Oil and Gas:

Alberta Premier Klein hits on tar sands, oil and natural gas pipelines, Kyoto Protocol

Underground tar sands in Canada's Alberta province hold an estimated 174 billion barrels of oil, the world's second-largest reserve. Alberta Premier Ralph Klein joins OnPoint to talk about tar sands' oil potential, planned natural-gas and oil pipelines from the Arctic, and Alberta's progress toward meeting the Kyoto Protocol.

Transcript

Mary O'Driscoll: Welcome to OnPoint. I'm Mary O'Driscoll. Today we're discussing energy and environmental policy with Ralph Klein, the premier of the Canadian province of Alberta. Mr. Klein, thank you very much for joining us today.

Ralph Klein: It's a real pleasure.

Mary O'Driscoll: For American audiences I guess Alberta can best be described as Canada's red province, as the red state, and the source of significant percentages of oil and natural gas that we use here in the states. My guess is, what, you send us 8 percent of our oil and 12 percent of our natural gas?

Ralph Klein: About that, yeah. First of all, in Canada we would be blue.

Mary O'Driscoll: OK.

Ralph Klein: In the U.S. we'd be red.

Mary O'Driscoll: You would be red, OK.

Ralph Klein: That's right.

Mary O'Driscoll: All right. Well you've taken the unusual step of opening up an office for Alberta in the Canadian Embassy here in Washington. Is that related to the large and growing role that Alberta is playing in the U.S. energy policy or is it part of a larger picture of political goings on?

Ralph Klein: It's part of a larger picture, but ostensibly it's because of energy. Now we know that the U.S. has developed or is developing a national energy program.

Mary O'Driscoll: Right.

Ralph Klein: A national energy policy and part of that policy is to seek secure and reliable supplies of oil abroad, understanding that there simply isn't enough oil and gas within the continental U.S. to supply your domestic needs.

Mary O'Driscoll: Yes.

Ralph Klein: So, we're saying that if you're looking for safe and reliable supplies look no further than Canada or Alberta because we have vast reserves of oil. Second in size, I'm given understand, to Saudi Arabia. Of course notwithstanding the few disputes we have from time to time, Canada is a very safe, it's very secure, it's a very stable country and we've lived now on an undefended border for hundreds of years, so look no further than northern Alberta.

Mary O'Driscoll: OK. So safety and security and supply are the bywords, at least for the energy debate down here.

Ralph Klein: Safety and security and supply and an adequate supply.

Mary O'Driscoll: Right.

Ralph Klein: We're producing about a million barrels a day right now. In about three years that will double to 2 million and I would suspect by the year 2015 or 2020 we'll be up to about 5 million barrels a day which is, well, more than sufficient for Canadian needs and sufficient for U.S. needs.

Mary O'Driscoll: Well I wanted to ask you about that. You're talking about the oil sands that are in northeastern Alberta, I believe. As you said, you appear to be poised to be a real major international player in the oil markets and in energy. Like I said, it's 175 billion barrels of oil --

Ralph Klein: Right now we're producing about, well it was at the 176 millionth barrel or billionth barrel, I forget which one. It's a lot of barrels. Well it's a million barrels a day. I think it was 176 million. It was on the 176th day over, when we reached the million mark that the U.S. finally recognized that as real oil. You know there are some Texas oilmen who say, "That ain't real oil." Well, it is real oil and you can produce it for a reasonable cost, all in, about, that's capital costs included, about $16 a barrel to produce it. You're right, it is trapped in sand and rather than drilling for the oil they mine it and through the use of steam and other formulas they extract the oil from the sand. Then of course they upgrade the oil to make it, well they call it synthetic crude, but it's brought to the grade of West Texas crude.

