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Canada rolls dice, ratifies Kyoto treaty The Liberty Party government of Prime Minister Jean Chretien sets cap on costs of greenhouse gas emissions, but industry wary until implementation details are negotiated; U.S.-based companies ready to go elsewhere Gary Park PNA Canadian Correspondent
Canada has plunged into the unknown by ratifying the Kyoto Protocol and setting off a new wave of uncertainty over the future of investment in vital frontier projects.
Against a background of warnings by U.S.-based companies that they are prepared to pull back from Canada and invest elsewhere, the Liberal party government of Prime Minister Jean Chretien pushed through a motion to ratify Kyoto by 195 votes to 77 on Dec. 10.
The focus now shifts to the direct fallout on the multi-billion-dollar plans to develop Alberta’s oil sands, Arctic natural gas and East Coast offshore oil and gas, which are viewed as an essential element of North American energy security.
The parliamentary approval came with a promise from the government to place a cap of C$15 per metric tonne on the price industry must pay to reduce greenhouse gas emissions, although Natural Resources Minister Herb Dhaliwal said “we’re pretty confident” the costs will more likely fall in the range of C$5-C$10.
In the long build-up to the vote, government officials had offered worst-case scenarios where the cost could be as high as C$50 per tonne.
At C$10, the per-barrel costs for the petroleum industry had been calculated at 3 cents for conventional crude, 1.5 cents for heavy crude and 10 cents for oil sands production.
Implementation next phase of debate Alberta Environment Minister Lorne Taylor said the announced cap was a good first step towards an implementation strategy — the next phase of the Kyoto debate.
“If there’s a signed and guaranteed deal on (the C$15 cap), that’s a good place to start talking about an implementation plan because it offers some certainty as to what the numbers will be,” he said.
But, from the Alberta government’s standpoint, Taylor said the battle was far from over.
“I’ve always said the ratification was going to pass and it’s really a non-issue,” he said. “All it does is allow the prime minister to stand on the international stage and thump his chest.”
Pierre Alvarez, president of the Canadian Association of Petroleum Producers, expressed frustration that Parliament had endorsed the treaty.
“We still can’t calculate the competitiveness implications,” he said, noting that many of the industry’s Kyoto-related issues remain unresolved.
Alberta Premier Ralph Klein, who spoke to U.S. energy investors in the plush surroundings of the New York Yacht Club on Dec. 9, insisted his government will not “be rattled by Kyoto.”
“We’re prepared to do whatever it takes — including launching a constitutional challenge (to defend Alberta’s ownership of its natural resources) — to ensure Alberta’s concerns are addressed in the implementation plan,” he said.
But Klein told investors that a legal fight may not be necessary, with Chretien scheduled to step down in early 2004, likely to be replaced by former finance minister Paul Martin, who has pledged to open up a fresh dialogue in Canada about Kyoto.
Wide range of reaction Across a broad spectrum of companies with interests in Canada there has been a wide range of reaction.
Among the U.S.-owned companies, Murphy Oil Corp. President Harvey Doerr said the global nature of most large oil companies allows them to “vote with their feet” if they are not happy about the Kyoto terms.
ConocoPhillips Canada Ltd. President Henry Sykes said that if the treaty punishes his company’s investments then its budget — which includes a decision in 2003 on whether to proceed with a C$1 billion oil sands venture — will shrink.
Duane Mather, president of the Canadian unit of Nabors Industries Ltd., said Kyoto in its present form could have a negative impact on the oilfield services company’s spending in Canada, which has totaled about C$700 million in the past 15 months and involves a fleet of 650 drilling rigs and 1,000 service rigs.
Petro-Canada is also facing a decision in March on whether to spend C$200 million on engineering and equipment purchases leading up to a C$5.2 billion oil sands development.
Chief Executive Officer Ron Brenneman has repeatedly cautioned that Petro-Canada, which is still 19 percent owned by the federal government, has little hope that the government can provide the details needed for a commercial decision.
In that event, oil sands plans could end up on the shelf, where they would remain for an indefinite period.
“The federal government, by adopting the Kyoto Protocol, is clearly discouraging this type of investment in Canada,” Brenneman said in a statement. “So we will proceed cautiously and take a final decisions … only when the implications for project economics are clear.”
Real Doucet, vice president of oil sands at Canadian Natural Resources Ltd., said the C$15 emissions cap lasts only until 2012, which offers no certainty to the company, which is immersed in a possible C$8 billion project with an operating life of 50 years.
Canadian Natural Resources has already slashed its capital spending on the project by one-third to C$200 million and has said it may locate its upgrading facilities in the United States to escape the penalties of Kyoto.
Not all oil sands players retreating But not all of the oil sands players are retreating ion the face of Kyoto.
Syncrude Canada Ltd., the world’s largest producer of synthetic crude, decided last month to push ahead with a C$5.67 billion expansion aimed at raising output to 360,000 barrels per day by 2005.
To date, the consortium has made no specific changes that are directly linked to Kyoto, although its newest expansion includes C$1.4 billion in environmental spending as part of its goal to reduce carbon dioxide emissions by 35 percent per unit from 1990 to 2008 and sulfur dioxide emissions by 5 percent.
Nexen Inc. said Dec.12 it will decide in 2003 whether to proceed with its C$2.5 billion oil sands joint venture with OPTI Canada Inc. to tap a 6-billion-barrel bitumen reserve, starting to 70 barrels per day in 2007.
Nexen Chief Executive Officer Charlie Fischer, one of the most outspoken critics of Kyoto, told analysts he is still looking for certainty from the government on Kyoto’s costs.
But he is more confident that “clarity will come” in time to let Nexen make a business decision within the next 12 months.
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