By Markham Hislop | Opinion | July 20th 2021
THE NATIONAL OBSERVER
CEOs must work harder to put the oilsands on a path to long-term environmental and financial sustainability. Photo by Wikimedia Commons
The Oil Sands Pathways to Net Zero Initiative, announced June 9, may well lower greenhouse gas emissions from bitumen extraction and help Canada meet its own net-zero-by-2050 goal. Unfortunately, that is not enough. Climate change is only one of three significant risks facing the industry. The others are peak oil demand and at least $31 billion of environmental liabilities for 37 toxic northern Alberta tailings ponds. CEOs coming to Ottawa cap in hand for $50 billion of subsidies may be Canada's last chance to address all three issues and put the oilsands on a path to long-term environmental and financial sustainability. The opportunity must not be missed.
My 2019 book, The New Alberta Advantage: Technology, policy and the future of the oil sands, also focused on emissions' reduction. The energy transition was in a lower gear then, and transformative change seemed another decade or two away. Lowering emissions in anticipation of global carbon pricing policies seemed smart: address climate change and gain a competitive advantage over high-carbon heavy crudes from competitors like Venezuela and Mexico. Arguing that "when the energy transition is complete and the last drop of heavy crude oil is refined or processed sometime this century, it will be an Alberta drop" seemed reasonable.
But just as the book was hitting the presses, the energy transition grabbed a higher gear and accelerated. Even experts who lived and breathed the transition were caught off-guard as technology milestones expected in 2030 arrived a decade early.
Electric transportation in particular — cars and trucks, buses, delivery vans, commercial vehicles, bicycles, robo-taxis, automated shuttles and much more — has experienced dramatic advances. The signs are all around us. Automakers are all in on electric. Transit authorities are ditching diesel buses. Battery costs are plummeting while new technologies like solid-state (uses a solid electrolyte instead of liquid, which enables longer range and greater safety) promise a major improvement only a few years from now. And every new EV sales forecast from BloombergNEF features a steeper curve than the last one.
Since ground transportation consumes just under half of global oil supply, the electrification of transportation is the biggest determinant of peak oil demand. The International Energy Agency (IEA) thinks peak oil will arrive in the late 2020s or early 2030s, while other forecasters think it will happen earlier. The next question is the shape of the decline curve: Will it be steep or shallow? Speedier electrification suggests peak oil demand will arrive sooner than the IEA predicts and the decline will be more rapid.
But we don’t really know. The 2020s are shaping up to be the disruptive decade of this energy transition. A good bet is that when 2030 arrives, most of our current assumptions about the future of oil will prove to be quite conservative.
What people are reading
Annamie Paul is fighting to change the narrative, but the numbers are clear
By John Woodside | News, Politics, Ottawa Insider | July 19th 2021
Yet, the companies of the Oil Sands Pathways to Net Zero initiative assure us that "all internationally recognized forecasts indicate fossil fuels will continue to be an essential requirement through 2050 and beyond as part of a diversified energy mix." They are misleading Canadians. For example, consider the IEA, often cited by industry supporters.
"The IEA doesn’t have a long-term forecast," economist Tim Gould, who supervises the agency's modelling analysis, told Energi Media. "We differentiate between the near-term horizon, those stretch out typically for five years, but once you start looking beyond that, you move into scenario territory."
In May, the agency added a much-discussed net-zero-by-2050 scenario in which oil consumption falls from 100 million to 30 million barrels per day by mid-century. Global governments ratcheting up climate policy, a feature of the past two years, combined with intense technology disruption suggests the net-zero-by-2050 outcome is not far-fetched.
Therefore, it is fair to argue the risk posed to the oilsands by the electrification of transportation is substantial. But electric transportation isn't the only risk in play.
What if the net-zero pathways initiative fails?
CEOs of fossil fuel companies coming to Ottawa cap in hand for $50 billion of subsidies may be Canada's last chance to put the oilsands on a path to long-term environmental and financial sustainability, writes @politicalham, host of @EnergiMedia.
Oilsands companies are asking the Alberta and Canadian governments for tens of billions because they need to "de-risk" the early stage technologies they hope to deploy — scaling up carbon capture and storage, hydrogen and small modular reactors, to name the big ones. Economist Jason Dion calls these technologies "wild cards." They show promise and their development should receive public support, but most won't be commercial until after 2030, if they ever are.
