‘Dirty oil’ gets an airing

U.S.-Canada panel says U.S. reliance on oil sands feeds ‘destructive’ habit if refineries continue with expansions, conversions

Gary Park

For Petroleum News

United States refiners are ready to spend $53 billion to expand or convert their facilities to handle an extra 2 million barrels per day of oil sands-derived crude at the same time environmental groups are warning of “catastrophic” impacts from the growing reliance on the Alberta resource.

“This enormous (refinery) investment represents an entrenched commitment to perpetuating U.S. reliance on oil as our primary source of energy into the next generation and beyond,” said a joint study by the U.S.-based Environmental Integrity Project and Environmental Defense Canada.

The study said the reliance will be based on “Canadian tar sands (and perhaps U.S. shale oil) — even dirtier and more destructive sources of oil than conventional crude oil.”

Environmental Integrity Project Director Eric Schaeffer told a conference call “it is hard to imagine what else it is that the U.S. oil industry could do to go backwards further and faster than to rely on Canadian tar sands or similar resources in the United States.”

“Not only would this mean significantly more pollution overall, but it would substantially boost the greenhouse gas emissions linked to global warming,” he said.

“When we talk about, we’re talking about reducing reliance and moving away from it. We know that takes time.

“But those first steps start with an awareness of what it means to get your oil from the oil sands. This is a very intensely wasteful way of feeding the oil habit.”

However, Schaeffer conceded that attempting to halt oil sands production isn’t possible.

Matt Price of Environmental Defense Canada said carbon capture and storage could achieve significant reductions in greenhouse gas emissions, but he criticized the pace at which government and industry was moving that direction.

“The timelines for implementation are far, far too long,” he said.

Regulations being developed

The joint study, relying on data from the U.S. Environmental Protection Agency permitting processes, estimated that of the 1.6 million bpd of increased refining capacity planned for the U.S., 1.1 million bpd of which is designed to handle oil sands output. Another 827,000 bpd of existing conventional capacity is being modified to handle crude from the oil sands.

Pierre Alvarez, president of the Canadian Association of Petroleum Producers, refused to get drawn into speculating on what the upcoming U.S. elections will mean for the oil sands, given the concerns expressed by Barack Obama about the growing role of the oil sands in the U.S. energy equation.

But Alvarez said there is no doubt the “global barrel is getting heavier.”

The impact of high oil prices has put energy back on the political radar after a long absence and Canada will figure in the debate “no question,” he said.

“I don’t think anybody denies that environmental performance needs to continue improving,” Alvarez said.

Before the study was released, he told a Reuters Global Energy Summit that carbon capture and storage, while important, is “only one of a number of things that have to be approached.”

He said options such as nuclear and geothermal power have enter the debate, assuming carbon capture and storage can achieve its goal of reducing GHGs by 70 percent by 2050 in Canada.

Price said he expects the next U.S. administration will move to a “low carbon fuel standard” that could penalize oil sands imports.

“Regardless of who wins in November, there will be a major shift in the status quo,” he said.

Brenda Kenny, the incoming director of the Canadian Energy Pipeline Association, doubts the U.S. election will see major changes on either side of the 49th parallel, with Canadian supplies remaining the center point of Canada-U.S. trade.

To suggest Washington might go cold turkey on Canadian oil is “far-fetched,” she said.

Cindy Schild, refinery issues manager with the American Petroleum Institute, said the Canadian government has assured U.S. officials that the oil sands sector is serious about lowering its GHGs, which is consistent with petroleum industry support for climate-change legislation.

Total: crude supply concerns

Total has earmarked up to $15 billion in spending over the next 10 years to boost its oil sands production to 500,000 bpd, starting with the Joslyn project in 2013.

De Margerie said that although Alberta was “considered the most cowboyish” among oil producing regions in the past, that has changed now that Alberta and Canada have started to tighten environmental regulations.

