KEY POINTS:
Todd Dahlman scoops up a handful of oily sand and smiles. "This is the money - it even smells like money," says the manager of Shell's Muskeg River oil sands mine in the Athabasca region of North Alberta in Canada.
We are standing in the middle of a pit 50m deep that giant diggers have hollowed out of the earth.
Some 150m beneath our feet lie almost a billion barrels of oil.
With Brent crude at more than US$130 ($170) a barrel, the oil sands frenzy is in full swing. Canada holds estimated reserves of 179 billion barrels of oil, the majority from oil sands, putting it second only to Saudi Arabia.
Canada's oil sands produce just over a million barrels a day but this is set to triple by 2020, making the country one of the largest producers in the world.
Shell, which operates the mine with Chevron and Marathon Oil, has 20 billion barrels of potential reserves in the sands, representing a third of its entire potential reserve base.
It produces about 150,000 barrels a day from its oil sands operations, around 5 per cent of total production, but plans to increase this figure fivefold.
For oil majors finding it difficult to locate new reserves, the attraction of Canada's oil sands is strong.
Resource nationalism, where countries bar foreign companies from their oil, is on the rise, as shown by BP's spat with its Russian partners over its joint venture TNK-BP.
The issue of reserves is particularly sensitive for Shell, which had to downgrade almost a quarter of its booked proven reserves four years ago, a scandal that led to the ousting of then chief executive Phil Watts.
But development is controversial. Untreated oil sands have the same consistency as peanut butter. Steam is pumped into the sludge to separate the oil from the sand and water. Huge upgraders are needed to treat the oil before it can be refined conventionally, and the process creates at least three times as many greenhouse gas emissions as conventional oil production.
The environmental organisation, the Pembina Institute, estimates that by 2030 the emissions produced by the industry in Canada could total more than a quarter of Britain's emissions. Production also devastates the boreal forests and wetlands which cover northern Alberta.
Increasingly, Shell - and other oil sands operators - are being targeted by environmentalists. The First Nations tribes - around 6000 native Indians live in the Athabasca region - are taking legal action against some companies. And the US is passing an environmental law which could restrict imports of the most polluting types of fossil fuels such as oil sands.
George Poitras is a former chief of the Mikisew Cree, the largest First Nation tribe in the Athabasca region.
Now he negotiates on their behalf when they lease land to oil companies. His office is in Fort McMurray, an hour and a half away by plane from Calgary, and the epicentre of the oil sands boom. With the highest GDP per capita in Canada, locals have dubbed their town "Fort McMoney".
Poitras says the development of the oil sands is poisoning the Athabasca River. The fish taste different since development began 40 years ago. "We think the water is giving us cancer."
The three deposits of oil sands in the province, of which the one in Athabasca is the largest, lie in 149,000sq km, covering a quarter of the province.
Not all of this will be extracted, and much will be extracted using "in-situ" methods where the material is pumped out of the ground, rather than mined, and so less forest has to be cleared. The industry says 420sq km of forest has been "disturbed" so far. Meanwhile, the Pembina Institute says 2000sq km of forest is likely to be affected.
Oil companies are required by law to "reclaim" the land after they cease operations there, and promise to plant native species of grass and trees and reintroduce wildlife.
Poitras is scathing. "Our elders laugh when the industry says this. Who do they think they are - God or the creator?"
Campaigners say environmental regulations covering the industry are inconsistent and ineffective. The Alberta government requires companies to reduce the greenhouse gas emissions' intensity per barrel produced by 12 per cent, but there are no limits on reducing overall emissions which will mushroom as operations expand.
The federal government has proposed tougher laws and higher levies for companies that miss their targets. It is not clear whether these will take precedence over Albertan regulations.
Shell has put forward proposals to equip the Scotford Upgrader - which treats the oil from the Muskeg River mine - with carbon capture and storage technology to reduce emissions.
Even if this happens, it would only cut emissions from the upgrader, when it is expanded, by a fifth.
BLACK SAND
* Oil sands are naturally occurring mixtures of sand, water and a dense form of petroleum.
* Untreated oil sands have the same consistency as peanut butter.
* Steam is pumped into the sludge to separate the oil from the sand and water.
* The treatment and refining process creates at least three times as many greenhouse gas emissions as conventional oil production.
* Oil sands are found in large quantities in Canada and Venezuela.
* They have only recently been considered to be part of the world's oil reserves.
- OBSERVER
