Conference, Quebec City, Quebec, Canadian Geotechnical Society. Harris, M Aquatic ecosystems associated with oil sands development: Syncrude Canada s progress in optimizing freshwater environments. Summary of the University of Waterloo Syncrude Canada partnership, Rotorua, New Zealand. 48 pp. End Pit Lakes Background Document 40 Clearwater Environmental Consultants

54 Holowenko, F. and P. Fedorak Evaluation of a gas chromatography electron impact mass spectrometry method for characterizing naphthenic acids. Department of Biological Sciences, University of Alberta, Edmonton, Alberta. Imperial Oil Resources Ventures Ltd Kearl Oil Sands Project Mine Development. Project Application and EIA. MacKinnon, M. D Development of the Tailings Pond at Syncrude's Oil Sands Plant: AOSTRA Journal of Research 5: MacKinnon, M Oil Sands Water Quality Issues: Properties, Treatment and Discharge Options. Syncrude Research Centre, Edmonton. Presentation at CONRAD Oilsands Water Usage Workshop, February 24/25, Fort McMurray, Alberta. MacKinnon, M., H. Boerger, T. Van Meer and R. Shaw Reclamation of Oil Sands Fine Tails: Water Capping Option. Poster Presentation at the Society of Environmental Toxicology and Chemistry (SETAC) Second World Congress. Vancouver B.C. MacKinnon, M., J. Gulley and T. Van Meer Role of Wetlands in Attenuation of Process- Related Components. Presentation at CONRAD Environmental Research Group Research Symposium, May 3, Edmonton, Alberta. McKenna, G Sustainable mine reclamation and landscape engineering. A thesis submitted to the Faculty of Graduate Studies and Research in Partial fulfillment of requirements for the degree of Doctor of Philosophy, Department of Civil and Environmental Engineering, Edmonton, Alberta. Oil Sands Mining End Land Use Committee Report and Recommendations. Pembina Institute Oil Sands Fever. The Environmental Implications of Canada s Oil Sands Rush. Prepared by D. Woynillowicz, C. Severson-Baker and M. Raynolds. Pembina Institute Down to the Last Drop. The Athabasca River and Oil Sands. Oil Sands Issue Paper No. 1. Prepared by D. Woynillowicz and C. Severson-Baker. Power, E., P. Ward and W. McLaren Final Report Assessment of Sludge Behaviour Under Various Flow Conditions. EVS. Consultants Ltd., Ward & Associates Ltd. and Western Canada Hydraulic Laboratories Ltd. Prepared for Syncrude Canada Ltd. Edmonton, Alberta. Van Meer, T Water Quality for Wetlands or Aquatic Landscapes: Limits of Reclamation. Syncrude Research Centre, Edmonton. Presentation at CONRAD Oilsands Water Usage Workshop, February 24/25, Fort McMurray, Alberta. Young, R.F., E.A. Orr, G.G. Goss and P.M. Fedorak Assessing various factors that might contribute to fish tainting by components in oil sands tailings waters. Final Report to the CONRAD Wetlands and Aquatic Working Group Fish Tainting Committee. End Pit Lakes Background Document 41 Clearwater Environmental Consultants

55 8.0 PERSONAL COMMUNICATIONS End Pit Lakes Subgroup Personal communications regarding range of volumes of process-related material within end pit lakes. MacKinnon, M. October, Personal communications regarding sources of initial and recharge waters to end pit lakes. End Pit Lakes Background Document 42 Clearwater Environmental Consultants

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57 Canada's Oil Sands Opportunities and Challenges to 2015: An Update An Energy Market Assessment JUNE 2006

58 Permission to Reproduce Materials may be reproduced for personal, educational and/or non-profit activities, in part or in whole and by any means, without charge or further permission from the National Energy Board, provided that due diligence is exercised in ensuring the accuracy of the information reproduced; that the National Energy Board is identified as the source institution; and that the reproduction is not represented as an official version of the information reproduced, nor as having been made in affiliation with, or with the endorsement of the National Energy Board. For permission to reproduce the information in this publication for commercial redistribution, please Autorisation de reproduction Le contenu de cette publication peut être reproduit à des fins personnelles, éducatives et(ou) sans but lucratif, en tout ou en partie et par quelque moyen que ce soit, sans frais et sans autre permission de l Office national de l énergie, pourvu qu une diligence raisonnable soit exercée afin d assurer l exactitude de l information reproduite, que l Office national de l énergie soit mentionné comme organisme source et que la reproduction ne soit présentée ni comme une version officielle ni comme une copie ayant été faite en collaboration avec l Office national de l énergie ou avec son consentement. Pour obtenir l autorisation de reproduire l information contenue dans cette publication à des fins commerciales, faire parvenir un courriel à : info@neb-one.gc.ca Her Majesty the Queen in Right of Canada as represented by the National Energy Board 2006 Cat. No. NE23-116/2006E ISBN X This report is published separately in both official languages. Copies are available on request from: The Publications Office National Energy Board 444 Seventh Avenue S.W. Calgary, Alberta, T2P 0X8 publications@neb-one.gc.ca Fax: (403) Phone: (403) Internet: For pick-up at the NEB office: Library Ground Floor Printed in Canada Cover Photos: Image courtesy of Syncrude Canada Ltd The Pembina Institure, Chris Evans Albert Normandin / Masterfile Rolf Bruderer / Masterfile Sa Majesté la Reine du chef du Canada représentée par l Office national de l énergie 2006 Nº de cat. NE23-116/2006F ISBN Ce rapport est publié séparément dans les deux langues officielles. Demandes d exemplaires : Bureau des publications Office national de l énergie 444, Septième Avenue S.-O. Calgary (Alberta) T2P 0X8 Courrier électronique : publications@neb-one.gc.ca Télécopieur : (403) Téléphone : (403) Internet : Des exemplaires sont également disponibles à la bibliothèque de l Office : Rez-de-chaussée Imprimé au Canada Photos en page couverture : Image gracieusement fournie par Syncrude Canada Ltd The Pembina Institure, Chris Evans Albert Normandin / Masterfile Rolf Bruderer / Masterfile

59 CT a h b al e p t O ef r C o O n nt ee n t s List of Figures and Tables List of Acronyms and Abbreviations List of Units Foreword Executive Summary iii v vi vii viii Chapter 1: Introduction 1 Chapter 2: Supply Costs Introduction Project Economics Integrated Mining/Extraction and Upgrading SAGD Outlook: Issues and Uncertainties 8 Chapter 3: Crude Oil Supply Introduction Crude Bitumen Reserves Expansion Plans Capital Expenditures Oil Sands Production Production by Type Western Canada Sedimentary Basin Crude Oil Supply Net Available Supply Natural Gas Requirement Outlook: Issues and Uncertainties 18 Chapter 4: Markets Introduction Domestic Markets Export Markets United States Other Export Markets Outlook: Issues and Uncertainties 27 National Energy Board

60 Chapter 5: Major Crude Oil Pipelines Introduction Crude Oil Pipelines Feeder Pipelines Outlook: Issues and Uncertainties 34 Chapter 6: Environment and Socio-Economic Introduction Environment Water Use and Conservation Air Emissions Land Disturbance and Reclamation Sulphur By-product Socio-Economic Socio-Economic Setting Positive Socio-Economic Impacts Negative Socio-Economic Impacts Outlook: Issues and Uncertainties 43 Chapter 7: Electricity Opportunities Introduction Electricity Requirements Cogeneration Opportunities Transmission Outlook: Issues and Uncertainties 47 Chapter 8: Petrochemical Feedstock Opportunities Introduction Synthetic Gas Liquids (SGL) from Upgrader Off-gas Ethane and Ethylene (C 2 /C 2= ) Propane/Propylene (C 3 /C 3= ) Outlook: Issues and Uncertainties 51 Glossary 52 Appendix 1: Economic and Market Assumptions for Supply Cost Models 57 Appendix 2: Assumptions for Athabasca SAGD Model 58 Appendix 3: Assumptions for Athabasca Mining/Extraction and Upgrading Model 59 Appendix 4: Oil Sands Projects 60 Appendix 5: Conversion Factors and Energy Contents 69 End Notes 70 ii An energy market assessment

61 LC i sht ao f p f ti g eu r r e s aon d n t ea b l e s Figures 1.1 Oil Sands Reserves and Canada and U.S. Refinery Capacities Supply Cost Sensitivities: 200 Mb/d Athabasca Mining/Extraction and Upgrading Project After-tax Nominal Rate of Return: 200 Mb/d Athabasca Mining/Extraction and Upgrading Project Supply Cost Sensitivities: 120 Mb/d Athabasca SAGD Project High-Quality Reservoir After-tax Nominal Rate of Return: 120 Mb/d Athabasca SAGD Project High-Quality Reservoir (Canada U.S. Exchange Rate Sensitivity) After-tax Nominal Rate of Return: 120 Mb/d Athabasca SAGD Project High Quality Reservoir (Light/Heavy Differential Sensitivity) Oil Sands Land Sales Estimated Capital Expenditures Projected Oil Sands Production Oil Sands Production by Type Base Case Projected Crude Oil Production WCSB Net Available Supply WCSB Total Purchased Gas Requirement Average Gas Intensity Oil Sands Projects Ontario Receipts of Western Canadian Crude Oil Western Canada Receipts of Western Canadian Crude Oil PADD I Receipts of Western Canadian Crude Oil PADD II Receipts of Western Canadian Crude Oil PADD III Receipts of Western Canadian Crude Oil PADD IV Receipts of Western Canadian Crude Oil PADD V Receipts of Western Canadian Crude Oil Major Canadian and U.S. Crude Oil Pipelines and Markets NEB Supply Forecast and Proposed Pipeline Projects and Timing Projected GHG Emission from Oil Sands to Construction Personnel Required for Alberta Industrial Projects Costing Over $100 Million Estimated Electricity Costs by Recovery Type Oil Sands Based Cogeneration 46 National Energy Board iii

62 Tables 2.1 Estimated Operating and Supply Costs by Recovery Type Capital Spending Requirement Receipts of Western Canadian Crude Oil 2005 (m 3 /d) Export Receipts of Western Canadian Crude Oil 2005 (m 3 /d) Announced Refinery Expansions Announced and Potential Expansions by Canadian Pipelines Multi-Stakeholder Summary 37 iv An energy market assessment

63 Cl i s t h o f a a cp r ot n y em s r a n d ao b b rn e v ie a t i o n s AENV AESO ANS CBM CEMA CERI CHOPS CHP CONRAD CSS EMA EOR EUB GDP GHG LLB MSAR MSW NEB NGL NYMEX PADD RAS RIWG SAGD SCO SGL SOR THAI U.S. VAPEX VGO WBEA WCS WCSB WTI Alberta Environment Alberta Electric System Operator Alaskan North Slope coal bed methane Cumulative Environmental Management Association Canadian Energy Research Institute Cold Heavy Oil Production with Sand Combined Heat and Power Canadian Oilsands Network for Research and Development Cyclic Steam Stimulation Energy Market Assessment enhanced oil recovery Alberta Energy and Utilities Board Gross Domestic Product greenhouse gases Lloydminster Blend Mulitphase Superfine Atomized Residue Mixed Sweet (crude oil) National Energy Board natural gas liquids New York Mercantile Exchange Petroleum Administration for Defense District Remedial Action Schemes Regional Issues Working Group Steam Assisted Gravity Drainage synthetic crude oil synthetic gas liquids steam-to-oil ratio Toe-to-Heel Air Injection United States Vapour Extraction Process vacuum gas oil Wood Buffalo Environmental Association Western Canadian Select Western Canada Sedimentary Basin West Texas Intermediate National Energy Board v

64 l i s t o f u n i t s Units b b/d Bcf Bcf/d Btu Btu/cf cf GW GW.h m 3 m 3 /d Mcf Mb/d MMb MMb/d MMBtu MMcf MMcf/d MW scf barrel(s) barrels per day billion cubic feet billion cubic feet per day British thermal units British thermal unit per cubic feet cubic feet gigawatt gigawatt hour cubic metres cubic metres per day thousand cubic feet thousand barrels per day million barrels million barrels per day million British thermal units million cubic feet million cubic feet per day megawatt standard cubic feet vi An energy market assessment

65 Foreword The National Energy Board (the NEB or the Board) is an independent federal agency that regulates several aspects of Canada s energy industry. Its purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest within the mandate set by Parliament in the regulation of pipelines, energy development and trade. The Board s main responsibilities include regulating the construction and operation of interprovincial and international oil and gas pipelines as well as international and designated interprovincial power lines. The Board regulates pipeline tolls and tariffs for pipelines under its jurisdiction. In terms of specific energy commodities, the Board regulates the exports and imports of natural gas as well as exports of oil, natural gas liquids (NGLs) and electricity. Additionally, the Board regulates oil and gas exploration, development and production in Frontier lands and offshore areas not covered by provincial or federal management agreements. The Board s advisory function requires keeping under review matters over which Parliament has jurisdiction relating to all aspects of energy supply, transmission and disposal of energy in and outside Canada. The NEB collects and analyzes information about Canadian energy markets through regulatory processes and market monitoring. From these efforts, the Board produces publications, statistical reports and speeches that address various market aspects of Canada s energy commodities. The Energy Market Assessment (EMA) reports published by the Board provide analyses of the major energy commodities. Through these EMAs, Canadians are informed about the outlook for energy supplies in order to develop an understanding of the issues underlying energy-related decisions. In addition, policy makers are informed of the regulatory and related energy issues. On this note, the Board has received feedback from a wide range of energy market participants across the country indicating that the NEB has an important role and is in a unique position to provide objective, unbiased information to federal and provincial policy makers. This EMA is an update to a previous oil sands EMA released by the Board in May 2004, entitled Canada s Oil Sands: Opportunities and Challenges to Audiences requiring a detailed review of the background surrounding the oil sands resource and its development are encouraged to read the previous publication. The key objective of this report is to highlight the major changes to the supply and market analysis resulting from developments in the last two years. In preparing this report, the NEB conducted a series of informal meetings and discussions with a cross-section of oil sands stakeholders including producers, refiners, marketers, pipeline companies, electricity and petrochemical officials, industry associations, consultants, government departments and agencies, and environmental groups. The NEB appreciates the information and comments provided and would like to thank all participants for their time and expertise. If a party wishes to rely on material from this report in any regulatory proceeding before the NEB, it may submit the material, just as it may submit any public document. Under these circumstances, the submitting party in effect adopts the material and that party could be required to answer questions pertaining to the material. National Energy Board vii

66 Executive Summar y Introduction In May 2004, the Board released an Energy Market Assessment (EMA) entitled Canada s Oil Sands: Opportunities and Challenges to 2015, which contained detailed discussions on the major aspects of the oil sands industry and assessed the opportunities and challenges facing the development of the resource. Since then, the conditions surrounding oil sands development have changed significantly. As a result, the Board decided to provide an update to this report, highlighting major changes and developments. The diagram below shows the major influences on oil sands development as production grows from m 3 /d (1.1 MMb/d) in 2005 to a projected m 3 /d (3.0 MMb/d) by Influences on Oil Sands Development Market Development & Pipelines Rising Capital and Labour Costs Rising Operating Costs Managing Environmental Impacts High Crude Prices Oil Sands Development 1.1 Million b/d (2005) 3 Million b/d (2015) Rising Global Energy Demand Technology Innovations Stable Investment Climate A comparison of key assumptions between the current analysis (2005 dollars) and the 2004 report (2003 dollars) is as follows: Assumptions June 2006 Report May 2004 Report WTI crude oil price NYMEX natural gas price Light/heavy price differential Canadian dollar exchange rate US$50 per barrel US$7.50 per MMBtu US$15 per barrel US$0.85 US$24 per barrel US$4.00 per MMBtu US$7 per barrel US$0.75 viii An energy market assessment

67 Key Findings Supply Costs The table below provides estimates of operating and supply costs for various types of oil sands recovery methods. Estimated Operating and Supply Costs by Recovery Type C$(2005) per barrel at the Plant Gate Crude Type Operating Cost Supply Cost Cold Production Wabasca, Seal Bitumen 6 to 9 14 to 18 Cold Heavy Oil Production with Sand (CHOPS) Cold Lake Bitumen 8 to to 19 Cyclic Steam Stimulation (CSS) Bitumen 10 to to 24 Steam Assisted Gravity Drainage (SAGD) Bitumen 10 to to 22 Mining/Extraction Bitumen 9 to to 20 Integrated Mining/Upgrading Synthetic 18 to to 40 Integrated mining and SAGD operations are estimated to be economic at US$30 to $35 per barrel WTI. Continued escalation in material and labour costs pose a risk to this outlook. Higher natural gas prices and blending costs would also increase this estimate. On the other hand, advancement in recovery and upgrading technologies hold potential to reduce supply costs. Crude Oil Supply About C$125 billion in capital expenditures have been publicly announced for the period 2006 to 2015; however, it is unlikely that all publicly announced development plans will be completed in the declared timeframe. The Base Case projection, shown in the chart below, assumes capital expenditures of C$94 billion and indicates oil sands production will almost triple from m 3 /d (1.1 MMb/d) in 2005 to m 3 /d (3.0 MMb/d) by Projected Total Bitumen Production Thousand m 3 /d actual projected Million b/d all projects Case low Case Base Case National Energy Board ix

68 Markets and Pipelines Based on industry consultations and the Board s internal analysis, potential scenarios for market expansion for the growing oil sands production could unfold as outlined in the following table. Potential Markets for Oil Sands Production Steps Potential Markets 1 Existing core markets in Ontario, Western Canada, northern PADD II (see map in Introduction, page 1), PADD IV and Washington State 2 Southern PADD II, PADD III, new cokers and/or refinery expansions in PADDs II, IV and V 3 New markets in California and the Far East With increasing production from the oil sands, total pipeline capacity out of the Western Canada Sedimentary Basin (WCSB) could be near full utilization starting in The pace of pipeline expansion will depend on decisions with respect to the markets to be served and the necessary regulatory approvals. Environmental and Socio-economic Impacts There is now a clearer understanding that large water withdrawals from the Athabasca River for mining operations during the winter could impact the ecological sustainability of the river. As well, it is uncertain if land reclamation methods currently employed will be successful. These issues have moved to the forefront of environmental concerns. Regions associated with oil sands development enjoy several economic benefits but at costs to the social well-being of the communities, including a shortage of available housing and stress on public infrastructure and services. There is currently a limited supply of skilled workers in Alberta, and this tight labour market is expected to continue in the near future. Electricity and Petrochemical Opportunities The potential for building cogeneration capacity has decreased somewhat since the 2004 report. The recent trend has been for oil sands producers to build for self-sufficiency with little excess electricity generated for sale to the grid. However, factors that could alter the trend include: advancement in gasification technology that could reduce the reliance on natural gas for fuel; access to a higher priced electricity market; and a premium payment for clean power. Given the outlook for synthetic crude oil production, the Alberta petrochemical industry may have an opportunity to supplement declining ethane feedstock supply with synthetic gas liquids extracted from upgrader off-gas. Outlook It is expected that there will continue to be rapid growth in the development of Canada s oil sands. There are, however, issues and uncertainties associated with the development of the resource. The rate of development will depend on the balance that is reached between the opposing forces that affect the oil sands. High oil prices, international recognition, geopolitical concerns, global growth in oil demand, size of the resource base and proximity to the large U.S. market, and potentially other markets, encourage development. On the other hand, natural gas costs, the high light/heavy oil price differential, management of air emissions and water usage, insufficient labour, infrastructure and services are concerns that could potentially inhibit the development of the resource. x An energy market assessment

