History of the petroleum industry in Canada, part two
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Canada's petroleum frontiers are of two types. The geographical frontiers are the huge petroleum basins in the north, in the Arctic Islands and offshore, and off the coast of Atlantic Canada. These areas are difficult and expensive to explore and develop, but successful projects can be profitable using known production technology.
The technological frontiers include the oil sands of Alberta, and the huge heavy oil belt that stretches from central Alberta into Saskatchewan, and straddles the borders between the two provinces. Here the resources are known, but technologies to produce oil from them in cost-effective ways are still being developed.
This section covers the early development of both kinds of frontier.
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[edit] The geographical frontiers
[edit] Norman Wells
One of the more exciting chapters in Canada’s early patch history is the story of Norman Wells in the Northwest Territories. During his voyage of discovery down the Mackenzie River to the Arctic Ocean in 1789, Sir Alexander Mackenzie noted in his journal that he had seen oil seeping from the river’s bank. R.G. McConnell of the Geological Survey of Canada confirmed these seepages in 1888. In 1914, T.O. Bosworth, later Imperial Oil’s chief geologist, staked three claims near the spot. Imperial Oil acquired the claims and sent two geologists there in 1918-1919. They recommended drilling.
Led by a geologist, a crew comprised of six drillers and an ox (Old Nig by name) began a six-week, 1,900-kilometre journey northward by railway, river boat and foot to the site now known as Norman Wells. They found oil - largely by luck, it turned out later - after Ted Link, the geologist, waved his arm grandly and said, “Drill anywhere around here.” The crew began digging into the permafrost with pick and shovel, unable to put their cable tool rig into operation until they had cleared away the mixture of frozen mud and ice. At about the 30-metre level they encountered their first oil show. By this time, the river ice had frozen to 1.5 metres and the mercury had plunged to -40 degrees. The crew decided to give up and wait out the winter. They survived, but their ox did not. Old Nig provided many a meal during the long, cold winter.
Drilling resumed in the spring and a relief crew arrived in July. Some of the original crew stayed around to help the newcomers continue drilling. On August 23, 1920, they struck oil at 240 metres. The world’s most northerly oil well had come in. In succeeding months, Imperial drilled three more holes - two successful, one dry. The company also installed enough equipment to refine the crude oil into a type of fuel oil for use by church missions and fishing boats along the Mackenzie. But the refinery and oil field closed in 1921 because northern markets were too small to justify the costly operations. Norman Wells marked another important milestone when in 1921 Imperial flew two all-metal 185-horsepower Junkers airplanes to the site. These aircraft were among the first of the legendary bush planes which helped to develop the north, and forerunners of today’s commercial northern air transport.
A small oil refinery using Norman Wells oil opened in 1936 to supply the Eldorado Mine at Great Bear Lake, but the field did not take a significant place in history again until after the United States entered World War II.
When Japan captured a pair of Aleutian Islands, Americans became concerned about the safety of their oil-tanker routes to Alaska and began looking for an inland oil supply safe from attack. They negotiated with Canada to build a refinery at Whitehorse in the Yukon, with crude oil to come by pipeline from Norman Wells. If tank trucks had tried to haul the oil to Alaska, they would have eaten up most of their own load over the vast distance.
This spectacular project, dubbed Canol - a contraction of “Canadian” and “oil” - took 20 months, 25,000 men, 10 million tonnes of equipment, 1,600 kilometres of road, 1,600 kilometres of telegraph line and 2,575 kilometres of pipeline. The pipeline network consisted of the 950-kilometre crude oil line from Norman Wells to the Whitehorse refinery. From there, three lines carried products to Skagway and Fairbanks in Alaska, and to Watson Lake, Yukon. Meanwhile Imperial was drilling more wells. The test for the Norman Wells oilfield came when the pipeline was ready on February 16, 1944. The field surpassed expectations. During the one year remaining of the Pacific war, the pipeline pumped about 160,000 cubic metres of oil to the Whitehorse refinery.
The total cost of the project (all paid by US taxpayers) was $134 million, in 1943 US dollars. Total crude production was 315,000 cubic metres (7,313 cubic metres of which spilled.) The cost of the crude oil was $426 per cubic metre ($67.77 per barrel). Refined petroleum product output was just 138,000 cubic metres. Cost per barrel of refined product was thus $975 per cubic metre, or 97.5 cents per litre. Adjusted to current dollars using the US Consumer Price Index, in 2000 dollars the oil would have cost $4,214 per cubic metre ($670 a barrel), while the refined product would have been worth an astonishing $9.62 a litre.
