(FORTUNE Magazine) – Okay, Saudi Arabia it ain't. The Athabasca Oil Sands Project lies 45 miles north of Fort McMurray, Alberta, which is itself almost 300 miles north of Edmonton--and yes, it's cold up here. Damn cold. And unlike Saudi Arabia, where producers essentially put a straw in the ground and sip up black gold, it takes a vast mining operation to get the oil out of the earth.

But here's where Canada is like Saudi Arabia: Both are sitting on a lot of oil. Last year Oil & Gas Journal, a respected industry publication, increased its estimate of Canada's oil reserves from five billion to 180 billion barrels, putting Canada second behind Saudi Arabia, which has 262 billion barrels. What changed? The journal decided to accept the Canadian government's argument that production from oil sands, usually considered "unconventional" oil, should be included in its calculations of reserves.

The change caused a stir, with critics saying the Canadians were being--to put it mildly--optimistic. Still, no one disputes that the oil-sands industry has come of age in Canada. Production is about to reach one million barrels a day. The cost per barrel is down by half since the early 1980s, thanks to improvements in the technology of separating hydrocarbons from sand. And investment is pouring in.

So FORTUNE decided to take a look at the newest entry in the oil-sands patch--the $3.7 billion Athabasca Oil Sands Project, a joint venture of Shell (60%), ChevronTexaco, and Western Oil Sands (20% each). The project became fully operational in June and is pumping about 118,000 barrels of crude a day. Peak capacity is 160,000 barrels.

This is strictly a mining operation; Shell and its partners do not use the "in situ" process, in which steam hits bitumen (a viscous black oil) and draws it to the surface. The shovels start things off. Lifting up to 100 tons of oil sands at a time, they dump four loads into massive haul trucks, which rumble along to the crusher. The crusher breaks up the big pieces and sends the chunks via conveyor belt to a rotary breaker, which makes them smaller still. Warm water is then sprayed on the sands, and the resulting slurry is pumped to an extraction plant. There the bitumen is converted into a frothy goo and separated from the sand and clay. The froth is sent to storage tanks, the gunk to tailings ponds. After being treated with solvents and diluted, the bitumen is piped to an upgrader near Edmonton. The dilutant is removed, and the bitumen is upgraded into synthetic crude oil. This goes to a nearby refinery where it becomes gas, diesel, or jet fuel. All told, it takes about two tons of oil sands to make one barrel of crude.

With 180 billion barrels of reserves, can Canada loosen OPEC's grip? Not likely. It costs less than $2 to extract a barrel of oil from beneath the sands of the Middle East; it takes about $10 to mine one from the frozen earth of the far north. So the power to move prices will stay in the hands of the low-cost producers.

Saudi Arabia it ain't--but mining for oil in Canada is a big deal that will only get bigger.

OIL SANDS consist of grains of sand, each surrounded by a layer of water that also contains clay, silt, and minerals. Bitumen fills the space between the grain and the water. When the bitumen is separated from its host, the leavings go into tailings ponds (opposite, top). The pondwater is recycled back to the plant, and eventually the tailings will be restored to played-out pits as part of land reclamation. Nearby communities of Canada's indigenous people, known as the First Nations, will advise on that process. Opposite bottom: At night the Athabasca complex glows in a landscape otherwise as dark and dense as black velvet. From left are the power plant, the extraction facility, and the froth-treatment center. Right: The Corridor Pipeline runs through a characteristic northern Canadian landscape--all snow and trees--to Edmonton; a return pipeline carries the dilutant back to the mine for reuse. Below: The pipeline's destination is the Scotford upgrader, which turns bitumen into synthetic (synthesized) crude oil. Mining for oil is a 24/7 job. Most workers are bused in from Fort McMurray and work 12-hour shifts--five days on, four days off. Their above-average wages have made this remote area an improbably prosperous place, with an unemployment rate (5.3%) substantially below the national average. From 6,000 people in 1970, Fort McMurray now has almost 50,000.