Oil sands battle between Canada and EU

Justin Rowlatt interviews the Canadian minister of Natural Resources, Joe Oliver.

Canada is now one of the world's energy superpowers.

Over the past two decades, changes in technology and the rising cost of oil have left it with so much recoverable oil in the sands, rocks and clay of the province of Alberta that it is now believed to hold the third largest reserves on earth - after Saudi Arabia and Venezuela.

But most of that is so far un-tapped, with Canada accounting for little over 4% of global oil production in 2010 according to BP's annual statistical review.

To increase that share it must gain global acceptance of the heavy, sticky and, some say, more polluting oil it has found.

For Canada's government, the world has no choice - despite its climatic consequences.

"You can turn off your lights and freeze in the dark, the alternative is to use the energy, which of course you are using, everybody is using," says Joe Oliver, Canada's minister for natural resources.

Export problems
A rock containing bitumen Rocks containing bitumen are broken up using water and chemicals to extract the oil

But for ministers meeting at the latest climate change summit in Durban, South Africa, the decision on whether to embrace new, more polluting, forms of fossil fuel may seem less obvious.

In both the US and EU there is mounting opposition to importing oil mined from tar sands.

In the US, President Barack Obama has delayed a decision on a major new pipeline between Canada and the US until after the next election.

And in the EU, the European Commission is pushing legislation which would see Canadian oil classified as more damaging to the environment than some other oil imports, effectively limiting future demand.

Canadian oil seems a far less popular product than the country's staple sticky export, maple syrup.

'Tar sands'

The latest BP review estimated that, in 2010, Canada had more than 175bn barrels of recoverable oil - just behind Venezuela at 211bn and Saudi Arabia's 264bn.

Where is the oil?

Source: BP statistical bulletin for 2010

Proved reserves (bn barrels)

Production (thousand barrels per day)

Saudi Arabia






Canada (current proven)



Canada oil sands (recoverable)





















But not all oil comes out the same.

Whilst Saudi oil is relatively light and comes out of the ground relatively easily - at a cost often of less than $10 a barrel - Canadian oil is heavy, sticky and can cost more than $60 a barrel to extract.

Most of Venezuela's oil fits into the same category - though it is extracted differently.

This high cost makes extracting Canadian oil more risky; investment almost ground to halt during the recession as the price of oil fell below the cost of production.

The product produced is called bitumen - often labelled as tar by its opponents.

"First of all, they are not tar sands, they're oil sands," says Mr Oliver.

To be extracted, the oil - or tar - must first be separated from a mix of sand and clay, a process which is both energy and water intensive.

Some environmentalists, and the EU, argue that this means that burning oil extracted from oil sands emits more carbon dioxide than burning oil from more conventional sources.

EU battle

In proposed EU legislation, oil from oil sands is given a greenhouse gas value of 107 grams of carbon per megajoule of energy produced, compared with conventional crude's allocation of 87.5 grams.

That is to say, if you burn oil from oil sands in your car - rather than from reservoirs under the Saudi desert - you will, overall, have been responsible for about 19% more Co2 emissions.

The crude oil sands extraction facility Oil sands extraction is energy intensive

If agreed, the EU says, the rules would complete legislation introduced in 2008 to reduce the carbon intensity of EU transport fuels by 6% by 2020.

For Canada, which already must cope with a relatively high cost of production, it would make it almost impossible to export to the economic bloc.

"It would virtually create a ban against tar sands in the EU," says Greenpeace's Charlie Kronick.

Currently, oil from sands accounts for just 0.01% of EU fuels but as more comes on stream this could increase significantly.

Start Quote

If the world doesn't want our oil, it doesn't have to buy our oil”

End Quote Joe Oliver Canadian Minister for Natural Resources

"Of course we know that this percentage will only increase over the coming years," says EU spokesperson Isaac Valero Ladron

Last week, Canada's national energy board said it expected production from oil sands to triple by 2035 to 5.1m barrels a day.

"I think it's very clear the signal that we are sending here in Europe about tar sands," adds Mr Ladron.

But which way Europe goes will ultimately be decided by its member states - through a qualified majority vote.

So far, the UK is reported to oppose the change, backed by some Eastern European states which hope to have their own reserves of un-conventional oil to export.

"It's absolutely balanced on a knife edge," says Mr Kronick.

The vote is likely to be influenced by events in the US - which is, in the short term, where Canadian tar sands would probably go to be exported to the EU.

US worries

Their approval had been expected for a new pipeline from Alberta and through the US to Texas earlier this year, the Keystone XL.

The new route - which follows from the existing Keystone pipeline - would not only help transport the oil to the US, but would give greater access to Texan-based refineries and ports able to export to fast growing Asian markets.

Indeed, Chinese firms are increasingly taking an active role in the oil sands industry, taking stakes in Canadian firms.

