Oil and water don’t mix… or do they?

When poured in a jar with water or spilled in the ocean, oil rises to the top. Business works the same way, raising the commercial value of oil far above the value of water. An extreme example of this is the tar sands projects (oil sands) in Canada, which use up to four barrels of fresh water to extract each barrel of oil [1, 2].

Water for processing the tar sands comes from the Athabasca River, at a rate of over 3 billion barrels of water per year, comparable to the consumption of the 2.7 million people in the City of Toronto [2, 3]. The permit for ‘diverting’ this water is provided by the government at no cost (it is referred to as ‘diverting’ even though 90% of the water is polluted, non-recyclable, and stored in massive tailing ponds, not returned to the river).

Many groups are raising concerns about the environmental implications of these massive projects, calling for the companies to reflect the liabilities of their work in their financial statements [13].

What would happen if we just charged these companies the current going rate for their water?

Turns out that in North America we do not charge people very much for water, and ironically we charge less the more you take, eventually charging the largest water consumers nothing at all. The municipal water rate in Toronto is $1.90 per cubic meter, or $0.30 per barrel [10]. Since the tar sands use up to 4 barrels of water for every barrel of oil, this would increase the cost of tar sands oil by $1.20 per barrel.

This is such a small amount, compared to the $30/barrel extraction cost [2], that it would probably have minimal impact on the water consumption of the tar sands. For Suncor, one of the largest oil sands producers, charging for water at this rate would change their 2008 net earnings from $2.875 billion to $2.045 billion [8].

Water is so cheap that even if we price it at municipal cost, it has little impact on the price of oil. At these rates, it is unlikely that we can reduce the addiction that these companies have for water. If we increase the price it until it impacts the oil and industrial users, it would have negative impact on household budgets (reword). Perhaps the future liability of water shortage will make them change.

References

[1] Canada: Losing Water Through NAFTA, http://www.globalresearch.ca/index.php?context=va&aid=6859

  • 3 barrels of fresh water : 1 barrel of bitumen through tar sands
  • 90% water used contaminated, non-recyclable, stored in tailing pools

[2] The Oil Drum | Unconventional Oil: Tar Sands and Shale Oil, http://www.theoildrum.com/node/3839

  • 1mill barrels/day current production capacity -> 3mill barrels water, one barrel @ 158.98l (42 us gal) (6.98 barrels/m3) of bitumen – bitumen : oil?
  • 370m m3/year diverted from Athabaska river
  • 2 – 4.5 (3, from above) units of water : bitumen, 1.16 barrels of bitumen : 1 barrel of syncrude -> 3.48 barrels of water : 1 barrel of syncrude -> 553.25l fresh water : 1 barrel syncrude, 1.8 barrels/m3 of fresh water (9 per 5) -> 3.83c per barrel at industrial water costs, 47.7c/barrel at consumer costs.

[3] Statistics Canada : The Daily, Wednesday, March 12, 2008. Industrial Water Survey http://www.statcan.gc.ca/daily-quotidien/080312/dq080312c-eng.htm

  • No “here is what industrial water costs/m3”
  • 2005 total industrial water intake 40.4bn m3, total water costs 2.8bn -> 14.4m3/$1 -> 6.9c/m3

[4] Tar Sands, Water Shortages and Lawsuits, http://www.lubicon.ca/pa/oilp/tcplp/po080304.htm

  • 523mill m3 water/yeah allocated to tar sands
  • 1.12m barrels/day ‘tar sand oil’ production -> 3.36m barrels water -> (3 360 000 *158.98 / 1000) 534 172.8 m3 water/day
  • [2] implies fresh water recycling, [4] claims vastly underrepresented water consumption

[5] The Conference Board of Canada, Water Consumption http://www.conferenceboard.ca/HCP/Details/Environment/water-consumption.aspx#indicator

  • “In the agricultural sector, water charges for irrigation cover operation and maintenance but not capital costs. For industrial water users, the regulatory framework for water withdrawals is based on “use permits” or licences tied to a specific site and use for an indefinite period of time. Some provinces require that a fee be paid for these permits, but most of them, including Alberta and Ontario, grant licences without charge.

[6] Stats Canada, Energy Consumption Per Capita in G8 Countries http://www.statcan.gc.ca/pub/11-621-m/2005023/t/4054255-eng.htm

  • 2002 .3407 terrajoule per capita per year
  • One tonne of oil equivalent = 42 gigajoules ( http://en.wikipedia.org/wiki/Tonne_of_oil_equivalent)
  • Therefore, 8.12 tonnes of oil per person, 60 barrel of oil equiv. per capita per year
  • 33.2m3/yr per person if fueled by bitumen/tar sand oil

[7] http://www.energy.gov.ab.ca/About_Us/1132.asp

  • 1 barrel of oil = 0.158970 cubic metres

[8] Suncor Energy 2008 Annual Report http://www.suncor.com/doc.aspx?id=417

  • pg31 oil sands specific information
  • $9.386bn revenue, $2.875bn net earning, 228000 barrel per day production

[9] Petro-Canada | 2008 Annual Report, http://www.petro-canada.ca/pdfs/investors/2008_annual_report-e.pdf

  • pg34 oil sands specifics
  • $334mil net earnings
  • two locations – Syncrude and MacKay? river
  • Syncrude production : 34700 barrels/day
  • MacKay? Production 25200 barrels/day

[10] http://www.toronto.ca/utilitybill/water_rates.htm

  • Toronto water rates: $1.90 per m3

[11] http://www.ofwat.gov.uk/regulating/reporting/rpt_tar_2008-09datatables.pdf#page=31

  • London (Toronto comperable?) @ £1.0709/m3 ($1.96) + £25/yr (Thames Water), average household bill £155/yr

[12] http://www.syncrude.ca/users/folder.asp?FolderID=5626

  • Syncrude investor breakdown

[13] http://solveclimate.com/blog/20090219/investing-canada-s-tar-sands-gets-sticky

  • Summary of various shareholder resolutions and watch lists of companies that are potentially at risk from water shortage issues

Developed by: Douglas Frosst, June 2009

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2 thoughts on “Oil and water don’t mix… or do they?

  1. They definately should be charged for water. They also should be charged for the carbon they put in the air and the other pollutants that come out of the stacks and end up floating down on to the land and into the river. There are many externalities in this example that are not even close to being priced in. I am not sure if you caught the “Tipping Point” on CBC last week. It is airing again on February 5 at 7pm and can also be watched here (http://www.cbc.ca/documentaries/natureofthings/video.html?ID=1769597772). It was excellent, and moved me deeply. I wrote a blog post about it as well. http://oneearthtolive.wordpress.com/2011/01/28/alberta-oil-sands/

    Thanks for posting such a well referenced artcle. Ideas like this need to be taken to the forefront!!

  2. Thanks for pointing out the Tipping Point documentary, Sherry. Haven’t seen it yet but will make a point to catch it. I worked up at the oil sands in the 1980’s as a student engineer, and it was built to a mind-boggling scale then… I am keen to go back and see how it was evolved. In terms of pricing, I am a big believer in charging all companies for the externalities they impose on society. So we should be paying for CO2, for water, for air pollution, etc. While straightforward in concept the difficulty is of course in the details — who should pay and how much should they pay? So much to work on…

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