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Impact issues stall oil sands projects Imperial’s Kearl faces new setback, delay of a year or more; legal successes by environmentalists spread unease through industry Gary Park For Petroleum News
What started as a distant warning rumble is building into a full-fledged crescendo as environmental groups notch a series of victories in their campaign to make the industry and government more accountable for the impact of oil sands development.
In what could become a benchmark case, the Canadian Federal Court of Appeal has turned bad into worse for Imperial Oil’s C$8 billion Kearl project.
How that translates into the wider industry is now an open debate.
But the immediate impact on Imperial as 70 percent operator and ExxonMobil Canada as 30 percent partner raises the first serious doubts over whether the project will go ahead.
The answer may not be known until the third quarter when the companies are scheduled to make investment decisions.
At this stage, Imperial concedes there could be a delay, but won’t estimate how long. Others think it could range from several months to more than a year in the planned 2011 startup date when Kearl was supposed to produce 100,000 barrels per day, increasing in two phases to 300,000 bpd by 2018.
None of this was foreseen until March, when the Federal Court set off a chain reaction that some observers say is limited to Kearl and others believe has far wider implications.
Initially, the court — dealing with a challenge by a coalition of the Sierra Club of Canada, Pembina Institute, Prairie Acid Rain Coalition and Toxics Watch Society — ordered a joint federal-provincial environmental assessment panel to explain the rationale behind its view that greenhouse gas emissions from Kearl would not be significant. (The project’s emissions have been described as equivalent to adding 800,000 passenger vehicles to Canadian roads.)
Water permit revoked That triggered the federal Department of Fisheries and Oceans to revoke a water permit allowing the Kearl partners to disturb fish habitat by draining muskeg and diverting a pair of streams to open the way for heavy equipment to build a major dike.
The permit was issued in February 2007 and Imperial was quietly proceeding with site preparation until it was blindsided by the court action.
The company returned to Federal Court in May in a bid to regain the permit, asking the court to exercise its discretion and uphold the authorization.
Imperial’s lawyer Munaf Mohamed argued the water permit was a policy matter and not related to the issue of greenhouse gas emissions.
But he warned the consequences of not reinstating the permit were “disproportionately dire in the face of a minor error” by the environmental panel, given that Imperial has already invested C$228 million on the project, including C$52 million to obtain the water permit.
“It took nine months to get this piece of paper,” he argued. “What is sufficient in terms of the sting of the lash? If we can’t confirm (the water permit) this whole thing gets pushed out a year or more.”
Federal government lawyer Kirk Lambrecht said the absence of a rationale on aspects of the environmental approval rendered that assessment incomplete.
He said the federal cabinet would have to conduct a new review of that work, warning that new information might lead the cabinet to a different conclusion.
Court: environmental assessment not complete Federal Court Justice Douglas Campbell ruled the water license is invalid because it was issued before a proper environmental assessment was completed, thus contravening the Canadian Environmental Assessment Act.
A spokesman for Imperial said the company, while undecided on whether to appeal Campbell’s verdict, will work with the Canadian government.
“Kearl is an important project … a significant undertaking that has a positive impact on the Canadian economy.”
The Canadian Association of Petroleum Producers is not clear whether the Kearl case is a precedent, or just a “one-off occurrence.”
Shawn Denstedt, a lawyer with Osler Hosking & Harcourt which practices environmental law, was emphatic that oil sands developers should brace for more legal challenges.
“You’ll see regulators reluctant to issue permits until a court says the regulatory decision was satisfactory,” he told the Globe and Mail.
He said proponents will have to redouble their efforts during the regulatory review phase to minimize the risk of potential court action.
Denstedt said the energy sector has “underestimated the resolve of environmental groups to challenge decisions made with regard to oil sands development.
Simon Dyer, director of the oil sands program at the Pembina Institute, said the pace of oil sands expansion is outstripping improvements on the environmental front.
“All we are asking for is that oil sands development occurs responsibly and environmental impacts are mitigated according to the law,” he said.
“Oil sands issues are going to continue to escalate,” he said. “These things won’t be resolved until we see some leadership from the federal government.”
Sean Nixon, a lawyer for the Ecojustice coalition, said the courts have become the last avenue of resort on environmental issues because there is so “little open debate about these things, especially within Alberta.”
He said Campbell’s ruling confirmed that “compliance with the law trumps the inconvenience it may have caused the company.”
Sense from U.S. Canada not managing oil sands development well Nixon said there has been a growing sense over recent months from the United States that Canada is not doing a good enough job of managing the oil sands, a situation not helped by the loss of hundreds of waterfowl in a Syncrude Canada tailings pond.
The environmental assessment panel has delivered additional reasons for its earlier approval to the federal cabinet, which has until early June to decide whether or not to issue a new approval.
The panel stressed that the onus was on the Canadian and Alberta governments to act quickly “if development of the oil sands is to continue at the proposed pace.”
Even if Imperial regains the water permit — a likely outcome in the opinion of many observers — the company has said its dewatering work could be stalled.
It has not estimated how much that might cost, but in a high-price sector any delays could put Kearl at risk.
The next environmental test for the oil sands starts June 23 with regulatory hearings of an application by Petro-Canada to build a bitumen upgrader near Edmonton.
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