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Canada striving to protect oil sands Environmental issues from development a concern; meeting GHG standards could make oil sands uncompetitive internationally Gary Park For Petroleum News
With the environmental noose tightening, the Canadian and Alberta governments — two of the most resolute opponents of Kyoto-style limits on greenhouse gas emissions — are being forced to act in other ways to fend off a growing global campaign against the oil sands.
Still reeling from the death of about 500 ducks in a toxic tailings pond at the Syncrude Canada mine site, the case against the resource keeps building.
Even the Alberta government disclosed recently that it has 13 open investigations related to the oil sands, three linked to tailings ponds and the remaining 10 probing a variety of contraventions of project permits — exactly what Premier Ed Stelmach didn’t need as his administration embarks on a C$25 million, three-year campaign to sell the resource as environmentally sustainable.
Margo Reynolds, executive director of the Pembina Institute, an Alberta-based research group, said the cumulative impact is turning the oil sands into the “black stain of Canada. … It’s becoming an environmental disaster.”
David Swann, environmental spokesman for the opposition Liberal party, said the confidence gap between the public and the government is widening, accusing the government of taking a hands-off approach.
Newly disclosed incident Environment Minister Rob Renner conceded there likely have been incidents such as a newly disclosed incident last September when an estimated 2 million liters of wastewater contaminated with oil and grease leaked from a Suncor Energy facility into the Athabasca River, the main waterway in northeastern Alberta.
Suncor refuted claims that area residents were not told until May that their drinking water was potentially contaminated, insisting community leaders and the government were notified the day of the incident.
A company spokesman said the wastewater contained only two barrels of oil and grease, but admitted Suncor exceeded regulations.
Chris Sands, a senior fellow at the Washington-based Hudson Institute, said bad news is inevitable in the oil sands sector. “We need it so badly that we’re going to have to make a few unsavory decisions.”
But the pressure is squarely on the federal and provincial governments to show proof that they are prepared to tackle other real and perceived negatives and on the industry to polish up a tarnished image.
David Brett, a Calgary lawyer specializing in energy regulation with the firm of Gowling Lafleur Henderson, said that as the regulatory landscape changes, the “public interest” will play an increasingly larger role in decisions by regulators.
He said a series of recommendations by joint federal-provincial environmental review panels in approving oil sands mining projects raised the need for cumulative impact assessments and socioeconomic impacts to be addressed.
Brett suggested the message is clear: If “things don’t get fixed, regulators will step in and propose to fix them.”
Cost of meeting GHG limits could make oil sands uncompetitive The warnings were contained in a report by investment firm Raymond James, which said the costs of complying with greenhouse gas abatement plans could make the oil sands uncompetitive with other oil projects around the world “causing producers to shift exploration and development to other jurisdictions where GHG limits are less stringent or non-existent.”
CRA International, a Boston-based consulting firm, said the costs of compliance could in some cases be as high as C$100 per barrel.
It said that if the Canadian government’s GHG plan puts future oil sands development at risk it could seriously undermine the North American economy.
CRA consultant Robert Peterson said North American could not stand the loss of 3 or 4 million barrels per day of oil sands output in return for “solving a small piece of a worldwide problem.”
He said Environment Canada estimates the Canadian oil and gas industry produces about 400 million metric tons of carbon dioxide a year out of trillions of tons globally.
Raymond James analyst Justin Bouchard said that if a carbon tax of $15 per barrel is imposed, companies might turn their attention to shale oil in the U.S.
His own estimates show oil prices of $70 per barrel are needed to generate a return on investment of 8.5 percent from the oil sands and that could become even more marginal if labor costs, water issues and other problems are added to the mix.
Canadian plans a concern Observers say the Alberta government’s plan to reduce GHGs by about 200 million metric tons a year by 2050, or about 14 percent below 2005 levels, can be managed.
It’s the upcoming federal plan that has the industry fretful, especially if the government sticks to its goal of cutting GHGs by 20 percent below 2006 levels by 2020 and 60 percent by 2050.
Bouchard’s report said that would amount to a levy of C$15 per metric ton initially, matching Alberta’s charge, rising to C$20 by 2012.
By some estimates that would take an annual bite of C$4 billion out of the industry.
The Canadian Association of Petroleum Producers has worked closely with federal officials and believes the government is now starting to understand the economic implications of any draconian measures.
CAPP is also concerned about the confusion that might stem from dueling regulations as provinces such as Alberta and British Columbia develop their own policies, which could result in a fragmented, confusing set of national policies.
Facing a rising tide of criticism and doubt over its ability to clean up the oil sands, the Stelmach government is facing scrutiny from within as the province’s Energy Resources Conservation Board said it plans to take a harder enforcement line against the overall oil and gas industry.
The board’s newly appointed chairman Don McFadyen said the regulator plans to hire 26 additional inspectors and double the number of inspections involving the oil sands alone.
He said the board is determined to ensure the resources are developed in a “responsible manner.”
However, McFadyen said the onus is on the executive levels of government and the industry to establish the importance of the oil sands and the economic contribution they can make.
Environmentalists call restoration of land inadequate As hard as the government moves to keep pace with the rapid growth of the sector, it seems to get outrun by environmentalists, with the Pembina Institute accusing it and the industry of doing a “woefully inadequate” job of restoring oil sands land after it is mined.
In a new report, the organization said that after 41 years of mining, only 0.2 percent of the land has officially been turned back to the government and accepted as reclaimed land, although close to 14 percent of the land has been restored without obtaining certification.
The report also estimates the toxic tailings ponds could expand rapidly if all of the publicly announced projects go ahead.
The Pembina report said that the government’s abandonment liability fund — security deposits collected from companies and now standing at about C$645 million — is far too small and could leave Albertans with a multi-billion dollar bill if companies failed and reclamation work was abandoned.
The greatest hope the Alberta government has of redeeming itself lies in its push toward carbon capture and storage rather than carbon taxes or cap-and-trade programs.
Stelmach said carbon capture and storage is the fastest way to significantly reduce GHGs, claiming the “the technology can be adapted and sold to other jurisdictions around the world.”
He said a carbon tax would erode Alberta’s competitiveness, while cap-and-trade would merely transfer credits among jurisdictions without achieving GHG reductions.
Alberta and Saskatchewan plan to push other provinces to support carbon capture and storage by offering to take a lead role in advancing research and implementation, although they admit the technology will be expensive and could be years from large-scale commercial use.
Mary Griffiths, Pembina’s senior policy analyst, said the work on carbon capture and storage is good news so long as it does not displace efforts aimed at energy conservation and energy efficiency.
She said carbon capture and storage is “just one arrow in the quiver. … It’s not a silver bullet.”
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