Canada is home to one of the largest concentrations of energy resources in the world. It’s long been a key exporter of conventional oil. But in the early years of the 21st century the energy sector’s contribution has become even more important to the domestic economy–and to the global economy as well.

The fact that relatively few nations have managed to convert resource wealth into high standards of societal welfare is a useful reminder of the magnitude of the challenges. Canada, rare among nations, has managed its resource extremely well, to the benefit of all Canadians. A new set of choices await the current crop of political leaders charged with managing these assets.

The global financial and economic meltdown caused new development of the Canadian oil sands to a virtual standstill. By late October 2008 the per-barrel price of crude oil had fallen to the mid-60s from the mid-140s. Black gold peaked in July 2008, a couple months before Lehman Brothers imploded and nearly sucked the global financial system into the abyss, then hit a cycle low below USD34 in early December 2008.

Many projects were cancelled outright, while others were simply delayed. No wonder: Producing oil from the sands is expensive in terms of operating costs–about USD35 per barrel. Obviously, oil has to stay above a certain level consistently and predictably for sands production to be economic.

But here in early 2010 several factors suggest we’ve entered a “new normal” for oil prices, a neighborhood above USD60 per barrel. One of the clear outcomes of the Great Recession is that the global demand profile has changed; emerging economies, led by China and India, will burn more and more fossil fuels as their consumers, too, feed the desires that come with rising incomes.

On the supply side, easy-to-access, easy-to-produce–and therefore cheap–reserves are depleting rapidly. Failure to prepare leaves the oil-intensive US economy, in particular, vulnerable to future supply and price shocks that create short-term profits for producers but long-term turmoil for the broader economy.

Unconventional sources are of greater and greater strategic importance, and the vast Canadian oil sands–at 172 billion barrels second only to Saudi Arabia in terms of estimated reserves–are located right next door to the world’s biggest oil consumer. No other industrial democracy in the world has an asset similar to the sands, and there certainly is no asset similar to it in the US.

The oil sands are therefore fixed in the North American energy supply equation. It’s the source of 1.2 million barrels of crude per day, most of which is exported to the US. Extracting and processing bitumen from the sands is an energy-intensive process that requires both electricity and steam, which are usually generated by burning fossil fuels.

This energy intensity and related emissions–as well as the massive and ugly footprint oil sands operations leave on the natural landscape–have raised concerns about the management of the resource at the activist level, of course, but also now at the official level. Policy choices and regulatory decisions will play a significant role as North America prepares to meet growing energy demand–in a continental as well as a global context. It is critical, therefore, that what the oil sands cost relative to other energy sources is well understood.

The amount of GHG emissions generated in different types of oil production depends on how much energy is required to produce and process the oil. Some oil is just pumped out of reservoirs. Other reservoirs need injections of water or steam to retrieve the oil. Light oil requires less energy than heavy oil to be refined into transportation fuels. The amount of natural gas contained in the oil that may be flared or vented also contributes to overall GHG emissions. GHG emissions are also generated when transportation fuels are consumed in vehicles (this accounts for about 75 per cent of all GHG emissions). Total GHG emissions from production to consumption are referred to as life cycle GHG emissions.

The primary source of GHG emissions in oil sands mining is the energy required to mine and transport the oil sand, separate the oil from the sand, and process the oil. For in situ operations, the primary source of GHG emissions is the combustion of natural gas to generate steam. According to a June 2009 study by engineering firm Jacobs Consultancy, “Life Cycle Assessment Comparison for North American and Imported Crudes,” life cycle greenhouse gas (GHG) emissions for oil sands are comparable to domestic and imported conventional crude oils. Furthermore, about 75 percent of GHG emissions occur during fuel consumption and aren’t impacted by the source of the crude oil.

The oil sands industry has, through continual advancements in technology and energy efficiency, reduced GHG emissions per barrel by more than 30 per cent since 1990.

Cogeneration further reduces GHG emissions. Cogeneration produces steam and electricity from a single source, and because cogeneration plants are sized according to a facility’s steam requirements there is often more electricity produced than required.

The excess electricity is sold to the grid, meaning less natural gas and coal needs to be used to meet electricity needs. This significantly reduces GHG and other air emissions. All existing oil sands mines and all but a few small in situ projects have cogeneration facilities; more than 98 percent of oil sands production has associated cogeneration. Cogeneration in the oil sands provides approximately 18 percent of Alberta’s total electricity supply.

Additional reductions are expected through the development of carbon capture and storage (CCS) and new in situ extraction technologies. CCS is well understood from a technical perspective but widespread implementation has been limited because of the economic environment and the lack of existing infrastructure. The Alberta government has committed CAD2 billion to CCS development, the federal government has committed CAD1 billion, and industry is also investing heavily.

In situ operations require significant amounts of energy to generate the steam which is injected underground to warm the bitumen before it can be pumped to the surface.

There has been significant progress in reducing the amount of steam required to achieve this and there are several technologies that have the potential to further reduce GHG emissions per barrel to levels equivalent to–or better than–imported conventional oil.