Even an economist with an environmental organization that spends much of its time criticizing Canada’s oilsands sector acknowledges that it is a large part of the country’s economy and shutting it down would be committing economic suicide.
“If you look at the economy of Canada, the oilsands has been, and will continue to be, a major component of the economy,” says Dave Sawyer, an economist with Winnipeg-based environmental consultants EnviroEconomics and a past vice-president of the International Institute for Sustainable Development. “No government will put a cap on oilsands production.”
Just how much of a force oilsands development and production is as a component of Canada’s economy can be seen in numerous reports by third-party organizations not tied directly to the sector.
For instance, in a report released in February 2014, Oil Sands Economic Benefits: Today and in the Future, energy consulting firm IHS CERA estimates the oilsands has contributed to the creation of 478,000 jobs (mostly in Canada), extending to all parts of the country (these include spin-offs in logistics, accounting, etc.). The report says that number will grow to 753,000 by 2025.
In 2012, according to IHS, the Alberta government realized $7.7 billion in tax revenue and $4 billion in royalties from the sector, while the federal government took in $15 billion in tax revenue. In total, the sector contributed almost $100 billion to Canada’s gross domestic product (GDP) in 2012. The consulting firm estimates total government revenues collected from the oilsands sector will reach $61 billion by 2025, when it forecasts production will about double to four million bbls/d.
Annual expenditures by the oilsands sector are greater than the GDP of half of the Canadian provinces, IHS says.
Slowed growth, not no growthWhile the decline in oil prices has slowed the expansion of the oilsands, even environment-focused Sawyer acknowledges that it will remain a key part of the Canadian economy.
He argues that the pause in growth forced by the global crude oil price collapse (several projects have been shelved or delayed) should allow Canada’s economy “to move towards a low-carbon future.” Government action wasn’t the catalyst.
“The $50–$60 oil price has put an effective cap on emissions [from the oilsands],” Sawyer says.
But he is no naive end-of-oil forecaster either.
“There are significant opportunities to decarbonize the future, but fossil fuels will be with us for many years,” he says.
Although he is critical of the phase-out approach being taken by the federal government, Sawyer sees coal-fired power eventually disappearing and the use of electric and hybrid cars growing more widespread.
But he says heavy-duty vehicles, marine fleets, aircraft, trains and some other transportation sectors will continue to rely on fossil fuels. In addition, large industry, which relies mostly on natural gas for blast furnaces and the like, will too. And he sees nothing on the horizon to replace fossil fuels in the petrochemical sector, which is a huge consumer of natural gas and oil.
Given that reality, Sawyer says the oilsands, and the fossil fuel sector overall, must make serious efforts to reduce its environmental footprint.
Carbon tax nearly a necessityHe applauds the new NDP government in Alberta for doubling the existing carbon levy on big greenhouse gas (GHG) emitters, a step it took in late June when it announced that by 2017 it would phase in an increase to $30/tonne in its Specified Gas Emitters Regulation (SGER).
Shannon Phillips, minister of environment and parks, said the step would reduce Alberta’s carbon emissions by 20 per cent by 2017, up from 12 per cent now.
She also announced the creation of an advisory panel on climate change policy to be headed by Andrew Leach, academic director of energy programs in the School of Business at the University of Alberta.
Eric Newell, who served as CEO of legacy oilsands producer Syncrude Canada for 14 years, is anything but a defender of the sector. In fact, Newell retired from Syncrude in 2003 and has since served as chancellor of the University of Alberta and either chair or co-chair of both the Climate Change and Emissions Management Corporation (CCEMC), which oversees the investment of SGER funds, and Alberta Innovates – Energy and Environmental Solutions (Al-EES), which funds many environmental technologies. Newell is also a staunch supporter of carbon taxes.
Roadmap for reductionNewell is an Officer of the Order of Canada, holds a degree in chemical engineering and a master’s in management studies, and was co-chair of a Council of Canadian Academies panel that released a report in late May calling for the accelerated development of technologies and other approaches to reduce the long-term environmental footprint of the oilsands.
The report, Technological Prospects for Reducing the Environmental Footprint of Canadian Oil Sands, was commissioned by the federal government, and the panel included distinguished and respected scientists and engineers. Newell’s co-chair was Scott Vaughan, president and CEO of the International Institute for Sustainable Development.