69 C h a p t e r O n e Introduction In May 2004, the Board released a comprehensive Energy Market Assessment (EMA) entitled Canada s Oil Sands: Opportunities and Challenges to It contained detailed discussions on major aspects of the oil sands industry and assessed the opportunities and issues facing development of the resource. Since then, there have been significant changes. In recognition of the need for current information, the Board decided to provide this update for stakeholders, which highlights the major changes and new developments. The main purpose of this report remains the same to provide an objective assessment of the current state of the oil sands and the potential for growth. It is assumed that readers are familiar with the topic but those readers seeking additional background information are encouraged to refer to the previous report which is available on the Board s website at one.gc.ca. f i g u r e 1. 1 Oil Sands Reserves and Canada and U.S. Refinery Capacities 28 billion cubic metres (174 billion barrels) Québec m 3 /d Western Canada m 3 /d Ontario m 3 /d Atlantic m 3 /d PADD V m 3 /d PADD IV m 3 /d PADD II m 3 /d PADD I m 3 /d PADD III m 3 /d Petroleum Administration for Defense District (PADD) National Energy Board 1

70 Canada s oil sands are a substantial resource. According to the Alberta Energy and Utilities Board (EUB), Alberta s oil sands contain an ultimately recoverable crude bitumen resource of 50 billion cubic metres (315 billion barrels), with remaining established reserves of almost 28 billion cubic metres (174 billion barrels) at year-end 2004 i. The rapid pace of development continues to be driven by several factors, including: higher oil prices; concerns surrounding the global supply of oil; market potential in the U.S. and Asia; and stable generic fiscal terms for producers. Key assumptions that underlie the current analysis compared to the May 2004 report are as follows: Assumptions June 2006 Report May 2004 Report West Texas Intermediate (WTI) crude oil price US$50 per barrel US$24 per barrel NYMEX natural gas price US$7.50 per MMBtu US$4 per MMBtu Light/heavy crude oil price differential US$15 per barrel US$7 per barrel Canadian dollar exchange rate US$0.85 US$0.75 As in the previous report, sensitivities around the oil price, natural gas price, exchange rate and other cost components were used for the supply cost estimates. This report can broadly be considered as having four key components: economic potential and development of the resource base; markets and pipelines; environmental and socio-economic impacts; and potential opportunities in the electricity and petrochemical industries. The outline of the report is as follows: Chapter 1 is an introduction to the report; Chapter 2 analyzes supply costs; Chapter 3 discusses crude oil production and supply; Chapter 4 provides a synopsis of the potential markets for the rising oil sands supply; Chapter 5 describes the major crude oil pipeline network and expansion plans; Chapter 6 highlights the environmental concerns over water, air quality, by-product and waste production from oil sands activity and related socio-economic impacts; Chapter 7 assesses the opportunity for electricity generation; and Chapter 8 concludes with a discussion on the potential opportunities for the petrochemical industry. 2 An energy market assessment

71 C h a p t e r t w o Supply Costs 2.1 Introduction Since the Board s May 2004 report, the economic environment, particularly with respect to energy, has changed significantly. For the oil sands sector, this has meant a substantial escalation in the costs to develop and operate projects, but also greater revenues with currently higher oil prices and a general view that higher prices will endure into the foreseeable future. Capital costs have risen dramatically due to higher prices for steel, cement and equipment. The rising pace of development has also led to a shortage of skilled tradespersons and a reduction in the overall productivity of labour. These cost escalations and the challenge in attracting skilled labour are being felt all across the world, but are particularly severe in the oil sands region because of its relatively remote location, the high pace of development, and the scope and complexity of the projects being undertaken. The rise in energy prices has been the most dominant factor influencing project economics and the oil sands development drive. Higher oil prices have boosted revenues; however, operating costs have also increased significantly with the rise in electricity and natural gas prices. The latter is of particular importance with an estimated 1 Mcf required to produce each barrel of bitumen. For in situ producers, the availability and price of diluent for blending has become a more pressing issue, as has the market value of heavy versus light crude oil (the differential) in traditional markets. Table 2.1 provides a summary of current oil sands operating costs and supply costs for major recovery methods. Operating costs can generally be considered as reflecting the cash costs of operation while supply costs include all costs associated with production, including operating cost, capital cost, taxes, royalties and a rate of return on investment. Supply costs are stated as a range, reflecting variables such as: reservoir quality, depth of the producing formation, project size, recovery method and operating parameters. t a b l e 2. 1 Estimated Operating and Supply Costs by Recovery Type C$(2005) per barrel at the Plant Gate Crude Type Operating Cost Supply Cost Cold Production Wabasca, Seal Bitumen 6 to 9 14 to 18 Cold Heavy Oil Production with Sand Bitumen 8 to to 19 (CHOPS) Cold Lake Cyclic Steam Stimulation (CSS) Bitumen 10 to to 24 Steam Assisted Gravity Drainage (SAGD) Bitumen 10 to to 22 Mining/Extraction Bitumen 9 to to 20 Integrated Mining/Upgrading Synthetic 18 to to 40 National Energy Board 3

72 Compared with the last report, most of the costs in this table are significantly higher. The primary reasons for the changes are higher natural gas prices and increasing capital costs for project construction. 2.2 Project Economics This section provides an update to the Board s project economic work that was completed as part of the 2004 report. The reader is encouraged to review the previous work for more information on methodology and for a greater understanding on how project economics have changed. The Board decided to examine the economics of Steam Assisted Gravity Drainage (SAGD) and integrated mining as it is anticipated that these operations will form the bulk of supply growth through Although Cyclic Steam Stimulation (CSS) has been employed successfully in the Cold Lake oil sands region for over 20 years, it is not anticipated that its application will be expanded significantly over the timeframe of this report. In this report, as in the previous one, the Board developed a discounted cash flow model to determine supply cost. This resulting supply cost is defined as the constant dollar crude oil price required over the life of the project to cover all costs, except land acquisition costs that can vary widely, and provide a 10 percent real rate of return (12 percent nominal) on investment. Economic and market assumptions are available in Appendix 1 and major modelling assumptions are available in Appendices 2 and 3. The following are the key assumptions used in the analysis (2005 dollars): WTI at Cushing, Oklahoma is US$50 per barrel; NYMEX natural gas is US$7.50 per MMBtu; U.S./Canada exchange rate is 0.85; and, light/heavy crude oil differential (Par versus Lloydminster Blend) is US$15 per barrel (30 percent) Integrated Mining/Extraction and Upgrading An update to the economic evaluation for a m 3 /d (200 Mb/d) integrated mining/extraction and upgrading operation has been performed. This model is intended to emulate a greenfield project with construction beginning in 2006 and first production in The mining project evaluated is assumed to produce synthetic crude oil (SCO) of similar quality and value to conventional light oil. 4 An energy market assessment

73 Figure 2.1 shows a f i g u r e 2. 1 supply cost for SCO at Supply Cost Sensitivities: 200 Mb/d Athabasca Mining/ the plant gate of about Extraction and Upgrading Project $39 per barrel. This compares to a supply Capital Costs cost of $26 in the 2004 (+/- 25%) report. The main Production reasons for the increase (+/- 10%) are higher capital costs Non-Fuel Operating (up 37 percent), higher Costs (+/- 15%) natural gas prices (up 88 Natural Gas percent), and increased Price (+/- 15%) non-gas operating costs (up 20 percent). In addition, supply costs include royalties and taxes which increase under higher oil prices Synthetic Crude Supply Costs Plant Gate) The supply cost continues to be most sensitive to changes in capital costs. A 25 percent increase or decrease in capital costs results in a nearly $5 per barrel change in supply cost. Also important to note is the sensitivity to overall production levels vis-à-vis design rates. Improving operational reliability and minimizing unplanned maintenance continues to be a major focus of integrated mining operations today. Figure 2.2 illustrates the economic performance of the hypothetical integrated mining project for different combinations of the oil price and the exchange rate. At US$50 per barrel for WTI, the project is estimated to provide a rate of return of 16 to 23 percent. It is estimated that US$30 to $35 per barrel for WTI is required to provide a 10 percent real rate of return to the producer. Continued escalation in material and labour costs pose a risk to this outlook. Each 10 percent increase in capital costs is estimated to increase the required WTI price by US$2 per barrel. f i g u r e 2. 2 After-tax Nominal Rate of Return: 200 Mb/d Athabasca Mining/Extraction and Upgrading Project ROR (Percent) B J H B J H WTI Cushing B $us/$c = 0.70 J $us/$c = 0.85 H $us/$c = 1.00 National Energy Board 5

74 2.2.2 SAGD An update to the economic evaluation for a m 3 /d (120 Mb/d) Athabasca SAGD operation has been performed. The SAGD project is assumed to produce a condensate-bitumen blend (dilbit) of similar quality and value to Lloydminster Blend (LLB). f i g u r e 2. 3 Supply Cost Sensitivities: 120 Mb/d Athabasca SAGD Project High-Quality Reservoir SOR (+/- 0.5) Capital Costs (+/- 25%) NYMEX Natural Gas Price (+/- 15%) Production (+/- 10%) Non-Fuel Operating Costs (+/- 15%) bitumen Supply Cost Plant Gate) Figure 2.3 shows a supply cost for bitumen at the plant gate of about $19 per barrel. This compares with a supply cost of about $13 in the 2004 report. As with the integrated mining case, one of the main reasons for the increase is higher capital costs, which are up 45 percent. This increase is driven not only by the escalation of material and labour costs, but also by more conservative assumptions regarding reservoir performance resulting in more wells being drilled over the life of the project. Higher natural gas prices (up 88 percent) also contribute significantly to higher supply costs, since purchased natural gas requirements are estimated at approximately 1 Mcf per barrel. Non-gas operating costs have been reduced from $5.00 per barrel to $3.50 reflecting operator progress and estimates from the most recent project plans. Over the past number of years, Western Canada Sedimentary Basin (WCSB) supply of the traditional blending agent, pentanes plus (C5+), has been flat to declining while, at the same time, demand from bitumen producers has been increasing. As a result of these market conditions, prices have been rising. Historically, C5+ in western Canada has had a market value of about five percent above Edmonton Par crude. In 2005 and in the first quarter of 2006, however, this premium has increased to an average of about 10 percent. At present, there exists no means of importing large quantities of blend stock into Alberta; therefore, it is not anticipated that this price premium will ease in the near term. For this reason, a 10 percent premium of C5+ over Edmonton Par crude has been incorporated into the SAGD project economics. The supply cost is highly sensitive to the steam-to-oil ratio (SOR), a measure of how much energy must be applied to the reservoir to induce bitumen to flow into the well bore. For dry steam (100 percent), an increase of 0.5 in SOR translates into approximately 200 standard cubic feet (scf) in added natural gas consumption and increased water handling costs. Together, these amount to a nearly $2 per barrel increase in supply cost. Figure 2.4 illustrates the economic performance of the hypothetical Athabasca SAGD project for different combinations of the oil price and the exchange rate. At US$50 per barrel for WTI, the project is estimated to provide a rate of return of 16 to 27 percent. It is estimated that US$30 to $35 per barrel for WTI is required to provide a 10 percent real rate of return to the producer. As in the integrated mining case, continued escalation in material and labour costs pose a risk to this outlook. Each 10 percent increase in capital costs is estimated to increase the required WTI price by US$1.50 per barrel. 6 An energy market assessment

75 f i g u r e 2. 4 After-tax Nominal Rate of Return: 120 Mb/d Athabasca SAGD Project High-Quality Reservoir (Canada U.S. Exchange Rate Sensitivity) ROR (Percent) B J H Recently, oil sands supply growth has outpaced demand in traditional markets for Canadian heavy oil. This situation has resulted in deep price discounting for heavy blends and substantially wider light/heavy oil differentials, both on a dollar and percentage basis. Figure 2.5 shows that a long term widening (narrowing) of the differential has a significant negative (positive) impact on project economics. B J H WTI Cushing B $us/$c = 0.70 J $us/$c = 0.85 H $us/$c = 1.00 Although there are likely to be periods where markets are unbalanced, resulting in a widening or narrowing of the differential, wide differentials provide refiners with an economic incentive to build heavy oil conversion capacity, while narrow differentials lessen the need to construct conversion capacity. For this reason, it is expected that the historical relationship of Lloydminster Blend at about a 30 percent discount to Edmonton Par crude will prevail over the longer term. f i g u r e 2. 5 After-tax Nominal Rate of Return: 120 Mb/d Athabasca SAGD Project High Quality Reservoir (Light/Heavy Differential Sensitivity) ROR (Percent) B J H B J H WTI Cushing B llb = Wti-25% J llb = Wti-30% H llb = Wti-35% National Energy Board 7

76 2.3 Outlook: Issues and Uncertainties Under today s market conditions, integrated mining and SAGD are estimated to be economic at US$30 to $35 per barrel for WTI. In recent years, higher oil prices have bolstered the economics of prospective projects. On the downside, however, higher energy costs, higher capital costs, a rising Canadian dollar relative to the U.S. dollar, and widening light/heavy differentials have proved to be significant challenges. The supply cost projections and project economic analysis presented in this chapter are based on operational and market assumptions. Significant changes to these underlying assumptions may alter the results of the analysis materially. The following are the key risks and uncertainties to the outlook: Crude oil prices: Oil sands are relatively expensive to produce; a significant drop in oil prices may lead to poor economics for many existing and potential projects. The persistence of wider than average light/heavy differentials will negatively affect project economics for those producers marketing heavy blends. Capital costs: Oil sands projects, particularly those involving upgrading facilities, are very capital intensive and project economics are extremely sensitive to capital costs. Continued escalation in raw material and labour costs will have a material impact on supply costs and project economics. Natural gas costs: Both integrated mining and thermal in situ operations are intensive users of natural gas. Over the past several years, the price of natural gas has increased substantially. The future price of natural gas and the development of alternatives, including fuel substitutes and gasification, will have a material impact on supply costs and project economics. Diluent availability: With WCSB supply of the traditional blending agent, pentanes plus, flat to declining, and demand from bitumen producers increasing, prices for diluent are rising. There are pipeline proposals to import diluent into Alberta. The future cost of blend stock will affect project economics. Technology: In the past, technology has enabled step-wise reductions in supply costs. Technology currently under development such as mobile crushing equipment and at-theface slurrying for mining projects, and solvent-aided production (SAP) and low-pressure SAGD for in-situ projects, have the potential to reduce operating costs significantly. In addition, improvements in upgrading costs are anticipated as new or modified upgrading technologies are employed. 8 An energy market assessment

77 C h a p t e r t h r e e Crude Oil Supply 3.1 Introduction Since the Board s 2004 report, activity in the oil sands has ramped up sharply. This has been primarily due to: sustained higher oil prices since 2004, which have resulted in increased cash flows and profitability for oil sands operators; an outlook for sustained high oil prices in the future; and, increased recognition that the oil sands represent a very large, economically attractive accumulation of oil in a politically stable country. Companies have been aggressively accelerating plans for expansion of existing projects and initiating new projects. Many new players have been attracted to the oil sands, with several of the world s multi-national oil companies now represented, as well as several subsidiaries of foreign national oil companies. Relatively wide light/heavy oil price differentials over the past several years have made the prospect of adding local upgrading capacity more attractive. As a result, most plans for large-scale mining and in situ projects now include consideration of upgrading. As well, one merchant or third-party upgrader has been approved and two more are in early planning stages. These aggressive expansion plans are countered by a number of significant constraints, including a shortage of skilled labour, lack of adequate infrastructure, rapidly escalating construction costs and uncertainty regarding the scope and cost of managing environmental impacts. 3.2 Crude Bitumen Reserves According to the Alberta Energy and Utilities Board (EUB), Alberta s oil sands areas contain an ultimately recoverable crude bitumen resource of 50 billion cubic metres (315 billion barrels), with remaining established reserves of almost 28 billion cubic metres (174 billion barrels) at year-end 2004 ii. In Saskatchewan, exploration efforts to define unconventional oil resources are ongoing in two areas. The first involves crude bitumen deposits located in northwest Saskatchewan, across the border from the Firebag area in Alberta. The second involves oil shale deposits in the Pasquia Hills region of east-central Saskatchewan. Official estimates of the size of these resources are not yet available. National Energy Board 9

78 3.3 Expansion Plans The fees paid to the Alberta government for the right to explore and develop oil sands leases provide a good indicator of the heightened interest in the oil sands over the last several years. Land sale bonuses reached record levels in 2005 and early 2006, with prices paid averaging $2,200 per hectare. In 2005, total bonuses reached $450 million, more than double any previous year (Figure 3.1). Another indicator of the rising interest over the past two years is the plethora of announcements regarding new projects or expansion plans for existing projects. Major project plans include: Suncor Energy (Suncor) announced its Voyageur growth strategy, a multi-phased plan designed to increase the company s oil sands production capacity to a range of m 3 /d to m 3 /d (500 Mb/d to 550 Mb/d) by 2010 to 2012; EnCana Corporation (EnCana) will utilize SAGD technology to expand production from its leases to m 3 /d (500 Mb/d) by 2016; Canadian Natural Resources Limited (CNRL) announced additional phases to its Horizon Oil Sands mining project to expand production to m 3 /d (500 Mb/d) by 2018, plus plans to expand in situ production by m 3 /d (300 Mb/d); Imperial Oil Limited (Imperial) and Exxon Mobil Canada (ExxonMobil) filed a regulatory application for a three-phase m 3 /d (300 Mb/d) mining project at Kearl; Shell Canada Limited (Shell) announced expansion plans at both its Peace River and Jackpine Lake properties; Petro-Canada, partnered with UTS Energy Corporation (UTS) and Teck Cominco Ltd., received regulatory approval for the m 3 /d (100 Mb/d) Phase 1 of the Fort Hills mining project; Husky Energy (Husky) received regulatory approval for its Sunrise project, with capacity of m 3 /d (200 Mb/d) over four phases, and disclosed plans to expand its Lloydminster upgrader to m 3 /d (150 Mb/d) of synthetic crude oil (SCO) and diluent production capacity; f i g u r e 3. 1 Oil Sands Land Sales $/Ha 3,000 2,500 2,000 1,500 1, bonus $ Million * $/ha total Bonus * January and February data only. 10 An energy market assessment