After the war, there was no use for the Canol pipeline. It simply fell out of use, with pipe and other equipment lying abandoned. But the Whitehorse refinery kept on going - in a different locale. Imperial bought it for $1 million, took it apart, moved it to Edmonton and reassembled it like a gigantic jigsaw puzzle to handle production from the fast-developing Leduc oil field.
But the Norman Wells story is not yet complete. The field entered its most important phase in the mid-1980s, when a pipeline connected the field to the Canada-wide crude oil pipeline system. Oil began flowing south in 1985.
Norman Wells was a frontier discovery. It was not Arctic exploration, however, since it was located south of the Arctic Circle. The definitive push into the Arctic took place in 1957 when Western Minerals and a small exploration company called Peel Plateau Exploration drilled the first well in the Yukon. To provision the well, some 800 kilometres from Whitehorse at Eagle Plains, Peel Plateau hauled 2,600 tonnes of equipment and supplies by tractor train. This achievement involved eight tractors and 40 sleighs per train, for a total of seven round trips. Drilling continued in 1958, but the company eventually declared the Peel Plateau well dry and abandoned. Over the next two decades, however, Arctic exploration gained momentum.
[edit] Arctic frontiers
Stirrings of interest in the Arctic Islands as a possible site of petroleum reserves came as a result of "Operation Franklin," a 1955 study of Arctic geology directed by Yves Fortier under the auspices of the Geological Survey of Canada. This and other surveys confirmed the presence of thick layers of sediment containing a variety of possible hydrocarbon traps.
The petroleum industry applied to the federal government for permission to explore these remote federal lands in 1959, before the government had begun regulating such exploration. The immediate result was delay. But in 1960, the Diefenbaker government passed regulations, then granted exploration permits for 16 million hectares of northern land. These permits granted mineral rights to companies in exchange for work requirements.
The first well in the Arctic Islands was the Winter Harbour #1 well on Melville Island, drilled in the winter of 1961-62. The operator was Dome Petroleum. Equipment and supplies for drilling and for the 35-man camp came in by ship from Montreal. This well was dry, as were two others drilled over the next two years on Cornwallis and Bathurst islands. But all three wells were technical successes. There was no doubt now that high Arctic drilling was possible.
The federal government's eagerness to encourage Arctic Islands exploration, partly to assert Canadian sovereignty, led to the formation of Panarctic Oils in 1968. That company consolidated the interests of 75 companies and individuals with Arctic Islands land holdings plus the federal government as the major shareholder.
Panarctic began its exploration program with seismic work and then drilling in the Arctic Islands. By 1969 its Drake Point gas discovery was probably Canada's largest gas field. Over the next three years came other large gas fields in the islands. Those years of drilling established reserves of 500 billion cubic metres of sweet, dry natural gas.
Panarctic also located oil on the islands at Bent Horn and Cape Allison, and offshore at Cisco and Skate. Exploration moved offshore when Panarctic began drilling wells from "ice islands" - not really islands, but platforms of thickened ice created in winter by pumping sea water on the polar ice pack.
The company found lots of gas but also some oil. In 1986, Panarctic became a commercial oil producer on an experimental scale. This began with a single tanker load of oil from the Bent Horn oil field (discovered in 1974 at Bent Horn N-72, the first well drilled on Cameron Island). The company delivered its largest annual volume of oil - 50,000 cubic metres - to southern markets in 1988.
Panarctic's ice island wells were not the first offshore wells in the Canadian north. In 1971, Aquitaine (later known as Canterra Energy, then taken over by Husky Oil) drilled a well in Hudson Bay from a barge-mounted rig. Although south of the Arctic Circle, that well was in a hostile frontier environment. A storm forced suspension of the well, and the ultimately unsuccessful exploration program languished for several years.
[edit] Mackenzie delta and the Beaufort Sea
The Mackenzie delta was a focus of ground and air surveys as early as 1957, and geologists drew comparisons then to the Mississippi and Niger deltas, speculating that the Mackenzie could prove as prolific. For millions of years sediments had been pouring out of the mouth of the Mackenzie, creating tremendous banks of sand and shale - laminates of sedimentary rock warped into promising geological structures. Drilling began in the Mackenzie Delta-Tuktoyuktuk Peninsula in 1962, and accelerated during the early 1970s. The mouth of the mighty Mackenzie River was not a Prudhoe Bay, but it did contain large gas fields.
By 1977, its established gas reserves were 200 billion cubic metres, and a proposal to construct a pipeline to tap these resources had become a hot political issue. An inquiry by Justice Thomas Berger resulted in a moratorium on such a pipeline, which today is again under consideration.