Mary O'Driscoll: OK. Now, how larger of an area is this --

Ralph Klein: Oh, it's massive and right now we've only touched the tip of the iceberg. Right now in Canada, in northern Alberta, Northeastern Alberta, there's about 97 billion, albeit Canadian dollars, but significant nonetheless, billion dollars worth of new construction going on. I would say that they've just touched the tip of the iceberg. In miles, I would say it would stretch, in the northeastern part of the province, about 60 or 70 miles north to south and probably three to 400 miles east to west.

Mary O'Driscoll: OK, so it's pretty sizable?

Ralph Klein: Oh it's huge, yeah.

Mary O'Driscoll: Well, at first glance it appears most of that oil would be headed to the United States.

Ralph Klein: Yeah.

Mary O'Driscoll: But there's also growing pressure for that oil from Canada, excuse me, from China, whose national oil companies have been getting involved in the region and are interested in helping develop the oil sands for their own needs. Are U.S. companies missing out on this opportunity?

Ralph Klein: We're seeing, like Americans, we're free traders. We are especially in Alberta. We believe in the entrepreneurial free enterprise system. Although the province of Alberta owns the land on which the oil is located, we will lease and sell that land to the highest bidder or lease the land to the highest bidder. You're quite right, there have been a lot of, well, Asian potential, Asian, China, Japan, Korea tire-kickers looking at the oil sands and looking at the possibility of joint venturing with a major pipeline company to pipe that oil from Fort McMurray, in the northeastern part of Alberta where it's produced, all the way to the West Coast and on to the Orient.

Mary O'Driscoll: OK.

Ralph Klein: So our message to American companies is that it is real oil, can be brought out at an economical price, the price is getting lower and lower as technology is developed and invest.

Mary O'Driscoll: OK. Well I was going to say that I thought that the price used to be relatively high, you say now --

Ralph Klein: It was very high.

Mary O'Driscoll: It can be developed for $16?

Ralph Klein: It was very high, it was very high. When the tar sands were first developed some years ago it was deemed to be economically, a real economic risk to invest in the tar sands because it was costing maybe $25 or more a barrel to get that oil out. Well now those costs of time have come down significantly as new technology developed and the price of oil, of course, has skyrocketed.

Mary O'Driscoll: Right, right. Now did you discuss this with Sam Bodman on your trip here --

Ralph Klein: We did.

Mary O'Driscoll: To Washington and what is Secretary Bodman's view?

Ralph Klein: Well, his view is that Alberta, to paraphrase what he said, Alberta figures big in terms of the U.S. demand --

Mary O'Driscoll: A technical term I'm sure.

Ralph Klein: For oil. Yeah. Figures big, right.

Mary O'Driscoll: OK. What about the environmental protections? You said that it's not drilled, but that you have to mine for it and I've been reading some articles that talk about it requires tearing up quite a bit of land --

Ralph Klein: It does, yeah.

Mary O'Driscoll: Some of which has been described as lush and as habitat for moose and other creatures. What are you doing to ensure that the companies restore the land?

Ralph Klein: OK, you're right, it does create, when you look at it you have to see it to believe it because the shovels, you know one shovelful is the size of this studio. That's the size of the shovel. So you can imagine the immensity of the amount of soil that is taken out and then it's put on conveyor belts which in turn, or trucks, which in turn put them on conveyor belts. Then it's taken to the plant to have the bitumen, as it's called, or the oil extracted from the sand. So, it leaves a huge scar on the land, huge, because these, first of all, they mine very deep and they're open pit mines, but there are very strict reclamation measures. In order to see the kind of reclamation that takes place, one needs to travel to the north and see the work that Syncrude, one of the major companies, the pioneering companies, has done to restore an old mine site to its natural state and of course they run buffalo on that land and there are deer and it's returned. You would never know that it had been mined at one time.

Mary O'Driscoll: OK.

Ralph Klein: So there are very strict reclamation rules.

Mary O'Driscoll: OK. I wanted to change gears a little bit and talk about the Kyoto Protocol, which Canada ratified but Alberta fought --

Ralph Klein: That's right.