79 BA Energy Inc. (BA) received approval for its three-phase m 3 /d (150 Mb/d) SCO production capacity Heartland Upgrader project, to be built in Strathcona County northeast of Edmonton, Alberta; North West Upgrading Inc. (North West) has disclosed plans for its North West Upgrader, a three-phase m 3 /d (200 Mb/d) merchant upgrader to be located in Sturgeon County, near Edmonton; Total E&P Canada has acquired Deer Creek Energy and its Joslyn oil sands operations and leases; Shell EP Americas, a subsidiary of Royal Dutch Shell Plc, recently purchased 10 properties in northern Alberta targeting bitumen deposits situated in carbonate formations and formed a new company, SURE Northern Energy Ltd., to develop its new holdings; and Chevron Corporation (Chevron) recently acquired five heavy oil leases in the Athabasca region and anticipates developing these leases using SAGD technology. Examples of participation by foreign national oil companies include: SinoCanada Petroleum (SinoCanada), a subsidiary of China-based Sinopec Group, has partnered with Synenco Energy Inc. (Synenco) to develop the proposed Northern Lights project, an integrated mining, extraction and upgrading project, with the upgrader to be located in Sturgeon County near Edmonton; China National Offshore Oil Corporation (CNOOC) bought a 17 percent stake in MEG Energy Corporation (MEG), the developer of the Christina Lake project, which is designed to produce m 3 /d (25 Mb/d); and Enbridge Inc. (Enbridge) has entered into a memorandum of understanding with PetroChina International Company Limited (PetroChina) to cooperate on the development of the Gateway Pipeline and supply crude oil from Canada to China. The number of major mining, upgrading and thermal in situ projects has grown to include some 46 existing and proposed projects, encompassing 135 individual project expansion phases in various stages of execution, from those announced to those already under construction. A list of these projects is presented in Appendix 4. More detail on Alberta s oil sands projects can be found at the Alberta Economic Development website at: A comprehensive list of projects can also be found at: Primary, or non-thermal in situ production, is still an important component of the total oil sands picture, accounting for nearly 10 percent of total bitumen production in There are isolated regions within the oil sands areas, such as at Seal, near Peace River, and Brintnell and Pelican Lake in the Wabasca region, where primary production levels are growing significantly and where operators are reporting success with secondary recovery via waterflooding. 3.4 Capital Expenditures Indicated total capital expenditures for oil sands projects have increased substantially since the 2004 report. Estimates of capital expenditures to construct all announced projects over the period 2006 to 2015 total C$(2005) 125 billion (Figure 3.2). This level of capital expenditure is roughly twice that indicated in the Board s previous report. National Energy Board 11

80 f i g u r e 3. 2 Estimated Capital Expenditures C$ billion all projects Base Case There is a logjam of announced projects in the 2008 to 2012 period. It is expected that not all projects will proceed as originally scheduled; some will be delayed and some may be cancelled. Figure 3.2 also illustrates an adjusted capital spending profile, which is based on the Board s Base Case projection of oil sands production discussed in the following section. A discounting of about 35 percent below the All Projects case is indicated, with expenditures over the period 2006 to 2015 estimated to be about C$95billion. 3.5 Oil Sands Production Crude bitumen is produced by mining and extraction, in situ thermal recovery and in situ nonthermal recovery. Currently, about 60 percent of crude bitumen is transformed by upgrading into various grades of SCO or upgraded products. Figure 3.3 illustrates the projected oil sands supply in terms of upgraded and non-upgraded bitumen. The supply projections indicate a relatively aggressive ramp-up in capacity that extends to In the present high oil price environment, lease owners are keen to realize the value associated with typically large resource holdings. In general, the companies involved are large Canadian companies or multi-national companies with significant capital and considerable experience in developing heavy oil resources, both in Canada and abroad. However, many smaller companies are also able to take advantage of favourable capital markets to initiate project plans. The All Projects case assumes that all projects publicly announced to date commence operation at their name-plate volume and start date. This would result in production of about m 3 /d (4.4 MMb/d) by 2015, which is considered to be beyond the limits of capacity growth that could be reasonably expected within that time period. The lower bound or Low Case projection is shown to directionally illustrate what might happen if the economic viability of oil sands projects is compromised, perhaps by sharply lower prices. An outlook for sustained oil prices below US$35 per barrel would lead to marginal economics for many projects in the present business environment and would slow development. It is anticipated that production growth would decline to about four percent, or about half the growth rate of the Base Case. The development of the Base Case projections is based on a sustained high oil price and an economically attractive environment. Several companies have adopted a continuous construction philosophy; that is, to keep a workforce on hand dedicated to the construction of a series of company 12 An energy market assessment

81 f i g u r e 3. 3 Projected Oil Sands Production Thousand m 3 /d actual projected Million b/d all projects Case low Case Base Case projects or project expansions in succession. There is also a wealth of experience throughout the industry that bodes well for future development. While there may be constraints, such as labour shortages and lack of infrastructure, it is anticipated that the industry s ability to add capacity will gradually increase year-over-year. A review of projects currently under construction and those in various stages of planning and execution reveals that there is a surplus of projects sponsored by experienced and credible proponents; the challenge becomes one of defining the limits of growth that can reasonably be expected. With the rapid escalation of construction and material costs over the last two years, and with industry s greater ability to finance large projects, defining a limit to growth based on capital expenditure seems a less appropriate approach. Because of the long lead times associated with oil sands projects, the production outlook for the period 2006 to 2010 is already largely defined by projects currently under construction or substantially advanced in their project planning. On the assumption these projects will be built, a review of the resultant growth profile over the period 2000 to 2010 should provide a good indication of industry s ability to ramp up capacity. t a b l e 3. 1 Over the period 2006 to 2010, annual production additions will be in the order of m 3 /d (190 Mb/d). Capital Spending Requirement Beyond 2010, this rate of additions increases (plus one percent per year is assumed for the projection) and expands to m 3 /d (200 Mb/d) by Projects are assigned from the list of available projects and timelines adjusted to match this growth profile. The associated capital expenditure is in the order of C$8 billion per year over the course of the projection. This is based on estimates of the capital spending Project Type CSS SAGD Mining & Extraction Upgrading Capex per daily flowing barrel $20,000 $15,000 $20,000 $32,000 requirement, per unit of daily capacity, for each type of project as set out in Table 3.1. In the Base Case projection, supply of upgraded and non-upgraded bitumen rises from about m 3 /d (1.1 MMb/d) in 2005 to m 3 /d (3.0 MMb/d) in Compared with the 2004 report, projections for upgraded bitumen are up 43 percent and are up 13 percent for non-upgraded bitumen. Non-thermal in situ production is up by five percent, as opposed to no growth in the last report. National Energy Board 13

82 3.5.1 Production by Type Currently, about 60 percent of crude bitumen is upgraded into various grades of SCO or other upgraded products within the Fort McMurray and Edmonton regions. Note that there is generally some shrinkage of bitumen volumes through the upgrading process, depending on the type of process used. Overall, this loss is estimated to be about 11 percent. There have been a number of recent announcements regarding new mining projects with associated upgraders and expansion of upgrading capacity at existing projects. As well, three third-party or merchant upgraders have been announced with one, the BA Heartland Upgrader, already under construction. The OPTI/Nexen Long Lake SAGD project is the first to feature the on-site upgrading of in situ production. These various projects have added a significant amount of potential upgrading capacity. Further discussion of upgrading projects can be found in Chapter 4 - Markets. In the Base Case projection, the net bitumen volumes produced from mining operations, thermal in situ, and primary (non-thermal) in situ operations account for 52 percent, 44 percent and four percent, respectively, by 2015 (Figure 3.4). The bitumen feedstock for upgrading is sourced from both mining and in situ types of recovery operations. By 2015, upgraded crude oil (synthetic or SCO) production is projected to be m 3 /d (1.9 MMb/d), or about 65 percent of total oil sands production. 3.6 Western Canada Sedimentary Basin Crude Oil Supply Figure 3.5 provides a projection of production of crude oil and equivalent in the WCSB to The oil sands components of this chart are based on the Base Case projections discussed earlier, while the conventional light oil, conventional heavy oil and condensate projections are based on the 2003 NEB Supply and Demand Report Techno-Vert scenario, and exhibit long-term decline trends. As a result of rapidly growing oil sands production, total WCSB production will rise from m 3 /d (2.4 MMb/d) in 2005 to m 3 /d (3.9 MMb/d) by 2015, an increase of 68 percent. f i g u r e 3. 4 Oil Sands Production by Type Base Case Thousand m 3 /d 600 Million b/d actual projected mned in stu prmary sco 14 An energy market assessment

83 f i g u r e 3. 5 Projected Crude Oil Production WCSB Thousand m 3 /d actual projected Million b/d Conventonal lght Conventonal heavy Condensate upgraded Btumen (sco) non-upgraded Btumen Net Available Supply Non-upgraded bitumen and heavy conventional crude oil need some degree of blending with a light hydrocarbon diluent to create a bitumen blend or heavy blend that is suitable for pipeline transportation. Gas condensate has been the traditional source of diluent for blending purposes, but increasing volumes of non-upgraded bitumen have outpaced available condensate supplies, putting upward pressure on prices and forcing producers to develop alternate strategies. The projections of available supply take into account the diluent requirements for blending heavy oil and non-upgraded bitumen, recycled volumes of diluent, product losses during upgrading and volumes of condensate not available for blending. There are a number of potential solutions to deal with anticipated shortfalls of condensate for blending purposes, such as offshore imports, longhaul recycle by truck or rail, diluent-return pipelines from the U.S., specifically refined diluents, and blending with light crude oil or SCO. If the proposed Mackenzie Valley Gas Pipeline is built, another m 3 /d (18 Mb/d) of condensate could be available. Figure 3.6 provides a view of the projected available supply by 2015, consistent with the Base Case projection. The relative volumes of conventional light crude oil, heavy blend and SCO are shown. The projections of available supply contained in this report total m 3 /d (3.9 MMb/d) in 2015, or about 38 percent higher than the 2004 report. The proportionate share of SCO increases slightly to 49 percent from 48 percent, while the share of blended heavy increases from 37 percent to 42 percent of total supply. The volume of heavy blend indicated in the far right column, m 3 /d (1.6 MMb/d), would require approximately m 3 /d (250 Mb/d) of diluent beyond what is anticipated to be available from traditional domestic sources. The calculated demand for condensate is reduced if it is assumed that SCO or light crude are used as a diluent or additional upgrading capacity is built. Further discussion of the issues facing oil sands producers regarding the types of crude oil produced, the degree and type of blending and other market choices can be found in Chapter 4 - Markets. National Energy Board 15

84 f i g u r e 3. 6 Net Available Supply WCSB Thousand m 3 /d % 34% 23% % 48% 15% % 49% 8% Million b/d (2004 Report) 2015 (2006 Report) Conventonal lght sco heavy Blend 3.7 Natural Gas Requirement Oil sands projects are very energy intensive operations and require significant amounts of natural gas. The total oil sands related natural gas demand is determined by reviewing the projected production levels and gas usage factors for each of the major oil sands projects. Figure 3.7 illustrates the total purchased gas requirement for the Base Case for in situ and for mining and upgrading projects. These values include purchased gas required to generate electricity on site. It does not include any requirements for stand-alone or merchant upgraders. By 2015, the total gas requirement is projected to be 2.1 Bcf/d. Figure 3.8 illustrates the amount of purchased gas used per unit of bitumen recovery, or gas intensity, required for both oil sands mining and in situ projects, and includes gas used in on site cogeneration facilities to produce electricity for plant operations. For in situ projects, the steam-to-oil ratio (SOR) is a measure of how efficiently energy is used in recovery of bitumen from the oil sands. An SOR of 2.5 equates to a gas intensity of 1.1 Mcf/b. bcf/d 2.5 f i g u r e 3. 7 Total Purchased Gas Requirement actual projected mnng & upgradng in stu Source: EUB and NEB 16 An energy market assessment

85 f i g u r e 3. 8 Average Gas Intensity Oil Sands Projects Mcf/b mnng in stu A review of the performance of major steam-stimulation projects in operation reveals that very few have achieved that target, but this is expected to improve as operators make efficiency improvements. This applies especially to SAGD, still a relatively new technology. The Long Lake SAGD project, currently being constructed by Nexen and OPTI Canada, will be introducing a technology new to the oil sands using bitumen gasification to create a synthetic gas (syngas) for process and fuel use, and thus reducing the need for external gas supply. Another alternative to natural gas use for fuel is currently being pilot tested. Multiphase Superfine Atomized Residue (MSAR) features the clean and complete combustion of bitumen or refinery residue. If these alternatives prove successful, it will lead to implementation in other projects, but probably not before the timeframe. Efficiency improvements in SAGD and CSS operations are also anticipated through technological innovation, such as low-pressure SAGD or solvent aided production. However, going forward, as existing projects expand and new projects are initiated, it is likely that operators will be facing declining quality of bitumen reservoirs, with a resultant increase in energy required. The combination of these factors, including gas substitution, yields an overall improvement in average gas intensity to 0.9 Mcf/b by For integrated mining projects, the natural gas intensity increases as the upgraders move to producing higher quality SCO, which requires more hydrogen. Some general improvements in energy efficiency are anticipated, and after about , it is predicted that newer technologies such as bitumen or coke gasification will be implemented, leading to significant improvement in average gas intensity. Some projects will use only natural gas, some will use gasification and others will use a combination of these. By 2015, the overall gas intensity for both in situ and mining/upgrading combined equates to an average of 0.7 Mcf/d. National Energy Board 17

86 3.8 Outlook: Issues and Uncertainties The crude oil supply projections defined as the Base Case in this chapter are based on a business as usual outlook with oil and gas prices generally at or above the US$50 per barrel (WTI) and US$7.50 per MMBtu range, respectively. While the outlook is for a fairly quick ramp-up in oil sands production, there are issues that could impede the pace of capacity development. These include: Crude oil prices: It is believed that sustained lower oil prices below about US$35 per barrel would slow oil sands production growth and result in a material difference in projected volumes. Natural gas usage: High natural gas prices have encouraged oil sands operators to use gas more efficiently and to look for alternative fuels. The extent to which bitumen gasification or other alternatives to natural gas use prove successful and are adopted in additional operations will materially affect the purchased gas requirement in the oil sands. Infrastructure: The many projects proposed for the Fort McMurray area will put pressure on available infrastructure, such as housing, hospitals, schools and highways to transport the required materials, heavy equipment and modularized components. These issues could lead to delays in construction schedules. 18 An energy market assessment

87 C h aa p p t t e e r r O f n oe u r Markets 4.1 Introduction High oil prices coupled with robust global oil demand growth in the past several years have been key drivers in the expansion of the oil sands. In this regard, producers will be faced with a number of hurdles including choosing pipeline proposals to deliver these growing supplies to new and existing markets. In addition to market options, producers are assessing what they will be producing in the future. Will it be synthetic-bitumen blend (synbit), condensate-bitumen blend (dilbit), bitumen or synthetic crude oil (SCO)? As well, which markets can process those crude types and provide the best netback? These factors will determine which markets hold the greatest potential for oil sands producers. The light/heavy differential is expected to remain wide for the next several years until sufficient upgrading capacity has been added. In addition to the large growth forecasted in oil sands bitumen production, international heavy crude oil output is also rising and, therefore, Canadian heavy crude oil may continue to be heavily discounted to ensure marketability. This is currently being exacerbated by increased crude oil production in the Rocky Mountain area and North Dakota. The core market (i.e., Canada, upper PADD II, PADD IV and Washington State shown in Figure 5.1) can take increased volumes of crude oil, and pipeline expansions have taken place to facilitate this increase. In addition, expansion and extension into markets such as Wood River, Illinois; Cushing, Oklahoma; Washington State; the U.S. Gulf Coast; California and perhaps Asia are being considered through the various pipeline proposals. Refiners in PADD II and PADD IV will continue to look to Canadian producers for their crude oil requirements, while producers will look for more options to market their supplies. This chapter reviews the Canadian and export markets for crude oil and examines the potential for market expansion to Domestic Markets Canada is a small refining market with nineteen refineries and a capacity of m 3 /d (2.0 MMb/d) (Table 4.1). In 2005, the refineries in Canada operated above 90 percent of capacity, primarily to meet the needs of the domestic market. Due to the age and lack of complexity of Canadian refineries, the domestic market does not hold tremendous growth opportunities for oil sands producers. The refineries located in eastern Canada, including Ontario, import crude oil for their refining needs and process some eastern and western Canadian volumes. In 2005, less than 50 percent of Ontario s crude oil requirements were sourced from western Canada and of the total only 22 percent was SCO National Energy Board 19

88 t a b l e 4. 1 Receipts of Western Canadian Crude Oil 2005 (m 3 /d) Market Refining Capacity Refining Runs Conventional Light 1 Conventional Heavy Synthetic Blended Bitumen W. Canada E.Canada Ontario E. Canada all Total Canada Includes condensates and pentanes plus. Total f i g u r e 4. 1 Ontario Receipts of Western Canadian Crude Oil 2005 Thousand m 3 /d Refining Capacity Refining Runs Conventonal heavy Conventonal lght f i g u r e Refining Capacity Refining Runs synthetc Crude Ol Blended Btumen Western Canada Receipts of Western Canadian Crude Oil 2005 Thousand m 3 /d 120 Conventonal heavy Conventonal lght synthetc Crude Ol Blended Btumen and blended bitumen (Figure 4.1). Although there are few growth opportunities for western Canadian crude oil in Ontario and Québec, it has been suggested by some industry stakeholders that Enbridge could re-reverse Line 9. This would allow SCO to penetrate refineries located in Québec. It is expected that Imperial Oil Limited (Imperial), Suncor (Sunoco) and Shell Canada Limited (Shell) will look for opportunities to integrate their oil sands production with their downstream facilities located in Ontario. The refineries located in western Canada process exclusively western Canadian production, including oil sands derived crude oil (Figure 4.2). In 2005, almost 40 percent of crude oil refined was SCO and blended bitumen. It is expected that the integrated companies such as Husky, Imperial, Petro-Canada and Shell who own refineries and have oil sands production will look for opportunities to integrate their upstream production with their downstream operations. In 2003, Petro-Canada announced that it would convert its Edmonton refinery to refine exclusively oil sands feedstock. By 2008, the refinery will process 100 percent or m 3 /d (135 Mb/d) of oil sands feedstock. This will displace about m 3 /d (85 Mb/d) of conventional crude oil that Petro-Canada currently processes in its refinery. It will obtain these supplies through an agreement with Suncor who will process bitumen from Petro-Canada s MacKay River in situ facility into sour synthetic crude oil. Recently, Husky announced that it is considering doubling the capacity of its upgrader at Lloydminster from its current m 3 /d (80 Mb/d) to m 3 /d (150 Mb/d) by An energy market assessment