The petroleum industry gradually shifted its focus into the unpredictable waters of the Beaufort Sea. To meet the challenges of winter cold and relatively deep water, drilling technologies in the Beaufort underwent a period of rapid evolution.
The first offshore wells drilled in the Beaufort used artificial islands as drilling platforms. But the artificial island was a winter drilling system, and was only practical in shallow water. In the mid-1970s, the introduction of a fleet of reinforced drillships extended the drilling season to include the 90 to 120 ice-free days of summer. This also enabled the industry to drill in the deeper waters of the Beaufort Sea. By the mid-1980s, variations on artificial island and drilling vessel technologies had extended both the drilling season and the depth of water at which the industry could operate. They had also reduced exploration costs.
The first well to test the Beaufort was not offshore, but was drilled on Richards Island in 1966. The move offshore came in 1972-73 when Imperial Oil built two artificial islands for use in the winter drilling season. The company constructed the first of these, Immerk 13-48, from gravel dredged from the ocean floor. The island's sides were steep and eroded rapidly during the summer months. To control the erosion, the company used wire laid across the slopes and anchored, then topped off with World War II surplus anti-torpedo netting. The second island, Adgo F-28, used dredged silt. This proved stronger. Other artificial islands used other methods of reinforcement.
In 1976, Canadian Marine Drilling Ltd., a subsidiary of Dome Petroleum, brought a small armada to the Beaufort. It included three reinforced drillships and a support fleet of four supply boats, work and supply barges and a tugboat. This equipment expanded the explorable regions in the Beaufort Sea. Drillships, however, had their limitations for Beaufort work. Icebreakers and other forms of ice management could generally conquer the difficulties of the melting icecap in the summer. But after freeze-up began, the growing icecap would push the drill ship off location if it did not use icebreakers to keep the ice under control.
The most technologically innovative rig in the Beaufort was a vessel known as Kulluk, which originated with Gulf Oil. Kulluk was a circular vessel designed for extended-season drilling operations in arctic waters. Kulluk could drill safely in first-year ice up to 1.2 metres thick. Dome eventually acquired the vessel, which then passed progressively through acquisitions to Amoco and then BP. BP sold this venerable tool for scrap at the end of the millennium.
The major Beaufort explorers experimented with a variety of new technologies and produced some of the most costly and specialized drilling systems in the world. Some of these were extensions of artificial island technologies; design engineers concentrated on ways to protect the island from erosion and impact. In shallow water, the standard became the sacrificial beach island. This island had long, gradually sloping sides against which the vengeance of weather and sea could spend themselves.
[edit] The East Coast offshore
The site of Canada's first salt water offshore well was 13 kilometres off the shores of Prince Edward Island. Spudded in 1943, the Hillsborough #1 well was drilled by the Island Development Company. The company used a drilling island constructed in eight metres of water of wood and some 7,200 tonnes of rock and concrete. The well reached 4,479 metres at a cost of $1.25 million - an extremely expensive well in that era. Part of the Allied war effort, Hillsborough was declared dry and abandoned in September 1945.
In 1967 Shell drilled the first well off Nova Scotia, the Sable Island C-67 well. Located on desolate, sandy Sable Island (best known for its herd of wild horses), the well bottomed in gas-bearing Cretaceous rocks. Drilling stopped there because the technology did not exist to handle the super-pressures the well encountered.
Shell's experience at this well foreshadowed two future developments on the Scotian Shelf. First, major discoveries offshore Nova Scotia would be gas reservoirs. Second, they would involve high-pressure natural gas. In the early 1980s, two discovery wells - Shell's Uniacke G-72 and Mobil's West Venture N-91 - actually blew wild. The Uniacke well took about ten days to bring under control. By contrast, the blow-out at West Venture took eight months.
The most promising exploration off Canada's east coast took place on the Grand Banks - particularly the Avalon and Jeanne d'Arc basins. Exploration began in the area in 1966 and, save one oil show in 1973, the first 40 wells on the Grand Banks were dry. Then, in 1979, came the Hibernia oil strike, which changed the fortunes of the area. Although not large enough to be commercial at the time of discovery, the next nine wildcats were important. However, two discoveries from the mid-1980s - Terra Nova and White Rose - proved to be more easily producible than Hibernia.
Chevron drilled the Hibernia discovery well to earn a commercial interest in that Grand Banks acreage. The field is 315 kilometres east-southeast of St. John's, and water depth is about 80 metres. Between 1980 and 1984, Mobil drilled nine delineation wells in the field at a cost of $465 million. Eight of those wells were successful, and they enabled the industry to establish that the field has recoverable oil reserves between 525 and 650 million barrels.