Protester and police Demonstrators took their case to the US capital, Washington DC

On Monday, one of China's three main state-owned oil and gas producers, CNOOC, said it had completed its takeover of troubled oil sands producer OPTI Canada, the latest in a string of investments.

However, the $7bn (£4.4bn) pipeline, which could have increased exports to the Far East, has now been delayed.

The US state department - backed by Mr Obama - has asked for the company to consider alternative routings after complaints by environmentalists and legislation in the state of Nebraska which may have blocked the planned route.

The delay will last until after the presidential election, saving Mr Obama from a tricky pre-election decision.

Carbon cost

Ultimately, the fate of oil from Alberta's sands is intricately linked to the climate change negotiations on the other side of the planet.

If leaders eventually agree on a global cost for carbon dioxide emissions it could make extracting oil from sand simply uneconomic.

A bitumen pipe from a oil sands facility Piping the oil out of Canada could increase the world's oil supply

Instead, investment may go into alternative forms of energy and investors in oil sands may lose out.

But until then, for Canada, it is simply a question of supply and demand.

"If the world doesn't want our oil, it doesn't have to buy our oil," says Mr Oliver.

Much of the world may want to buy it - but Canada is having trouble getting it to them.

More on This Story

Business of Energy

More Business stories


BBC Business Live

    BORIS ISLAND 11:30:

    Saga travel reacts to the shelving of Boris's plan: "With Howard Davies's Airport Commission now sinking Boris Island airport in the Thames Estuary, the Government needs to accelerate the decision to pick Heathrow or Gatwick. Governments of many hues have avoided making a decision, but we need politicians with a backbone, not the will of a jellied eel, if Britain is to get the airport capacity it needs."

    Aston Martin

    Aston Martin has hired Nissan executive Andy Palmer as its new chief executive after nine months with no-one in the top job. Mr Palmer led Infiniti, a luxury Nissan brand.

    HELP TO BUY 10:59:

    The number of people who have benefited from the government's Help to Buy schemes has topped 48,000, according to official figures. But there was a slight drop in June in people taking advantage of the version which assists buyers of older properties. The help comes in two forms: an interest free loan for buyers of new properties and a mortgage guarantee for people purchasing "second hand" homes.

    BORIS ISLAND 10:44:

    BA comments on the end of Boris Island: "We've always said that there was no economic case for a Thames estuary airport so it's no surprise that the Davies Commission, after a thorough investigation, has ruled it out," it says, rather sniffily.


    European Union governments will consider putting new sanctions on Russia on Friday. Italy's foreign minister told the European Parliament the Commission was working on a tougher package of sanctions against Russia including defence, "dual use" goods and finance.

    EUROZONE RECOVERY Via Blog Robert Peston Economics editor

    The German and Italian economies are shrinking, and France is flat-lining, Robert says in his blog today. Unemployment remains hideously, intractably high - 11.5% for the eurozone as a whole. So, what does the future hold?

    THE POOND 10:01:
    Man with kilt, sporren and Scottish pound

    You'll have noted the small fall in the pound. This is a plausible enough reason - the growing threat of an independent Scotland. "A poll for the Sun and the Times newspapers showed support for the pro-independence "Yes" campaign had risen to 47%, a 4 point gain," notes Reuters. The "No" lead has narrowed from 22 points to just six now. Now, is this picture as inanely stereotypical as the earlier Swiss cheese one?

    BORIS ISLAND 09:45:

    OK, so what next for UK airport capacity? Having kyboshed Boris's island idea as too expensive and impractical, the commission has another year to pick from the remaining three options - two plans to expand Heathrow Airport and one to expand Gatwick Airport.

    MARKETS 09:20: BBC Radio 4

    An interesting nugget from BlackRock's investment boss Ewen Cameron Watt. He told Today the markets' current complacency will melt in the face of higher interest rates that everyone expects are on their way. He gives some striking figures: "A 1% rise in [UK] mortgage rates will add £800-900 to the average mortgage bill." And put a serious crimp in spending power.


    Europe's share markets have all opened modestly higher. The best gainer in the UK is Weir Group, which is up 3%. And the pound has fallen 0.25% against both the dollar and the euro. It is at $1.6568 and 1.2621 euros.

    • The FTSE 100 is up 20 at 6845
    • the Dax in Frankfurt is 68 higher at 9547
    • Paris's Cac 40 is 13 points higher at 4393
    SWISS ECONOMY 08:50:
    Big cheese

    No growth in Switzerland, reports the State Secretariat for Economics. A surprise: GDP was forecast to growth by about half a percent in the second quarter. Weaker exports and falling construction spending were the culprits. Yearly GDP growth was 0.6% - way under hopes of 1.7% growth. We will endeavour to find an even more fatuous picture before we pack up for the day. Might be hard.

