Editor's note: In this two-part series, the Independent Record examines Canadian oil sands production, its impact on the economy and the environment, and the potential connection to Montana's own energy development.

FORT MCMURRAY, Alberta -- The six-seater helicopter, painted with vivid red, orange and yellow flames flits north along the Athabasca River with only a smoke stack in the distance to hint at the activities about to be unveiled.

Slowly at first, like a spotlight shining brighter, the stage unfolds, revealing what brings billionaires and politicians from throughout the world to this remote hamlet in Alberta's boreal forest: the oil sands of Athabasca.

These sands are a billion-dollar industry, the newest gold rush in the world of mineral extraction and energy production. Instead of precious metals or light, sweet crude oil, the natural resource sought here is a dirty, asphalt-like soil that stinks like tar.

The black oil sands are lining with gold the pockets of nearby communities, investors and the Alberta province, not to mention the Canadian government. But it's also tarnishing the image of our northern neighbor, creating a public relations problem for the province.

It's an odd conundrum.

The United States and the world need more oil. Alberta has it -- an estimated 173 billion barrels recoverable using today's technology, a mere fraction of the estimated 1.7 trillion barrels of oil locked in 56,000 square miles, an area about the size of Iowa. The sands are near the surface in many places, meaning they're easy to find and fairly simple to mine.

But removing the oil from this tar-like dirt is like mixing molasses in a sand box, then trying to get the molasses back without the sand, to use one well-known analogy.

It takes energy. A lot of energy. In fact, producing fuel from the oil sands puts out three times as much carbon dioxide as creating fuel from fluid oil.

That carbon dioxide, or CO2, is perhaps better known as greenhouse gas, which many experts believe is contributing to the warming of our world, resulting in the recent massive wildfires and rising sea levels.

The process also uses large amounts of water and leaves behind tailing ponds that may take decades to reclaim.

In addition, the logging used to reach the oil sands involves the second-fastest deforestation after the Amazon basin in Brazil, and the refining effort is basically an industrial site set in the middle of one of the largest intact ecosystems in the world.

The environmental impacts of producing fluid fuels from oil sands is of enough concern that at their annual conference in June, United States mayors passed a resolution trying to limit the burning of oil sands-derived gasoline in municipal vehicles. Airlines are being pressured to stop their use of such fuel and environmental groups are targeting oil sands customers, the banks that finance them and the expansion of American energy infrastructure that further refines the oil.

Even former Vice President Al Gore took a swipe at the sands, telling Rolling Stone magazine that "for every barrel of oil they extract there, they have to use enough natural gas to heat a family's home for four days."

The attack on oil sands production is of enough concern to Canadians that Alberta recently began a $25 million public-relations campaign to improve the province's environmental image.

The Canadians note that they've already reduced the amount of CO2 being produced per barrel by almost 40 percent and will continue those efforts.

They remind the U.S. that Canada is a "secure, reliable and environmentally responsible producer of oil," taking a clear swipe at the often unstable, feuding governments in the Middle East. Worldwide, Canada's extensive reserves are second only to Saudi Arabia.

Canadian officials also point out that the U.S. is the largest consumer of oil products worldwide.

But perhaps the strongest argument the Canadians make is simple and direct, not a threat but definitely a quiet warning in the most polite, Canadian manner.

If the U.S. doesn't want their oil, plenty of other countries do.

Big business

Alberta produced more than 1 million barrels of oil per day from three dozen oil sands project in 2006, which is more than all the wells in the state of Texas.

It's the world's seventh-largest crude oil producer, but expects to tie the U.S. at third place by 2013, mainly because of the oil sands. It's also the largest supplier of crude oil and petroleum products to the U.S., notes Greg Stringham, a wiry, rapid-talking vice president with the Canadian Association of Petroleum Producers.

"We produce around 1.8 million barrels per day ... and invest about $50 billion per year in capital," Stringham said recently.