And the sector's historical record isn't encouraging.
While the industry boasts about a 20 per cent reduction in emissions per barrel from 2009 to 2019 — from 87 to 70 kilograms of CO2 equivalent (CO2e) per barrel — that still leaves diluted bitumen among the most carbon-intense crude oils in the world. And buried in the IHS MarkIt data is a concerning trend for in-situ production, with 2018 in-situ production intensity rising by one per cent and cyclic steam stimulation by nine per cent.
Source: IHS MarkIt
While the companies of the pathways initiative try to focus public attention on falling emissions intensity, the real story is the rise of absolute oilsands emissions over less than a decade, from 69 to 80 megatonnes of CO2e annually, according to the 2020 IHS MarkIt study “The GHG intensity of Canadian oil sands production: A new analysis.” The culprit here is the doubling of heavy crude production from 1.5 million to three million barrels per day. When emissions drop by 20 per cent, but supply grows by 100 per cent, the math doesn’t work in the oil companies’ favour.
With production set to grow another 650,000 barrels per day by 2030, the record suggests total emissions will rise again.
Keep in mind that this analysis is based upon the authoritative work of IHS MarkIt economist Kevin Birn. Other researchers, such as the Pembina Institute, estimate emissions intensity and absolute emissions to be higher.
There is a third significant risk to be considered: the oilsands' enormous environmental liabilities. Despite considerable investment over the years, there is still no credible technology to reclaim the 1.3 trillion litres of toxic waste in northern Alberta's 37 tailings ponds. Oilsands liabilities are conservatively estimated at $31 billion, but only $900 million has been deposited with the provincial government to pay for clean up. And the current Alberta government is actually relaxing already lax regulations that look great on paper but have yet to yield tangible results.
Despite three significant risks — imminent market destruction, climate and emissions, and environmental liabilities — there are two reasons why the oilsands could still have a sustainable long-term future.
One, bitumen is now a competitive barrel because production costs have plummeted. Most break-evens are below $40 per barrel of West Texas Intermediate. Suncor, for example, claimed in its 2021 investor presentation that its break-even averaged $35, forecast to be $28 by 2025. The oilsands are now viable during periods of low prices or market volatility.
And when prices are high, as they are now at over $70, the industry is a free cashflow machine. Suncor, CNRL, Cenovus and Imperial Oil expect to return tens of billions to shareholders over the next four years via dividends and share buybacks.
Two, and perhaps most importantly, Alberta Innovates thinks that in five to seven years, bitumen will be used to manufacture cheap and plentiful carbon fibre. The value of a barrel of bitumen will double or triple, according to the provincial agency’s estimates. The Bitumen Beyond Combustion program has also identified other higher-value uses for bitumen, including activated carbon and asphalt for road building.
Consequently, the oilsands stand at a crossroads.
The industry can implement its net-zero by 2050 plan to mitigate climate risk, embark on an energy transition strategy that sees it pivot to non-combustion applications for bitumen and finally begin to properly reclaim the tailings ponds. This would set up a post-combustion future that could be long (perhaps past 2100), environmentally sustainable and prosperous for the companies, workers and taxpayers.
Or the CEOs can do the minimum — decarbonization — and roll the dice.
The Canadian government will determine the path taken by the oilsands. Premier Jason Kenney and his United Conservative Party government, continuing their uncritical and unwavering support for the hydrocarbon industry, signed on early to the pathways initiative. Prime Minister Justin Trudeau and his Liberal government did not. Ottawa was noticeably absent from the announcement.
Yet, the oil companies involved in the pathways initiative said in their press release that federal financial support is critical to the initiative’s success: “We look forward to continued collaboration with both the federal and Alberta governments to create the regulatory and policy certainty and fiscal framework needed to ensure the economic viability of this initiative.”
The price Trudeau should insist upon for federal participation is that the pathways initiative address all three risks: climate, peak oil and environmental liabilities. His message should be that it’s all or nothing. The Oil Sands Pathways to Net Zero Initiative is a rare opportunity for the Canadian government to influence positive structural change in the oil and gas industry in a way that revives investment, creates jobs, increases tax revenue and helps Canada meet its climate targets.
That opportunity to reshape the Alberta Advantage must not be missed.
