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Vol. 15, No. 20 Week of May 16, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil sands less risky

Leaders say industry different than offshore; praise Beaufort relief well rules

Gary Park

For Petroleum News

The Canadian and Alberta governments have seized on the devastating oil spill in the Gulf of Mexico to mount a case that the oil sands pose less of a risk than offshore activity.

While “appalled and horrified” by the catastrophe unfolding along the U.S. Gulf Coast, federal Environment Minister Jim Prentice said the events put the oil sands in perspective.

Returning from climate change negotiations in Germany, where the Deepwater Horizon incident was discussed, he said “it’s always been clear that the oil sands provide a safe, stable, secure supply of energy and they need to be developed in an environmentally responsible way.

“The risks associated with the oil sands, the environmental risks, are significantly different than and probably less than the kind of risks associated with offshore drilling,” he said.

Taking the low road

“But we still have to be on our game in terms of the environmental regulations for the oil sands as well.”

In what sounded like an echo, Alberta Premier Ed Stelmach, in Washington, D.C., for three days to meet with U.S. government and industry leaders, started out on the high road, declining at first to draw comparisons between the safety records in the Gulf and the oil sands.

“It’s not something I’m going to point to,” he said. “We’re not going to compare.”

Then he did, arguing the oil sands are a safe, dependable and even clean fuel option for Americans – a source of energy security and jobs.

He said spills anywhere on the pipeline network from the oil sands to U.S. markets can easily be contained and fixed.

Stelmach said the problems associated with capping the rupture at BP’s blowout well off the Louisiana coast should raise new questions about what is really “unconventional” oil.

“Whether offshore or in the oil sands, it’s got to be done right for the environment,” he told reporters after a speech in which he vigorously defended Alberta’s environmental record.

He said his meetings with U.S. senators were a chance to explain his province’s history of “responsible energy development. As the United States moves forward with climate change policies, it is imperative that U.S. lawmakers have a full and accurate understanding of oil sands development.”

Looking for a fair shake

Stelmach said his objective is to ensure the oil sands get fair treatment as federal and state legislators ponder measures to penalize Alberta’s heavy crude and other high-carbon fuels, including threats to ban imports of crude from the oil sands.

He said those measures have “got to be fair” and was encouraged that he got a “very good reception” from the senators.

“It is important that we explain what we are doing to develop the oil sands to the highest environmental standards,” he said. “We also need to ensure that those standards are the highest possible.”

Sticking with relief well requirement

By way of bolstering that argument, Prentice drove home the point that Canada has no intention of softening existing environmental standards that are designed to protect its offshore.

He said those standards have ensured Canada has, so far, never had an occurrence like that in the Gulf.

“That speaks to the regulatory environment that we have in place, the diligence we have put into regulating oil and gas activity,” Prentice said.

The message was directed at a bid by majors – Imperial Oil, BP, Chevron Canada, Shell Canada and ConocoPhillips Canada – to soften a requirement to drill relief wells in the same season as any blowout.

Relief wells as “ultimate safety check”

In the wake of the Gulf incident, a review of that request is now likely to extend over “months, not weeks,” said National Energy Board Chief Executive Officer Gaetan Caron.

“I think it’s fair to say, based on what we’ve seen (in the Gulf), that the ultimate safety check or fail-safe in the case of a well that is out of control is the ability to drill a relief well,” Prentice told the Globe and Mail. “That would seem to me to be sound policy.”

What has happened in the Gulf has reinforced the need for backup wells, he said, effectively shutting down a bid by Imperial to gain an exemption from the relief-well policy in the Beaufort Sea.

In the Canadian parliament, David McGuinty, environment and energy spokesman for the opposition Liberal Party, described the Gulf incident as a “real wakeup call” and New Democratic Party leader Jack Layton demanded the government introduce tougher safeguards for Arctic drilling.

Layton said there has been extensive lobbying of federal cabinet ministers by petroleum companies.

“They have been in high gear to remove any suggestion that they should be responsible for drilling a relief well in the same season that a spill takes place,” he said.

Prime Minister Stephen Harper said that, although the Gulf spill is “absolutely terrible and a horrific environmental catastrophe,” Canada’s regulations are tougher than those in the United States and could have prevented a Gulf episode.

He said the NEB will not allow drilling unless there are assurances that workers and the environment can be protected.

Sierra Club wants Beaufort moratorium

David Pryce, vice-president of operations at the Canadian Association of Petroleum Producers, cautioned the government against being too quick to respond to pressure and too restrictive.

He said the relief well policy was introduced in the 1970s, since then there has been significant advances in technologies for handling well blowouts.

However, he conceded that until an investigation has been completed on the Gulf incident it “probably makes sense” to delay any review of Canadian offshore policy.

The Sierra Club of Canada is already pressing for a moratorium on Beaufort drilling until a public debate can occur.

Enbridge not backing down

How the National Energy Board, or NEB, finally rules could have implications for Canada’s key longterm exploration dreams, including the Beaufort, the High Arctic, deepwater prospects in the East Coast offshore and plans to export oil sands bitumen and liquefied natural gas from the British Columbia coast.

While conceding that the most persistent concern he encounters from opponents of the Northern Gateway project is the risk associated with tanker traffic in Canadian waters, Enbridge Chief Executive Officer Pat Daniel told analysts and shareholders on May 5 that his company is not backing down from its goal of opening new offshore markets for Canadian crude.

“We’re doing it because it’s important for Canada, for our economy, for our energy security and for our nation’s role as a significant player on the world stage,” he told Enbridge’s annual meeting.

“I suggest to the people who are opposed to Gateway that ‘no development, ever’ is not a good enough answer.”

Daniel said that Enbridge will file a regulatory application this month provided it can complete a couple of commercial agreements for shippers. The plan includes exporting 525,000 barrels per day of oil sands production and importing 193,000 bpd of diluents on a system expected to cost C$5.5 billion.

Mounting his most vigorous case yet for Northern Gateway, he suggested to shareholders that the loudest opponents of energy development are typically those with access to low cost and virtually unlimited supplies.

“If you drive an automobile or operate a boat, if you heat your home with oil or natural gas or if you use electricity, if tourists reach you by plane or ferry, than you are using the very energy infrastructure you oppose,” he said. “Somewhere there’s an oil well, a refinery, a pipeline or a power generation facility that makes your energy-rich lifestyles possible.”

Daniel predicted worldwide demand for crude oil will grow by 29 percent over the next 20 years, but the world will also shift to renewable energy in which Enbridge is becoming a major producer of wind and solar power.

“Is it better to meet this growing global demand with oil from countries and regimes that are unconcerned with human rights and environmental impacts; I don’t think so,” he said. “Or should we respond to the demand for oil produced in Canada, with its strong tradition of democracy, rule of law, human rights and environmental regulation and technical excellence that is unparalleled in the world?”

In answer to a First Nations leader, who asked how Enbridge expected to build and operate Northern Gateway in the face of united and growing opposition from British Columbia’s aboriginal communities, Daniel said “we want to work with you to turn that ‘no’ into a ‘yes,’ “ by meeting First Nations requirements as well as safety and environmental concerns.

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