While the panel looked at the overall cumulative environmental footprint of oilsands projects—including impacts on air quality, water and land—it concluded that rising GHG levels are a major concern, pointing to forecasts that GHG emissions from the oilsands could double over the next decade, with emissions rising from 76 megatonnes (Mt) of CO2-equivalent per year to 156 Mt by 2025 and 182 Mt by 2030.
The panel blamed a lack of effective government regulations affecting water use discharge and land use (particularly regulations involving mine closings) and, in particular, a lack of an effective carbon tax.
“While the [SGER] does impose a carbon-compliance price on large emitters…it is only a modest economic incentive for firms to invest in new technologies and reduce GHG emissions,” the report concludes.
Newell strongly agrees with that conclusion and sees the recent boost to the level as promising.
“One of the biggest impediments [to the adoption of new technologies] is if you don’t have any value on carbon, how can you justify CCS [carbon capture and storage] and other technologies?”
However, Newell, who has since stepped down as chair of the CCEMC, defends the agency, as well as other moves to deal with the environmental footprint of the oilsands.
He points out that, even with the lower levy imposed on big emitters, the CCEMC collected $349.8 million over a six-year period and funded 109 projects with a total worth (counting other contributions) of $2.2 billion. The projects are estimated to reduce GHG emissions by 10.7 Mt by 2020. With the increase in the levy, more funds will be collected and more will be spent on technology.
He also points to the Canada’s Oil Sands Innovation Alliance (COSIA), a consortium of 13 oilsands producers focused on accelerating the pace of improvement in the environmental performance of the sector.
Four prioritiesCOSIA, launched in 2012, focuses on four environmental priority areas (EPAs): tailings, water use and disposal, land use and GHGs.
On its website, COSIA boasts of 777 distinct technologies and innovations, involving an investment of $950 million, that have been shared among its members.
Last November, during a performance update, COSIA CEO Dan Wicklum told the Daily Oil Bulletin it was an accomplishment getting companies, ranging from supermajors to Canadian oilsands-focused firms, involved in mining and in situ projects.
COSIA now has 238 projects moving forward at a total cost of $400 million.A priority area now agreed upon is for in situ operators to strive to reduce freshwater intensity by 50 per cent by 2022, resulting in members using 0.2 barrels of fresh water per barrel of bitumen, compared to 0.4 now.
Overall in the water EPA there are 43 active projects underway, costing $231 million.
The tailings EPA has the goal of transforming tailings from waste into a resource that speeds land and water reclamation.
One advanced project is at Syncrude Canada’s mine site, where the company is spending an estimated $1.9 billion on 18 centrifuge systems aimed at dramatically increasing the dewatering process and leading to more rapid reclamation of mine sites.
Newell argues that technology has always played a key role in the development of the oilsands, which would not have advanced as rapidly if not for the SAGD approaches developed by the former Alberta Oil Sands Technology and Research Authority (AOSTRA) and companies in the sector.
And there has been progress in the mining sector.
For instance, he says Syncrude’s shift in 1999 from the bucket wheel, dragline and conveyor system used for extracting bitumen to the use of giant high-tech trucks and shovels reduced energy consumption and GHGs by 40 per cent.
Transformative technologies neededBut he is anything but a Pollyanna about the oilsands sector’s progress in dealing with the environmental impact of its activities. He notes that the Council of Canadian Academies report concludes that technological progress is not happening quickly enough.
“Improvements in environmental performance are not keeping pace with understanding of impacts or, indeed, the growth of the industry,” the report concludes.
“Working now to accelerate the pace of technological development is central to meeting the long-term challenge,” Newell said at the time.
The 12-member expert panel looked at the environmental footprint of the three main technologies involved in the oilsands: surface mining extraction, in situ extraction and upgrading.
It considered impediments to the adoption of a range of new technologies to reduce that footprint and estimated the potential to reduce it through to 2030.
The panel concluded that, while some of the technologies now being deployed can lead to reductions on a per-barrel basis, in the environmental impact of the industry, absolute reductions are not coming fast enough.