Markham Hislop is a Canadian energy and climate journalist and hose of the Energi Talks podcast.
CEOs must work harder to put the oilsands on a path to long-term environmental and financial sustainability. Photo by Wikimedia Commons
The Oil Sands Pathways to Net Zero Initiative, announced June 9, may well lower greenhouse gas emissions from bitumen extraction and help Canada meet its own net-zero-by-2050 goal. Unfortunately, that is not enough. Climate change is only one of three significant risks facing the industry. The others are peak oil demand and at least $31 billion of environmental liabilities for 37 toxic northern Alberta tailings ponds. CEOs coming to Ottawa cap in hand for $50 billion of subsidies may be Canada's last chance to address all three issues and put the oilsands on a path to long-term environmental and financial sustainability. The opportunity must not be missed.
My 2019 book, The New Alberta Advantage: Technology, policy and the future of the oil sands, also focused on emissions' reduction. The energy transition was in a lower gear then, and transformative change seemed another decade or two away. Lowering emissions in anticipation of global carbon pricing policies seemed smart: address climate change and gain a competitive advantage over high-carbon heavy crudes from competitors like Venezuela and Mexico. Arguing that "when the energy transition is complete and the last drop of heavy crude oil is refined or processed sometime this century, it will be an Alberta drop" seemed reasonable.
But just as the book was hitting the presses, the energy transition grabbed a higher gear and accelerated. Even experts who lived and breathed the transition were caught off-guard as technology milestones expected in 2030 arrived a decade early.
Electric transportation in particular — cars and trucks, buses, delivery vans, commercial vehicles, bicycles, robo-taxis, automated shuttles and much more — has experienced dramatic advances. The signs are all around us. Automakers are all in on electric. Transit authorities are ditching diesel buses. Battery costs are plummeting while new technologies like solid-state (uses a solid electrolyte instead of liquid, which enables longer range and greater safety) promise a major improvement only a few years from now. And every new EV sales forecast from BloombergNEF features a steeper curve than the last one.
Since ground transportation consumes just under half of global oil supply, the electrification of transportation is the biggest determinant of peak oil demand. The International Energy Agency (IEA) thinks peak oil will arrive in the late 2020s or early 2030s, while other forecasters think it will happen earlier. The next question is the shape of the decline curve: Will it be steep or shallow? Speedier electrification suggests peak oil demand will arrive sooner than the IEA predicts and the decline will be more rapid.
But we don’t really know. The 2020s are shaping up to be the disruptive decade of this energy transition. A good bet is that when 2030 arrives, most of our current assumptions about the future of oil will prove to be quite conservative.
What people are reading
Annamie Paul is fighting to change the narrative, but the numbers are clear
By John Woodside | News, Politics, Ottawa Insider | July 19th 2021
Yet, the companies of the Oil Sands Pathways to Net Zero initiative assure us that "all internationally recognized forecasts indicate fossil fuels will continue to be an essential requirement through 2050 and beyond as part of a diversified energy mix." They are misleading Canadians. For example, consider the IEA, often cited by industry supporters.
"The IEA doesn’t have a long-term forecast," economist Tim Gould, who supervises the agency's modelling analysis, told Energi Media. "We differentiate between the near-term horizon, those stretch out typically for five years, but once you start looking beyond that, you move into scenario territory."
In May, the agency added a much-discussed net-zero-by-2050 scenario in which oil consumption falls from 100 million to 30 million barrels per day by mid-century. Global governments ratcheting up climate policy, a feature of the past two years, combined with intense technology disruption suggests the net-zero-by-2050 outcome is not far-fetched.
Therefore, it is fair to argue the risk posed to the oilsands by the electrification of transportation is substantial. But electric transportation isn't the only risk in play.
What if the net-zero pathways initiative fails?
CEOs of fossil fuel companies coming to Ottawa cap in hand for $50 billion of subsidies may be Canada's last chance to put the oilsands on a path to long-term environmental and financial sustainability, writes @politicalham, host of @EnergiMedia.
Oilsands companies are asking the Alberta and Canadian governments for tens of billions because they need to "de-risk" the early stage technologies they hope to deploy — scaling up carbon capture and storage, hydrogen and small modular reactors, to name the big ones. Economist Jason Dion calls these technologies "wild cards." They show promise and their development should receive public support, but most won't be commercial until after 2030, if they ever are.
