Juggling environment, economy

Alberta government takes new stab at oil sands strategy, focusing on environment and benefits

Gary Park

For Petroleum News

The Alberta government has put out a 20-year blueprint to better manage its oil sands, four years after its own initial missteps in getting to grips with the challenges of exploiting a vast resource — a blunder that gave the formidable oil sands’ critics free rein to influence public opinion.

Even the industry, through the Canadian Association of Petroleum Producers, made a belated concession a month ago, based on the results of its own survey that it needed to do a “better job” of engaging Canadians and policymakers in a debate on the future of the oil sands.

The government was equally culpable, having tried in 2005 to impose a policy that gave priority to development of the oil sands over everything else — the environment, social and health concerns and community infrastructure.

For a province unaccustomed to backlash against resource exploitation this might have been a seminal event.

Public and political outrage forced the government to scrap its approach until Premier Ed Stelmach took office in late 2006 and created an Oil Sands Sustainable Development Secretariat, under Treasury Board President Lloyd Snelgrove, to set a new direction.

The result was a 47-page report, entitled “Responsible Actions — A Plan for Alberta’s Oil Sands,” that Snelgrove describes as a “strategic plan for responsible development of this vast resource.”

He said the plan “balances future energy development with respect for the environment, and it outlines how well it will foster a high quality-of-life for Alberta families, with developing the economy.”

Snelgrove said it sets a “new direction that will guide our decision making for oil sands development and contains ambitious strategies to help us identify and address the economic, social and environmental challenges and opportunities in the oil sands region.”

Facing up to probably the most sensitive issue of all, the government has pledged to “revise the current environmental impact assessment process to support cumulative effects management.”

In addition, economic, social and environmental “report cards” will be imposed on the industry, while the government has reiterated its commitment to carbon capture and storage projects to reduce the impact of industrial greenhouse gas emissions.

Long-term value a goal

The report also puts a heavy emphasis in one of its six strategies on “maximizing long-term value for all Albertans through economic growth, stability and resource optimization.”

It says the province “must get the best possible economic return on the long-term development of its energy resources.

“Extending our role along the value chain through upgrading and refining bitumen to transportation fuels and other products will further expand our economy.”

Some of the key levers include:

• Establishing a government-led organization to take oil sands bitumen in-kind rather than in royalties to develop “value-added oil sands products”;

• Using regulatory and fiscal approaches to foster and encourage value-added development to achieve the value chain’s full potential; promoting heavy oil pipeline tolls that accurately reflect the costs of shipment;

• Marketing and promoting Alberta’s energy and environmental expertise on a global scale to “realize a knowledge-based economy”;

• Identifying and targeting “key global markets that offer attractive opportunities for Alberta’s oil sands products to achieve a more diverse and resilient customer base”;

• Encouraging the development of “outbound pipeline systems that open new markets for Alberta’s oil sands products”; and

• Creating new products “through integration and cluster development approaches,” such as combining bitumen upgrading, refining and petrochemical facilities in single plant complexes to reduce costs and the environmental footprint.

No specifics in report

Stelmach said discussions aimed at moving the strategy forward will take place with the industry and other stakeholders, but offered no timelines and few details on how that will take place.

Not surprisingly, either, the report failed to appease the critics, but got a passing grade from the industry.

Greg Stringham, vice president of the Canadian Association of Petroleum Producers, told reporters the strategy tackles many of the issues that were identified during two years of previous consultations, meaning that the work leading up to an action plan, followed by an implementation plan, has still to be done.

Don Thompson, chairman of the Oil Sands Developers Group, which deals with regional issues in northern Alberta, told the Edmonton Journal it is “never a bad time to have plans to support an industry that is a cornerstone of the Alberta economy.”

Referring to the goal of identifying social and infrastructure needs associated with oil sands development, including cooperation with the industry to develop public infrastructure, he said his group members welcome any proposals to build communities that offer employees a “quality of life that attracts and retains the kinds of people we need to operate our facilities.”

Neil Shelly, executive director of the Alberta Industrial Heartland Association — a collection of municipalities north of Edmonton where an upgrader-refining center has been taking shape — said the report builds on a vision contained in last fall’s provincial energy strategy.

The focus it puts on creating a value-added industry is a “step in the right direction,” by taking bitumen-in-kind to encourage development of upgraders and petrochemical facilities and by tackling heavy oil tolls to discourage shipments to the Chicago or Houston refinery areas.

Pace, scale criticized

But he welcomed word that oil sands operators will be held accountable for meeting their schedules to reclaim tailings ponds at the same rate, or faster, than the production of new tailings.

The plan urges the government to establish an offset program to secure high-value conservation lands in the oil sands regions to support biodiversity, wetland and environmental management objectives.

While making an abrupt about-face from its stand in 2005, when environmental concerns got the brush off, the government gives equal time to ensuring that the oil sands “maximize long-term value for all Albertans through economic growth, stability and resource optimization” as the world’s second-largest oil-source is exploited.

That involves a two-pronged approach to ensure that more of the value-added end of processing raw bitumen remains in Alberta (through upgrading and petrochemical projects) and to expand markets outside Alberta for oil sands products (by targeting “key global markets” other than the United States).

Stelmach has made a personal crusade out of keeping more of that most profitable end of the oil sands business in Alberta, only to watch as the recession has seen six of seven planned upgraders sidelined.

Government now has time

That includes a plan to take some oil sands royalties in bitumen instead of cash.

Even last summer, before the big crash, the government called for expressions of interest from companies for processing bitumen, including proposals to upgrade or refine the bitumen within the province or to use it as feedstock for petrochemicals.

It is now planning to use all of the levers at its disposal, including “regulatory and fiscal approaches to foster and encourage value-added development …” and also to promote heavy oil pipeline tolls that more accurately reflect the costs of shipment and thus curb the rush to export bitumen to United States upgraders and refineries.

Uneasy about where the Obama administration is heading with its talk of restricting imports of “dirty oil,” Alberta is even more anxious to diversify and strengthen its customer base by encouraging the development of pipeline systems to Canadian tanker ports and opening up new international outlets.