Why Does Heavy Oil Matter?

Around the globe, some of the most prolific basins, such as Mexico's Cantarell
oilfield, are reaching or already into maturity and have begun to experience reduced
production rates. What large conventional oilfields remain lie mostly in the lands of
Middle Eastern, OPEC nations. At the same time, the world's demand for oil
continues to grow every year, fueled in part by the rapidly growing economies of
China and India. This declining availability of conventional oil combined with rising
demand has driven up oil prices and put more pressure on the search for alternate
energy sources.

Into the picture come the tremendous deposits of heavy oil and bitumen that are
found in the Western hemisphere. These non-conventional resources are more
difficult and costly to extract, so they have barely been touched in the past. However,
between the nearly 500 billion barrels of recoverable Canadian oil sands and the
more than 200 billion barrels of recoverable Venezuelan heavy oil, the world could
soon have access to oil sources almost equivalent to those of the Middle East.

"Heavy oils are emerging in importance as our technology in producing them

continues to develop," explains Bill Bush, spokesman for the American Petroleum
Institute (API). "Heavy oils, oil sands, and potentially shale, could contribute
substantially to future U.S. and world oil supplies."

With the price of oil reaching new highs in 2005 and 2006, investments in these more
challenging oil deposits are rapidly accelarating. In fact, the U.S. oil industry alone
has invested $86 billion in "frontier hydrocarbons" since 2000, developing
technologies to recover and convert inferior grades of oil, such as heavy oil and
bitumen, into a more usable form for refineries, and to turn waste and residue
hydrocarbons into high-value products.

The worldwide importance of heavy oils will continue to emerge as the price of oil
remains high and the demand for it remains strong. For example, the tight worldwide
oil supply is expected to continue to force crude prices higher and turn Canada's oil
sands into the single largest contributor to net new global supply by the end of the
decade, according to CIBC World Markets.

"All of the net increase in oil production this year is expected to come from non-
conventional sources," says Jeff Rubin, chief economist at CIBC World Markets.
"While deepwater oil is the primary source today, we forecast that the Canadian oil
sands will become the single largest contributor to incremental global supply by
2010."
With oil prices exceeding US$140 per barrel at this writing in mid-2008 and limited
market access to OPEC reserves, Rubin says that Canadian oil sands may become
one of the world's most valuable energy sources as well as one of the few still open
to private investment.

Sally Cole Johnson is a freelance writer based in Windham, NH. She earned a B.A