And the sector's historical record isn't encouraging.
While the industry boasts about a 20 per cent reduction in emissions per barrel from 2009 to 2019 — from 87 to 70 kilograms of CO2 equivalent (CO2e) per barrel — that still leaves diluted bitumen among the most carbon-intense crude oils in the world. And buried in the IHS MarkIt data is a concerning trend for in-situ production, with 2018 in-situ production intensity rising by one per cent and cyclic steam stimulation by nine per cent.
Source: IHS MarkIt
While the companies of the pathways initiative try to focus public attention on falling emissions intensity, the real story is the rise of absolute oilsands emissions over less than a decade, from 69 to 80 megatonnes of CO2e annually, according to the 2020 IHS MarkIt study “The GHG intensity of Canadian oil sands production: A new analysis.” The culprit here is the doubling of heavy crude production from 1.5 million to three million barrels per day. When emissions drop by 20 per cent, but supply grows by 100 per cent, the math doesn’t work in the oil companies’ favour.
With production set to grow another 650,000 barrels per day by 2030, the record suggests total emissions will rise again.
Keep in mind that this analysis is based upon the authoritative work of IHS MarkIt economist Kevin Birn. Other researchers, such as the Pembina Institute, estimate emissions intensity and absolute emissions to be higher.
There is a third significant risk to be considered: the oilsands' enormous environmental liabilities. Despite considerable investment over the years, there is still no credible technology to reclaim the 1.3 trillion litres of toxic waste in northern Alberta's 37 tailings ponds. Oilsands liabilities are conservatively estimated at $31 billion, but only $900 million has been deposited with the provincial government to pay for clean up. And the current Alberta government is actually relaxing already lax regulations that look great on paper but have yet to yield tangible results.
Despite three significant risks — imminent market destruction, climate and emissions, and environmental liabilities — there are two reasons why the oilsands could still have a sustainable long-term future.
One, bitumen is now a competitive barrel because production costs have plummeted. Most break-evens are below $40 per barrel of West Texas Intermediate. Suncor, for example, claimed in its 2021 investor presentation that its break-even averaged $35, forecast to be $28 by 2025. The oilsands are now viable during periods of low prices or market volatility.
And when prices are high, as they are now at over $70, the industry is a free cashflow machine. Suncor, CNRL, Cenovus and Imperial Oil expect to return tens of billions to shareholders over the next four years via dividends and share buybacks.
Two, and perhaps most importantly, Alberta Innovates thinks that in five to seven years, bitumen will be used to manufacture cheap and plentiful carbon fibre. The value of a barrel of bitumen will double or triple, according to the provincial agency’s estimates. The Bitumen Beyond Combustion program has also identified other higher-value uses for bitumen, including activated carbon and asphalt for road building.
Consequently, the oilsands stand at a crossroads.
The industry can implement its net-zero by 2050 plan to mitigate climate risk, embark on an energy transition strategy that sees it pivot to non-combustion applications for bitumen and finally begin to properly reclaim the tailings ponds. This would set up a post-combustion future that could be long (perhaps past 2100), environmentally sustainable and prosperous for the companies, workers and taxpayers.
Or the CEOs can do the minimum — decarbonization — and roll the dice.
The Canadian government will determine the path taken by the oilsands. Premier Jason Kenney and his United Conservative Party government, continuing their uncritical and unwavering support for the hydrocarbon industry, signed on early to the pathways initiative. Prime Minister Justin Trudeau and his Liberal government did not. Ottawa was noticeably absent from the announcement.
Yet, the oil companies involved in the pathways initiative said in their press release that federal financial support is critical to the initiative’s success: “We look forward to continued collaboration with both the federal and Alberta governments to create the regulatory and policy certainty and fiscal framework needed to ensure the economic viability of this initiative.”
The price Trudeau should insist upon for federal participation is that the pathways initiative address all three risks: climate, peak oil and environmental liabilities. His message should be that it’s all or nothing. The Oil Sands Pathways to Net Zero Initiative is a rare opportunity for the Canadian government to influence positive structural change in the oil and gas industry in a way that revives investment, creates jobs, increases tax revenue and helps Canada meet its climate targets.
That opportunity to reshape the Alberta Advantage must not be missed.
Markham Hislop is a Canadian energy and climate journalist and hose of the Energi Talks podcast.
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