The US Energy Information Administration (EIA) says that Canada’s total oil production (including all liquids) was 3.1 million barrels per day (bbl/d) in 2004, making it the seventh-largest oil producer in the world. Canada was also the seventh-largest world oil consumer in 2004 at 2.3 million bbl/d.

Sustained high oil prices will promote production of the vast oil sands in Alberta, Canada and oil shale developments in the US but the environmental costs will be high. Each barrel creates more greenhouse gas emissions than four cars do in a day.

The country's oil production has been increasing since 1999, as new oil sands and offshore projects have come on-stream to replace aging fields in the western provinces. Overall, analysts predict that oil sands production will increase significantly in coming years and offset the decline in Canada’s conventional crude oil production.

According to Oil and Gas Journal, Canada had a reported 178.8 billion barrels of proven oil reserves in 2005, second only to Saudi Arabia. However, the bulk of these reserves (over 95%) are oil sands deposits in Alberta. The inclusion of oil sands in official reserve estimates is not without controversy, because oil sands are much more difficult to extract and process than conventional oil.

The EIA says that Canada sends over 99% of its crude oil exports to the U.S., and the country is one of the most important sources of U.S. oil imports. During the first eleven months of 2004, Canada exported 1.62 million bbl/d of crude oil to the U.S., the single-largest component of U.S. crude oil imports. Canada also sent some 500,000 bbl/d of petroleum products to the U.S. during this period, the most from a single country.

Oil sands production has grown four-fold since 1990 and exceeded 1 million barrels per day (b/d) in 2004. A recent forecast predicts that oil sands production will more than double by 2015 to reach 2.7 million b/d. As conventional oil reserves continue to mature in

Last year, Shell and ChevronTexaco jointly opened the $5.7 billion Athabasca Oil Sands Project in Alberta, which pumps out 155,000 barrels per day.

The high price of oil is prompting attention to unconventional oil production such as oil shale production in Utah, Colorado and Wyoming and oil sands in Alaska.

Production Cost and Environmental costs high

Even though costs have dropped, the oil sands process remains inefficient. Two tons of sand yield a single barrel -- 42 gallons -- of oil. On average, each barrel creates more greenhouse gas emissions than four cars do in a day. The provincial government in Alberta says that Alberta's oil sands contain the biggest known reserve of oil in the world. An estimated 1.7 to 2.5 trillion barrels of oil are trapped in a complex mixture of sand, water and clay. The most prominent theory of how this vast resource was formed suggests that light crude oil from southern Alberta migrated north and east with the same pressures that formed the Rocky Mountains. Over time, the actions of water and bacteria transformed the light crude into bitumen, a much heavier, carbon rich, and extremely viscous oil. The percentage of bitumen in oil sand can range from 1% -20%. The oil saturated sand deposits left over from ancient rivers in three main areas, Peace River, Cold Lake and Athabasca. The Athabasca area is the largest and closest to the surface, accounting for the large-scale oil sands development around Fort McMurray.

Two tons of sand yield a single barrel -- 42 gallons -- of oil. Alberta's commercial reserves of almost 180 billion barrels compares with the estimate of 10 billion barrels at Alaska's Wildlife Reserve

Dr. Karl Clark, a scientist working for the Alberta Research Council, developed and patented the hot water extraction technique. Building on earlier experimentation by Sidney Ells and others which used hot water to separate oil from oil sands, Dr. Clark's work brought the process to a commercial scale. Oil sand is mixed with hot water creating a slurry. Early methods used large tumbler drums to condition the slurry. Today, hydrotransport pipelines are used to condition and transport the oil sand from the mine to the extraction plant. The slurry is fed into a separation vessel where it separates into three layers - sand, water and bitumen. The bitumen is then skimmed off the top to be cleaned and processed further. Secondary recoveries are made with the middlings zone of the separation vessels to return the smaller quantities of bitumen that would otherwise flow to the settling ponds. Ph levels and temperature are key variables in the process.

