Mmm, Outsourcing

I take issue with Jason Pontin's stance that outsourcing is generally
good for the US economy (View, "The Micro-Multinational," Wired 12.07).
Outsourcing is akin to making a skyscraper taller by taking material
from its lower floors. At first glance outsourcing is a brilliant idea:
Pay someone in India $12,000 a year to do the same thing someone in the
US gets $70,000 for. Cut costs to the point that you have an edge over
competitors, and the consumer gets a high-quality product for less
money. The problem is that if everyone starts doing it, the consumer
won't be able to buy the product, because he will have just gotten laid
off from his job because of outsourcing.

*Byron Katz
Atlanta, Georgia*

http://www.wired.com/wired/archive/12.09/rants.html


The Trillion-Barrel Tar Pit

By Brendan I. Koerner

*Fort McMurray,* Alberta, is an unlikely destination for a congressional
boondoggle, especially when cold snaps of 40 below make it dangerous to
leave any patch of skin uncovered. But here I am in midwinter, 250 miles
north of Edmonton, watching a flock of Washington politicians in subzero
parkas cling to tour guides like a trail of oversize ducklings. With gas
prices approaching $3 a gallon in some states, the US representatives
are braving the frigid air not for adventure but to learn about a filthy
sort of alchemy, one that turns sludgy, sticky earth into sweet crude oil.

Alberta sits atop the biggest petroleum deposit outside the Arabian
peninsula - as many as 300 billion recoverable barrels and another
trillion-plus barrels that could one day be within reach using new
retrieval methods. (By contrast, the entire Middle East holds an
estimated 685 billion barrels that are recoverable.) But there's a
catch. Alberta's black gold isn't the stuff that geysered up from Jed
Clampett's backyard. It's more like a mix of Silly Putty and coffee
grounds - think of the tar patties that stick to the bottom of your
sandals at the beach - and it's trapped beneath hundreds of feet of clay
and rock.

This petroleum dreck is known in these parts as heavy oil, and
wildcatters are determined to get it out of the ground and into a
pipeline. If they succeed, the stereotypical oil zillionaire may be not
an Arabian emir but a folksy Albertan fond of ending sentences in a
question, eh? Like Jim Carter, president of Canada's largest oil
company, Syncrude. A coal-mine foreman by trade, Carter talks as if he
just got out of a cut-rate business seminar, spewing jargon like
"going-forward basis" and "continuous-improvement mindset." He's the
kind of guy who straps a snowplow on his John Deere mower and clears the
streets just for fun. But he clawed his way out of the pits to a corner
office, and now he has a plan to make Canada's oil reserves pay off.

Heavy oil isn't a new discovery. Native Americans have used it to caulk
their canoes for centuries. Until recently, though, it's been the energy
industry's stepchild - ugly, dirty, and hard to refine. But the
political winds are favoring the heavy stuff, as "energy independence" -
aka freedom from relying on Middle East oil - has become a war-on-terror
buzz-phrase. Even President Bush has waxed optimistic about Alberta's
"tar pits."

Better yet, recent improvements in mining and extraction techniques have
cut heavy oil production costs nearly in half since the 1980s, to about
$10 per barrel, with more innovation on the way. The petroleum industry
is spending billions on new methods to get at the estimated 6 trillion
barrels of heavy oil worldwide - nearly half the earth's entire oil
reserve. 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. Venezuela's Orinoco Belt yields 500,000 barrels daily,
and that number should spike when a new ChevronTexaco plant goes online
this year.

The trailblazer in heavy oil is Syncrude, a joint venture among eight US
and Canadian energy companies, which has been harvesting greasy sand
since 1978. Last year, the company shipped 77 million barrels of its
trademark product, Syncrude Sweet Blend, mostly to US refineries. That's
14 percent of all Canadian oil sales, company executives boast - enough
to produce 1.5 billion gallons of gasoline.

Chalk up the impressive output to Syncrude's efficiency. Carter and his
team like to present themselves as roughnecks, but they run the company
like bookish software engineers. Their oil mines - noisy and grimy and
often reeking of sulfur - operate with the high tech prowess of a
Taiwanese factory churning out LCDs.

*The Caterpillar 797* dump truck is a true monster - 48 feet from tip to
tail and 22 feet high, it creeps uphill with a 400-ton payload at 1 mile
per hour. Syncrude owns 36 of the vehicles, which cost $5 million each.
This herd of yellow pachyderms lumbers around the company's open-pit
mines, shuttling oil sands from the digging shovels to a massive
processing facility called a crusher. The inside of the crusher
resembles the guts of the /Nostromo/, the doomed ore-hauling ship in
Alien. Whale-sized pipes and narrow catwalks crisscross everywhere;
steam billows from hoses that snake along the floor. Here the sands are
pulverized, then sent to cyclofeeders to be mixed with hot water and
pumped to gargantuan centrifuges where the oil-rich component, bitumen,
is separated out. The bitumen is sent to giant cokers and roasted with
hydrogen into Syncrude Sweet Blend.

It's a laborious process, to say the least - 2 tons of sand yields just
one barrel of oil - but nowhere near as painstaking as it used to be. In
the 1920s, Karl Clark, a University of Alberta chemist, discovered that
steam could tease pitch out of sand. His breakthrough piqued Big Oil's
interest, but no one could make the process cost-effective. In the
1950s, a few desperate hopefuls suggested detonating a subterranean
nuclear bomb to blast the gunk to the surface. When Syncrude started, it
relied on draglines, huge cranelike devices weighing more than 15 full
747s. Attached to these $100 million machines were enormous buckets; the
draglines would scrape the buckets across the earth to scoop up huge
chunks of sand - a tough process to coordinate come winter.