Mary O'Driscoll: And I guess you continue to fight it.

Ralph Klein: Yup, well, we don't continue to fight the, we strongly believe that all efforts should be used to reduce greenhouse gases and to combat global warming. There's no argument there. We know that CO2, the stuff that we're exhaling right now, if there's enough of it produced along with humans exhaling and the burning of carbons, that enough of this is being introduced to the atmosphere to affect global warming. So there's no argument there, but it's how it's going to be done and we don't think that, we don't think and industry doesn't think that they can achieve the guidelines nor does the government of Canada by the way. They have no idea how they're going to achieve --

Mary O'Driscoll: Well, I wanted to get to that --

Ralph Klein: Those reductions.

Mary O'Driscoll: You have been, your province has been the first one to actually come up with its plan. You've come up with a trading plan and --

Ralph Klein: Not only that, but we have a legislative plan.

Mary O'Driscoll: You have a legislative plan. Your plan I guess is based on the same carbon intensity approach that the United States takes?

Ralph Klein: Absolutely. It's based on carbon intensity, and it's based on a much more reasonable timeline.

Mary O'Driscoll: OK. Now why did you take that approach as opposed to any other?

Ralph Klein: First of all, we took that approach because we knew that the Kyoto targets of a reduction of 6 percent of 1990 levels by the year 2010 is unreasonable. It can't be achieved. You can talk about it, all the international scientists and environmentalists can talk about this in glowing terms, you know it's easy to talk about it, but it's very, very hard to do. So we said, "Look it, the goal is commendable, but you can't do it." Canadian government understands you can't do it. The goal is commendable, but let's set a reasonable timeline. If something is going to be legislated let's do it in a reasonable fashion

.

Mary O'Driscoll: OK.

Ralph Klein: And that's precisely what we did in our province.

Mary O'Driscoll: Well, the U.S. approach, the carbon intensity approach, has come under fire from environmentalists and others around the world, who say that it actually will result in an increase of carbon emissions over time.

Ralph Klein: Well, I don't, everything's, this is why the Kyoto will not work. It's because the use of carbon fuels is going up. It's going up naturally and all of us in society are doing what we can to combat the use and the overuse of carbon fuels and to cut down on carbon fuels, but the environmentalists and other people are dreaming in Technicolor if they think that they are going to reduce by 6 percent of 1990 levels, they're dreaming in Technicolor. It simply is not going to happen.

Mary O'Driscoll: Well then, what is the answer? Clearly your province is the energy production province of Canada.

Ralph Klein: OK, the answer is education. Certainly the answer is to get people out of their cars and on public transit. That's part of the answer. Part of the answer is to look for alternate sources of energy, wind power, the renewable energies of water. Another thing that I would really like to look at is clean coal technology. Now the environmentalists will say, "Coal! That's dirty." And there are no Kyoto credits or credits, environmental credits whatsoever to develop clean coal technology. What if you can get a 99.99 percent burn out of coal without emitting carbon dioxide or other toxic emissions? Or toxic emissions, I shouldn't say other because CO2 is not toxic.

Mary O'Driscoll: But what about the fact that your province is where the oil and gas --

Ralph Klein: Right.

Mary O'Driscoll: Comes from, so I would think your province, you have a dedicated interest in maintaining the production of oil and gas, and oil and gas are part of the problem that we're talking about. So what is the answer from Alberta's point of view?

Ralph Klein: The answer from Alberta's point of view is that our oil and gas companies are probably doing more than any other company to reduce CO2 emissions because they understand it's good for business to be environmentally pure. You look at the environmental records of some of the oil companies, most of the oil companies, British Petroleum, I'll mention one, an exemplary record, many, many awards for addressing the CO2 problem, but they do it in a responsible and a reasonable way.

Mary O'Driscoll: OK. I wanted to change the subject slightly to natural gas.

Ralph Klein: Sure.

