Canada's oil sands industry: Made in China?

A wild plan to cut costs by building synthetic crude oil rigs in Asia and floating them to Alberta

Published December 7, 2006 4:58PM (EST)

Talk about your industrial-strength outsourcing. Northern Lights, an oil sands developer in Canada, announced on Wednesday ambitious plans to outsource the construction of thirty 2000 ton "modules" that would be part of its planned tar sands mining complex in the go go oil patch of Alberta.

The reason, according to Synenco Energy Co. president Todd Newtown: "Overseas execution allows labor costs... to be reduced dramatically." (Synenco owns 60 percent of Northern Lights.)

When the price of a conventional barrel of crude oil broke $50 dollars, investment in Canada's oil sands skyrocketed. But mining the sticky, dense bitumen tar and converting it into synthetic crude is a hugely expensive process and getting more so all the time. Cost estimates have surged, doubling or even tripling over the last 12 months. So much so, that Newton actually thinks it would be cheaper to build these gigantic modules -- crushing stations that process the dirt dug up from beneath the pristine boreal forest and extraction plants that recover the bitumen from the dirt -- in China or South Korea, and then ship them through the Bering Strait and up the Mackenzie river before being plugged together in Alberta.

But there's a further twist. Northern Lights is 40 percent owned by China's Sinopec. Northern Lights is the largest of a handful of deals signed by Chinese oil companies eager to exploit the oil sands reserves. This raises the convoluted possibility that, in order to satisfy China's energy needs, China plans to build oil sands extraction rigs and ship them to Canada, where they will produce oil which in turn will be sent back to China, where it will no doubt power the further expansion of China's industrial infrastructure.

Canadian journalists immediately began criticizing the shipping of high-paid construction jobs to China, although by most accounts there is a severe shortage of everything in Alberta's Wild West oil patch, including labor, construction machinery, building materials, and water.

The real story here may be that the attempt to cut costs on labor is a way of papering over the true long term problem. It takes energy to make energy in the oil patch. Lots of it. Digging up bitumen and coverting it to crude is tremendously energy intensive, so much so that there has been talk about building new nuclear reactors to power the process.

Maybe China will build those too, at a cut-rate price. Imagine that, a convoy of nuclear reactors, made in China, navigating the rapids of the Mackenzie river, to provide power for the extraction of synthetic oil which will fuel the cars by which China's nuclear engineers get to work.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

MORE FROM Andrew Leonard

Related Topics ------------------------------------------

Canada China Globalization How The World Works