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Waving the oil sands banner Various industry leaders mount case for oil sands-derived exports to US Gary Park For Petroleum News
Those opposed to the “dirty oil” and “fossil of the year” labels that have been stuck on Alberta’s oil sands are answering back.
One of the strong messages, especially to his U.S. audience, came from BP chief executive officer Tony Hayward, who told the Guardian newspaper in the United Kingdom that Canadian heavy oil “is going to be a very important part” of the U.S. energy future.
He based that view on his belief that the U.S. will never impose import restrictions on oil sands-derived crude.
BP is involved in a joint production and refining venture with producer Husky Energy and faces a decision this year on whether to proceed with the 200,000-barrel-per-day Sunrise project.
However, Hayward did concede that BP’s emphasis on cleaner production methods is at odds with the more environmentally damaging means of extracting bitumen from the oil sands deposits.
He said BP never has and never will be involved in strip mining.
“We are focused on so-called steam-assisted gravity drainage, which is much more akin to conventional reservoir engineering,” he said. “Therefore the environmental footprint is no more or worse than normal oil or gas operations.”
Not enough Canadian upgrading Stephen Fekete, with the consulting firm of Purvin and Gertz, told a conference Feb. 2 there is no choice but to keep oil sands production flowing to the U.S. now that upstream projects are being revived, but are not being accompanied by the necessary upgrading and refining capacity.
He said those volumes will continue flowing to the U.S., where there is a surplus of refining capacity.
Greg Stringham, vice president of the Canadian Association of Petroleum Producers, said bitumen from Alberta will continue to have a market in the U.S. to fill the gap created by shrinking volumes from Mexico and Venezuela, even in a flat demand scenario.
Separately, Gary Doer, the former premier of Manitoba and now Canada’s ambassador to the U.S., warned U.S. lawmakers against imposing punitive climate-change measures against the oil sands.
He said the Canadian government’s decision to adopt the same greenhouse gas emission targets as the U.S. had bolstered opposition within Canada to U.S. states that plan to target carbon-intensive fuels.
Doer said that while Canada is grappling with ways to reduce GHG emissions at the oil sands, the U.S. has an even bigger challenge to cut emissions from 600 aging coal-fired power plants, claiming the oil sands emit one-sixtieth of the carbon dioxide of the coal plants.
Widening gap But there is a widening gap between Canada and the dozens of states that are following California’s lead to impose a low-carbon fuel standard that would penalize refiners using oil sands crude.
Canada has filed a complaint that California-type fuel standards “could be perceived as an unfair trade barrier.”
Doer said that case becomes even stronger now that Canada is committed to the same overall climate-change goal as the U.S.
His bold assessment aside, CAPP is worried the U.S. may use climate change policy as a way to introduce trade protectionism.
Jim Hughes, manager of energy analysis for Imperial Oil and manager of CAPP’s climate change file, told a Calgary seminar that “border adjustments … sound like another name for tariffs.”
He said the fact that Canada has a trade-dependent economy, with exports accounting for 40 percent of its Gross Domestic Product and 80 percent of its exports destined for the U.S., raised concerns about links between climate policy and international trade policy.
Hughes thinks that if the U.S. fails to introduce federal carbon legislation this year, there is only a low probability of any legislation after 2010, although there could be steps to promote low-carbon energy supplies.
He said it is important to avoid discrimination against sectors such as the oil sands, arguing there must be a cohesive approach by Canada’s 10 provinces and between the provinces and the federal government.
New tailpipe emission regulations could match California’s Exactly what the thinking is within Canada’s federal government has grown foggy with indications that the federal Environment Department may be drafting vehicle tailpipe regulations that match the climate-change goals of California, as well as the province of Quebec.
A background document published late last year by the department said final regulations could be in place by this summer and those standards “would put Canadian GHG emission standards at par with U.S. national standards and, by 2016, with the California standards.”
That is at odds with comments earlier in February by Environment Minister Jim Prentice, who ridiculed Quebec for copying California. He said that would add an average C$5,000 to the cost of cars.
An analysis by Calgary-based investment banker Peters & Co. said production from thermal recovery projects should double over the next five years as a number of smaller, modularized projects come onstream, although a number of mining projects are still proceeding — Imperial’s Kearl, Canadian Natural Resources’ Horizon, Royal Dutch Shell’s Athabasca and Syncrude Canada.
The analysis estimated that the impact of carbon dioxide compliance costs on oil sands operations could range from C50 cents to C$7 per barrel of production.
Pat Nelson, a former Alberta finance minister and now vice chair of the In Situ Oilsands Alliance, endorsed Peters’ view that the future lies with in-situ developments.
“Only 2 percent of our oil sands resources can be mined,” she said. “The balance has to be developed through in situ processes.
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