Helge Lund, chief executive officer of Norway’s StatoilHydro — like Total, a new arrival in the oil sands with big ambitions — told Reuters he believes the answer to tapping new, unconventional energy sources is to establish a common price for carbon dioxide emissions and “the market will find the most efficient solution quickly.”

He said the question is not whether there will be exploitation of unconventional resources that are more energy-intensive to exploit but whether the industry can “develop them as efficiently as possible

Cost of cutting GHCs high

“It implies a completely different energy system,” he said, suggesting hydropower and wind power would have to reach close to 50 percent of all power production, compared with 18 percent today.

The IEA identified 17 key technologies needed to attain the 2050 goal, including carbon capture and storage on the supply side and the adoption of little-tested hydrogen fuel cell technologies on the demand side.

However, even halving GHGs by mid-century would still leave carbon dioxide emissions above the safe level identified by the European Union and a United Nations panel of climate scientists.

Aboriginals take legal route

Two actions have been filed in Alberta Court of Queen’s Bench that could be more troublesome to the industry than any of the other issues.

There is no doubt it has the attention of the Alberta government, which created an Aboriginal Relations ministry in April and has just signed a protocol covering all First Nations in the province.

But that has not satisfied aboriginal leaders, who say they are tired of unfulfilled government promises to consult and have the backing of Canada’s highest court.

Earlier this decade, the Supreme Court of Canada ruled that federal and provincial governments are required to engage in meaningful consultation with First Nations before developments proceed on native lands.

That precedent underpins legal actions by the Chipewyan Prairie Dene First Nation and the Woodland Cree First Nation who have alleged a breach of Alberta’s constitutional duty to consult on two proposed oil sands projects.

The Chipewyan Prairie are trying to block further regulatory approvals for a project by MEG Energy, with China National Offshore Oil Corp., to expand its Christina Lake development.

Construction is under way on a 25,000 barrel per day project, approval is pending for a second phase of 35,000 bpd and MEG has plans to add another 160,000 bpd.

Meanwhile, the Woodland Cree have launched a similar action in an attempt to stall Shell Canada’s application to expand its Carmon Creek project in the Peace River area of northwestern Alberta to 100,000 bpd from 12,500 bpd.

Chipewyan Prairie Chief Vern Janvier said “our lakes, our land and the animals and fish we have relied on for thousands of years to support our way of life and cultural values are being destroyed by out-of-control oil sands developments.”

“Because our constitutionally protected rights are at risk in one of the few remaining places in our traditional territory where we can exercise them, we’ve asked the courts to step in before it’s too late.”

He said his community has warned the Alberta government for years about “the erosion of our rights through ever-increasing development and the lack of proper planning for resource development.

“If anything, Alberta has sped up the pace of its approvals,” Janvier said.

He said consultations take place after oil sands leases have been awarded and the legal responsibility for consultation is delegated to the oil and gas companies, he said.

As a result, the companies are in a conflict of interest and have no control over the cumulative impact of other projects that infringe on treaty and aboriginal rights, he said.

Attorney: consulting ‘broken’

He said the Woodland Cree lawsuit raises questions about whether the government can “continue to sell off lands (regarded as traditional territory by Natives) without talking to First Nations, without talking to the public.”

Freedman said the Chipewyan Prairie action is limited to the impact of the Christina Lake project on hunting, fishing and gathering rights, and involves no monetary compensation.

But he said there is an implied requirement for greater environmental protection in the oil sands region.

As a result, if the suit succeeds it could set a precedent for the way all oil sands leases and developments are approved, Freedman said.

The government, while unwilling to comment on specific cases before the courts, insists it takes seriously its dealings with aboriginal communities and by creating a new ministry is “going in the right direction.”

Aboriginal Relations Minister Gene Zwozdesky said he is “trying to develop some new approaches and establish some mutual trust,” describing the mood at several preliminary meetings as “very positive.”

Chief Jim Boucher of the Fort MacKay First Nation in the heart of the Athabasca oil sands region said many leaders now believe their only recourse is through the courts, although not all have abandoned talks.

—Gary Park