89 It would enable Husky to capture full value from increased production at its Cold Lake and Athabasca oil sands projects. There are a number of proposals to upgrade bitumen, particularly with respect to mining projects with associated upgraders. As well, there have been three merchant upgrader proposals announced. The BA Heartland Upgrader project with a capital cost estimate of $900 million began site clearing and preparation for the first phase in September It will be located in Strathcona County, near Edmonton. Development will take place in three phases, with the start-up of the first phase scheduled for early The first phase will process m 3 /d (77 Mb/d) of bitumen blend. Once the project is fully expanded it will have a total processing capacity of m 3 /d (250 Mb/d). North West Upgrading Inc. (North West) is planning to construct a heavy oil upgrader in Sturgeon County, near Edmonton. The first phase pending project approval in 2007 is expected to come on stream in early 2010 and will upgrade m 3 /d (50 Mb/d) of bitumen to SCO. Up to three additional phases are planned. The total processing capacity of the project when fully operational in 2015 would be m 3 /d (231 Mb/d) and would produce m 3 /d (180 Mb/d) of SCO and m 3 /d (42 Mb/d) of diluent. Peace River Oil Upgrading Inc. has proposed a small scale upgrading facility to be located near McLennan, Alberta. Its proposal calls for an initial phase of m 3 /d (20 Mb/d) of bitumen processing capacity. In addition to upgraders, there is a publicly announced proposal for a new refinery complex in Alberta. A C$7 to $8.5 billion integrated upgrader, petrochemical and electrical generation complex near Edmonton is being studied by Alberta Energy and 19 stakeholders. The refinery would initially be m 3 /d (300 Mb/d) and expandable to m 3 /d (450 Mb/d) and would include a petrochemical facility and a 500 megawatt coal-fired power generation plant. It could be completed as early as Some emerging concerns are that such a mega project could jeopardize other announced upgrading projects and expansions already underway. 4.3 Export Markets In the Board's consultations with industry it was clear that refiners and producers have differing views on market expansion and extension. Not surprisingly, and consistent with the opinions expressed in the Board s previous report, many believe that in the short-term the industry should maximize its volumes in its traditional markets of PADD II, PADD IV and Washington State, with further market expansions and extensions later in the decade into California, PADD III and the Far East United States The United States with a refining capacity of almost 2.6 million m 3 /d (16 MMb/d) is Canada s largest market for crude oil exports and continues to possess the greatest potential for increased penetration of oil sands derived crude oil (Table 4.2). In 2005, exports declined 10 percent largely as a result of declining light conventional production and the outages at the three integrated oil sands facilities. Last year, Canada supplied almost 10 percent of U.S. crude oil refining needs, making it one of the largest crude oil exporters to that country. Continuing concerns about geopolitical events and security of supply are expected to be key drivers, as the U.S. looks to Canada as a secure source of supply. National Energy Board 21

90 t a b l e 4. 2 Export Receipts of Western Canadian Crude Oil 2005 (m 3 /d) Refining Capacity PADD I PADD I has a refining capacity of m 3 /d (1.6 MMb/d) and is not viewed as a large growth market for oil sands crude oil (Figure 4.3). Although not illustrated in Table 4.2, many of the refineries located in the U.S. northeast import crude oil from offshore eastern Canada. The United refinery located in Warren, Pennsylvania is the exception and processes western Canadian crude oil. In 2005, it processed 21 percent SCO and eight percent blended bitumen. It is expected that United Refining will process an increasingly heavy crude slate as it moves ahead with the construction of a m 3 /d (14 Mb/d) coker. It is slated to be in service by As well, with the addition of the coker, refinery capacity is expected to increase by 790 m 3 /d (5 Mb/d) to m 3 /d (70 Mb/d). Post-2009, United Refining will process 100 percent heavy crude oil. United Refining receives western Canadian crude oil from Enbridge s Line 10 at Westover, Ontario, which has a capacity of m 3 /d (70 Mb/d). With future volumes expected to increase, there may be a requirement to expand that line PADD II Refining Runs Conventional Light 1 Conventional Heavy Light Synthetic Heavy Synthetic Blended Bitumen PADD I PADD II PADD III PADD IV PADD V Total U.S Other Asia Includes condensates and pentanes plus. Source: NEB f i g u r e 4. 3 PADD I Receipts of Western Canadian Crude Oil 2005 Thousand m 3 /d Refining Capacity Refining Runs Conventonal heavy Conventonal lght synthetc Crude Ol Blended Btumen PADD II is the largest market for western Canadian crude oil with a refining capacity of m 3 /d (3.6 MMb/d) (Figure 4.4). In 2005, 70 percent of western Canada s crude oil exports were delivered to PADD II. Twenty percent of those volumes were SCO and 19 percent were blended bitumen. PADD II continues to hold tremendous potential for western Canadian producers as deliveries represent only 31 percent of that region s total crude runs. As well, the core markets of northern Total 22 An energy market assessment

91 PADD II, including St. Paul and Chicago, are heavy and medium sour markets, which are a good fit for oil sands producers. f i g u r e 4. 4 PADD II Receipts of Western Canadian Crude Oil 2005 With the reversal of the Spearhead pipeline in March 2006, producers have the ability to deliver crude into southern PADD II. Deliveries into Cushing, Oklahoma open up several options to other locations that typically did not have access to Canadian crude oil in the past. By using existing underutilized pipelines and/or building new pipelines in southern PADD II, extension to other markets is possible. It is expected that this could result in better prices for western Canadian crude oil by extending the core market. Industry sees southern PADD II including Wood River, Cushing and Ponca City as good markets for synthetic and blended bitumen. Thousand m 3 /d Refining Capacity Refining Runs Conventonal heavy Conventonal lght synthetc Crude Ol Blended Btumen Western Canadian crude oil deliveries into Cushing have resulted in talks with the New York Mercantile Exchange (NYMEX) to create a futures contract for Western Canadian Select (WCS) at the Cushing hub. Introduced in 2004, WCS is a blend of 19 crude oil streams amounting to about m 3 /d (250 Mb/d) with an average of API. The goal is to deliver m 3 /d to m 3 /d (250 Mb/d to 500 Mb/d) into Cushing, where Canadian crude oil could compete with foreign sour grades or U.S. Gulf Coast sour that would be delivered against it. A NYMEX contract is likely a year away as crude volumes need to increase. Northern PADD II is well positioned to run increased volumes of bitumen blends and SCO because of the complexity of the refineries. Recently, heavy oil producers have been faced with an especially wide light/heavy differential. This reflects, in part, rising output from the oil sands and increased conventional production from North Dakota, Wyoming and Montana. This is further exacerbated by increased competition for limited pipeline space to deliver crude into the U.S. Midwest and limited facilities to process the heavier oil sands crude oil. This could be alleviated in the future as a number of companies identified an interest in constructing a coker or developing refinery expansion plans that would allow them to process heavier crude oil to take advantage of the wide light/heavy differential and the expected increase in oil sands production. Some U.S. companies, for example Marathon Oil, that have a number of refineries in PADD II, have publicly stated that they would like a stake in the oil sands to have an integrated arrangement between their refineries and production. The announced refinery projects are listed in Table 4.3. In May 2006, Enbridge announced its Southern Lights project, which includes a return diluent line from the Chicago area, as well as additional light crude oil capacity out of western Canada and a new light sour crude oil pipeline between Cromer, Manitoba and Clearbrook, Minnesota. For more information see Chapter 5 - Major Crude Oil Pipelines PADD III PADD III has a refining capacity of m 3 /d (8.0 MMb/d) and approximately m 3 /d (3.0 MMb/d) is heavy crude refining capacity (Figure 4.5). At one time, this market was not seen as one that held potential for western Canadian crude oil producers. However, recent interest has been generated with the reversal of the Mobil pipeline that will transport western Canadian crude National Energy Board 23

92 f i g u r e 4. 5 PADD III Receipts of Western Canadian Crude Oil 2005 Thousand m 3 /d Refining Capacity Refining Runs Conventonal heavy Conventonal lght oil from Patoka, Illinois to Corsicana, Texas. In the first quarter 2006, deliveries on the Mobil line are expected to be m 3 /d (50 Mb/d) versus its m 3 /d (65 Mb/d) capacity. In April, the line was operating at capacity. During our consultations, producers were of the view that m 3 /d (400 Mb/d) of heavy crude could possibly move into this market in the longer-term, possibly later this decade or post PADD III is particularly attractive given the size and complexity of the refineries. Western Canadian crude oil, particularly bitumen blends, could compete in this market with imports from Venezuela and Mexico, particularly since it has recently been heavily discounted in the U.S. Midwest. Increased demand in this market would likely result in higher netbacks for Canadian heavy producers for two reasons: first, it would take volumes away from the Midwest market; and second, it could move the pricing parity point of heavy sour further south where Canadian heavy crudes would compete against other heavy oil imports. To ship the increased oil sands production to the U.S. Gulf Coast, Altex Energy Ltd. (Altex) announced in October 2005, the Altex Pipeline system, which would be a new direct-route, stand alone oil pipeline that would deliver crude oil from northern Alberta to the U.S. Gulf Coast. This is discussed further in Chapter 5 Pipelines PADD IV synthetc Crude Ol Blended Btumen PADD IV, with a refining capacity of m 3 /d (567 Mb/d), has traditionally been a good market for western Canadian producers (Figure 4.6). Recently, however, the pricing dynamics in this market have changed. Refiners in this area have always been price takers because they have few supply f i g u r e 4. 6 PADD IV Receipts of Western Canadian Crude Oil 2005 Thousand m 3 /d Refining Capacity Refining Runs Conventonal heavy synthetc Crude Ol alternatives. With the very high crude oil price, producers in PADD IV have been drilling at a record pace. As well, to extract additional oil, they are using CO 2 floods and horizontal drilling. This has resulted in an increase in crude production and pressure from domestic producers in PADD IV to process this production in local refineries. Subsequently, refiners in PADD IV are taking less western Canadian crude supplies in order to run the readily available and heavily discounted Wyoming sweet and sour crudes. The large discount is in reaction to aggressive Canadian crude pricing, shortage of refinery capacity and the lack of pipeline capacity to move the crude oil to other markets. Producers in this region will continue to be aggressive provided that crude oil prices remain above US$50 per barrel. Conventonal lght Blended Btumen 24 An energy market assessment

93 In March 2006, Holly Corp. announced the sale of its Montana Refining Company, a partnership, to a subsidiary of Connacher Oil and Gas Limited. Montana Refining, located in Great Falls, Montana, operates a m 3 /d (8 Mb/d) refinery. It is anticipated that the refinery will provide Connacher with an outlet for the SAGD production from its Great Divide oil sands project, as well as, provide it with some protection against wide light/heavy differentials. Due to its size and the complexity of the refineries, PADD IV will continue to be a marginal growth market for western Canadian crude oil, particularly SCO and blended bitumen PADD V PADD V has a refining capacity of m 3 /d (2.5 MMb/d) and is a growth market for western Canadian crude oil. Consultations with industry indicated a strong consensus that this market, particularly Washington State, is eager for increased volumes of western Canadian crude oil. This is evident by the number of cokers and refinery conversions being contemplated in that market. Refineries located in Puget Sound, such as ConocoPhillips, Tesoro and British Petroleum (BP) all have plans to run a heavier slate, which would include oil sands crude oil. Currently, Washington State processes only 11 percent of its crude oil requirements from Canada, and this is largely due to the availability of Alaskan North Slope (ANS) crude oil and capacity constraints on Kinder Morgan s Terasen Pipeline (Trans Mountain) Inc. (TPTM). f i g u r e 4. 7 PADD V Receipts of Western Canadian Crude Oil 2005 Thousand m 3 /d Refining Capacity Refining Runs Conventonal heavy Conventonal lght synthetc Crude Ol Blended Btumen A likely scenario in PADD V is that with the continuing decline in ANS crude oil production, western Canadian crude oil will push into the Puget Sound market, and ANS production will move farther south into California. The latest forecast of ANS is that production in 2006 is down almost seven percent from last year. The decline rate is higher this year as a result of the natural decline of maturing fields coupled with unanticipated field maintenance problems and unexpected delays in some development projects. Between 2008 and 2015, the production decline is expected to be 1.2 percent per year. The California market could be an excellent market for heavier Canadian grades, but this would likely not occur until the end of the decade and would also depend on how the above scenario regarding the disposition of ANS production unfolds. This market could give Canadian producers another option and would also help to narrow the light/heavy differential by moving volumes away from northern PADD II Other Export Markets In recent years, China s demand for oil has had a tremendous impact on global oil markets. It is now the world s second largest consumer of oil and the third largest importer. This is a result of strong growth in all sectors, but particularly transportation. In 2004, Chinese oil demand rose by m 3 /d (1.0 MMb/d), and this represents a 15 percent increase year-on-year. The reasons for this increase in oil demand include a strong GDP growth of around 10 percent; a strong industrial output estimated to be around 15 percent; an electricity shortage that supported domestic National Energy Board 25

94 t a b l e 4. 3 Announced Refinery Expansions Company Location Increase Crude Coker or Expansion Completion Date Holly Corp. Woods Cross, UT 10 Mb/d Expansion 4Q2006 Coffeyville Coffeyville, KS 15 Mb/d Expansion 1Q2006 Tesoro Anacortes, WA 15 Mb/d Coker 2Q2007 Cenex Laurel, MT No increase Coker (15 Mb/d) 1Q2008 Sunoco Toledo, OH 50 Mb/d Expansion 2008 Flint Hills Resources St. Paul, MN 50 Mb/d Expansion 1Q2008 Frontier Oil El Dorado, KS 11 Mb/d Expansion 2008 Frontier Oil Cheyenne, WY N/A Coker 2008 Sinclair Sinclair, WY 13 Mb/d Coker 2008 United Refining Warren, PA 5 Mb/d Coker 2009 ConocoPhillips Wood River, IL 55 Mb/d Coker ConocoPhillips Borger, TX 25 Mb/d Coker ConocoPhillips Ferndale, WA 25 Mb/d Coker ConocoPhillips Billings, MO N/A Expansion N/A Not Available oil use through increased utility use of fuel oil and off-grid/stand-alone generator use; increased petrochemical capacity; and strong growth in vehicle sales. China will increasingly rely on oil imports because of its continued robust oil demand growth. Currently, about half of China s oil needs are met through imports of m 3 /d (3.5 MMb/d) and some analysts forecast this to rise to m 3 /d (10 MMb/d) by With the increased development of the oil sands, and the need for new markets, Canada would be in a position to export oil to China. Some analysts project that the light/heavy differential could narrow to the benefit of all Canadian producers, by moving crude oil to China. Enbridge s proposed Gateway pipeline which would deliver crude oil to the west coast of British Columbia, is trying to tap, amongst other markets, the Far East market, including China. Enbridge and state-controlled PetroChina have signed a memorandum of understanding to ship up to m 3 /d (200 Mb/d) on the Gateway pipeline, and it has been suggested that PetroChina could purchase a stake in the line. Industry is generally of the view, however, that filling up existing markets in the U.S. in the short-term makes sense and that the Far East has potential in the longer-term. While much of the attention has been focused on China, a senior researcher at the Institute of Energy Economics in Japan estimated that Canada could export as much as m 3 /d (825 Mb/d) of sweet synthetic to Japan by Historically, Japanese refiners imported some bitumen, but found that it did not yield the lighter products they desired. It is likely that if Japanese refiners choose to import SCO it would have to be less expensive than the sour grades that they currently import from the Middle East. Two state-run companies from India, Oil and Natural Gas Corp. and Indian Oil Corp. Ltd., have expressed an interest in spending one billion dollars on early-stage oil sands projects. In addition, spot shipments of Canadian crude oil have been delivered to other markets. Most recently, there have been shipments to Italy. In the second quarter 2006, the Italian refiner, ENI, will begin construction on a m 3 /d (20 Mb/d) Super Hydrocracker. It will have the ability 26 An energy market assessment

95 to process residuals from heavy crude oil such as Russian Urals or Canadian heavy into high quality diesel. It should come on stream between 2007 and 2009 at ENI s largest mainland refinery at Sannazzaro, Italy. ENI has installed a smaller unit at its Taranto refinery that has tested Canadian oil sands crude oil. 4.4 Outlook: Issues and Uncertainties It is expected that high oil prices, coupled with robust global oil demand, will continue to drive oil sands expansion. In this regard, producers will be faced with a number of hurdles including choosing among proposed pipelines to deliver the growing supplies to new and existing markets. To penetrate new markets, there will likely be periods when substantial price discounts are required, particularly as new oil sands production comes on stream in large volumes and the market adjusts to the incremental supply. Based on industry consultations and the Board s internal analysis, potential scenarios for market expansion for growing oil sands production could unfold in the following way: Step One: Fill up existing markets, including Washington State, PADD II and PADD IV and some additional volumes in Canada. Step Two: Further penetrate southern PADD II and PADD III and refinery expansions and conversions in northern PADD II, PADD IV and PADD V. Southern PADD II could take an additional m 3 /d (40 Mb/d) with an expansion of the Spearhead pipeline and the U.S. Gulf Coast could take up to m 3 /d (400 Mb/d) of western Canadian crude if there were pipeline capacity to deliver those volumes. It is estimated that in the next 10 years, PADD II could take an additional m 3 /d (500 Mb/d). As well, in the near term, PADDs IV and V could take an incremental and m 3 /d (40 and 50 Mb/d), respectively. These increases to U.S. markets could take place in unison with expansions to offshore markets, as discussed in Step Three. Step Three: The industry would have to branch out and develop new markets. In this connection, a new pipeline or a major pipeline expansion to the west coast would be required to deliver crude oil to California and the Far East. With the expected increase in SCO production, there is also the opportunity of processing increased volumes in refineries in Ontario and reversing Enbridge Line 9 to supply Montreal refineries. In addition to potential market opportunities, there are a number of issues and challenges through to They include: Crude oil prices: Very high crude oil prices have drawn a significant amount of attention to the oil sands, particularly from China, Japan, India and the U.S. Softening demand and falling prices could slow investment and hinder market development. Bitumen blend versus synthetic: The need for diluent to transport bitumen, and the uncertainty surrounding which market is best for producers continues to impact the pipeline selection process. There have been many announcements of upgrader projects which begs the question, when the North American refining industry appears to be moving toward processing heavier crudes, why is the industry moving to producing more light National Energy Board 27

96 synthetic crude oil? The uncertainty concerning the type of crude oil the industry will produce is causing delays in the decision-making process, leading to the likelihood that there will be extended periods of apportionment on the major pipelines. In other words, who should do the upgrading the producer or the refiner? Partnerships: Those companies that are not integrated (i.e. upstream assets and downstream facilities) need to either enter into a supply contract or be in an ownership position in the corresponding asset. With the increased volumes that are expected to come on stream later in the decade, these arrangements are critical to market development to avoid large discounts. Pipeline expansion: Currently the major export pipelines are at or near capacity and at times in apportionment. The industry needs to decide which markets hold the greatest potential and move forward on pipeline expansions or new pipelines. Light/heavy differential: The light/heavy differential is expected to remain wide for the next several years until upgraders are built either upstream or at the refinery. Furthermore, growing international heavy crude oil production could have an affect on Canadian heavy crude oil prices. 28 An energy market assessment

