Canada has opportunity to become global leader in producing ‘low-carbon’ oil, executives tell CERI symposium

Author: Mark Lowey


Publish Date: Tuesday, March 28, 2017

(This is the second of three EnviroLine stories from the CERI symposium. The first story was posted on March 20 and the second story on March 24).


Canada could become a global leader in producing ‘low-carbon’ oil and associated new hydrocarbon products, executives told the Canadian Energy Research Institute’s (CERI) 2017 Oil & Gas Symposium in Calgary.

But doing so will take all levels of government working together to resolve First Nations’ issues, shrink the environmental footprint and develop new technologies, executives from industry and academia said at a panel session titled “Energy Futures: What Could the Canadian Energy Landscape Look like in 10 Years?”

Chris Bloomer, president and CEO of the Canadian Energy Pipeline Association, said he expects that the Trans Mountain and Keystone XL bitumen-export pipelines, which regulators have approved, will indeed get built. There will also be new natural gas and liquids pipelines to service the Montney and Duvernay shale formations in B.C. and Alberta, he said.

 “They’re monstrous resources and they’re going to need new pipelines,” he said. But the pipelines won’t be built without controversy, including court cases and activist protests, or without resolving “Indigenous matters,” he added.

Bloomer also said Canada should continue to keep the Energy East pipeline on the table, although “it’s probably further out than we thought.”

“I’m optimistic about the future,” said panelist Dan McFadyen, director of the extractive resource governance program in the School of Public Policy at the University of Calgary.

The oil and gas industry has made progress during the last decade on its working relationship with Aboriginal peoples, he said. However, governments need to take the lead in dealing with First Nations’ issues, he added.

“So much has been left up to now by governments in delegating so much responsibility to industry to go and deal with these (First) Nations. And industry in and of itself cannot deal with all of the issues that are extent in dealing with our First Nations,” McFadyen said.

The First Nations comprise a “unique and special people” within Canada’s Constitutional framework, and they must be respected and negotiated with government-to-government, he said. “Governments, in my view, need to step and step into that process and take over a much stronger leadership role” and work together to achieve a “stronger policy coherence,” McFadyen said.

Panelist Ben Brunnen, vice-president of oil sands for the Canadian Association of Petroleum Producers (CAPP), said the industry faces “significant challenges.” Investment in the industry has dropped from $80 billion two years ago to about $35 billion now, and there is uncertainty for investors due to regulatory issues around climate policy, he said.

At the same time, the Trump administration in the U.S. is moving to deregulate some aspects of its oil and gas industry to attract more investment, which threatens to make Canada’s industry less competitive.

Brunnen said another concern is that federal regulations on the sulphur content in diesel fuel used in shipping vessels have become more stringent, and this is a significant market for oilsands bitumen used to produce the fuel.

Since January 1, 2015, the sulphur content of marine fuel used onboard a vessel must not exceed 0.10 per cent by mass within Canadian jurisdiction, according to information on Transport Canada’s website. The regulation “is expected to result in a more than 90% decline in sulphur oxide emissions from vessels,” the agency says.

In addition, the International Marine Organization announced last October that the Marine Environment Protection Committee agreed that a 0.5 per cent global sulphur cap on marine fuel will be implemented in 2020, rather than a proposed delayed start of 2025.

On the positive side, Brunnen said, Alberta’s oilsands represents a long-term play, and some companies, such as MEG Energy and Cenovus Energy, have announced expansions of existing projects.

Panelist Shahrzad Rahbar, president of the Industrial Gas Users Association, told the CERI symposium that there is an opportunity to position Canada as the supplier of the lowest-carbon resources to the world. However, the country’s move toward decarbonization should not also mean “de-industrialization,” she said.

The greatest threat to the Canadian energy industry’s global competitiveness is getting the country’s climate policy framework right, Rahbar said.


Trump administration’s plans a big concern

Another big worry for Canada’s oil and gas industry is the uncertainty and anxiety about what the Trump administration is planning in the area of international trade.

A proposed “border adjustment tax” on imported goods – part of Trump and the Republicans’ tax reform plan – is “definitely a risk” given that oil and gas dominates exported commodities to the U.S., Brunnen said. While several CAPP member-companies are also active in the U.S., a tax would essentially make Canadian oil and gas more expensive for U.S. refineries to buy.

Most observers believe there is only a 20-per-cent probability that such a tax will be implemented, Brunnen said. Nevertheless, “we’re taking it very seriously,” he added, and CAPP is working with governments on a “Team Canada” approach to understand what the impacts could be.

