An Explosive Combination

I wrote before in my column about how Alberta’s oil sands — while potentially the second-largest source of fossil fuel in the world — unfortunately comes with a pretty steep price. Oil sands are a thick molasses of sand, rock, and oil mixed together into raw bitumen.

For obvious reasons, bitumen lacks its own hydraulics, which is why it cannot flow to the surface on its own. Instead, oil sand shafts have to be flooded with steam to loosen the bitumen before extraction. And, once on the surface, more energy is needed to finish the process. Since more costs are added to the extraction process in comparison to conventional fossil fuel extraction, oilmen need high oil futures prices.

Not all oil sands are created equal. Apparently, there is a difference between bitumen trapped in limestone and bitumen comprised of oil, dirt, and ordinary rocks. While the former is harder to pull to the surface, the oil is easier to separate from the hard limestone than it is from dirt and sand rocks.

So, oilmen in Canada’s Athabasca region are getting excited again about the deposit, and not because oil prices are picking up the pace, but because some of them could be going, well, nuclear!

Why? First, no worries; no one is going to blow up anything with an A-bomb. Second, in order to free oil from limestone, an enormous amount of electrical power is needed. First, electric heaters and steam flooders are downloaded into shafts to loosen the bitumen. And once on the surface, even more electricity is needed to finish the separation.

To make the extraction commercially viable, oilmen need sources of electrical power that are as cheap as possible. And just where is all that electric power going to come from? Well, that is where nuclear power plants are coming into play.

Royal Dutch Shell PLC has spearheaded the nuclear oil technology, dumping more than half a billion dollars on research and development. And while oil sands miners always represent an interesting bet for investors, this time it might be prudent to look into providers of nuclear energy as well.

While I’m sure there will be considerable environmental hurdles to overcome if and when this new extraction technology hits the oil sands strip, investors should put on their radar oil sands explorers and energy providers that have so far expressed interest in teaming up, such as Husky Energy Incorporated and French atomic energy giant Areva Cip.