The Canadian oil sands were laid down in a sea bed eons ago; generally speaking, they're grains of sand with microscopic bits of water around them. A heavy mixture of hydrocarbons, formally known as bitumen (a technical term for oil that will not flow to a well by itself), pushed between those grains of sand.

If the sands are close to the surface, trees are cut down, then the dirt and foliage above is scraped off. Enormous shovels (costing $150 million each) scoop the sand into $6 million trucks --each the size of a cubed 747 airplane -- riding on six tires costing almost $60,000 each.

Stringham describes the manner of removing the oil from the sands in food terms. He used to think of the bitumen as molasses until he was corrected by an engineer who said it's closer in thickness to peanut butter. You can't pour peanut butter, so you have to first heat it to make it become more fluid, he said.

"You take that sand, add more water to it, agitate it and shake it up, then it separates like an Italian salad dressing," Stringham said. "The sand drops to the bottom, the water goes to the middle and the oil floats to the top and they scrape the oil off the top. Basically, that is the oil sands recovery technology."

It takes about two tons of oil sands to produce one barrel of oil.

Oil sands deeper than 200 feet used to be reached by two deep, vertical shafts in a process called "huff and puff."

That's been refined to vertical, then horizontal drilling in a method called steam assisted gravity drainage, or SAGD (pronounced "sag-D"). An upper shaft is filled with steam to melt the oil adhered to the sand and make it more fluid. After about a month of heating, it drains into the lower well and can be pumped to the surface. This is known as "in situ" or in-place mining.

"They pull the oil and the water out, separate the water to reuse it, and they extract the oil out of it leaving all the sand underground," Stringham said.

No sands are displaced in this process.

Leftovers

Oladipo Omotoso is a research scientist with the CANMET Energy Technology Centre in Edmonton, a government-run laboratory that explores ways to better process oil sands and their byproducts. It's there in his cramped office that he clearly set out one of the biggest environmental pitfalls for oil sands production.

In a glass vial about the size and shape of a film canister, Omotoso held a sample of oil sands, coal-black and stinky.

"It's the smell of money," he said with a grin.

He then picked up a mayonnaise jar-size containerholding about a liter of brownish, murky water, which is what remains after the oil sands refining process. Every barrel of crude oil generates 10 barrels of this.

"This is the problem with the tailings," he said. "If you let (the water) sit for about three years, it gets to this" -- he picked up another jar full of a silvery, slimy sludge -- "that we call 'fines' that are clay and silt and are still very, very fluid."

Those fines coat the tailings ponds, and today the engineers and chemists at CANMET are trying to develop economically feasible technologies to turn the material into something useful, because every barrel of oil produced creates a barrel of fines.

"So we have close to one billion barrels of this in the tailings ponds," Omotoso said, adding that it will cost billions of dollars to reclaim the tailings.

The oil companies pump water out of the tailings ponds to reuse in the product process. Current technology calls for companies to then add gypsum to the tailings, which prompts them to become about 70 percent solid. Add some sand, plus a little CO2 for coagulating, and after a few chemical reactions, Omotoso said, it should be stable enough to drive on.

Another technique involves using a centrifuge to dewater the sludge.

Ideally, the tailings ponds will be capped and revegetated. So far, numerous ponds are in various stages of treatment, but after 40 years, none have been fully reclaimed.

Officials with Suncor Energy, one of the largest and longest-operating oil sands mining companies in Alberta, said they think one pond will be ready to be revegetated in five years.

Dozens of settling ponds already dot the landscape north of Fort McMurray, where the bulk of oil sand production is occurring.

"Basically, what you have got is huge man-made lakes," noted Kirk Michaelian, acting director general at the CANMET facility. "Suncor has one that's very big. The engineers say it's visible from the space shuttle."

Michaelian worries about some of the ponds because of their proximity to the Athabasca River. He notes that if something were to go wrong, "there could be a catastrophe of sorts."