The murderous climate caused untold headaches. The conveyor belts that
carried oil sands from dragline to processing plant were prone to
cracking. Whenever the cokers got clogged with calcified soot, Syncrude
had to shut down for a week and send in cleaners with sledgehammers -
"the kind of job that makes you thankful you have an education," quips
Mark Sherman, who now manages the company's cokers.

When an OPEC glut sent oil prices skidding to $10 a barrel in 1985,
Syncrude was losing $5 to $10 on every barrel of synthetic crude it
produced. Only savage staff cuts staved off complete ruin. Nearly a
decade later, Syncrude began to get creative. In 1994, the executives
opened an R&D lab in Edmonton and started spending $30 million a year to
devise increasingly efficient extraction methods. They ditched the
draglines for more agile trucks and shovels and replaced some of the
conveyor belts with hydrotransport, a method in which crushed sand is
mixed with hot water into a pipeline-ready slurry.

As new information technologies became available in the '90s, Syncrude
moved to further streamline its operations. Today, miles of fiber-optic
cable snake between the company's ore crushers, shovels, and pipes.
Operations are supervised from the heated comfort of computerized
control centers, where truck dispatchers use GPS to ensure that the
Caterpillars proceed like clockwork. A homegrown computer program keeps
tabs on each $35,000 13-foot-tall truck tire, as cold tires are prone to
cracks. X-ray sensors on the hydrotransport pipes scan for leaks, and
ultrasonic transmitters verify that the crushers are never quite empty,
lest their metal teeth mash against each other and cause damage.

Carter doesn't think Syncrude's costs are low enough yet. For starters,
the company spends more than $100 million a year on natural gas to heat
the facilities and fuel the hydrotransport system. Then there's the cost
of maintaining the monster trucks. Carter says replacing the trucks with
mobile crushers - currently in development at the Edmonton center -
could save $1.50 per barrel.

Cutting expenses is always good, but the real payoff for Syncrude will
come if its R&D lab can find a way to get at the trillion barrels of oil
that currently lie so far below ground that they are beyond the
industry's grasp. All the heavy oil companies are experimenting with new
methods that will allow them to go deeper. One possible solution comes
in the form of a process known as steam-assisted gravity drainage. In
SAG-D, steam is forced through a well into the subterranean oil sands,
melting them and separating the bitumen. The oily parts then seep into a
second well and rise to the surface. At least a dozen SAG-D projects are
under way, the most successful of which, operated by Imperial Oil, is
producing 116,000 barrels per day. The problem is that creating the
steam requires a lot of energy. A less energy-intensive alternative:
vapor-assisted petroleum extraction, a technology that injects gaseous
hydrocarbons into the earth. When the heavy oil surfaces, the
hydrocarbons are stripped off and recycled. One company, Canada's
Petrobank, is experimenting with an air injection method that blasts out
the bitumen with compressed air. There's also been some renewed interest
in nuclear energy - not in the form of a bomb, but as a way to generate
necessary steam.

No one's suggesting that Alberta's version of beach tar will wean us off
Middle East oil anytime soon. After all, it took Syncrude two decades to
bring production costs down to $10 per barrel. And that's still more
than triple the cost of producing Saudi Arabian crude, which is so light
that it requires much less refining. "Some of it is so good, you can put
it right in your car," says Michael Economides, a chemical engineer at
the University of Houston and a consultant to the Russian oil giant
Yukos. By contrast, Economides says the heavy oil that Syncrude mines is
"*****."

*On my last day* in Fort McMurray, I bum a ride with Eric Newell, who
recently retired as Syncrude's CEO. He's particularly excited about the
congressional visit. He recalls a 1996 trip to Washington, DC; he'd been
invited to the Canadian embassy to preach the virtues of heavy oil. The
audience of US senators, Goldman Sachs bankers, and assorted other
bigwigs seemed more interested in their meals than his speech.

What a difference a war makes. These days, Congress is considering a $3
per-barrel tax credit to companies that import heavy oil from north of
the border. So forget those scraps over prescription drug prices and
trade policy - Canada has never looked like such a pal. The friendly
relationship is a none-too-subtle part of Jim Carter's Syncrude pitch:
"Our American neighbors know what Canada's like. It's a good, stable
country."

And chock-full of tar patties.


Tapping the Oil Sands of Alberta


*The biggest petroleum reserve outside Arabia lies beneath Canada in the
form of heavy oil. Here's how Syncrude is priming the pump.*

1. Syncrude shovels excavate thousands of tons of soil and clay,
creating a 150-foot pit for mining the oil sands below.

2. Oil sand is piled high into monster Caterpillar trucks, capable of
carrying 400 tons at a time.

3. The trucks dump their payload into crushers, which grind it down to
fine oil-coated grains.

4. The sand is transferred via conveyor to a cyclofeeder, where it's
mixed with hot water to produce a slurry. The slurry flows to the
extraction facility, where large centrifuges separate out the oil-rich
bitumen.

5. Bitumen flows to cokers, where it's heated to remove impurities such
as sulfur and nitrogen, leaving only usable crude oil.

6. The crude is sold to off-site refineries, which produce gasoline.