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Rift appears in Alberta oil sands ranks Players divided over provincial strategy to tackle climate change; Laricina boss insists ‘big four’ don’t speak for industry GARY PARK For Petroleum News
The initial euphoria surrounding the participation of oil sands majors, leading environmental groups and First Nations in the Alberta government’s announcement two months ago on its strategy to cap carbon emissions is now facing kick-back from within the industry.
When the top executives of Suncor Energy, Canadian Natural Resources, Shell Canada and Cenovus Energy lined up behind Premier Rachel Notley in Edmonton as she rolled out her grand plan to combat climate change and rescue her province’s battered reputation there was an initial assumption that the oil industry was solidly behind the premier.
Since then word has seeped out of a deep rift in the ranks of oil sands producers.
Notley’s objective to limit emissions to 100 million metric tons a year, 30 million metric tons above current levels, restricting output growth by 1 million barrels per day from today’s 2.3 million bpd, is now seen my many as handcuffing a sector that is estimated to account for only 1.6 percent of global greenhouse gas emissions.
Left out of the smiling industry faces, who viewed their show of unity for Notley as the best hope for silencing their strongest environmental critics, were Imperial Oil (70 percent owned by ExxonMobil), MEG Energy and Laricina Energy, among others.
Those not included Also shunted aside was the Canadian Association of Petroleum Producers, the industry’s top lobbyist, whose President Tim McMillan acknowledged his organization “did not contribute” to the formulation of Notley’s policy.
In short order, Laricina President Glen Schmidt went public with his frustrations, telling the Financial Post that his group of smaller producers has no intention of playing along with Suncor, CNR, Cenovus and Shell.
“The group of four may have provided some views to the government that has allowed the government to say, ‘Here is our framework.’ The group of four doesn’t speak for the industry,” he declared.
“They speak for themselves. And now we need to get into the heavy lifting of how we are going to manage under the policy position that the government has stated.”
While refusing to place CAPP in the government fold, McMillan was a shade more measured in his response, preferring to seek common ground between the two factions.
“I think on any given issue there’s different points of view,” he told the Globe and Mail.
“I would reserve my judgment (of the proposed emissions cap) until we have an opportunity to work on the details. There’s a target, but (we don’t know) how will it be implemented.”
Extra costs a concern But McMillan did warn against any government moves to pile on extra costs in a sector that has terminated thousands of jobs and shelved billions of dollars worth of new investment.
He doubts confidence will be restored until oil prices regain US$50-$60 for a sustained period.
McMillan noted that Canada faces an added disadvantage in competing with shale operators in North Dakota and Texas where there is no carbon price.
So far Notley has declined to explain how her government will decide which projects get to benefit and which don’t.
And Cenovus Chief Executive Officer Brian Ferguson agreed there is no answer on how the remaining 30 million metric tons carbon allowance will be allocated beyond suggesting it will “reward more efficient operators ... there’s an emissions limit, not a production limit.”
For Cenovus that matters deeply, since the company has plans for incremental output of 600,000 bpd on its slate.
Smaller players Patricia Nelson, vice chair of the In Situ Oil Sands Alliance (speaking for independent developers), is determined her group should get a proper hearing.
“The advantage of the smaller players, like our organization, is that they are keen on new initiatives and innovation ... and I’d hate to see that move sideways because there is a cap in place that doesn’t allow them to take the time to do the development.”
Schmidt insists the three big bitumen mining companies that back Notley - Suncor, Shell and CNR - should not benefit from any government favoritism after “filling their boots” with regulatory approvals.
He said it is disappointing for smaller companies that have insisted they “want the industry to stand together ... and then they just cut and run.”
Laricina, which is now under creditor protection after investing C$1.5 billion in the oil sands, urged the government to consult with all players before allocating the carbon budget.
Schmidt said the potential for “arbitrary behavior is a major concern,” which some analysts think will lead to court action, further reducing Alberta’s fast eroding appeal as an investment destination.
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