He's quick to add, however, as do company and provincial officials, that the ponds are monitored closely and they don't have any evidence of problems.

Environmental give and take

The oil sands developers, as well as Canadian officials at the local, provincial and federal levels, are well aware of the negative impacts from oil sands productions. Even as they've garnered billions of dollars in revenues from the oil sands, they've also spent billions of dollars trying to lessen the damages.

Suncor Energy has been around Fort McMurray since the 1960s. In 1967, it invested $250 million in oil sands production, which was the largest private-sector investment in Canada at the time.

Brad Bellows, Suncor's affable manager of external communications, said that the company didn't turn a profit until the 1970s, and not much interest was shown in the sands for the next two decades. By the early 1990s, the company was considering "whether we would just turn out the lights here," he said, standing on the helicopter tarmac outside of Fort McMurray.

Instead, Suncor's board decided on a $3.4 billion expansion, including an "upgrader," which pulls the oil out of the sand. The expansion doubled the company's production capacity in 2001 from 110,000 barrels a day to 225,000 barrels. A subsequent $4 billion project increased capacity to 350,000 barrels per day.

At $100 per barrel, the math works out to about $35 million in income per day. Suncor is close-mouthed about the costs of producing a barrel of oil from the sands, but a 2005 Wall Street Journal report put the price at about $15 per barrel.

The aerial view from a helicopter shows the wide range of Suncor's operations. Even the two-story dump trucks are dwarfed by Suncor's mine pit, which is expected to grow to six miles in diameter in the next few years. Nearby is the upgrader plant with its maze of buildings, pipes and smokestacks, with another company's plant visible in the distance.

Beyond that, other companies' oil sands mining operations continue for miles up the Athabasca River.

Industrial features from the mines and upgraders dot the 1.4 billion-acre boreal forest. From the helicopter, brown rectangles the size of football fields outline where the in-situ drilling is taking place. Long, straight clearcut rows through the forest were created for seismic exploration, allowing scientists and engineers to gauge below-ground reservoirs; they've learned to make those cuts in a narrower, weaving manner so wolves can't hunt caribou as easily.

"It kind of upset the balance a bit," Bellows said.

Since 1990, Suncor has reduced its greenhouse gas emissions per barrel by 44 percent. But overall emissions have gone up because of a four-fold increase in production. Estimates are that production will increase to 3.8 million barrels per day by 2020.

"I don't think we will see any major reductions in emissions per barrel, so with doubling our productions, emissions will double as well," Bellows said.

However, the 25 million tons of greenhouse gases put out by the three big oil sands companies in 2006 is a fraction of the 5,800 million tons emitted by the United States that year.

'Fort McMoney'

After the helicopter flight, the tour of the oil sands region ends with a visit to the Fort McMurray mayor's office. Mike Allen is a municipal board member sitting in for the mayor today. He's also a professional trombone player who moved here in 1993 after buying a music store, and he is thrilled with the growth of the community.

"The company I bought when I moved here was doing sales of about half-a-million dollars a year, with five employees," Allen said. "I now have 24 people with two locations and revenues in excess of $5 million a year. It's been a very strong economy for me."

About 37,000 people lived here in 1990; it's now home to 66,000, with the Fort McMurray area's population forecast to hit 100,000 people by 2010. Anywhere from 20,000 to 30,000 people are employed by the industry, with around 4,000 people working 12-hour shifts in an process that operates every day around the clock.

The town has a bikini car wash and a large toy store, and the A&W on Franklin Avenue is advertising a starting wage of $13.50 an hour to flip burgers.

The community's annual budget is $600 million, Allen said proudly. Locals call this "Fort McMoney."

In comparison, Montana's Lewis and Clark County, with about 60,000 residents, operates with a $64 million budget.

"The oil sands make up the lion's share; 13 percent is residential and 87 percent non-residential," Allen said.