    CHINA PROPERTY 08:34: Via Blog Linda Yueh Chief business correspondent

    The various steps that China is taking to stem house price rises seems to be working, but can the government manage an orderly slowdown in the property sector? Linda Yueh finds out here.

    BORIS ISLAND 08:19: Radio 5 live
    boris island

    Aviation expert David Bentley told Wake up to Money about one of the three remaining airport expansion options - that to expand Heathrow as a "hub", he says. A hub can mean base for airlines, or a major airport to change plane, as in a "hub and spoke system," he says. Whatever is decided, it will need to satisfy air travellers for the next 20 years or so, he adds.


    Australia's central bank kept its interest rate at a record low of 2.5% for a 12th consecutive policy meeting. The economy is growing sluggishly, initial data suggest.

    BORIS ISLAND Adam Parsons Business Correspondent

    tweets: Davies says Boris Island project would be "reckless" and unlikely to appeal to government "of any political colour"

    Redrow houses

    Redrow says a large number of its Help to Buy clients were first time buyers and over half were in the north of England. It says its order book is looking plump - up 85% on last year. Business Live has been debating Redrow's building style. Ease of upkeep of the wooden bits has excited debate.


    Housebuilder Redrow's results are here. The usual tale of rising prices and the government's Help to Buy scheme. Redrow reports a 13% increase in the average selling price to £239,500, record group revenues and record pre-tax profits (almost doubling). Help To Buy provided 35% of private completions.

    BORIS ISLAND 07:07:

    Sir Howard Davis, chairman of the commission, said it had come down against Boris's island airport plan because: "The economic disruption would be huge and there are environmental hurdles which it may prove impossible, or very time-consuming to surmount." Even the least-ambitious version of the scheme would cost £70-90bn."

    BORIS ISLAND 07:04:

    "The Airports Commission has today (2 September 2014) announced its decision not to add the inner Thames estuary airport proposal to its shortlist of options for providing new airport capacity by 2030. Following detailed further study into the feasibility of an inner Thames estuary airport the commission has concluded that the proposal has substantial disadvantages that collectively outweigh its potential benefits." A firm no, as expected.

    MARKETS 06:56: BBC Radio 4

    BlackRock is the world's largest asset manager with more than $4.5 trillion under management. Its investment boss Ewen Cameron Watt, discussing why markets are so steady in the face of so much global tension tells Today: "Volatility is exceptionally low by historical standards and there's too much money chasing too few assets."

    HSBC SHARES 06:42: Radio 5 live

    Ewen Cameron Watt, Chief Investment Strategist of the BlackRock Investment Institute, is now on 5 live talking about the news Neil Woodford, the fund manager, flogged his HSBC shares. "Neil bought HSBC because it was one of the few banks where he thought there was some dividend growth," he says. However, fines in the sector are likely to drain that prospect, he says. It's fines "more than anything that's sapping bank's willingness too lend, or ability to lend".

    MARKETS 06:27: BBC Radio 4

    Today is looking at why stock markets are at a 52-week high when the political situation around the world is so dire - there's the threat of war in Europe and conflict in the key oil producer Iraq. Ewen Cameron Watt, chief investment strategist at Investment Institute of giant asset manager BlackRock says: "At this stage in the summer months the thought that Russia might affect sending gas to Europe is not a worry. [Energy stocks] are about 90% of capacity."

    BANKING COMPLAINTS 06:12: Radio 5 live

    More from the Financial Ombudsman's Caroline Wayman. Fee-paying bank accounts are the cause of the increase in complaints about banking, she says. "People are getting in touch saying they didn't know they had a fee paying account or want one." People are "more aware but we see a lot of people who are reluctant to raise concerns," when coming forward to the service, she says. There are also more complaints about payday loans, but from a low starting point she says.

    BANKING COMPLAINTS 06:02: Radio 5 live

    Caroline Wayman, chief executive of the Financial Ombudsman Service is on Wake Up to Money talking about complaints about banks. Complaints about payment protection insurance have fallen by almost a third, but complaints about other things in banking are up: "Still a lot of people get in touch, more than 1,000 people a day," she says. "We've had to expand a lot."

    06:01: Howard Mustoe Business reporter

    Morning! Get in touch via email bizlivepage@bbc.co.uk or via twitter @BBCBusiness

    06:00: Rebecca Marston Business reporter, BBC News

    Good morning and welcome to Tuesday's Business Live. Stick with us for the pick of the morning's news.



  • Cesc FabregasFair price?

    Have some football clubs overpaid for their new players?

  • Woman and hairdryerBlow back

    Would banning high-power appliances actually save energy?

  • Members of staff at James Stevenson Flags hold a Union Jack and Saltire flag UK minus Scotland

    Does the rest of the UK care if the Scots become independent?

  • Women doing ice bucket challengeChill factor

    How much has the Ice Bucket Challenge achieved?

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.