Bloomer said it is likely that the U.S. will trigger the 90-day notice for a review of the North American Free Trade Agreement. That will have implications not only for Canada, but for 38 U.S. states that have Canada as their major trading partner.

McFadyen pointed out that Canada and the U.S. are already “deeply integrated” in a North American trading system. “It’s too soon to start hitting the panic button, per se,” he said, suggesting that government and industry should let some of the issues play out and see what actually happens. Canada does need to keep an eye on the Trump administration’s proposed changes to the U.S. tax structure, which includes significant cuts to corporate tax rates, McFadyen said.


National energy strategy needed?

Panel moderator Kendall Dilling, vice-president, regulatory at Cenovus Energy, asked the executives whether Canada needs some sort of national energy strategy.

Rahbar replied that the country does need to get over its “provincial approach” and lingering resentment about the National Energy Program implemented “all those decades ago” by Pierre Trudeau’s Liberal government. “We have to get our act together if we go forward,” she said.

Canada needs a “coherent discussion” about infrastructure costs and to identify where most of the waste is occurring, Rahbar said. This discussion needs to be framed from an energy systems perspective that goes beyond simply resource production and also encompasses energy demand and other aspects, she said.

McFadyen said “a national energy strategy is a holy grail that will never be realized,” because governments’ distinct responsibilities for energy under Canada’s Constitution works against such a strategy. However, he said that all levels of government need to work together more effectively to help Canadians understand that having a strong energy industry and system is crucial to the fabric of the country and its economy.

Bloomer agreed that a national energy strategy is unachievable, because discussions tend to degenerate into disagreements over “Who gets the rent?” from resource development. He said there is a need for a broad-brush national energy policy discussion, which should be led by government, on how best to develop Canada’s energy Brunnen said there is a need to reframe the country’s debate around a national energy strategy, perhaps by casting the discussion as a “national resource access strategy.”


Role of innovation and technology development

When it comes to innovation and future technology development, Bloomer said he expects the energy mix in 15 years will consist of highly efficient hydrocarbons and renewables. “There’s still going to be a role for hydrocarbons.” As the shale resources in B.C. are developed, the Mackenzie Valley area will be developed next, he predicted.

There is a big opportunity in the oilsands industry to use solvents for partially upgrading bitumen, a value-added option that could add more jobs, he said. The industry also will continue making progress on reclaiming tailings ponds and the land, Bloomer said.

Brunnen said the industry “absolutely” will see some “disruptive drivers” when it comes to innovation, such as climate policy and the 100-megatonnes per year cap imposed by the Alberta government on greenhouse gas (GHG) emissions from the oilsands industry. “That’s the impetus for [new] technology.”

It may be possible for industry and government to implement something like an Alberta Oil Sand Technology and Research Authority (AOSTRA) model to advance commercial-scale demonstration projects on new and promising GHG-reduction technologies, Brunnen said.

Left: OSLO dredging and cold water extraction pilot project, supported by AOSTRA

AOSTRA was an Alberta crown corporation, formed in 1974 and funded by the Alberta Heritage Savings Trust Fund, to promote the development and use of new technology for oilsands and heavy crude oil production, as well as enhanced recovery of conventional crude oil.

Innovation will usher in another phase of oilsands development, Brunnen predicted. “I think within the next 10 to 15 years we’ll probably have some technology that really diminishes the GHG emission impact of the oilsands.” He noted that CAPP’s modelling shows the industry can reduce its steam-to-oil ratio by five per cent and produce another 140,000 barrels per day under the provincial emissions cap.

McFadyen urged Canada’s oil and gas industry to not “get lazy” on innovation as it moves to the lowest possible capital and operating cost structure. He said the industry needs to export its knowledge base and share its technologies with other countries, and to leverage that opportunity into more growth.

Rahbar agreed, saying that the world will need myriad new commodities that are carbon-neutral, along with traditional commodities such as steel, cement, forestry products and others. Canada has a competitive advantage in many sectors, she said, noting that the pulp and paper industry is 75-per-cent fueled by biomass rather than fossil fuels. Canada should be a leader in supplying low-carbon commodities, Rahbar said.

McFadyen said there is a cost to being one of the world’s most responsible providers of energy products and other commodities. But he said there is also a “huge opportunity” to promote Canada as the best place to invest and to say to Canadians and the world that the country is producing “a greener barrel of oil as we go forward.”



Leave a Comment

Related News