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Canada’s Oil Sands: Strategic Decisions to Make Canada an Energy Superpower by Young Jae Kim A thesis presented to the University of Waterloo in fulfillment of the thesis requirement for the degree of Master of Applied Science in Systems Design Engineering Waterloo, Ontario, Canada, 2010 © Young Jae Kim 2010 AUTHOR'S DECLARATION I hereby declare that I am the sole author of this thesis. This is a true copy of the thesis, including any required final revisions, as accepted by my examiners. I understand that my thesis may be made electronically available to the public. ii Abstract Systems methodologies are employed to investigate strategic decision problems regarding the development of the oil sands in Canada. Many countries believe energy to be one of their most important national security factors in today‟s competitive global era. Canada is no exception. Energy is an issue in Canadians‟ growing concerns related to the conflicting priorities of its economy, environment, and society. Various studies have tried to map out Canada‟s establishment as an energy superpower. In particular, the massive resources in Canada must be considered as competitive advantages, and oil sands (tar sands) constitute one of the most crucial elements in terms of non- renewable energy. This thesis describes Canada‟s oil sands – their characteristics, cost and market analysis, as well as social, economic, and environmental impacts – in order to clarify conflicts that have arisen in recent years. In addition, the importance, potential, and constraints of the oil sands are examined as leading drivers to the country becoming an energy superpower and are compared with the Canadian Academy of Engineering (CAE)‟s studies and recommendations. Multiple-criteria decision analyses based on the ProGrid methodology are carried out at different levels to clarify the structure and current position of Canada‟s energy system. An Evaluation Matrix, including multiple criteria, is built, and language ladders with different weights are established to allow various groups of experts to evaluate available options. Based on their evaluations, the strong and weak points of the oil sands are analyzed. At a more detailed level, alternative solutions for water quantity and quality problems in Canada‟s oil sands are prioritized with respect to specific criteria, using the ProGrid methodology. The strategic issues in Canada‟s oil sands are addressed at different levels, and priorities for decision-making are determined and discussed to guide Canada in becoming an energy superpower. iii Acknowledgements I would like to sincerely acknowledge the support of my supervisor, Professor Keith W. Hipel. Without his encouragement and guidance, I would not have been able to accomplish my thesis. I am honored to be his student and work with him during two years of my studies. I am deeply impressed with his endless enthusiasm in his academic research and his expertise in water resource management. I would like to express my sincere appreciation to Dr. Clement W. Bowman for supplying the ProGrid AdvisorSLTM software and the valuable evaluation. I also would like to thank my readers, Professor Stephen Birkett of Systems Engineering and Professor Jim F. Barker of Earth & Environmental Sciences for reading my thesis with patience and for giving their precious feedback that has helped me to improve my thesis. I would also like to thank many faculty, staff, Conflict Resolution Group members, UW-KGSA members, and students in Systems Design Engineering. I wish to extend my gratitude to the following individuals whose contributions have encouraged me to finish my research: Dr. KyoungIl Choe, Dr. SungYong Yee, Dr. JiUng Sun, Dr. KyoungSik Lee, Dr. JiIn Kim, YiYoung Choi, TeakDong Kim, EunMi Kim, HoonSub Song, MiOk Park, Olive Lee, Dr. HoYoung Hwang, MyoungHee Woo, JongSoon Yang, JaHo Seo, HyoungGu Jung, HyunJu Jang, SeoungMi Yoo, Dr. SangYoung Shin, Sangtak Park, Sora Jong, SeougWoo Park, SiWan Kim, Paul Jakubicek, Marcos Gomez, Peter Yang, Larry Liu, Franklin Foo, Mushota Kasanga, Samantha McNair, Mary McPerson, Yewon Kurylyk, Dale Kurylyk, Dr. Jennie Park, Dr. Grace Park, MoonSook Jung, BoKyoung Park, KangIk Lee, Dr. Marc Kilgour, Dr. Liping Fang, Dr. Andrea Farwell, and Michael Hoffman. Finally, but most importantly, I am especially grateful to my mother, WoonJa Kwon, for her love, understanding, and devotion, and my sister, SuAh Kim, and my sister‟s husband, SoonWook Kwon, for their love and taking care of my mother instead of me. I would like to dedicate my Master‟s thesis to my parents who gave me the great opportunity to receive the best possible education and to study in Canada. iv Table of Contents Author‟s Declaration .............................................................................................................................. ii Abstract ................................................................................................................................................. iii Acknowledgements ............................................................................................................................... iv Table of Contents ................................................................................................................................... v List of Figures ..................................................................................................................................... viii List of Tables .......................................................................................................................................... x Chapter 1 Introduction ............................................................................................................................ 1 1.1 Oil Sands ...................................................................................................................................... 1 1.2 Motivation for the Research ......................................................................................................... 2 1.3 Organization of the Thesis............................................................................................................ 3 Chapter 2 Oil Sands ................................................................................................................................ 5 2.1 What are the Oil Sands? ............................................................................................................... 5 2.1.1 Definitions ............................................................................................................................. 5 2.1.2 Scale and Location of Oil Sands............................................................................................ 6 2.1.3 Methodologies for Recovering Bitumen in Oil Sands ........................................................... 9 2.1.4 Oil Sands Process: Upgrading and Refining ....................................................................... 12 2.2 Cost and Market Analysis .......................................................................................................... 15 2.2.1 Operating and Supply Costs ................................................................................................ 15 2.2.2 Canadian Markets ................................................................................................................ 18 2.2.3 US Markets .......................................................................................................................... 19 2.2.4 Crude Oil Pipelines .............................................................................................................. 19 2.3 Socio-Economic Impacts ............................................................................................................ 23 2.3.1 Gross Domestic Product (GDP) .......................................................................................... 23 2.3.2 Government Revenues ......................................................................................................... 25 2.3.3 Employment ........................................................................................................................ 25 2.3.4 Housing and Population Growth ......................................................................................... 26 2.3.5 Infrastructure and Services .................................................................................................. 26 2.4 Environmental Impacts ............................................................................................................... 27 2.4.1 Greenhouse Gas (GHG) Emissions ..................................................................................... 28 2.4.2 Water Usage and Quality ..................................................................................................... 31 2.4.3 Overconsumption of Natural Gas ........................................................................................ 34 v 2.4.4 Land Reclamation and Tailing Ponds ................................................................................. 35 2.5 Summary .................................................................................................................................... 38 Chapter 3 Canada as an Energy Superpower ....................................................................................... 39 3.1 Strategic Value ..........................................................................................................................