While the panel pointed to such advancements as the use of solvent-based technologies for in situ extraction, which reduces water use and could lower GHG emissions to levels equal to conventional crude production, it said transformative approaches are required to achieve reductions on an absolute basis.
While there are some transformative technologies being developed, it often takes 10–20 years to bring new technologies into operation, which the panel said is too long.It called for more collaboration among oilsands players, governments and others to bring about more rapid adoption.
There are a host of impediments, such as low natural gas prices (natural gas is a major component of in situ development, in particular), differing reservoir characteristics, the scale of investment required and policy factors (among them carbon prices).
Heading in the right directionWhile Newell shares the panel’s apparent pessimism about technological progress, he remains an engineer at heart, believing technological progress will help to address many of the concerns about the environmental impact of the oilsands sector.
In addition to the use of solvents and the work to reduce the size of tailings ponds and speed up reclamation, he is a strong believer in the eventual development of CCS technology. He points to its use at Royal Dutch Shell’s Edmonton-area upgrader, where its Quest project is capturing large volumes of carbon, and to Saskatchewan’s Boundary Dam, where carbon is being captured at a power plant.
In addition, there is promising work that involves the use of electricity-based production, which could virtually eliminate the use of water and reduce GHGs by 80 per cent, he says.
Those who argue that there needs to be a moratorium on oilsands development while new technologies are developed are wrong, he argues.
“The investment dollars will just go elsewhere, [which would halt progress],” Newell says.
In any case, the current low oil price environment is leading to a slowdown in development
Amin Asadollahi, oilsands program director with Calgary-based environmental group The Pembina Institute, argues that the “market signals are clear.” Stalled pipelines that would carry more oilsands crude and other impediments to oilsands development make some question whether “high-cost, high-carbon fuels” like oilsands bitumen should be developed more than they already are.
He says industry leaders, such as Suncor Energy CEO Steve Williams, who has called for a reasonable price to be placed on CO2, recognize climate change is a clear and present danger that must be dealt with seriously.
Aside from limiting new oilsands development, Asadollahi wants to see a more rapid decommissioning of Alberta’s remaining coal-fired power plants (under current federal policies the last plant won’t close until 2062), a significant shift to renewable power and a commitment to energy efficiency.
“Alberta is the only jurisdiction in Canada without an energy efficiency program,” he says.
Less of a reliance on fossil fuel development should help lead to the diversification of the Alberta economy, he argues.
While he says the move to raise the SGER in Alberta to $30/tonne is good to see, it isn’t enough of an incentive to shift from a reliance on fossil fuel development since it only applies to about 12 per cent of total GHG emissions in the province and costs to producers will be about $1.80/bbl.
Instead, Asadollahi wants Alberta to adopt a more wide-ranging climate tax, like that in B.C., which started at about $2/tonne in 2008 and is now close to $30, applicable to all emissions, not just to those of large emitters.
Transportation, agriculture and other areas of the economy that produce more GHG emissions overall escape paying for those emissions under the current approach, he says.“I can’t speak about which technologies will come online [to reduce the environmental footprint of the oilsands], but we need higher carbon taxes because the incentives to invest [in technology, renewables and other alternatives] is too low,” he says.
Greg Stringham, vice-president of markets and oilsands for the Canadian Association of Petroleum Producers, says the market signals already exist to drive technology development.
“The climate tax has already gone up by four times [since it was introduced],” he says.
He says climate taxes aren’t the only drivers of investments in technology, pointing to the efforts of COSIA.
The industry has made substantial progress in reducing its environmental impact already, and the efforts of COSIA, Al-EES and others, as well as individual producers, will accelerate change, he said.
Oilsands producers already use fresh water for less than one percent of their production, and the overall environmental impact of the sector has dropped dramatically in the last decade.
“When you reduce your environmental footprint, you reduce your costs,” Stringham says, so it’s in the best interests of the sector to advance the use of technology.
Although the oil and gas industry will deal with the higher SGER levy, Stringham doesn’t necessarily disagree with the concept of a wider-ranging climate tax.
“The consumption side is responsible for 70–80 per cent of CO≠ emissions,” he says. “All molecules of carbon should be treated equally.”
But he says that doesn’t mean “we should stand still on the generation side,” adding that the industry will continue to make progress in reducing its environmental impact.