Cenovus chief urges Trudeau to pay for greening of Canada's oilsands
Canada's oil could be the 'cleanest in the world' but it will take $75 billion to get there
Derek Brower in Calgary
Publishing date: Aug 09, 2021 •
Canada’s government should pay for up to 70 per cent of a proposed $75 billion project to decarbonize the country’s controversial oilsands and protect a critical engine of the country’s economy, one of the proposal’s backers said.
“If we’re able to solve the puzzle of making Canadian oil significantly lower carbon intensive,” the oil would be the “cleanest in the world,” Alex Pourbaix, chief executive of Cenovus Energy, the country’s second-largest oil producer, told the Financial Times.
But Justin Trudeau’s Liberal government, which last year committed Canada to slashing emissions by 40-45 per cent below its 2005 levels by 2030, must pay up to make it happen, he argued.
“It’s going to take tens of billions of dollars over 30 years to decarbonize [our oil] industry,” said Pourbaix. “But at the same time that will protect something in the range of $3 trillion of GDP.”
Pourbaix and industry group the Canadian Association of Petroleum Producers (Capp) also urged the federal government to extend tax credits to oil companies that would use captured carbon to produce more oil.
The calls for federal funding will complicate matters for Trudeau amid criticism that Canada is not moving quickly enough to meet its climate targets while his government defends its high-emissions oil industry, the biggest petroleum exporter to the U.S.
Despite imposing an aggressive carbon tax regime, the federal government lobbied for the controversial Keystone XL pipeline from Alberta to Texas — which was cancelled by U.S. President Joe Biden earlier this year — and is funding another export pipeline development from the oilsands to Canada’s west coast.
“Our prosperity and our economy are still highly dependent on” the oil sector, Seamus O’Regan, the country’s Liberal federal resources minister said in a recent interview with the FT. “It is what we do.”
Last month Cenovus joined the four other largest producers in Canada’s oil and gas sector, the biggest single contributor to the country’s greenhouse gas emissions, to propose a vast carbon capture, utilization and storage (CCUS) project they said was “the only realistic proposal” to curb pollution.
Critics of CCUS say the technology, mentioned for years as a solution to emissions, remains too expensive to achieve the scale needed.
Pourbaix said it showed operators were now “attuned to where the world is moving.”
The proposal includes installation of a trunk line capturing carbon from oilsands projects and other industries near Fort McMurray, in northern Alberta, and storing it further south near Cold Lake.
The proposal came as the Canadian government mooted an investment tax credit designed to accelerate development of a domestic CCUS industry. The credits are due to begin next year.
Pourbaix urged the federal government to reverse a decision to exclude enhanced oil recovery — a method of reinjecting the captured CO2 to help produce more oil — from the tax incentive scheme, saying the EOR could make the CCUS projects economic “right out of the chute.”
Tim McMillan, Capp’s chief executive, welcomed the federal government’s focus on CCUS to help meet its emissions goal, but said “excluding EOR from the federal programme will create substantial challenges to the government in reaching this goal.”
A spokesperson for O’Regan’s office said CCUS was “one of many technologies that will get us to net zero by 2050,” but did not say if the federal government would help pay for the oilsands companies’ proposed project. The government has set aside $319 million for research into CCUS and is working on a new strategy to promote it.
The oilsands sector is recovering from last year’s crash. But operators continue to face opposition from climate activists and environment-focused investors because of the higher emissions associated with producing the heavy, bituminous oil found in northern Alberta and Saskatchewan.
International oil supermajors, including Shell, TotalEnergies and Equinor, have pulled investment from the region, home to the world’s third-biggest oil deposit.
Alberta’s provincial government has fought aggressively to protect the sector, including a recent failed legal challenge to stop the federal carbon tax.
Pourbaix said he supported the new carbon pricing scheme and his company has a “long-term ambition” to achieve net zero emissions from its operations. But like other oil sands operators, Cenovus would not commit to a net zero target for its so-called scope 3 emissions — the pollution caused by the burning of the products its sells.
“Scope 3 is largely the responsibility of consumers,” said Pourbaix. “And kind of absolving the consumer of accountability for this doesn’t make sense.”
© 2021 The Financial Times Ltd
Oil companies’ renewables
push squeezing profitability
from green projects
(Bloomberg) --The world’s largest oil companies are bidding up prices for renewable energy projects, squeezing profits from wind and solar farms just as climate planning focuses more on green energy sources.