97 C h a p t e r f i v e Major Crude Oil Pipelines 5.1 Introduction As discussed in Chapter 3: Crude Oil Supply, rapid expansion of the oil sands is expected to occur within the next decade while Chapter 4: Markets highlighted that markets will need to be determined. Pipeline infrastructure will need to be addressed to accommodate the increase in supply and market requirements. This chapter focuses on the major export pipelines and feeder pipelines, including announced expansions of existing pipelines and new greenfield projects. In some instances, oil pipelines are embarking on a new era of contractual arrangements. Historically, oil pipelines, with the exception of Express, operated under common carriage. With the intense competition between announced pipeline proposals and refiners' need for security of supply, some pipeline companies are moving toward take-or-pay agreements with shippers to ensure there is support for these initiatives. The number of proposed pipeline expansions and new proposals are causing delays within the industry s decision-making process. This coupled with environmental, Aboriginal and landowner concerns could delay pipeline development. 5.2 Crude Oil Pipelines Canada delivers crude oil to the export market through three major Canadian trunklines (Figure 5.1): Enbridge s mainline originates at Edmonton, Alberta and extends east across the Canadian prairies to the U.S. border near Gretna, Manitoba. At the U.S. border, it connects with the Lakehead system to deliver crude to the U.S. Midwest and north to Sarnia, Ontario. Kinder Morgan s Trans Mountain (formerly Terasen) pipeline originates at Edmonton, Alberta and extends west across British Columbia for delivery to Burnaby, British Columbia, the Westridge Dock and Washington State. Kinder Morgan s Express pipeline originates at Hardisty, Alberta and delivers crude to locations in PADD IV and connects to the Platte system in Casper, Wyoming for delivery to southern PADD II. Enbridge Pipeline The Enbridge system in Canada and the Lakehead system in the U.S. represent the largest crude oil pipeline in the world and the primary transporter of crude oil from western Canada to markets in eastern Canada and the U.S. Midwest. The system delivers approximately m 3 /d (2.1 MMb/d) of crude oil. In the third quarter 2005, to facilitate growth in heavy crude oil, Enbridge completed the Terrace Phase III expansion project. By converting Line 2 from heavy to light service, and Line 3 National Energy Board 29

98 f i g u r e 5. 1 Major Canadian and U.S. Crude Oil Pipelines and Markets Fort McMurray Edmonton Cold Lake Lloydminster Vancouver Anacortes PADD V Trans Mountain Rangeland Salt Lake City Cutbank PADD IV Front Range Western Corridor Billings Frontier Bow River Casper Anschutz Chevron Texas - New Mexico Hardisty Kerrobert Express Eastern Corridor Wascana Denver PADD III Regina BP Amoco Mandan Guernsey, Ft. Laramie Cushing Cromer Enbridge PADD II Express-Platte Enbridge St. Paul CTC (Spearhead) Koch BP Clearbrook Ozark Exxon Mobil Superior Lakehead Wood River Chicap Capline Chicago Patoka Mid Valley Enbridge Line 9 Sarnia Toledo Portland Montreal PADD I Montréal Portland Midland Houston Port Arthur St. James from light to heavy service, it increased its capacity to move heavy crude by m 3 /d (245 Mb/d). In doing so, Enbridge reduced light capacity by m 3 /d (116 Mb/d). Recently, Enbridge has been operating at or near capacity and in some instances certain lines have been under apportionment. To accommodate growing oil sands production and the need for additional markets, Enbridge received approval for a non-routine adjustment for tolls to reverse two pipelines in the U.S. The Spearhead and Mobil 20-inch reversal projects will provide access to southern PADD II and the U.S. Gulf Coast, respectively. It is estimated that Spearhead will deliver m 3 /d (125 Mb/d) versus signed commitments of m 3 /d (60 Mb/d). Enbridge has indicated that it would respond to shipper requirements on Spearhead in the near-term to increase capacity to m 3 /d (190 Mb/d), and in the longer-term, it has proposed a looping program with the first phase providing a further increase of m 3 /d (100 Mb/d). The Mobil line made its first crude oil deliveries to the U.S. Gulf Coast in the first quarter Kinder Morgan Express Pipeline In April 2005, Express completed its expansion of m 3 /d (110 Mb/d) to bring its capacity to m 3 /d (282 Mb/d). Recently, the Express system has been operating at capacity and, at times, there has been apportionment on the Platte system. Kinder Morgan is assessing expansion plans to deal with capacity issues on the Platte system. Kinder Morgan Canada Terasen Pipelines (Trans Mountain) Inc. Trans Mountain pipeline transports crude oil and petroleum products from Edmonton to Vancouver, Washington State and offshore via the Westridge Dock. In November 2005, Kinder Morgan purchased Terasen Inc., making it a major oil pipeline player in Canada. Its current capacity is 30 An energy market assessment

99 m 3 /d (225 Mb/d) and it has been operating at or near capacity for several years and, on many occasions, has been under apportionment. Kinder Morgan has carried forward Terasen s plans to expand the scale and the scope of the Trans Mountain system. The TMX project announced in 2004 comprises three phases, including an initial Anchor Loop expansion, followed by a southern or northern option. On 10 November 2005, part of TMX1, which included a capacity increase of m 3 /d (35 Mb/d), received approval from the NEB. This will increase the capacity from m 3 /d (225 Mb/d) to m 3 /d (260 Mb/d). On 17 February 2006, Kinder Morgan filed an application with the Board for the Anchor Loop project. The project involves twinning a 158 kilometre section of the existing line between Hinton, Alberta to a location near Rearguard, British Columbia. If approved, the Anchor Loop would add m 3 /d (40 Mb/d) of incremental capacity, bringing the Trans Mountain system to m 3 /d (300 Mb/d) by the end of It is expected that Kinder Morgan could file the next phase of the TMX project in the first quarter TMX2 would involve the looping of the Trans Mountain pipeline from Edmonton to the Anchor Loop expansion (Hinton) and from the anchor loop (Rearguard) increasing capacity by m 3 /d (100 Mb/d) to m 3 /d (400 Mb/d). The in-service date is estimated to be January The final phase of the project, TMX3, involves the completion of a south leg and/or a north leg. For both legs, capacity out of Edmonton would be m 3 /d (1.1 MMb/d). The south leg from Kamloops to Vancouver would add m 3 /d (300 Mb/d) and have a total capacity of m 3 /d (700 Mb/d). The north leg from Rearguard to Kitimat would have a capacity of m 3 /d (400 Mb/d). The in-service date for both legs is proposed for Enbridge Southern Access Enbridge has proposed the Southern Access program to expand and extend service on the mainline system. It would provide incremental capacity to Chicago, Wood River and Patoka and access to Cushing. In May 2006, Enbridge filed an application with the Board for Phase 1 of its Southern Access program to increase capacity by m 3 /d (120 Mb/d) with a scheduled in-service date of Fall The expansion would consist of debottlenecking and pump additions on Lines 3 and 4 from Edmonton and Hardisty, respectively. In the U.S., industry has decided to increase the pipe diameter from Superior to Flanagan/Chicago to 42 inches from the original proposal of 30 inches to reduce power costs and allow for future expansion. The initial capacity on the U.S. system would be m 3 /d (400 Mb/d) by early 2010 and expandable to m 3 /d (800 Mb/d). Enbridge continues to look at extending Southern Access to either or both Wood River or Patoka. Patoka offers more storage and better access to other pipelines and refineries. Enbridge is assessing several other pipeline options from the Patoka area. They include expanding existing lines, such as Spearhead as well as reversing lines which could include, Seaway pipeline (Cushing to Houston); Ozark pipeline (Cushing to Wood River); and Mid Valley (Longview to Toledo). Enbridge Southern Lights The industry has been looking at alternatives to increase its diluent supply in Alberta. One initiative that Enbridge has been studying is the potential for diluent return service from the Midwest. Supply sources from this area could come from refineries, the U.S. Gulf Coast/Midcontinent, Rocky Mountain volumes and imports. In addition, the Southern Lights project would include an expansion of light crude oil capacity on the Enbridge mainline. National Energy Board 31

100 The Southern Lights Pipeline (diluent line) would include the reversal of Line 13 from Clearbrook, Minnesota to Edmonton, Alberta and new pipeline construction between Clearbrook and Manhattan, Illinois (near Chicago). The pipeline would have a total capacity of m 3 /d (180 Mb/d). The expansion of light crude oil capacity on the Enbridge mainline would occur in parallel with the diluent return line. It would include an expansion of Line 2 between Edmonton and Superior, Wisconsin to m 3 /d (440 Mb/d) and construction of a light sour line from Cromer to Clearbrook of m 3 /d (185 Mb/d). This would eliminate the need for breakout storage tanks at Cromer. Enbridge plans to synergize this project with the Southern Access Program. The project if approved could be in-service by the first quarter of TransCanada Keystone Pipeline In February 2005, TransCanada announced its Keystone Pipeline project. This is a kilometre, m 3 /d (435 Mb/d) crude oil pipeline that would extend from Hardisty, Alberta to markets in the U.S. Midwest. TransCanada intends to convert one gas line in Canada to oil service and construct a new pipeline from the Canada/United States border to Wood River/Patoka, Illinois. On 31 January 2006, TransCanada announced that it had received long-term contractual commitments of m 3 /d (340 Mb/d). ConocoPhillips Pipe Line Company has signed a memorandum of understanding with TransCanada to acquire up to a 50 percent participating interest in the project, and ConocoPhillips has committed to ship crude oil on the pipeline. The proposal includes an expansion to m 3 /d (590 Mb/d) with the addition of pump stations. Enbridge Alberta Clipper Pipeline In February 2006, Enbridge unveiled its newest pipeline initiative, the Alberta Clipper. The proposal is for a 36-inch contract carrier crude oil pipeline that would have an initial capacity of m 3 /d (400 Mb/d), expandable to m 3 /d (800 Mb/d). The Alberta Clipper would run alongside Enbridge s mainline right-of-way from Hardisty, Alberta to Superior, Wisconsin and connect into existing infrastructure delivering crude oil into the Chicago area. The proposed in-service date would be 2010 or Altex Altex Energy is proposing to construct an oil pipeline from northeastern Alberta to the U.S. Gulf Coast by the fourth quarter It would have a minimum capacity of m 3 /d (250 Mb/d) with significant expansion potential. Altex has said that utilizing proprietary pipeline technology it could eliminate the need for condensate thereby greatly reducing the cost of transporting bitumen. Enbridge Gateway Pipeline Enbridge s proposed Gateway Pipeline would consist of two elements, a m 3 /d (400 Mb/d) crude oil pipeline and a m 3 /d (150 Mb/d) return condensate line. The crude oil line would originate in Edmonton for delivery to Kitimat and the condensate line would operate in the reverse direction, providing transportation for imported condensate. The crude oil and condensate lines could have ultimate capacities of m 3 /d and m 3 /d (550 Mb/d and 250 Mb/d), respectively. Both lines have a target in-service date of first half Following the successful open seasons of both pipelines, Enbridge announced plans to increase the diameter of the condensate line to 20 inches and the crude oil line to 36 inches. Non-binding interest 32 An energy market assessment

101 in excess of m 3 /d (400 Mb/d) was received for the crude oil line. Enbridge has signed a memorandum of understanding with PetroChina to supply m 3 /d (200 Mb/d) of crude oil to China. There have also been discussions that PetroChina may purchase a stake in the line. Pembina Spirit Pipeline In October 2005, Pembina Pipeline Income Fund (Pembina) and Terasen Pipelines Inc. announced a proposal to import m 3 /d (100 Mb/d) of condensate into Kitimat and deliver it by pipeline to Edmonton. The proposal would utilize existing infrastructure and some new pipeline construction would be required. The proposed in-service date would be April In February 2006, Pembina announced that it would pursue the Spirit Pipeline on its own, without the support of Kinder Morgan Canada (formerly Terasen Pipelines Inc.). Pembina announced in April 2006 that it has entered into a development support agreement with a group of shippers. Conclusion Figure 5.2 illustrates the production forecast for the Western Canada Sedimentary Basin (WCSB), the proposed pipeline projects, and the proponents estimated completion date. Based on the number of pipeline projects being proposed and the production that is forecast to come out of the WCSB, it is apparent that not all projects will move forward. However, as mentioned in Chapter 4 Markets and as evident in the chart, pipeline capacity is expected to be tight starting in Feeder Pipelines In addition to the proposed expansions and greenfield projects announced by the major export lines, feeder pipelines within Alberta are expanding to transport growing oil sands volumes to the major hubs of Edmonton and Hardisty. These proposed expansions are described below. f i g u r e 5. 2 NEB Supply Forecast and Proposed Pipeline Projects and Timing 1 Mb/d 6,000 5,000 4,000 3,000 2,000 1, alberta Clpper gateway keystone expanson southern access ex-western Canada 3 altex keystone southern lghts 2 tmx supply 1 The pipeline projects are listed alphabetically. 2 Edmonton to Cromer. 3 Total pipeline capacity out of the WCSB. National Energy Board 33

102 Enbridge Waupisoo Oil Sands Pipeline Enbridge announced in September 2005 that it will proceed with its proposed Waupisoo oil pipeline. The line would originate at Enbridge s Cheecham terminal on the Athabasca system and terminate adjacent to Enbridge s mainline Edmonton terminal. Initial capacity would be m 3 /d (350 Mb/d) with a maximum capacity of m 3 /d (600 Mb/d). It would also include a 16-inch return diluent line from Edmonton to the Fort McMurray area. If approved, the expected in-service date would be mid The Waupisoo pipeline would be operated by Enbridge and shippers include, ConocoPhillips Canada, Petro-Canada, Suncor Energy and Total E&P Canada Ltd. Kinder Morgan Corridor Pipeline In August 2005, Terasen Pipelines (now Kinder Morgan Canada) announced plans to expand the Corridor pipeline. Currently, the Corridor pipeline system includes a 24-inch bitumen blend line and a 12-inch diluent return line. The proposed expansion includes building a new 42-inch bitumen line and upgrading pump stations along the existing system from the Muskeg River Mine north of Fort McMurray to Shell s Scotford upgrader near Edmonton. It would increase dilbit capacity to m 3 /d (500 Mb/d) by 2009 and would be designed to further support expansions in the future. It is estimated that future expansions of this system could lead to a capacity of m 3 /d (1.1 MMb/d). Pembina Horizon Pipeline In August 2005, Pembina Pipeline Corporation (Pembina) announced that it would twin the existing Alberta Oil Sands Pipeline resulting in two parallel, commercially segregated lines. One would be dedicated to Canadian Natural Resources (CNRL) and would transport synthetic crude oil from CNRL s Horizon project. The new line would connect with the existing infrastructure. It could be in-service by July 2008 and have a capacity of m 3 /d (250 Mb/d). Pembina Cheecham Pipeline In January 2006, Pembina announced that it had reached an agreement with ConocoPhillips Surmont Partnership, Total E&P Canada Ltd., Nexen Inc. and OPTI Long Lake L.P. for the construction of the Cheecham lateral pipeline. Pembina has entered into transportation agreements with shippers for up to m 3 /d (136 Mb/d). Construction is underway and the line is expected to be in-service by November It will transport synthetic crude oil for delivery to a terminal facility located near Cheecham, Alberta. 5.4 Outlook: Issues and Uncertainties It is clear that increasing western Canadian production, driven largely by the oil sands has resulted in several proposed pipeline expansions or greenfield pipeline projects. The industry has some challenging times ahead with the increase in production and the resulting lack of capacity on the major export pipelines. The pace of pipeline expansion will largely depend on market conditions and the necessary regulatory approvals. In this regard, pipelines may be looking to shippers for financial support in the form of take-or-pay agreements. It is expected that, if high prices continue and the market remains strong, apportionment on export pipelines will be an issue. In the short-term, the industry will add smaller incremental capacity 34 An energy market assessment

103 expansions in an attempt to alleviate some of these capacity issues. Table 5.1 illustrates current expansion proposals that are either before the Board, have been publicly announced or are being considered by industry. The next decade will be a critical period in terms of pipeline development. There are a number of issues and uncertainties that will impact the pace of expansion to 2015 including: Crude oil prices: See Chapters 3 and 4. Bitumen blend, bitumen or synthetic: Pipelines will need to be developed based on the type of oil sands crude oil that is produced and required by the market. Cost of projects: With the cost of labour and materials rising to unprecedented levels, project costs are rising at alarming rates. It is estimated that the costs of some pipeline projects have risen 25 percent since they have been announced. Type of carriage: Historically, oil pipelines have generally been common carriers, but there may be a desire by the project proponents to seek take-or-pay commitments. National Energy Board 35

104 t a b l e 5. 1 Announced and Potential Expansions by Canadian Pipelines Pipeline Potential Filing Date Capacity Increase (Mb/d) Proponents Estimated Completion Date Terasen (TMPL) 75 PADD V Market (Phase One TMX1) Filed July April 2007 Offshore/Far East (Phase Two TMX1) Filed February Nov 2008 Southern Option 700 PADD V (TMPL TMX2) 01Q Jan 2010 Offshore/Far East (TMPL TMX3) N/A Northern Option (TMX) N/A PADD V Offshore/Far East Enbridge Gateway (oil/diluent) June /150 Mid 2010 PADD V Offshore/Far East Alberta (diluent line) Pembina Spirit (diluent) N/A 100 April 2009 Alberta Enbridge Southern Lights Southern Lights (diluent) 180 Alberta Line 2 Expansion (oil) N/A 2009 Edmonton to Cromer 103 PADD II Cromer to Clearbrook 33 PADD II Clearbrook to Superior 33 PADD II New sour line Cromer to Clearbrook 185 PADD II TCPL (Keystone) June Southern PADD II/ PADD III Alberta Clipper N/A /11 Southern PADD II Altex Energy N/A 250 4Q2010 PADD III Enbridge (Southern Access) 315 Midwest/Southern PADD II Phase I May Oct 2006 and Feb 2007 Phase II N/A /09 Phase III N/A 47 N/A N/A Not Available 36 An energy market assessment

105 C h a p t e r s i x Environment and Socio-Economic 6.1 Introduction The economic potential of Canada s oil sands is undisputed, but the fast pace and large scale of its development has considerable environmental and social impacts. This chapter provides an update on the major challenges oil sands operators must confront, including: water conservation, greenhouse gas (GHG) emissions, land disturbance and waste management. From a socio-economic perspective, one major issue of concern is an overwhelming demand on a limited population of skilled labourers. Regions associated with oil sands development enjoy several economic benefits but these benefits are accompanied by costs to the social well-being of the communities. A variety of regional multi-stakeholder groups have been established to address the socio-economic and environmental impacts related to oil sands development. Table 6.1 shows a representation of these major groups. Many subcommittees have also been formed to address issues under their jurisdictions. These groups include industry, government and local community partnerships that work to create policies and programs for the best management of the resource. 6.2 Environment The concern around the management of environmental impacts related to developing the oil sands has reached new highs. In March 2006, the Parkland Institute released a report calling for a moratorium on oil sands development for five years, citing the need for Canadians to discuss and understand all the implications. t a b l e 6. 1 Multi-Stakeholder Summary Stakeholder Wood Buffalo Environmental Association (WBEA) Cumulative Environmental Management Association (CEMA) Canadian Oilsands Network for Research and Development (CONRAD) Athabasca Regional Issues Working Group (RIWG) Focus Air quality monitoring in the Wood Buffalo Region Ecological and health effects monitoring Addresses cumulative effects of regional development in northern Alberta Research and development in responsible environmental activities and emission reduction opportunities for mining and in situ projects Provide a proactive process that promotes the responsible, sustainable development of resources within the Regional Municipality of Wood Buffalo for the benefit of all stakeholders National Energy Board 37