Since the oil industry began, periods of discovery have occasionally taken a human toll. The worst incident in Canada's east coast was the Ocean Ranger disaster of 1982. In that terrible tragedy, a semi-submersible offshore drilling rig went down in a winter storm, taking 84 hands into the sea. None survived.
[edit] Alberta's oil sands
[edit] Early exploration
An early history of Canada’s petroleum industry would not be complete without a chronicle of pioneering efforts to produce the tar sands deposits (now commonly called “oil sands”) of northern Alberta.
Explorer and fur trader Peter Pond noticed the deposits when he travelled the Clearwater River to its junction with the Athabasca in 1778 - the first European to do so. He noted “...along the banks of the river are found springs of bitumen which flow along the ground.” Reaching the same area nearly a decade later, Alexander Mackenzie also became interested in the oil sands and the way the Ojibwe Indians used the thick black oil for water-proofing their canoes. Despite the fascination of the early explorers, however, the existence of the sands did not excite commercial interests for more than a century.
In 1875, John Macoun of the Geological Survey also noted the presence of the oil sands. Later reports by Dr. Robert Bell and later by D.G. McConnell, also of the Geological Survey, led to drilling some test holes. The Survey theorized that drilling would encounter free oil lower in the sand beds, as Williams had done in the gum beds of Petrolia.
In 1893, Parliament voted $7,000 for drilling. The Geological Survey called tenders and had machinery shipped from Toronto. Drilling started August 15, 1894 at a site near Athabasca. According to his own estimates, McConnell expected to encounter oil sand at between 365 metres and 455 metres.
The hole did not reach this depth, however, because the drillers “ran out of hole” as successively small diameters of casing reduced hole size until further progress was impossible. Neither did further drilling find free oil.
But there was now clear recognition of the commercial potential of the sands, and a long period of exploration and experimentation followed. The point of this research was to find a method of getting oil out of the tar sands at a reasonable price.
Alfred von Hammerstein, who claimed to be a German count, was one of the colourful early players in the oil sands. He had been en route to the Klondike, but stayed and turned his interest from gold to the oil sands. In 1906 he drilled at the mouth of the Horse River, but struck salt instead of oil. He continued drilling in the area, but without success. History has not been kind to the count. He is now generally thought to have been a bit of a dreamer, a lot of a con.
In 1913, Dr. S.C. Ells, an engineer with the federal department of mines, began investigating the economic possibilities of the oils sands. It was then that the idea of using the sands as road paving material was born. In 1915, Dr. Ells laid three road surfaces on sections of 82nd Street in Edmonton. Materials used included bitulithic, bituminous concrete and sheet asphalt mixtures. A report, ten years later, by a city engineer stated that the surface remained in excellent condition. McMurray asphalt also saw use on the grounds of the Alberta Legislature, on the highway in Jasper Park and elsewhere in Alberta.
Although private contractors also mined oil sand as a paving material, the proposition was not economic. Fort McMurray (the village closest to the near-surface deposits) was small and far from market, and transportation costs were high.
- Further information: Athabasca Oil Sands
[edit] Early bitumen production
Instead, researchers began to look for ways to extract the bitumen from the sand. The Alberta Research Council set up two pilot plants in Edmonton and a third at the Clearwater River. These plants were part of a successful project (led by the Research Council’s Dr. Karl A. Clark) to develop a hot water process to separate the oil from the sands. In 1930, the Fort McMurray plant actually used the process to produce three car loads of oil.
At about that time two American promoters, Max Bell and B.O. Jones from Denver, entered the oil sands scene. They reportedly had a secret recovery method known as the McClay process, and they claimed substantial financial backing. They negotiated leases with the federal and Alberta governments and also bought the McMurray plant of the Alberta Research Council. In 1935, Abasand Oils Limited, Bells’ American-backed operating company, started construction of a new plant west of Waterways.
Under the agreement with the government, the plant was to be in operation by September 1, 1936. But forest fires and failure of equipment suppliers to meet delivery dates delayed completion.
The agreement called for mining 45,000 tonnes of sands in 1937 and 90,000 tonnes each year after 1938. The 1,555-hectare lease carried a rental of $2.47 per hectare per year. There was to be a royalty of $0.063 per cubic metre on production for the first five years, and $0.31 per cubic metre thereafter.
