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Major industries to carry up to 40% of Kyoto burden Petroleum sector fears climate-change treaty will discourage investors after a decade of rising capital costs and shrinking returns; demands answers from government Gary Park PNA Canadian Correspondent
Canada’s petroleum industry, now unmistakably faced with bearing the brunt of federal government measures to implement the Kyoto Protocol, is in full combat mode.
The key lobby groups — Canadian Association of Petroleum Producers, Small Explorers and Producers Association of Canada, Canadian Petroleum Products Institute, and Canadian Energy Pipeline Association — have shed any attempt at diplomacy now that the government has unveiled its draft plan for reducing greenhouse gas emissions.
After a decade when the cost of oil and gas capital has exceeded the returns and faced with the need to urgently replace aging machinery and equipment, the petroleum sector fears that Kyoto will be a further reason to discourage potential investors.
Under the draft Kyoto document released Oct. 24, the government said it wanted heavy industrial gas emitters to shoulder 33 to 40 percent of the reduction target, estimating hat those same industries are responsible for 50 percent of Canada’s emissions.
But the broad outline covered only 180 million metric tonnes of the 240 million tonnes that must be eliminated each year to achieve the Kyoto target by 2010. Decisions on the remaining 60 million tonnes will be made between 2008 and 2012 and will rely heavily on technological advances.
Although the specific targets for the oil and gas sector have been rolled in with other industries, including power plants, mines, metal smelters and refiners, pulp and paper companies, chemical producers, cement and glass factories, gas reductions for the entire sector would cover about 80 million to 95 million tonnes.
Government seeking emissions credits The government, meanwhile, is still seeking as much as 70 million tonnes worth of emissions credits for clean-energy exports of natural gas and hydroelectricity to the United States — a strategy flatly rejected by the European Union.
The draft plan calculates Kyoto’s costs at 3 cents per barrel for conventional crude and 10 to 12 cents per barrel for oil sands operating costs.
Jim Carter, president of Syncrude Canada Ltd., the world’s largest synthetic crude producer, said uncertainty over the impact of Kyoto is worry for the oil sands giant, which is already faced with higher costs for engineering and construction.
Some estimates contend that Kyoto would actually add C$3 per barrel to oil sands operations and that would frighten away investors, he warned.
Syncrude Canada, whose third quarter units costs were C$12.41 per barrel, is aiming to reduce the energy it consumes by 35 to 40 percent by 2010, but its overall emissions will grow if it proceeds with plans to add 97,000 barrels per day by 2004 to its current 250,000 barrels per day on its way to 470,000 barrels per day in 2008.
Lobby groups protesting to government Against this background, the Canadian Association of Petroleum Producers and the Canadian Energy Pipeline Association have sent letters demanding that the federal government provide a “clear assessment of the costs and competitiveness impacts” before Parliament votes on ratifying Kyoto later this year. The letter says the plan for heavy emitters sets an “arbitrary, unachievable, overall absolute target” that would force industry to buy foreign credits and thus pay for the mistake of setting an impossible target for Canada.
Canadian Energy Pipeline Association President Robert Hill said the pipeline industry, which needs C$10 billion in capital investment over the next decade, fears Kyoto will chase those dollars to the United States.
“Given the complexity of this issue and the untenable process and timetable for climate change policy decisions recently set out by the federal government, Canada must not rush into making a decision on ratification by December,” the pipeline association letter states.
The Canadian Petroleum Products Institute, representing the largest oil refiners, insists the government can only meet its Kyoto commitments by raising taxes or enforcing some form of rationing to lower fossil fuel use.
“Literally, the only way to reduce emissions is to reduce the burning of carbon ... and that means driving less,” said Canadian Energy Pipeline Association Vice President Bill Levy.
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