Companies from BP Plc to TotalEnergies SE are paying top dollar for clean energy assets as they transition away from fossil fuels, boosting competition and compressing margins for developers. Wind giants Orsted A/S and Vestas Wind Systems A/S reported lower returns in the first quarter, while turbine maker Siemens Gamesa Renewable Energy SA lost money as materials rallied.
Shrinking profits are a worrying sign for an industry that needs to invest at least $92 trillion by 2050 to cut emissions fast enough to prevent the worst effects of climate change. They also come at a time governments are tackling record gas and electricity prices, a headache for world leaders trying to iron out an ambitious climate deal when they meet in Scotland in November.
“Sometimes you end up with very low remuneration of capital, below normal,” said Bruno Bensasson, chief executive officer of the renewables arm of Electricite de France SA. “That’s not healthy, that’s not sustainable.”
Green energy is now the cheapest source of electricity in most of the world, drawing a growing number of companies into the space. BP last year set a target to boost its renewable energy capacity to 50 gigawatts up from less than 3 gigawatts. TotalEnergies plans to have 100 gigawatts of capacity by 2030, while Royal Dutch Shell Plc is also growing quickly in the space.
Rising competition is being met by a limited pipeline of projects. Auctions for offshore wind sites in the U.K. saw record prices earlier this year as oil companies led by BP battled for the right to develop projects in the Irish Sea.
Renewable Returns
“We see the European oil companies positioning themselves strongly into renewables now,” said Christian Rynning-Tonnesen, CEO of Norwegian utility Statkraft AS. “It will take down returns, of course, but oil companies also have return requirements of a similar size to us, so the whole industry is dependent on finding an economic balance here.”
Orsted, the top developer of offshore wind farms, said returns on capital employed fell to 7.5% in the first quarter, down from 11% in the same period a year earlier. Vestas, another wind developer, saw returns fall to 12.2% from 17.4% in the first quarter of 2020. Investors will keep an eye on any signs of diminishing returns when the two Danish firms report this week.
Siemens Gamesa lost 314 million euros ($369 million) in the three months ended in June. The Spanish developer was wrong-footed this year by the surging price of steel, which accounts for most of a turbine’s weight.
Even Equinor ASA, an oil and gas company that has become a major developer of wind farms, has had to tame investor expectations, projecting returns from its renewable projects at 4% to 8%, down from the 6% to 10% forecast last year.
Solar Modules
“If you look at renewables -- just renewables, nothing else attached to it -- you reach a stage where the returns are going to plateau and probably go down a little bit in the next years because of increased competition,” Francesco Starace, CEO of Italian utility Enel SpA, said on Bloomberg TV. “Our view is that the strategy of an integrated utility is a much safer position.”
Solar module prices are up over 16% in 2021, while the cost of key commodities like steel and copper have surged this year. That’s forced wind turbine makers to raise prices for their customers. The cost of shipping, which skyrocketed as the world emerges from the global pandemic, has also added to the long list of challenges facing renewable energy companies.
Producers of green power tend to strike deals to sell the electricity they produce before construction begins. While that strategy helps them obtain financing, it may also leave them exposed to swings in the cost of materials.
“Our industry is vulnerable,” said Michel Letellier, CEO of Innergex Renewable Energy Inc., which builds renewable power projects in Canada and the U.S. “Unfortunately you get caught because your costs to build are so high and you can’t go back to your customer and increase the price.”
Renewables Investment
To be sure, there are still no signs that the squeeze in profits is reducing investment. A record $174 billion was spent on solar, offshore wind and other green technologies and companies in the first half of the year, according to BloombergNEF. That’s 1.8% more than in the same period a year earlier.
Still, there’s concern some projects may get scrapped or be delayed, making it harder to achieve climate goals. Limiting temperature increases to 1.5 degrees Celsius compared to pre-industrial levels will require wind and solar capacity to grow at a rate five times higher between 2020 and 2050 than the average from the last three years, according to the International Energy Agency.
“There’s been a restart of the industry,” said Xavier Barbaro, CEO of French renewable energy firm Neoen. “It may sometimes destroy some value of some of our projects, but that didn’t lead us to abandon any project. I think some people that had very little buffer are now abandoning some projects, or postponing them as much as they can.”
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