How the West Was Drilled
From Alberta to the Brazilian Coast, a tour of the new American oil frontier that could eclipse the Middle East.
CANADIAN OIL SANDS
In 1999, Canada surpassed Saudi Arabia as the United States’ largest source of oil imports, and today a full half of the country’s oil production comes from Alberta’s so-called tar or oil sands: a form of petroleum found in a mixture of sand, clay, and bitumen that is either mined in pits or extracted by pumping steam into wells. The U.S. Department of Energy’s Energy Information Administration predicts that Canada’s oil sands production will double over the next five years, adding another 1.3 million barrels a day.
But producing oil sands is a messy, emissions-intensive business; according to the U.S. Environmental Protection Agency, the extraction process produces 82 percent more emissions than conventional oil drilling. Canadian officials and oil company executives have argued that these concerns are overstated — and indeed, credible outside calculations have found far lower impacts, closer to 17 percent greater than conventional oil. But Canada’s own environmental agency warns that oil sands production will cancel out the country’s efforts to reduce its overall carbon emissions. Oil sands advocates have seen an opening, however, in Americans’ perpetual nervousness over its reliance on oil imports from unfriendly and autocratic regimes, as well as a newly restive Middle East, and have increasingly argued for Canadian petroleum as an alternative to “conflict oil” tanked in from dodgier countries.
The proposed construction of the 1,700-mile Keystone XL pipeline connecting Alberta’s oil sands with the Gulf of Mexico’s refineries, the linchpin of Canada’s oil-sands expansion plans, has become the subject of a proxy battle over the wisdom of oil sands development. In June, the U.S. Department of Transportation ordered a smaller sister pipeline to suspend operations in June following a series of leaks. But the companies involved in the project say they will export the oil with or without the pipeline, and in the meantime U.S. demand isn’t going anywhere.
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In August 2005, Brazilian petroleum geologists discovered the first traces of oil in the Santos basin, an area more than 150 miles off the country’s Atlantic coast. The oil is what is known as a “pre-salt” reserve: a deposit located beneath more than 3 miles of ocean and earth, directly below a layer of compressed salt. This is oil drilling at its most mind-bendingly complex, executable only in the last decade or so thanks to advances in technology, and only then with the expertise of the world’s biggest oil companies (who have shown plenty of interest).
But the potential payoff is immense. The largest known field in the Santos Basin — named “Lula” in 2010 after outgoing Brazilian President Luiz Inacio Lula da Silva, who was on hand for the first pre-salt production test there in October of last year (above) — is the most significant oil discovery in Latin America in several decades. Geologists believe the basin as a whole — itself just one of several promising pre-salt prospects — could contain as much as 50 billion barrels of oil and gas, enough to ensconce Brazil firmly among the world’s top 10 oil producers. Current production (which is still in the test stage) is a relative trickle — 36,000 barrels a day — but Petrobras, Brazil’s national oil company, is investing nearly $33 billion in pre-salt projects over the next five years in anticipation of the boom to come.
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GULF OF MEXICO DEEPWATER
A stash of hydrocarbons equal to all of Norway’s oil and Canada’s natural gas put together is thought to exist below the U.S. waters in the Gulf of Mexico — and last year’s catastrophic Deepwater Horizon disaster is unlikely to be more than a speed bump in the race to tap them. Barack Obama’s administration imposed a moratorium on deepwater drilling after the rig explosion unleashed a three-month, 4.9 million-barrel spill — the worst in American history — but the ban was lifted this spring after new regulations were put in place. Though some areas remain off-limits, new permitting began in February. Even BP, the company responsible for the spill, is getting back in the game.
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It was natural gas that originally piqued energy companies’ interest in south Texas’s Eagle Ford shale formation. But over the past two years, as petroleum prices have gradually climbed back toward the heights of early 2008, producers have turned their attention to the Lone Star state’s reserves of shale oil, which is extracted from rock formations with the controversial technique of hydraulic fracturing. The Eagle Ford is now producing 71,000 barrels of oil a day, and is expected to turn out as much as five times that amount by 2015.
Even more extraordinary is the Bakken shale formation beneath North Dakota, Montana, and Saskatchewan (above), which the U.S. Geological Survey believes has between 3 and 4.3 billion barrels of recoverable oil in it — 25 times what geologists thought a decade and a half ago. There’s also the Niobrara shale in Wyoming, estimated to contain 2 billion barrels of oil.
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Geologists have known how to extract petroleum from oil shale (confusingly, not the same thing as shale oil; the former is oil trapped in dense but porous rock formations, the latter is petroleum actually found in the rock itself) since the 1830s. The problem has been the cost. Oil companies tried to make a go of it in Colorado in the 1970s and 1980s, but the effort ended in a multi-billion-dollar boondoggle. The intermittently high oil prices of the past decade, however, have brought oil majors like Shell back to what would be the largest oil reserve in the world, if they can figure out how to profitably tap it. The Mountain West’s oil-shale resources dwarf Saudi Arabia’s proven oil reserves by a factor of three.
Past efforts to get at the region’s oil shale have involved strip-mining, a technique that proved both environmentally destructive and prohibitively expensive. This time around, Shell’s ambitious plan involves actually heating the earth itself, which turns the kerogen — a chemical compound embedded in the rock — into extractable oil and gas.