Why an accidental leak should send shivers up Big Oil’s spine | Jeff Rubin

Why an accidental leak should send shivers up Big Oil’s spine | Jeff Rubin.

Posted by Jeff Rubin on February 18th, 2014 under SmallerWorld

One of the largest accidental releases of oil in Alberta’s history isn’t a burst pipeline and it doesn’t involve a train of tanker cars derailing into a river. It’s also not a thing of the past. It’s been going on for about a year and it’s still happening. An estimated 12,000 barrels of bitumen and water has now risen from giant cracks in the forest floor at an underground oil sands project run by Canadian Natural Resources Ltd.

Oil leaks are a regrettable fact of life in the business, but this one might send shivers up the spine of even a veteran oilman. CNRL insists the seepage is due to the failure of four well bores that are supposed to draw oil from its Primrose project, near Cold Lake, to the processing facilities on the surface. Others, including even Alberta’s pro-industry energy regulator, aren’t so sure.

The well bores are separated by several kilometers, which calls into question why four would fail at the same time. A more frightening theory that’s gaining currency suggests CNRL may have overpressurized the underground formation causing the caprock closer to the surface to fracture, which is allowing the bitumen to seep upwards.

Primrose is a so-called in situ oil sands play, which means it uses a process that involves heating bitumen in the ground to a point where its viscosity allows it to be pumped to the surface. It doesn’t create the moonscapes and toxic tailings ponds that have become the signature features of oil sands mining projects, but it’s also not without its environmental footmarks. At Primrose, CNRL, for instance, has been ordered to pump more than 400,000 cubic meters of contaminated water from a small lake contaminated by the bitumen seepage. On a broader scale, the enormous amount of steam needed to extract bitumen from in situ plays, makes the undertaking more carbon intensive than even the mining projects that begin by stripping all traces of the original boreal forest from the landscape.

The carbon trail from in situ projects isn’t the only worry. The extraction method may also be having more of an impact on the earth itself than was previously thought. Geologists have found that injecting massive amounts of steam into bitumen deposits can actually lift the ground cover by more than a foot a month. If this upheaval fractures the caprock then that’s one less barrier left to stop the uncontrolled flow of bitumen to the surface.

The proliferation of such unconventional extraction methods, as the US experience with fracturing shale rock shows, can also have unintended seismic effects. In Oklahoma and other places, for instance, fracking has been linked to earthquake activity.

So far, the Alberta Energy Regulator has yet to deliver a final verdict on the Primrose leak, although it did recently move to limit the amount of steam that CNRL can inject into its wells. While the provincial energy regulator — led by a former EnCana executive and president of the oil industry’s lobby group — does seem to be suspicious of CNRL’s proffered explanation for the seepage, it has yet to order the company to stop injecting steam at its Primrose operations. The longer bitumen keeps seeping to the surface, though, the more pressure the regulator will face to do so.

Whether CNRL’s problems at Primrose are specific to that site or will become a more generic issue for the industry remains to be seen. But with 80 percent of the massive expansion planned for the oil sands coming from in situ production, it’s a question that investors in oil sands stocks will soon want answered.