106 6.2.1 Water Use and Conservation Both mining and in situ operations use large volumes of water for extracting bitumen from the oil sands. Between 2 to 4.5 barrels of water iii are withdrawn, primarily from the Athabasca River, to produce each barrel of synthetic crude oil (SCO) in a mining operation. Currently, approved oil sands mining projects are licensed to divert 370 million cubic metres (2.3 billion barrels) of freshwater per year from the Athabasca River iv. Planned oil sands mines would push the cumulative withdrawal to 529 million cubic metres (3.3 billion barrels) per year v. Despite some recycling, almost all of the water withdrawn for oil sands operations ends up in tailings ponds. Stakeholders agree that the Athabasca River does not have sufficient flows to support the needs of all planned oil sands mining operations. Adequate river flows are necessary to ensure the ecological sustainability of the Athabasca River. In winter, river flows are naturally lower vi with low rates of precipitation, and therefore, water withdrawal during this period is of particular concern. In January 2006, Alberta Environment (AENV) issued An Interim Framework: Instream Flow Needs and Water Management System for Specific Reaches of the Lower Athabasca River to address this issue. This document describes certain actions to be taken under various flow conditions. Under conditions where there could be potential short-term impacts on the ecosystem, project owners are asked to target their diversion rate to less than 10 percent of available flow. Recent and new licenses may include conditions with mandatory incremental reductions. In cases where flows are so low that withdrawal would have expected impacts on the aquatic ecosystem, water use reductions and the use of water storage would be mandatory. Oil sands mining operations have direct impacts on groundwater levels. Once the mine pit is excavated, it is essential to reduce groundwater levels in the area to prevent flooding of the pit. Withdrawal of groundwater from large areas of the landscape can lower the groundwater level in adjacent areas, which can result in reduced groundwater flows to peatlands, wetlands and other surface waterbodies. About 82 percent vii of Alberta s remaining established oil sands reserves can only be accessed using in situ extraction technologies, and there is also a growing demand for freshwater for these projects. The demand for fresh water for in situ oil sands projects is projected to more than double between 2004 and 2015 from 5 million (31.5 million barrels) to 13 million cubic metres (82 million barrels) per year viii. In SAGD operations, 90 to 95 percent of the water used for steam to recover bitumen is reused, but for every cubic metre (6.3 barrels) of bitumen produced, about 0.2 cubic metres (1.3 barrels) of additional groundwater must be used ix. SAGD projects minimize the use of freshwater aquifers by using some freshwater mixed with saline groundwater. However, treating saline groundwater for the steam generators produces large volumes of solid waste. The disposal of this waste to landfills is another long-term concern because it could impact nearby soil and groundwater. This waste has a high concentration of acids, hydrocarbon residues, trace metals and other contaminants. AENV is currently developing a new Water Conservation and Allocation Policy to reduce or eliminate the use of freshwater for in situ projects. Water allocation licenses will be issued for a two year period with subsequent licenses issued for a five-year term, if the renewal is allowed. This is a reduction from the previous 10-year renewal period. License holders must apply for renewal under section 59 of the Water Act. AENV will approach the holders of permanent licenses to undertake a voluntary review of their licence. 38 An energy market assessment

107 f i g u r e 6. 1 Projected GHG Emission from Oil Sands to 2015 Total GHG Emissions (Mt/year) Intensity (tonnes GHG/b) total emssons emssons per barrel Source: Pembina Institute. Oil Sands Fever The Environmental Implications of Canada s Oil Sands Rush Air Emissions While there remains a controversy over our ability to manage global climate impacts of greenhouse gas (GHG) emissions, many Canadians are concerned about GHG emissions. The production of bitumen and SCO emits higher GHG emissions than the production of conventional crude oil and has been identified as the largest contributor to GHG emissions growth in Canada. Although significant progress has been made toward decreasing the intensity of GHG emissions produced by oil sands operators, additional production offsets these gains and total emissions are expected to rise. Figure 6.1 shows projected emissions, with total emissions estimated to be 67 megatonnes (Mt) per year by 2015 under Pembina Institute s second best scenario x. Carbon Dioxide Innovative technology applied to increasing energy production has the potential to both reduce GHG emissions and create an economic opportunity. Research is being conducted to determine the feasibility of CO 2 capture and storage in Canada. According to the Alberta Geological Survey, the cumulative capacity of oil and gas reservoirs located in western Canada with an estimated CO 2 sequestration capacity greater than 1.0 Mt each is 3.2 gigatonnes CO 2 for gas reservoirs and 560 Mt for oil reservoirs xi. Carbon dioxide flooding in mature oil reservoirs for enhanced oil recovery (EOR) could increase production from mature Canadian oil reserves by between 8 and 25 percent, which means increasing potential recovery by between 0.5 and 1.4 billion cubic metres (3 and 9 billion barrels) of oil xii. At current oil prices, there is renewed interest in EOR projects but the economics are still marginal. Carbon dioxide injection for enhancing coal bed methane (CBM) recovery has also generated much interest but is currently much less economic than for EOR. The oil sands projects are a major source of CO 2, but a dedicated CO 2 pipeline from Fort McMurray to the large light oil or CBM pools in central Alberta will be needed to encourage the capture, storage and use of large volumes of CO 2. A number of provincial and federal government incentives are in place to promote the development of CO 2 capture and storage, but the uncertainty of policy regarding long-term storage is an obstacle. National Energy Board 39

108 6.2.3 Land Disturbance and Reclamation The Athabasca oil sands deposit is situated wholly within Canada s boreal forest. Individual mine sizes range from 150 to 200 square kilometers (58 to 77 square miles). The proposed future reclaimed landscape will be significantly different with 10 percent less wetlands, more lakes, and no peatlands. There are currently divergent views regarding the ultimate the success of reclamation methods. The in situ process requires no excavation and less surface area for operation but is associated with fragmentation of the forest from the construction of new roads in the area, seismic lines and exploration well sites. As well, there is still some debate about whether the tailings ponds can become biologically productive ecosystems Sulphur By-product Elemental sulphur is a major by-product of the oil sands. There have been notable efforts focused on the management of sulphur. The stockpiling of sulphur is a physical problem. By 2015, sulphur recovery could generate as much as five million tonnes of sulphur per year. To address this issue, China and India have been identified as potential markets since sulphur can be used to make fertilizer. Shell Canada has made investments to market Canadian sulphur as a replacement for the process of burning pyrite to extract sulphur. Since 1996, 40 of China s 600 fertilizer plants have been converted to use Canadian sulphur, as opposed to burning pyrite to extract sulphur, thereby releasing 250,000 fewer tonnes of CO 2 to the atmosphere each year xiii. Sulphur is also currently used in road asphalt and potentially in concrete or other construction materials. 6.3 Socio-Economic The Athabasca deposit is the largest of the three oil sands deposits in northern Alberta and has undergone the most intensive oil sands development. Development in the Cold Lake and Peace River regions has been less extensive to date; however, this is starting to change. These regions will likely face socio-economic impacts similar to the Athabasca region in the future. It will require a concerted effort from all of the stakeholders to effectively address socio-economic concerns as the oil sands enter into a period of unprecedented growth. Industry, government and local organizations are working to improve the social well-being of Aboriginal and non-aboriginal communities in the region. These efforts must continue in order to keep pace with the increasing demands that will be placed on the existing social infrastructure. This should be supplemented with careful planning to ensure that no irreparable damage is done to people or the environment and that natural resources are developed in a responsible manner taking into account the needs of future generations Socio-Economic Setting The 2005 Municipal Census results indicate that the Regional Municipality of Wood Buffalo xiv has a population of 73,176. This figure represents an increase of 6,071 residents or nine percent since the municipal census in The Sustainability Community Indicators Summary Report indicated that the population of Fort McMurray and the Regional Municipality of Wood Buffalo has a higher growth rate, a higher net migration rate, a higher proportion of males, and is generally younger than the selected comparator communities/regions of Alberta. This steady population growth has the potential to exacerbate socio-economic impacts. 40 An energy market assessment

109 According to NEB estimates, $41 billion has already been invested in Canada s oil sands, $7 billion is projected to be spent on construction in 2006, and another $85 billion worth of projects are forecasted for completion by Presently, oil companies and developers are engaged in or have proposed 46 oil sands related projects with 135 project expansion phases. This magnitude of growth and expansion of the oil sands is not possible without a corresponding increase in the number of workers. Labour There is currently a limited supply of skilled workers in Alberta, and this tight labour market is expected to continue in the near future. The Construction Owners Association of Alberta states that labour supply and demand forecasts show increased construction activity in Alberta, especially in the oil sands, which will cause severe shortages of construction labour in the years ahead xv. Figure 6.2 illustrates the expected increase in the number of construction personnel that will be required for Alberta industrial projects with a planned capital expenditure greater than $100 million. Major industrial projects in Alberta will be competing for labour, and this competition has the potential to drive up construction costs and pull workers from other parts of Canada. A labour shortage occurs when the demand for workers exceeds the supply of those qualified, available and willing to do the job at existing market conditions, including prevailing wages and locations. The challenge for the oil sands sector is not only one of finding the right skills process operators, heavy equipment operators, mechanics and plant maintenance personnel but also attracting these people to the Wood Buffalo region xvi. To address the current pressure on labour supply from several industries in Alberta, the Government of Alberta released a preliminary strategy in January 2006, Building and Educating Tomorrow s Workforce: A Framework to enhance Alberta s People Capacity. This 10-year strategy is currently in the consultation phase but outlines various proposed actions to address Alberta s labour force challenges. The strategic framework is built around four themes inform (education, career, workplace and labour market information), attract (immigrants and inter-provincial migrants), develop (education and training investment) and retain (community and work attractiveness) xvii. Addressing the labour force shortages faced by the oil sands industries is a priority for the Government of Alberta, and as a result, the f i g u r e 6. 2 Construction Personnel Required for Alberta Industrial Projects Costing Over $100 Million Number of Persons Source: Construction Owners Association of Alberta (COAA) National Energy Board 41

110 10 year strategy includes an Oil Sands Industry Sub-Strategy. The Alberta Government has also signed an agreement with the federal government that will allow for the targeted entry of temporary foreign workers to meet the urgent skilled labour needs of oil sands employers for key projects in Fort McMurray xviii Positive Socio-Economic Impacts There are numerous positive socio-economic impacts on the communities and regions associated with oil sands development, including employment, economic benefits, economic stability, government revenue, and investment in research and development. This update will highlight employment, and government revenue and national economic benefits. Employment In addition to the 33,000 direct, indirect and induced jobs already created by oil sands development, it is expected that there will be a total of 240,000 new jobs created across Canada by 2008 xix. Roughly 60 percent of these jobs will be in Alberta, with the majority in the manufacturing sector. Oil sands companies in the Wood Buffalo region have projected that they will be hiring approximately 6,000 new permanent positions from 2005 to An additional 9,000 will be required to replace workers lost due to attrition. In 2004, over 1,300 Aboriginal people were directly employed by oil sands developers or have been engaged by contractors, and more than $250 million was spent on contracts to source goods and services from businesses owned by Aboriginal people. Government Revenue and National Economic Benefits Oil sands industry expansion is a major driver of economic activity in Alberta, which in turn generates economic benefits for the regional, provincial and national economies. Oil sands royalties and taxes generated for the Alberta government between 1996 and 2005 totalled $6 billion. The Athabasca Regional Issues Working Group xx forecasts the following: by 2015, the Alberta government is expected to receive $2.4 billion annually in royalties, Alberta corporate tax and personal income tax from existing and new oil sands projects; and by 2015, the federal corporate and personal tax revenue associated with the oil sands industry is estimated to be $3.5 billion per year Negative Socio-Economic Impacts There are also negative socio-economic effects associated with this rapid growth. These negative effects include a shortage of affordable housing, increased regional traffic, increased pressures on government services such as health care and education systems, alteration to the traditional way of life, impacts on traditional lands, municipal infrastructure that lags behind population growth, drug and alcohol abuse, and increased dependence on non-profit social service providers. The following highlights housing, and infrastructure and services issues: Housing The growing population of Fort McMurray creates a demand for housing, resulting in high accommodation costs, low availability and a lack of subsidized housing. A key finding in the Sustainable Community Indicators Summary report xxi regarding the availability of housing is that housing is generally less available in Fort McMurray than the communities of Grande Prairie, 42 An energy market assessment

111 Medicine Hat, Calgary and Edmonton. The report also found that the housing situation is worsening (i.e., the availability of housing in Fort McMurray is decreasing). In the Wood Buffalo region, and especially in Fort McMurray, this affordability and availability issue is acute because: housing prices are high relative to Edmonton and elsewhere, with the average price of a single family dwelling costing $430,000 for the month of March 2006 xxii compared to $256,000 in Edmonton xxiii and $363,000 in Calgary xxvi ; and rents are high with a two-bedroom apartment costing on average $1,400 per month xxv in February In addition, vacancies are extremely low, and recent new project announcements have resulted in notices of further rental increases. The affordability and availability of housing in Fort McMurray is detrimental to recruitment for oil sands companies. In order to address these issues, several companies have applied for flyin and fly out permission for their projects, which would allow workers to live in larger centres (e.g., Edmonton, Calgary and other centres in Canada) and commute to the worksite via airplane. This approach has the potential to assist companies with recruitment and reduce stress on accommodation, infrastructure and services; however, in the long-term this approach may compromise the sustainability of communities (i.e., Fort McMurray and other centres in Canada). Infrastructure and Services The Wood Buffalo Business Case 2005 offers a comprehensive overview of the urgent public infrastructure needs of the region as determined by industry, the municipality and public service providers. A capital investment of $1.2 billion is required to address the full range of public sector infrastructure needs in the region over the next five years xxvi. The $1.2 billion includes: $353 million in municipal projects, including water, waste water, road and recreation facilities; $236 million in primary, secondary and post-secondary education facilities; $500 million in highway projects; and $136 million in health facilities and affordable (low income) housing. 6.4 Outlook: Issues and Uncertainties The original goal of producing one million barrels per day of oil from the oil sands by 2020 was surpassed in In light of such rapid growth, the question arises as to whether the balance between resource development and environmental protection and social interests can be maintained. The following are the key environmental and socio-economic challenges to be addressed. Water policies: The amount of water used in oil sands mining operations is significant and the limited available supply from the Athabasca River could be a constraint on future expansion plans. Continued development of water policies beyond AENV s Interim Framework can be expected. Some newer approved oil sands mines have up to 30 days of on-site water storage incorporated into their project designs to limit withdrawals during periods of low river flows. Building water storage xxvii upstream of the oil sands mine operations to help supplement periods of low river flows is another option. Labour requirements: Both short-term and long-term solutions have been proposed to help meet the labour needs of oil sands industry employers. It remains uncertain if the National Energy Board 43

112 short-term solutions will be able to increase the supply of skilled workers in order to match the demand created by the rapid expansion of the oil sands industry. A limited supply of skilled labour has the potential to restrict the pace of development. Infrastructure and services: As a result of rapid population growth, the Wood Buffalo region has experienced deficiencies in community service delivery and infrastructure development. This jeopardizes the ability of the Regional Municipality of Wood Buffalo to maintain a reasonable quality of life standard, which is essential for all employers in the region that seek to attract and retain employees. Air emissions: GHG emissions are a major concern for Canadians. Oil sands operators have taken steps to significantly reduce the emissions intensity of their operations but total emissions have still increased due to higher production levels. The use of CO 2 for enhanced oil recovery could potentially reduce GHG emissions and create an economic opportunity. Cumulative environmental impacts: The accumulation of changes to the air, land and water, which results from oil sands development, is a major area of concern. Environmental groups contend that there is currently inadequate scientific information to understand how the ecosystem will react to the impacts of development and that stricter environmental performance targets are needed. Industry continues to look at technological innovation that could be used to reduce environmental impacts. Technology: With continued high oil prices, the oil sands industry could be motivated to focus their innovative capacity on technological breakthroughs for the environment. In terms of waste management, gasification could potentially turn petroleum coke into fuel gas and a source of hydrogen. CO 2 sequestration (injecting CO 2 from oil sands into conventional oil fields) promises to both capture emissions and add new crude production. There are many areas for companies to devote their capital, depending on the incentives. 44 An energy market assessment

113 C h a p t e r s e v e n Electricit y Opportunities 7.1 Introduction Cogeneration plants, also known as a combined heat and power (CHP) facilities, are the primary source of power for most oil sands operations. CHP facilities typically use natural gas as fuel to run a combustion turbine that turns a generator to produce electricity. A heat recovery steam generator then captures the heat that would normally be wasted and uses it to produce steam, hot water or a mixture of the two for use in an industrial process such as bitumen production. This combined process is more cost and fuel efficient than generating equivalent amounts of electricity and steam separately. Developments in the oil sands industry since 2004 have led the majority of oil sands producers to continue to install cogeneration plants at their facilities to: increase the reliability of steam and power in order to maximize oil production; capture environmental and economic efficiencies, and; f i g u r e 7. 1 Estimated Electricity Costs by Recovery Type C$ per barrel $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 $0.00 SAGD Source: CERI and AESO Mining & Extraction $40/mW.h electrcty $70/mW.h electrcty Integrated Mining potentially increase revenues with the sale of excess power. However, the current trend has shifted to building only sufficient cogeneration to ensure the facility can meet its own energy needs, but with little surplus available for sale to the grid. 7.2 Electricity Requirements Increased prices for natural gas have raised the Alberta average electricity pool price in 2005 to $70/MW.h from the $40/MW.h used in the Board s 2004 report, as shown in Figure 7.1. While this represents a 75 percent increase in electricity costs, the resulting increase to production costs is small in comparison to the increase in oil prices. Consequently, more weight is placed on maximizing production than in generating revenue National Energy Board 45

114 from excess electricity sales or reducing electricity costs. 7.3 Cogeneration Opportunities Total Alberta generating capacity, as of March 2006, is about MW, while the peak demand, set in December 2005, was MW xxviii. Installed total cogeneration capacity increased by about 150 MW in 2005, of which about 25 MW is available for sale to the grid. The latest Athabasca Regional Issues Working Group cogeneration forecast (mid-range) is illustrated in Figure 7.2. The capacity forecast in 2015 lies in a range between MW and MW. This forecast is significantly lower (projected total generation capacity in 2015 is 22 percent lower) than in the Board s 2004 report because of higher natural gas prices and concerns about the uncertainty surrounding the amount of energy the Alberta electricity market can absorb. These factors have led to a trend for oil sands producers to build cogeneration for self-sufficiency, not for grid sales. Specifically, instead of building cogeneration to the steam requirements of a project, facilities are sized based on the project s electricity requirements with the addition of less capitalintensive steam boilers for additional steam needs. Higher natural gas prices have led to a heightened interest in coal-fired generation in southern Alberta as well as increased interest in alternative fuels such as coal and bitumen. The direct combustion of coal and bitumen can be used to fuel boilers but is not suitable for cogeneration. Recent developments in in situ recovery technologies such as low pressure SAGD or solvent assisted production, or new recovery methods such as VAPEX or THAI, could also reduce the need for steam generation. Any technology that reduces the need for steam will decrease the potential for cogeneration, as cogeneration is only economic when there is a need for the steam produced. However, renewed interest in cogeneration could result if: the potential market in power attributes xxix became more favorable specifically if the market was willing to pay a premium for clean power; an alternative fuel to natural gas, such as syngas xxx (produced from the gasification of coal, bitumen or petroleum coke) can be used since it would remove the uncertainty associated f i g u r e 7. 2 Oil Sands Based Cogeneration Capacity (MW) actual projected Ol sands Cogeneraton usage avalable for sale to grd Source: Athabasca Regional Issues Working Group Oil Sands Co-generation Report. 46 An energy market assessment

