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Canada’s new green giants Alberta legislation could cost petroleum industry ‘hundreds of millions of dollars;’ sector on edge as it awaits federal regulations for greenhouse gas emissions
Gary Park Petroleum News
One half of a newly formed political tag team — Alberta Premier Ed Stelmach — flipped the petroleum industry on its back March 8, leaving Canadian Prime Minister Stephen Harper to apply a possible choke-hold later this month.
Answering the environmental cheerleaders sitting in the bleachers, these two late converts to the cause of tackling greenhouse gas emissions linked arms in Edmonton to trumpet a new green era.
“All Canadians are looking for a balance between economic growth and environmental protection,” declared Harper, who, a year ago, did not even have the environment among his top five agenda items. “Finding that balance is the fundamental challenge of our time.”
Not to be outdone, Stelmach said his three-month-old administration is pledged to “embrace economic growth and be good stewards of our environment.”
He fired the opening salvo that quickly had the oil and gas sector reeling.
Without any advance warning, Stelmach said his government will introduce Canada’s first carbon dioxide emissions legislation, requiring the province’s 100 largest industrial facilities that each release 100,000 metric tons or more of GHGs annually to reduce the intensity of those emissions by 12 percent, starting July 1.
Those who can’t meet the quota will either pay C$15 per metric ton into a climate change and emissions management fund that will finance new technology to capture and sequester CO2, or purchase carbon credits from Alberta companies that beat the 12 percent target. (By some estimates, the C$15 penalty would add US18 cents per barrel to the cost of oil sands production, but if federal measures mandate a cut in emissions intensity by 25 percent that could add another US$1.30 or more per barrel).
Alvarez: too little notice to meet target Canadian Association of Petroleum Producers president Pierre Alvarez guaranteed that “with this little notice, not all companies will meet the target.”
He was unable to give an accurate estimate of the cost to companies beyond “hundreds of millions of dollars.”
A spokesman for the Alberta Environment Department said the move will provide a measure of certainty for the industry by making clear how the provincial government will achieve its goals in a balanced way.
The industry didn’t seem reassured by that thought.
Alvarez said there is not enough information to assess the cost impact, but added a warning that major undertakings are all vulnerable to budget pressures.
He said many companies in the past have cut back on investments because of escalating costs.
UBS analyst Andrew Potter said the oil sands sector in particular could be entering a danger zone, where a combination of GHG regulations and possible changes to the tax regime could erode profits and slow the pace of development.
“The level of political risk facing the oil sands is rapidly increasing,” he said.
Heavy oil upgrader shelved In fact, the Alberta government’s announcement came a day after Canadian Natural Resources froze progress on a heavy oil upgrader expected to cost up to C$9 billion because of inflation and uncertainty over looming GHG regulations.
Chief Operating Officer Steve Laut said the company even wonders if the upgrader will be needed at a time when refiners in the U.S. Gulf Coast region are showing tremendous interest in taking Canadian heavy crudes as concerns grow as Mexico’s Cantarell field goes into decline and doubts increase about supplies from Venezuela.
The upgrader was designed to handle output from the Primrose, Wolf Lake and Kirby operations in the Cold Lake heavy oil area of eastern Alberta.
Laut said Canadian Natural has already had success accessing the Gulf Coast and expects more pipelines will be connecting Alberta with the area.
However, shelving the upgrader will not affect progress on the company’s Horizon oil sands project, which Laut said is 57 percent completed and on track for commissioning in the third quarter of 2008, without any material change to the first phase budget of C$6.8 billion.
Horizon is due to produce 110,000 bpd in the initial stage and grow in two more phases to 300,000 bpd.
Not all upgraders in retreat Not all upgrader developers are retreating as the environmental demands build. North American Oil Sands, a private company with the Ontario Teachers Pension Plan as a major investor, is ready to incorporate carbon capture and storage technology as part of its C$12 billion project.
Chief Executive Officer Pat Carlson said that is a “responsibility our industry has.”
The one break under the new Alberta legislation will be a nine-year grace period to fully comply with the standards for all facilities that started operations after 1999, including oil sands operations and coal-fired power plants.
As one example, a government spokeswoman said a plant coming on stream this year will have three years to compile its GHG emissions and will then have six years to meet the target by lowering the intensity of its emissions by 2 percent a year.
She said the government decided it would be unfair to penalize new projects that invested heavily in the best technology available at the time, but those starting operations before 2000 have had more opportunities to retrofit their facilities for emission reductions.
Among environmentalists, the Alberta government’s move was widely scorned, with the Sierra Club describing the plan as a publicly funded subsidy for industrial polluters.
The Pembina Institute for Appropriate Development argued Ottawa should impose tough limits on oil sands projects and require them to capture most of the CO2 they generate.
Pembina Executive Director Marlo Reynolds said Alberta’s emissions will continue rising, while the technology fund provides no guarantees of real reductions.
Federal Natural Resources Minister Gary Lunn said in Calgary March 12 that the coming federal regulations should come as no surprise given that the government has been dealing openly with industries, making them well aware that pollution reduction standards are coming.
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