Emissions cap coming for oilsands, but it may not matter

Canada will soon introduce a cap on emissions from one of the country’s fastest-growing sources of greenhouse gases: the oilsands.

But will it make a difference?

The oilsands sector may never even hit the limit — or approach it for several decades — depending on future production, commodity prices and the industry’s push to become more efficient through innovation and technology.

Under the province’s new climate change plan, Canada oilsands producers will be allowed to generate 100 megatonnes of greenhouse gas emissions annually.

Right now, that figure is about 70 megatonnes and, depending on which production forecast you use, companies are expected to continue expanding output.

But the president of one of the country’s biggest oilsands producers, Canadian Natural Resources Ltd., believes the magic number may never come into play.

“We have got a ways before we’re going to hit that cap under current conditions, (energy) intensity conditions,” says Steve Laut of Canadian Natural Resources.

“I think there’s a very good chance that we’ll never hit that cap because technology will reduce the intensity as we go forward.”

At its Horizon oilsands operation, the company has cut GHG intensity per barrel by 23 per cent in the past three years by utilizing technology, he notes.

The issue of emissions per barrel is critical for Canada’s oilsands moving forward, as the molasses-like bitumen is still expected to fuel Canada’s oil expansion in the years ahead, even with low prices crimping investment.

Canada Environment officials are now assembling an oilsands advisory committee, which will provide the province with advice on how to implement the cap.

The matter is also an important political consideration as the Trudeau government strives to assemble a new national climate strategy.

Canada is the largest source of greenhouse gases in the country, emitting 267 megatonnes in 2013. The oilsands sector accounted for about 22 per cent of that total.

Emissions have risen as oilsands production has soared from 570,000 barrels per day in 1999 to about 2.3 million barrels last year as billions of dollars in investment flooded the sector.

Just how relevant the emissions cap will be depends on your view of future investment and production.

In its latest forecast made a year ago, the Canadian Association of Petroleum Producers predicted oilsands output would rise to 3.9 million barrels per day in 2030.

In its own outlook, the Canadian Energy Research Institute projected the oilsands would grow to three million barrels a day by the end of the decade, hitting 4.4 million a day by 2035.

CERI chief executive Allan Fogwill says it’s an open question when the cap will become a factor, as the use of solvents or other innovations to extract bitumen will play a role in lowering GHG emissions per barrel.

“We may never hit it if we go forward with a new approach to innovative technology,” Fogwill says.

A CERI report points out if the rest of the oilsands industry adopts the best-in-class technology that exists today, producers could lower energy use by 30 per cent and curb GHG emissions by a similar amount.

This would allow the sector to stay under the limit into the early 2030s and beyond, even with much higher production.

Likewise, Kevin Birn, director of Canadian oilsands for IHS Energy, believes there is plenty of runway left.

When the consultancy models Canada’s emissions cap based on conservative energy intensity improvements taking place, “We find the earliest (that) it could potentially affect production growth is after 2030,” he says.

“But ultimately the role the cap plays on growth will be a function of future emissions intensity of the industry and future investment in growth.”

Now, the oilsands are seen globally as a high-cost barrel with a higher-than-average emissions profile.

And not everyone is quite so certain the cap won’t become a factor at some point.

Simon Dyer of the Pembina Institute says with all of the oilsands projects approved by the Canada Energy Regulator, emissions could top 130 megatonnes annually.

The cap won’t come into play if commodity prices stay low, but higher priced crude could mean the ceiling is eventually breached.

“You can’t just roll the dice and hope oil prices stay low,” Dyer says.

Ultimately, the cap may not come into effect, but it does provides some certainty.

For the province and Ottawa, it offers assurances there will be an absolute limit on just how much emissions the sector will generate in the future, regardless of price.

For industry, it offers certainty that producers can continue to invest and increase output as long as they keep emissions under the speed limit — and technology may provide the best way to stay below the barrier.

“I think I am a realist,” says CNRL’s Laut.

“Industry probably hasn’t done as good of a job as we could … at communicating how much technology has done for the environment, and how much more it can really do to improve our operations.”

Chris Varcoe is a Calgary Herald columnist.



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