Yet the community still faces an estimated $1.9 billion shortfall in infrastructure, including schools, hospital beds and other "quality of life" needs. In addition, Allen knows they're riding the boomtown wave and that the cyclical "bust" could occur at anytime, so the community is trying to diversify the local economy. But it's difficult to do, given the remoteness of the town and the fact that most of the skilled laborers already work for the oil sands operations.

It's a town surrounded by public property owned by "The Crown" -- the government -- so private homes abut forested lands, posing wildfire dangers similar to those in Montana. It's created a housing shortage, and for Fort McMurray to grow, land would have to be purchased from the national government.

One way the oil companies are dealing with the lack of housing is by building temporary workers' camps in the woods near the mines. Allen estimates anywhere from 18,000 to 30,000 people live in the camps.

Along with tax dollars and royalties, total corporate donations for community projects amounted to $6.3 million in 2005, with cumulative contributions since 1996 exceeding $40 million. They've helped expand water and sewer treatment plants, brought in doctors and nurses, and are even building a highway overpass that they'll donate to the Alberta province.

The companies also are trying to aid members of the five First Nations communities, known as aboriginals, who have resided here for centuries. Mining the oil sands has changed the Nations' traditional hunting, trapping and fishing endeavors, depending on their proximity to the mine operations. Many now make a living working for the mines.

Allen has seen a lot of long-time residents leave, discouraged by the town's transformation from a sleepy community to a bustling boomtown. But he's also seeing a lot of younger people move here for the jobs and recreation opportunities.

Patrick Mercredi is also quite cognizant of the explosive growth, but he's a little less enthusiastic than Allen. Mercredi is a member of the Athabasca Tribal Council, a coalition of the five aboriginal tribes.

Mercredi recalled that years ago, when he was a young man and the oil sand development started, he asked one of the elders for advice about how they should deal with the industry moving into their forests.

"We need the oil and gas for our own use. It isn't a problem. It's good. But the means of extracting it were issues," Mercredi said, his dark eyes deep-set in a face tanned and brown by decades of living close to the land. "She said you need to have some kind of balance and that cleared my mind and put me at ease."

But as he's watched the industry explode, Mercredi fears that balance is long lost. A catfish recently harvested from Lake Athabasca was double-jawed.

About 500 ducks that landed on a tailings pond last year died. Aboriginals are experiencing an increase in rare cancers for unknown reasons. Traditional hunting and fishing lands are disappearing in the quest for more oil sands development.

"It isn't only about the almighty dollar," Mercredi said quietly. "Yes, it's there, but we have to learn to develop our resources in the best way we can, not just ravage the land.

"As a native person, we don't take any more than we have to. That's always been our philosophy."

Fast facts

From 1995 to 1999, investment in oil sands exploration and development averaged $1.47 billion per year in Alberta. That jumped to an average of $5.75 billion per year from 2000 to 2004, and averaged $10.3 billion each year in 2005 and 2006. That level is expected to continue for the next five years.

The provincial government of Alberta received close to $4.45 billion in royalties from 1995 to 2006. Municipalities in the oil sands regions and elsewhere also receive property tax from industries located within their jurisdiction.

With 173 billion barrels in oil sands reserves, Canada ranks second only to Saudia Arabia in global oil reserves. At today's level of production, they have enough reserves to last for 400 years, but would like to increase production to 3 ½ million to 4 million barrels per day, up from about 1.8 million barrels per day now.

Industry-wide, oil sands production is expected to quadruple by 2020, reaching 4 million barrels per day.

Recent history of Alberta's oil sands dates back to 1719, when a member of the Cree First Nation brought a sample of oil sands to Fort Churchill. Canada's first Geological Survey in 1875 noted an observation of water washing oil out of the oil sands and a man named G.C. Hoffman was the first to successfully separate bitumen from the oil sands.

It takes about 2.2 tons of oil sands to produce a barrel of oil.

Reporter Eve Byron: 447-4076 or eve.byron@helenair.com