Mary O'Driscoll: As I think I said at the beginning, you provide America with 12 percent of its natural gas. America's natural gas demand just shot up considerably during the 1990s and Canada's corresponding increase in production helped feed that demand. It all kind of leveled off a few years ago, which led to some of the questions about are we going to have ample supplies of the natural gas hearing United States? Are we going to be able to see continued imports of gas from Alberta? Is it dwindling there or is it just pretty much staying flat?

Ralph Klein: No, it's dwindling and gas in our province and throughout Canada and throughout North America, throughout the world, is becoming harder and harder and more difficult to find. They have to go deeper and they have to go further. So Alberta still has a fairly good supply, but it's dwindling very quickly and the new gas that's being found is being found very deep and is very expensive to get out. So the answer, of course, is the North.

Mary O'Driscoll: The North?

Ralph Klein: The North, Alaska, the whole Prudhoe Bay area and the McKinsey Delta in northern Canada.

Mary O'Driscoll: Right.

Ralph Klein: Lots of gas, huge, huge gas under tremendous pressure. But, again, we're alluding to distance.

Mary O'Driscoll: Right.

Ralph Klein: And the cost of getting that gas out is cheap, but the cost of transporting it is very expensive.

Mary O'Driscoll: When you say Prudhoe Bay, you mean the Alaska North Slope?

Ralph Klein: The Alaska North Slope, right, right.

Mary O'Driscoll: Right. Now there, very well reported on, I'm sure even in Canada as well, the fact that the United States is allowing for the construction --

Ralph Klein: Correct.

Mary O'Driscoll: Of the Alaska natural gas pipeline. There's been some difference of opinion as to which pipeline should go first or which pipeline should be using --

Ralph Klein: Yeah, really, I'm ambivalent. I don't care.

Mary O'Driscoll: Because they all come down to Alberta.

Ralph Klein: Yeah, as long as they, certainly we're promoting what they call the southern route from the North Slopes, that's the Prudhoe Bay in Alaska and the south route is the route that basically comes down through Alaska through the Yukon and the northern part of B.C., the northwestern part, the northeastern part of B.C. and through Alberta. The McKinsey pipeline comes down from a place called Tuktoyaktuk, way up in the far north, in the Northwest Territories, comes down and the two pipelines would actually join at a place in Alberta called Boundary Bay, or Boundary Lake, I'm sorry, Boundary Bay, what am I thinking of, "Mutiny on the Bounty" or something like that? Boundary Lake, now from there the gas would go into a network of pipelines. Those pipelines already exist and those pipelines now serve and send gas to New York and the Eastern Seaboard, the Midwest U.S. and California. So we're saying to both producers, the Canadian producers and the American producers and the pipeline builders, come through Canada, come through Alberta, use the existing pipeline network, but allow us to strip off the liquids and then send the gas down for its heating value, its methane value, but allow us to take the liquids off because we have a very, we have a thriving petrochemical industry.

Mary O'Driscoll: OK. So I guess you've never met a pipeline you didn't like?

Ralph Klein: I've never met one I didn't like, so I like them both. No, having said that, I like them both, but God forbid they both come on stream at the same time or are both under construction at the same time because there simply won't be enough people. I mean, we will run out of people power.

Mary O'Driscoll: Oh, OK.

Ralph Klein: And material power.

Mary O'Driscoll: Which one do you want to see come on first?

Ralph Klein: Doesn't matter.

Mary O'Driscoll: Doesn't matter, just one or the other?

Ralph Klein: Yeah, one or the other, but don't come on at the same time because we just couldn't accommodate. If both of them came on at the same time I think that would represent about $25 billion worth of new construction and I don't think that North America, the workforce, could handle it.

Mary O'Driscoll: OK. We'll have to end it on that note. I'd like to thank you so much for being here today. I'd like to thank our guest Ralph Klein the premier of the Canadian province of Alberta. I'm Mary O'Driscoll. We'll see you next time and another edition of OnPoint.

[End of Audio]

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