Mining at the Abasand plant began May 19, 1941. By the end of September, 18,475 tonnes of oil sand had produced 2,690 cubic metres of oil, but in November fire destroyed the plant. Rebuilt on a larger scale, it was fully operational in June 1942. Between 1930 and 1955, the International Bitumen Company Limited under R.C. Fitzsimmons operated a smaller scale pilot plant at Bitumount.
In 1943, the federal government decided to aid oil sands development, and took over the Abasand plant. The federal researchers concluded that the hot water process was uneconomic because of the extensive heat loss and proposed a “cold” water process. But work at the plant came to an end with a disastrous fire in 1945.
Meanwhile, in July 1943, International Bitumen Company reorganized as Oil Sands Limited. When the Alberta government became disenchanted with federal efforts in the oil sands and decided to build its own experimental plant at Bitumount, the province engaged Oil Sands Limited to construct the plant.
The company agreed to buy the plant within a period of ten years for the original investment of $250,000. The cost of the plant was $750,000, however. A legal claim against Oil Sands Limited resulted in the province taking possession of the plant and property at Bitumount. The plant consisted of a separation unit, a dehydrating unit and a refinery. The plant conducted successful tests using the Clark hot water process in 1948/49 then closed, partly because the recent Leduc discoveries had lessened interest in the oil sands.
Oil Sands Limited eventually reorganized as Great Canadian Oil Sands Limited (now Suncor}, which built and started operation of the first commercial-sized integrated oil sands project in 1967. It had found solutions to the problems of extracting a commercial grade of oil from the sands - problems that had been the concern of financiers, chemists, petroleum engineers, metallurgists, mining engineers, geologists, physicists and many other scientists and pseudo-scientists for may decades. A much later development - although its roots go back to the 1940s, the massive Syncrude plant did not go into operation until 1978 - now supplies some 14 per cent of Canada's crude oil production, in the form of synthetic oil.
[edit] And the future?
The story of the petroleum industry’s early years is a tale of innovation, hard work and a smattering of luck on the part of creative and resourceful people. Industrial activity in those years laid the foundation upon which Canada developed new technical and financial muscle.
Canada’s often severe climate and geological features, remote exploration frontiers and the unique features of oil sands and other indigenous petroleum resources provided challenges which the industry invested billions of dollars to meet. Those investments helped keep Canada in the technological forefront of the global petroleum business.
Also during those years, governmental activity played a big role. Regulatory policy and political issues affected the petroleum industry in many ways. In the early years these matters were exemplified in a positive way by the creation of the Turner Valley Gas Conservation Board and in a negative way by the conflict between that province and the federal government over ownership of natural resources. The energy crises of the 1970s - in particular the 1979 energy crisis - reached a climax in Canada with the promulgation in 1980 of the traumatic National Energy Program. Instigated by the Liberal government of Pierre Trudeau, this federal initiative contributed decisively to the Liberals' electoral defeat in 1984.
And the future? Two global questions have particular resonance for the sector. One pertains to the matter of supply. An increasingly widespread notion has it that the world's oil production will soon peak. This hypothesis is widely known as the Hubbert peak theory, or peak oil. If true, it has huge implications for oil prices, which could become economically destabilizing.
The other trend to which petroleum production is inextricably linked is that of global warming. Fossil fuels like oil and gas are the primary contributors to this phenomenon.
As these issues play out in coming decades, they could have huge impacts on economic and environmental matters in Canada as throughout the world.
[edit] References and notes
[edit] Metric conversions
One cubic metre of oil = 6.29 barrels. One cubic metre of natural gas = 35.49 cubic feet. One kilopascal = 1% of atmospheric pressure (near sea level).
Canada's oil measure, the cubic metre, is unique in the world. It is metric in the sense that it uses metres, but it is based on volume so that Canadian units can be easily converted into barrels. In the rest of the metric world, the standard for measuring oil is the metric tonne. The advantage of the latter measure is that it reflects oil quality. In general, lower grade oils are heavier.
[edit] References
- George de Mille, Oil in Canada West, The Early Years, George de Mille Books, printed by Northwest Printing and Lithographing Ltd., Calgary; 1972
- Peter McKenzie-Brown, Gordon Jaremko, David Finch, The Great Oil Age, Detselig Enterprises Ltd., Calgary; 1993
- J. Joseph Fitzgerald, Black Gold with Grit, Gray's Publishing, Victoria, British Columbia; 1978
[edit] External links
- Original history written and maintained by Peter McKenzie-Brown
- The Great Oil Age
- The Trail to Leduc Began in the North
- The Richness of Discovery]
[edit] See also
- History of the natural gas liquids industry in Canada
- History of the petroleum industry in Canada, part one
- Natural gas processing