115 with high natural gas prices; and Alberta electricity could gain access to larger, higher priced markets, such as California. Farther out on the horizon is the possibility of using nuclear energy in the oil sands. Higher natural gas prices would favour the development of this technology; however, certain issues will have to be addressed before nuclear energy could be part of the oil sands industry. These include the large size of a typical nuclear generator compared with a typical oil sands plant, the oil sands producers lack of experience with the technology, and public concerns about safety and the disposal of nuclear waste. Research continues and, while it is unlikely to see commercial development in the time frame of this report, it may be possible to develop smaller, low maintenance modular nuclear reactors that would address some of these concerns. 7.4 Transmission The Alberta Transmission Development Policy, announced in December 2003, has generally been seen as successful in addressing many of the concerns regarding the development of new transmission in a timely manner. The addition of a third 240 kv transmission line in the Fort McMurray region has raised transmission capacity to 610 MW and has enabled the removal of Remedial Action Schemes (RAS), which were previously required to deal with the possibility of a line fault. Oil sands producers have welcomed this addition since it reduces the risk of service interruption, which could result in lost production, and it has allowed access to the Alberta market for cogeneration surpluses. If more cogeneration surplus becomes available in the future, further transmission expansion will be required in order to reach the market. Work continues on the development of the proposed Northern Lights project to connect Fort McMurray cogeneration to markets in California. The consensus remains that while the project has great potential there are also a number of questions that must be answered, such as: How big is the potential market? Will nuclear and coal plants in California and the Pacific Northwest be retired or refurbished? Will there be competition from coal-fired generation in the U.S. states east of the Rockies? Who will take the risk of being the first company to commit to the project? Will it be the transmission provider or a producer? 7.5 Outlook: Issues and Uncertainties There are many factors that will affect the future of oil sands related cogeneration. Some of the most important are: Natural gas costs: Rising natural gas prices have caused increased interest in coal fired generation in southern Alberta, which can present serious competition for natural gas fired cogeneration. Technology: Natural gas prices have given impetus to the development of new technologies for oil sands production. Alternate fuels such as syngas, that can be used to produce electricity and steam, will favour cogeneration. However, fuels that can be used in National Energy Board 47

116 a boiler but not in a combustion turbine, such as bitumen and coal, or oil sands production technologies that reduce the demand for steam such as THAI or the use of solvents, will reduce the potential for cogeneration. Availability of markets: The Alberta electricity market has relatively low cost generation and is small compared to the potential for cogeneration in the Fort McMurray region. Access to larger, higher priced markets in California would make a major difference in how much cogeneration is built. Power attributes: If consumers are willing to pay a premium for clean power, this would favour development of cogeneration. Natural gas-fired cogeneration uses a clean fuel very efficiently. The production of syngas has more environmental costs but is still cleaner than coal fired generation and (due to higher efficiencies) almost as clean as combined cycle natural gas generation. 48 An energy market assessment

117 C h a p tt ee r r Oe ni ge h t Petrochemical Feedstock Opportunities 8.1 Introduction Alberta s petrochemical industry is based on ethane (which is produced from processing natural gas) as feedstock for the production of ethylene. In response to flattening natural gas production from the WCSB and rising demand, natural gas prices, and therefore ethane prices, have increased significantly since the late 1990s. Since feedstock costs account for over two-thirds of the total cost of producing ethylene, they have a strong influence on operating profitability. Going forward, with natural gas prices expected to remain high and volatile (over US$7 per MMBtu), natural gas-based feedstock costs are also expected to remain high. The Alberta petrochemical industry has suggested that current ethane feedstock supply falls short of ethane cracker capacity by about m 3 /d (30 Mb/d). Given the expected outlook for conventional natural gas supply, the ethane supply shortfall could intensify if WCSB conventional natural gas production declines or if domestic gas demand in the province increases. In addition, North American ethylene derivative demand is forecast to grow to the point where new ethylene capacity will likely be required within five to ten years. In order for the Alberta ethylene sector to expand, additional, secure and cost-competitive feedstock supply will be required. These feedstock challenges have highlighted the need to consider future ethane supply and feedstock flexibility. Over the past few years, market signals have indicated that Alberta s oil sands resource could provide a secure, substantial and stable-priced feedstock for the petrochemical industry. Currently, most of this potential feedstock is not recovered but is used as fuel in upgrading and refinery operations. 8.2 Synthetic Gas Liquids (SGL) from Upgrader Off-gas When bitumen is upgraded to produce SCO, the upgrading processes produce a by-product off-gas, which is a mixture of hydrogen and light hydrocarbon gases (including paraffins ethane, propane and butanes; and, using the coking process, olefins ethylene, propylene and butylenes). The paraffinic light hydrocarbon components of off-gas, ethane in particular, could be a potential source of feedstock for the Alberta ethylene plants. The olefin portion could be feed for petrochemical derivative plants. This mix of paraffinic and olefinic hydrocarbons is referred to as synthetic gas liquids or SGL. They currently remain, for the most part, in the off-gas and are consumed as fuel. Upgrading bitumen also represents potential petrochemical feedstock in the form of heavier intermediary products recovered from upgrader and refinery processes. The intermediary products include naphtha, aromatics and vacuum gas oil (VGO). Access to oil sands intermediary hydrocarbon feedstock would likely require association with an integrated upgrader/refinery/petrochemical National Energy Board 49

118 complex. Development of such a complex is expected to be beyond the timeframe of this report. Consequently, intermediary feedstocks will not be discussed in this report Ethane and Ethylene (C 2 /C 2= ) Based on production from existing and currently proposed upgrading expansions, it is estimated that by 2012, up to at least m 3 /d (100 Mb/d) of SGL mix could be entrained in upgrader off-gas. About 50 percent of this stream would be ethane. Existing and proposed upgrading expansions (for the purpose of determining this supply) would include Syncrude Canada Ltd., Shell Canada Ltd. and Suncor Energy Inc. (Suncor), as well as two other upgraders in operation by Tying in SGL streams from refinery processes could further increase the potential. Alberta currently has upgrader off-gas C 3+ extraction facilities near Fort McMurray, as well as a propane/propylene splitter facility located at Redwater, Alberta. A portion of the province s currently available olefinic C 3+ mix is extracted from Suncor s upgrader off-gas. The Suncor off-gas stream could also provide about m 3 /d (12 Mb/d) of C 2 /C 2= mix; however, it is not economic to recover at this time. As a result, C 2 /C 2= mix is left in the off-gas stream to be burned as fuel. Large-scale SGL recovery would require new infrastructure, particularly to access off-gas from the Fort McMurray region and deliver it to the Heartland region near Edmonton, Alberta. For example, additional extraction and C 2 /C 2= fractionation capacity as well as separate product pipelines would be required. On the other hand, given the outlook for SCO production by 2012, it is expected that upgrader capacity will increase to the point where upgraders may produce up to 600 MMcfd of off gas. Consequently by 2010 to 2012, off-gas volumes could reach a level where upgraders should be considering the value-added synergies of recovering available SGL. Cokers will reach this point faster than hydrogen addition upgraders, as the coking process produces greater volumes of SGL. Merchant upgraders may be more open to taking advantage of SGL recovery opportunities compared with integrated oil companies. For example, BA Energy Inc. (BA) is in the process of constructing a merchant upgrader in Fort Saskatchewan, Alberta. Phase 1 of its project will have a capacity to upgrade m 3 /d (77 Mb/d) of bitumen blend; upon completion of Phase 3, the capacity would triple to about m 3 /d (250 Mb/d). BA is also evaluating access to long term off gas extraction and fractionation service (to produce C 2 /C 2= and C 3+ cuts) from a proposed third party facility on a fee-for-service basis. Both prospective partners would be located in the Heartland region and would have access to various nearby infrastructure Propane/Propylene (C 3 /C 3= ) About tonnes (1.5 billion pounds) per year of propylene has been identified in Alberta as available from upgrader/refinery off-gas and ethylene cracker processes enough feedstock to supply a worldscale poly-propylene plant. Propylene is the main driver behind the Redwater C 3 /C 3= fractionation facility as propylene is a high value component. These facilities commenced operation in 2002 with the expectation of accessing propylene from several sources in Alberta. The Redwater splitter is currently not fully utilized and could accommodate additional olefinic feedstocks. Presently, olefinic C 3+ mix from Suncor s upgrader is the only feed to the C 3 /C 3= splitter. Over the past few years many factors have changed such as improved economic growth leading to increased propylene and propylene derivative product prices. With North American propylene demand growth increasing at a rate of three to four percent per annum and a future shortfall expected, there is an opportunity to utilize propylene in Alberta. The question of how to capture this 50 An energy market assessment

119 opportunity remains. With this in mind, the Alberta Government, along with other industry parties, is presently examining the cost competitiveness of a propylene derivative plant in Alberta. 8.3 Outlook: Issues and Uncertainties While not currently feasible, there may be an opportunity to recover ethane (up to about m 3 /d or 60 Mb/d, depending on upgrader configuration) and other SGL from off-gas within the 2010 to 2012 time frame. There are several uncertainties that could impact the development of this supply. These include: The building of SGL infrastructure will compete with oil sands infrastructure requirements. A capital incentive or credit against royalty payments on enhanced ethane production being considered by the Alberta Government, if approved, may apply to incremental, conventional gas liquids sources only. That is, it may not apply to SGL available from upgrader or refinery off-gas. This would suggest that incremental ethane derived from taking a deeper cut from conventional natural gas would be the most likely next tranche of ethane supply. However, with a similar royalty credit, ethane from bitumen upgrader off gas may be cost competitive with incremental conventional ethane. In order for the Alberta ethylene sector to expand, substantial additional, secure long-term and cost-competitive feedstock supply will be required. The natural gas make-up requirement (i.e., to replace removed gas liquids content) currently used by the midstream sector has been a deterrent to ethane production from off-gas. The natural gas replacement requirement is, in effect, tying SGL recovery costs to natural gas. Consequently, a replacement requirement of somewhat less than 100 percent of natural gas content, a percent of proceeds arrangement, or tying the replacement of heat content cost to a lower-valued bitumen product could be suitable alternatives. Aggregation of all propylene identified as available in Alberta would be capital intensive, requiring construction of new infrastructure and may require a financial incentive. In conclusion, some questions need to be addressed. If SCO production reaches the level projected in this report, will associated off-gas volumes reach a point where recovering SGL would be economic? On the other hand, is there an alternative use for off-gas in addition to process fuel? National Energy Board 51

120 Cg h l a p o t e s r s O a n e r y Glossar y Apportionment Aquifer Aromatics Barrel Bitumen or crude bitumen Blended bitumen Brackish water C 2 C 2= C 2 / C 2= C 2+ C 3 C 3+ C 3 / C 3= The method of allocating the difference between the total nominated volume and the available pipeline operating capacity, where the latter is smaller. An underground geological formation, or group of formations, that contain water. A term referring to compounds containing one or more six carbon rings, with alternating (or resonating) carbon-hydrogen double bonds. Benzene, toluene and xylene are examples of common aromatic hydrocarbons. One barrel is approximately equal to cubic metres or litres or approximately 35 Imperial gallons. A highly viscous mixture, mainly of hydrocarbons heavier than pentanes. In its natural state, it is not usually recoverable at a commercial rate through a well because it is too thick to flow. Bitumen to which light oil fractions have been added in order to reduce its viscosity and density to meet pipeline specifications. Water with a total dissolved solids concentration greater than 4,000 milligrams per litre. It is not suitable for consumption or agricultural use. Also known as saline water. Ethane. Ethylene. Ethane/Ethylene Stream. Ethane plus refers to a mixture of natural gas liquids consisting of ethane and heavier hydrocarbons. Propane. Propane plus refers to a mixture of natural gas liquids consisting of propane and heavier hydrocarbons. Propane/propylene stream. 52 An energy market assessment

121 Cogeneration CO 2 Coke Coker Condensate Conventional crude oil Cracking Cyclic Steam Stimulation (CSS) Deep-cut plant DilBit Diluent Distillate DilSynBit Ecosystem A facility that produces process heat and electricity. Also known as combined heat and power (CHP) facility. Carbon dioxide. A solid black carbon residue remaining after valuable hydrocarbons are extracted from bitumen. A vessel in which bitumen is cracked into lighter fractions and withdrawn to start the conversion of bitumen into upgraded crude oil. The lighter fractions, primarily naphtha and gas oils, become the main ingredients of the final blend. A mixture comprised mainly of pentanes and heavier hydrocarbons recovered as a liquid from field separators, scrubbers or other gathering facilities or at the inlet of a natural gas processing plant before the gas is processed. Crude oil, which at a particular point in time, can be technically and economically produced through a well using normal production practices and without altering the natural viscous state of the oil. The process of breaking down larger, heavier more complex hydrocarbon molecules into smaller, lighter molecules. A method of recovering bitumen from a reservoir using steam injection to heat the reservoir to reduce the viscosity of the oil and provide pressure support for production. Oil production occurs in cycles, each of which begins with a period of steam injection followed by the same well being used as a producer. Refers to a plant that extracts ethane and heavier hydrocarbons from natural gas streams. Bitumen that has been reduced in viscosity through addition of a diluent (or solvent) such as condensate or naphtha. Any lighter hydrocarbon, usually pentanes plus, added to heavy crude oil or bitumen in order to facilitate its transport on crude oil pipelines. Fraction of crude oil; a term generally used for naphthas, diesel, kerosene and fuel oils. A blend of bitumen, condensate and synthetic crude oil that has similar properties to medium sour crude. A biological community of interacting organisms and their physical environment. National Energy Board 53

122 Ethane Extraction Groundwater Heat rate The simplest straight-chain hydrocarbon structure with two carbon atoms. A process unique to the oil sands industry, in which bitumen is separated from the oil sands. Water beneath the earth s surface, often between saturated soil and rock, that supplies wells and springs. The amount of input energy used to generate electricity, commonly expressed in gigajoules per gigawatt hour (GJ/GW.h). Heavy crude oil Generally, a crude oil having a density greater than 900 kg/m 3. Horizontal well Hydrocarbons Hydrocracking Hydrotreating Integrated mining plant In situ recovery Light crude oil Lloyminster Blend Merchant upgrader A well that deviates from the vertical and is drilled horizontally along the pay zone. In a horizontal well, the horizontal extension is that part of the wellbore beyond the point where it first deviates by 80 degrees or more from vertical. Organic chemical compounds of hydrogen and carbon atoms that form the basis of all petroleum products. Hydrocarbons may be liquid, gaseous or solid. The breaking of hydrocarbon chains into smaller molecules in the presence of hydrogen and a catalyst such as platinum. The end result is a high quality gasoline and other light hydrocarbons. A process used to saturate olefins and improve hydrocarbon stream quality by removing unwanted materials such as nitrogen, sulphur, and metals utilizing a selected catalyst in a hydrogen environment. A combined mining and upgrading operation where oil sands are mined from open pits. The bitumen is then separated from the sand and upgraded by a refining process. The process of recovering crude bitumen from oil sands other than by surface mining. Generally, crude oil having a density less than 900 kg/m 3. Also a collective term used to refer to conventional light crude oil, upgraded heavy crude oil and pentanes plus. LLB is a heavy crude oil, produced in Canada, which is the benchmark grade of crude oil for Canadian price quotations. Processing facilities that are linked not to any specific extraction project, but designed to accept raw bitumen on a contract basis from producers. 54 An energy market assessment

123 Natural gas liquids Off-gas Oil sands Olefins PADD Paraffin Pentanes plus Real price Reclamation Recovery - Primary Remedial action scheme Reserves - Established Reserves - Initial established Reserves - Proven Reserves - Remaining Reservoir Those hydrocarbon components recovered from natural gas as liquids. These liquids include, but are not limited to, ethane, propane, butanes and pentanes plus. A mixture of hydrogen and light hydrocarbon gases (including paraffins ethane, propane and butanes; and olefins ethylene, propylene and butylenes) produced when bitumen is upgraded to synthetic crude oil. Sand and other rock material that contains bitumen. Each particle of oil sand is coated with a layer of water and a thin film of bitumen. Refers to any open-chain hydrocarbon such as ethylene, propylene and butylenes, having the general formula C n H 2n with a carbon-to-carbon double bond. Petroleum Administration for Defense District that defines a market area for crude oil in the U.S. A straight-chain hydrocarbon without double bonds; also called an alkane. A mixture mainly of pentanes and heavier hydrocarbons obtained from the processing of raw gas, condensate or crude oil. The price of a commodity after adjusting for inflation. In this report most real energy prices are expressed in 2005 dollars. Returning disturbed land to a stable, biologically-productive state. The extraction of crude oil from reservoirs utilizing the natural energy available in the reservoirs and pumping techniques. A system to prevent a cascading blackout of a power system by taking generation out of service if part of the transmission system fails. The sum of the proven reserves and half probable reserves. Established reserves prior to deduction of any production. Reserves recoverable under current technology and present and anticipated economic conditions, specifically demonstrated by drilling, testing or production. Initial reserves less cumulative production at a given time. A reservoir (or pool) is a porous and permeable underground rock formation containing a natural accumulation of crude oil that is confined by impermeable rock or water barriers. National Energy Board 55

124 Resources - Recoverable SAGD Straddle plant Supply cost Surface water SynBit Synthetic gas liquids Synthetic crude oil Unconventional crude oil Upgraded crude oil Upgrading VAPEX West Texas Intermediate That portion of the ultimate resources potential recoverable under expected economic and technical conditions. Steam Assisted Gravity Drainage is a steam stimulation technique using horizontal wells in which the bitumen drains, by gravity, into the producing wellbore. In contrast to cyclic steam stimulation, steam injection and oil production are continuous and simultaneous. A reprocessing plant located on a gas pipeline. It extracts natural gas liquids from previously processed gas before the gas leaves or is consumed within the province. Expresses all costs associated with resource exploitation as an average cost per unit of production over the project life. It includes capital costs associated with exploration, development, production, operating costs, taxes, royalties and producer rate of return. Lakes and rivers. A blend of bitumen and synthetic crude oil that has similar properties to medium sour crude. Refers to the liquids (ethane, ethylene and propylene in particular) produced from upgrading bitumen to synthetic crude oil. Synthetic crude oil is a mixture of hydrocarbons generally similar to light sweet crude oil, derived by upgrading crude bitumen or heavy crude oil. Crude oil that is not classified as conventional crude oil (e.g., bitumen). Generally refers to crude bitumen and heavy crude oil that have undergone some degree of upgrading, but is commonly synonymous with synthetic crude oil. The process of converting bitumen or heavy crude oil into a higher quality crude oil either by the removal of carbon (coking) or the addition of hydrogen (hydroprocessing). Vaporized Extraction is a process similar to SAGD but using a vaporized hydrocarbon solvent, rather than steam, to reduce the viscosity of crude oil in the reservoir. WTI is a light sweet crude oil, produced in the United States, which is the benchmark grade of crude oil for North American price quotations. 56 An energy market assessment