Oil sand is often referred to as "tar sand," because the bitumen (or oil) resembles black, sticky tar. However, the term "tar sand" is incorrect. Tar is a man-made substance formed through the distillation of organic material. It is BITUMEN (a heavy thick oil) not tar that is found in the oil sands. The bitumen content in deposits varies from 1% - 18%. More than 12% bitumen content is considered rich, and less than 6% is poor and not usually considered economically feasible to mine, although it may be mined with a blended stock of higher grade oil sand. On average, it takes 2 tonnes of mined oil sand to produce one barrel of synthetic crude oil (159 litres). In the winter the water layer in the oil sand will freeze making it as hard as cured concrete. In the summer, it’s as soft as molasses and makes driving conditions treacherous.

About 80% of the oil sands in Alberta are buried too deep below the surface for open pit mining. This oil must be recovered by in situ techniques. Using drilling technology, steam is injected into the deposit to heat the oil sand lowering the viscosity of the bitumen. The hot bitumen migrates towards producing wells, bringing it to the surface, while the sand is left in place ("in situ" is Latin for "in place"). Steam Assisted Gravity Drainage (SAGD) is a type of in situ technology that uses innovation in horizontal drilling to produce bitumen. In situ technology is expensive and requires certain conditions like a nearby water source. Production from in situ already rivals open pit mining and in the future may well replace mining as the main source of bitumen production from the oil sands.

Challenges facing in situ process are efficient recoveries, management of water used to make steam, and co-generation of all (otherwise waste) heat sources to minimize energy costs. Other methods of in situ recovery look promising, and are in research stages of development.

The Wall Street Journal said last January that in the Mideast, current lifting costs of oil run $1 to $2.50 per barrel at the very most; lifting costs in Iraq probably run closer to 50 cents, though OPEC strains not to publicize any such embarrassingly low numbers. For the most expensive offshore platforms in the North Sea, lifting costs (capital investment plus operating costs) currently run comfortably south of $15 per barrel. Tar sands, by contrast, are simply strip mined, like Western coal, and that's very cheap--but then you spend another $10, or maybe $15, separating the oil from the dirt. To do that, oil or gas extracted from the site itself is burned to heat water, which is then used to "crack" the bitumen from the clay; the bitumen is then chemically split to produce lighter petroleum.

In sum, it costs under $5 a barrel to pump oil out from under the sand in Iraq, and about $15 to melt it out of the sand in Alberta. So why don't we just learn to love hockey and shop Canadian? Conventional Canadian wells already supply us with more oil than Saudi Arabia, and the Canadian tar is now delivering, too.

The Journal highlighted what it termed the catch: By simply opening up its spigots for a few years, Saudi Arabia could, in short order, force a complete write-off of the huge capital investments in Athabasca and Orinoco. Investing billions in tar-sand refineries is risky not because getting oil out of Alberta is especially difficult or expensive, but because getting oil out of Arabia is so easy and cheap. Oil prices gyrate and occasionally spike--both up and down--not because oil is scarce, but because it's so abundant in places where good government is scarce. Investing $5 billion over five years to build a new tar-sand refinery in Alberta is indeed risky when a second cousin of Osama bin Laden can knock $20 off the price of oil with an idle wave of his hand on any given day in Riyadh.

The one consolation is that Arabia faces a quandary of its own. Once the offshore platform has been deployed in the North Sea, once the humongous crock pot is up and cooking in Alberta, its cost is sunk. The original investors may never recover their capital, but after it has been written off, somebody can go ahead and produce oil very profitably going forward. And capital costs are going to keep falling, because the cost of a tar-sand refinery depends on technology, and technology costs always fall. Bacteria, for example, have already been successfully bioengineered to crack heavy oil molecules to help clean up oil spills, and to mine low-grade copper; bugs could likewise end up trampling out the vintage where the Albertan oil is stored.