125 Ca hp ap pe t n e d r i x O n Oe n e Economic and Market Assumptions for Supply Cost Models t a b l e A 1. 1 Economic Assumptions Rate of Return 10 percent real, 12 percent nominal Royalty Alberta oil sands regime Federal Taxes Current oil sands terms Provincial Taxes Current Alberta rates Inflation constant (percent) 2.0 Exchange Rate US$/C$ 0.85 t a b l e A 1. 2 Market Pricing Assumptions Natural gas NYMEX (US$ per MMBtu) 7.50 Natural gas AECO (C$/GJ) 8.25 NYMEX AECO Natural Gas (US$ per MMbtu) 0.50 Cushing, OK (US$ per barrel) Condensate premium over Edmonton (percent) Edmonton Edmonton (US$ per barrel) 0.00 Edmonton Lloydminster Hardisty (US$ per barrel) Heavy crude transportation differential to Chicago: Hardisty vs. Cushing (US$ per barrel) 1.25 Light crude transportation differential to Chicago: Edmonton vs. Cushing (US$ per barrel) 1.00 National Energy Board 57

126 a p p e n d i x t w o Assumptions for Athabasca SAGD Model t a b l e A 2. 1 Project Assumptions: High-Quality SAGD (costs in per barrel of bitumen produced) Steam-to-oil ratio (dry) 2.5 Natural gas consumption (Mcf/b) 1.05 Non-gas cash operating costs a (C$ per barrel) 3.50 Reduction in operating costs (percent per year) 0 Required diluent percent of blend volume 33.3 Project start date 2006 Project end date 2047 Kyoto compliance cost (C$ per barrel) 0.00 Capital expenditures to first oil (millions C$ 2005) 450 Capital expenditures over project life (billions C$ 2005) 2.7 Condensate transportation to Plant (C$ per barrel) 0.80 Bitumen blend transportation differential: Plant vs. Hardisty (C$ per barrel) 1.15 a Other non-gas cash operating costs include purchased power, administration, environmental and other direct costs associated with the operation. t a b l e A 2. 2 Phase Schedule: High-Quality SAGD First Oil Cumulative Production (m 3 /d) Cumulative Production (b/d) Phase ,000 Phase ,000 Phase ,000 Phase ,000 t a b l e A 2. 3 Reservoir Assumptions: High-Quality SAGD Oil sands area Athabasca Oil sands deposit McMurray API 8 Continuous pay thickness (m) 35 Porosity (percent) 35 Effective vertical permeability (Darcies) 5 58 An energy market assessment

127 a p p e n d i x T h r e e Assumptions for Athabasca Mining/Extraction and Upgrading Model t a b l e A 3. 1 Project Assumptions Mining Extraction & Upgrading External natural gas consumption (Mcf/b) 0.75 Non-gas cash operating costs a (C$ per barrel) Reduction in operating costs (percent per year) 0.00 Kyoto compliance cost (C$ per barrel) 0.00 Capital maintenance cost (C$ per barrel) 1.25 Capital expenditure excluding maintenance capital (billions C$) 10.0 Project start date 2006 Project end date 2050 Transportation differential: Plant vs. Edmonton (C$ per barrel) 0.70 a Other non-gas cash operating costs include purchased power, administration, environmental and other direct costs associated with the operation. t a b l e A 3. 2 Phase Schedule First Oil Cumulative Production (m 3 /d) Cumulative Production (b/d) Phase ,000 Phase ,000 t a b l e A 3. 3 Reservoir Assumptions Oil Sands Area Athabasca Oil Sands Deposit McMurray API 8 Bitumen grade weight percent 11 National Energy Board 59

128 a p p e n d i x f o u r Oil Sands Projects Northern Lights Fort Hills Aurora Horizon Joslyn Creek Syncrude Jackpine Kearl Lake Sunrise Borealis Muskeg River Firebag Lewis Peace River Cadotte Lake Seal UTF Dover MacKay River Millennium Pelican Lake Britnell Suncor Hangingstone Great Divide Meadow Creek Fort McMurray Surmont Christina Lake (MEG) Long Lake Christina Lake (EnCana) Jackfish Creek Foster Creek Kirby Caribou Cold Lake Tucker Lake Peace River Project Region Athabasca Project Region Fort McMurray Wolf Lake / Primrose Orion Bonnyville Beaverdam Cold Lake Lindbergh Frog Lake Edmonton Calgary Cold Lake Project Region LEGEND In Situ Projects Orion Kirby Wolf Lake/Primrose Surmont Great Divide UTF (Dover) Jackfish Creek Borealis Christina Lake Foster Creek Caribou Sunrise Tucker Lake Cold Lake Hangingstone Christina Lake Long Lake Lewis MacKay River Meadow Creek Cadotte Lake Firebag Joslyn Creek Operator BlackRock Ventures Canadian Natural Resources Canadian Natural Resources ConocoPhillips/Total Connacher Oil and Gas Devon Energy Devon Energy EnCana EnCana EnCana Husky Energy Husky Energy Husky Energy Imperial Oil Japan Canada Oil Sands (JACOS) MEG OPTI/Nexen Petro-Canada Petro-Canada Petro-Canada/Nexen Shell Canada Suncor Energy Total E&P Canada Mining Projects Muskeg River Jackpine Mine Horizon* Kearl Lake Suncor Base Mine Millennium Syncrude Base Mine Aurora Northern Lights Fort Hills Joslyn Creek Major Primary Production Areas SEAL Pelican Lake Lindbergh Frog Lake Brintnell Bonnyville Beaverdam * Includes plans for both in situ and mining Operator Albian Sands (Shell/Chevron/Western Oil Sands) Albian Sands (Shell/Chevron/Western Oil Sands) Canadian Natural Resources Imperial Oil Suncor Energy Suncor Energy Syncrude Joint Venture Syncrude Joint Venture Synenco Petro-Canada/UTS Energy/Teck Cominco Total E&P Canada 60 An energy market assessment

129 Mining/Extraction and Upgrading Projects Company/Project Name Athabasca Oil Sands Project CNRL Muskeg River Mine Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Existing Facilities Operating , Expansion and Debottleneck Application , Jackpine Mine Phase 1A Approved , Phase 1B Approved , Phase 2 Disclosure , Scotford Upgrader Phase 1 Operating , Debottleneck Application , Expansion Application , Horizon Mine & Upgrader Phase 1 Construction , Phase 2 Approved , Phase 3 Approved , Phase 4 Announced , Phase 5 Announced , Primrose Upgrader Phase 1 Announced , Phase 2 Announced , Fort Mackay First Nation Husky Fort Mackay Mine Phase 1 Announced TBD TBD TBD Lloydminster Upgrader Existing Operations Operating , Debottleneck Construction , Expansion Announced TBD 67, Imperial/ExxonMobil Kearl Mine Phase 1 Application , Phase 2 Application , Phase 3 Application , National Energy Board 61

130 Mining/Extraction and Upgrading Projects (continued) Company/Project Name OPTI/Nexen Long Lake Upgrader Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1 Construction , Phase 2 (South) Approved , Phase 3 Announced , Phase 4 Announced , Petro-Canada/UTS/Teck Cominco Suncor Fort Hills Mine Phase 1/2 Approved , Phase 3/4 Approved , Fort Hills Upgrader Phase 1/2 Announced , Phase 3/4 Announced , Steepbank & Millennium Mine Steepbank & N.Steepbank Extension Operating , Steepbank Debottleneck Construction , Millennium Debottleneck Construction , Tar Island Upgrader Base U1 and U2 Operating , Millennium Vacuum Unit Operating , Millennium Coker Unit Construction , Voyageur Upgrader Syncrude Synenco Phase 1 Application , Phase 2 Application , Mildred Lake & Aurora Mining and Upgraders Existing Facilities Operating , Stage 3 Expansion Construction , Stage 3 Debottleneck Announced , Stage 4 Expansion Announced , Northern Lights Mine Phase 1 Disclosure , Phase 2 Disclosure , Northern Lights Upgrader Phase 1 Disclosure , Phase 2 Disclosure , An energy market assessment

131 Mining/Extraction and Upgrading Projects (continued) Company/Project Name Total E&P (formerly Deer Creek) Joslyn Mine Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1 (North) Application , Phase 2 (North) Application , Phase 3 (South) Announced , Phase 4 (South) Announced , Joslyn/Surmont Upgrader Value Creation Phase 1 Announced , Phase 2 Announced , North Joslyn Upgrader Phase 1 Announced 40, Merchant Upgraders Company/Project Name BA Energy Heartland Upgrader Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1 Construction , Phase 2 Approved , Phase 3 Approved , BA Energy North West Upgrading North West Upgrade Phase 1 Application , Phase 2 Application , Phase 3 Application , Peace River Oil Upgrading Bluesky Upgrader Phase 1 Announced , Phase 2 Announced TBD 25, Phase 3 Announced TBD 25, Phase 4 Announced TBD 25, National Energy Board 63

132 In Situ Projects Athabasca Oil Sands Area In Situ Projects Company/Project Name CNRL Birch Mountain Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1 Announced , Phase 2 Announced , Gregoire Lake Kirby Connacher Phase 1 Announced , Phase 2 Announced , Phase 3 Announced , Phase 4 Announced , Phase 1 Approved , Great Divide ConocoPhillips Devon EnCana Surmont Jackfish Borealis Phase 1 Application , Phase 1 Construction , Phase 2 Approved , Phase 3 Approved , Phase 4 Approved , Jackfish 1 Construction , Jackfish 2 Disclosure , Phase 1 Announced , Phase 2 Announced , Phase 3 Announced , Phase 4 Announced , Phase 5 Announced , An energy market assessment

133 Athabasca Oil Sands Area In Situ Projects (continued) Company/Project Name Husky JACOS MEG Christina Lake Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1A Operating , Phase 1B Approved , Phase 1C Approved , Phase 1D Announced , Unnamed Expansion 1 Announced , Unnamed Expansion 2 Announced , Unnamed Expansion 3 Announced , Unnamed Expansion 4 Announced , Unnamed Expansion 5 Announced , Foster Creek Sunrise Phase 1A Operating , Phase 1B - Debottleneck Operating , Phase 1C - Stage 1 Operating , Phase 1C - Stage 2 Construction , Phase 1D Announced , Phase 1E Announced , Unnamed Expansion 1 Announced , Unnamed Expansion 2 Announced , Phase 1 Approved , Phase 2 Approved , Phase 3 Approved , Phase 4 Approved , Hangingstone Pilot Operating , Phase 1 Disclosure , Phase 2 Disclosure , Christina Lake Pilot Construction , Commercial Application , National Energy Board 65

134 Athabasca Oil Sands Area In Situ Projects (continued) Company/Project Name North American Kai Kos Dehseh OPTI/Nexen Orion Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1 Announced , Phase 2 Announced , Phase 3 Announced , Phase 4 Announced , Phase 5 Announced , Long Lake Pilot Operating , Phase 1 Construction , Phase 2 (South) Disclosure , Phase 3 Announced , Phase 4 Announced 2014 Whitesands Petro-Canada Chard Dover Lewis Pilot Startup , Phase 1 Announced TBD 40, SAGD Pilot Operating , VAPEX Pilot Operating Phase 1 Disclosure TBD 40, Phase 2 Disclosure TBD 40, MacKay River Phase 1 Operating , Phase 2 Application , Meadow Creek Lewis Phase 1 Approved TBD 40, Phase 2 Approved TBD Phase 1 Disclosure TBD 40, Phase 2 Disclosure TBD 40, An energy market assessment

135 Athabasca Oil Sands Area In Situ Projects (continued) Company/Project Name Suncor Firebag Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1 Operating , Phase 2 Operating , Cogeneration and Expansion Construction , Phase 3 Approved , Phase 4 Approved , Phase 5 Announced , Phase 6 Announced , Phase 7 Announced , Phase 8 Announced , Total E&P (Deer Creek) Joslyn Value Creation Phase 1 Operating , Phase 2 Construction , Phase 3a Disclosure , Phase 3b Disclosure , Halfway Creek Phase 1 Announced , North Joslyn Phase 1 Announced TBD 40, Cold Lake Oil Sands Area In Situ Projects Company/Project Name BlackRock CNRL Orion (Hilda Lake) Primrose Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Pilot Operating Phase 1 Approved , Phase 2 Approved , Primrose South Operating , Primrose North Construction , Primrose East Application , National Energy Board 67

136 Cold Lake Oil Sands Area In Situ Projects (continued) Company/Project Name Husky Tucker Lake Imperial Oil Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Phase 1 Construction , Cold Lake Phases 1-10: Leming, Maskwa, Mahikan Operating , Phases 11-13: Mahkeses Operating , Phases 14-16: Nabiye, Mahikan North Construction , Peace River In Situ Projects Company/Project Name Shell Cadotte Lake Project Status Startup Date Bitumen Capacity (b/d) (m 3 /d) Pilot Operating , Phase 1 Operating , Carmon Creek Phase 1 Disclosure , Phase 1 Expansion Announced , Phase 2 Announced , Source: Strategy West Inc., Alberta Economic Development, NEB 68 An energy market assessment

137 a p p e n d i x f i v e Conversion Factors and Energy Contents Abbreviation Table Prefixes Equivalent K kilo 10 3 M mega 10 6 G giga 10 9 T tera P peta E exa Energy Content Table Energy Measures Energy Content GJ gigajoules 0.95 million Btu Electricity Energy Content MW megawatt GW.h gigawatt hour 3600 GJ TW.h terawatt hour 3.6 PJ Energy Natural Gas Content MMBtu million British thermal units 1.05 GJ Mcf thousand cubic feet 1.05 GJ Bcf billion cubic feet 1.05 PJ Physical Units Imperial/Metric Conversion Table Equivalent m metre 3.28 feet m 3 cubic metres 6.3 barrels (oil, LPG) 35.3 cubic feet (gas) L litre 0.22 imperial gallon b barrel (oil, LPG) m 3 Energy Content Table Natural Gas Liquids Energy Content m 3 Ethane GJ m 3 Propane GJ m 3 Butanes GJ Crude Oil Energy Content m 3 Light GJ m 3 Heavy GJ m 3 Pentanes Plus GJ National Energy Board 69

138 End Notes i ii iii iv v vi vii viii ix x xi xii xiii xiv Alberta Energy and Utilities Board (EUB). Alberta s Reserves 2004 and Supply/Demand Outlook Statistical Series (ST) Calgary, Alberta, September p. 2. Alberta Energy and Utilities Board (EUB). Alberta s Reserves 2004 and Supply/Demand Outlook Statistical Series (ST) Calgary, Alberta, September p. 2. Pembina Institute. Troubled Waters, Troubling Trends - Technology and Policy Options to Reduce Water Use in Oil and Oil Sands Development in Alberta. May p 16. Communications with Alberta Environment and NEB. March 9, This includes allocations for the CNRL s Horizon project and the Shell Jackpine project. Golder Associates Ltd. A compilation of information and data on water supply and demand in the lower Athabasca River Reach (2005). Prepared for the CEMA Surface Water Group. River flows are lowest between November and March. The mean flow is about 169 cubic metres (44,600 US gallons) per second. Alberta Energy and Utilities Board (EUB). Alberta s Reserves 2004 and Supply/Demand Outlook Statistical Series (ST) Calgary, Alberta, September 2005 p. 2. Pembina Institute. Oil Sands Fever - The Environmental Implications of Canada s Oil Sands Rush. November p. 35. Pembina Institute. Oil Sands Fever - The Environmental Implications of Canada s Oil Sands Rush. November p. 33. The Pembina Institute s created four scenarios to project future GHG emission growth. The second best scenario for GHG emission projections is used. Source: Pembina Institute. Oil Sands Fever - The Environmental Implications of Canada s Oil Sands Rush. November p. 20. Bachu and Shaw. Evaluation of the CO2 sequestration capacity in Alberta s oil and gas reservoirs at depletion and the effect of underlying aquifers. Journal of Canadian Petroleum Technology, v. 42. no. 9 p , Government of Canada, Moving Forward on Climate Change A Plan for Honouring our Kyoto Commitment (2005). p. 5. Available at: Sustainability: The Dollars and Sense. Clive Mather, Shell Canada Limited presentation to Vancouver Board of Trade. 2 March, The Regional Municipality of Wood Buffalo is located in northeastern Alberta, and includes the communities of Fort McMurray, Anzac, Conklin, Draper, Fort Chipewyan, Fort Fitzgerald, Fort MacKay, Gregoire Lake Estates, Janvier, Mariana Lake and Saprae Creek Estates. 70 An energy market assessment

139 xv xvi xvii xviii Construction Owners Association of Alberta. COAA on Labour Shortages: Key Messages. December Nichols Applied Management. Understanding Alberta s Labour Force: Looking to the Future. A discussion document for Alberta Human Resources and Employment. September Alberta Human Resources and Employment, Building and Educating Tomorrow s Workforce: A framework to enhance Alberta s people capacity, 10-Year Strategy. Consultation Version. January 27, Alberta Learning Minister, Federal Minister of Human Resources and Skills Development Canada, Minister of Citizenship and Immigration Canada, Memorandum of Understanding for the Entry of Temporary Foreign Workers for Projects in the Alberta Oil Sands. xix Athabasca Regional Issues Working Group, Fact Sheet, June xx Athabasca Regional Issues Working Group, Fact Sheet, June xxi xxii xxiii xxiv xxv xxvi xxvii xxviii xxix xxx Nichols Applied Management. Sustainable Community Indicators Summary Report. Revised Version, January Fort McMurray Real Estate Board. Edmonton Real Estate Board. Calgary Real Estate Board. Fort McMurray Landlord and Tenants Advisory Board. Athabasca Regional Issues Working Group (RIWG) in conjunction with: Regional Municipality of Wood Buffalo, Fort McMurray Public Schools, Fort McMurray Catholic Board of Education, Northland School Division, Keyano College and Northern Lights Health Region. Wood Buffalo Business Case 2005: A Business Case for Government Investment in the Wood Buffalo Region s Infrastructure. March This would entail constructing a small dyke in a low-lying area and then pumping water from the Athabasca River during periods of high flow to create a stockpile of water. This stockpile could then be re-released during periods of low flow to increase river flows and allow oil sands mine operations to continue water withdrawals. Source: Golder Associates. Water supply security for oil sands mines by upstream offsite storage. water_usage/water_supply securityfor_oil_sands_mines_sawatsky.pdf. AESO. Power attributes refers to the environmental and social attributes associated with the way the electricity is generated. Syngas, or synthesis gas, is a mixture of hydrogen and carbon monoxide that can be produced from a number of sources, including coal, or more commonly for the oil sands, heavy bitumen or asphaltenes produced in the upgrading process. National Energy Board 71

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