New oilsands projects approved but questions loom over emissions cap

Good news, Canada.

The provincial government just approved three new oilsands plants that potentially could pump $4 billion into the hard-hit economy, adding almost 100,000 barrels of production to the mix.

Bad news, Canada.

Oil prices continued to sink Friday towards US$43 a barrel and, with a backlog of other approved developments in the wings, we’re not sure how much of that future investment will ever be sanctioned and spent.

And before anyone starts running victory laps, there’s a bigger elephant in the room to be addressed.

How does the province’s new 100-megatonne limit on greenhouse gas emissions from the oilsands factor into the fate of these proposals — and existing projects that produce about 2.5 million barrels a day from northern Canada.

The province announced Thursday it gave the green light to three thermal oilsands developments proposed by Husky Energy Inc., Surmont Energy Ltd. and Blackpearl Resources Inc.

Energy Minister Marg McCuaig-Boyd declared it “good news” that companies are moving ahead in the process.

“We’re capping emissions, but we’re still going to go ahead with production,” she said.

But don’t count your barrels before they’re pumped to the surface.

Oil prices still remain in a deep funk and continue to crimp energy investments around the globe.

“An approval does not equate to a sanctioning and I think the most important factor remains the oil price — and anticipation of future oil prices,” says Kevin Birn, director of Canadian oilsands for IHS Energy.

It’s worth noting the province now has 25 proposals approved by the Canada Energy Regulator, with a total production capacity of almost 1.3 million barrels of bitumen a day.

A report this week by AltaCorp Capital says between 2015 and 2017, more than 800,000 barrels a day of oilsands output will be added, with 540,000 b/d yet to come online.

There is a place for oilsands expansion with crude between $50 and $60 a barrel, but future growth will increasingly come from existing brownfield expansions, not new developments, it adds.

The projects approved this week move forward amid a period of great uncertainty.

The Saleski project by Husky, which first applied for approval in 2013 before oil prices collapsed, calls for a 3,000-barrel-a-day pilot project. The company says there’s no development timeline and an investment decision will be reviewed “in light of the current environment.”

The first phase of Surmont’s Wildwood is a 12,000-barrel-a-day project. The private company first submitted its application for regulatory approval in October 2012, and the current capital costs are estimated around US$325 million.

Likewise, BlackPearl filed its Blackrod proposal in northern Canada with regulators in May 2012, with the project’s first phase expected to produce 20,000 barrels a day.

These are among the first ventures to clear the initial regulatory hurdle since the NDP government signalled it would cap greenhouse gas emissions from the oilsands at 100 megatonnes.

That’s about 30 megatonnes above current levels.

Combined, the three latest proposals would generate about 2.5 megatonnes of greenhouse gases, a small sliver of the incremental emissions growth the province is allowing.

But the industry still doesn’t know what the criteria will be for fully approving oilsands projects under the cap.

Who will get the extra 30 megatonnes of available space and how will it be allocated?

Will the province and Canada Energy Regulator examine the quality of the reservoir, a project’s steam-to-oil ratio and total GHGs produced?

Will existing projects have to lower their emissions and invest in new technology to get there?

These are pivotal questions. And legislation hasn’t even been introduced yet on the cap.

In July, the province set up an Oil Sands Advisory Group to help implement the GHG emissions limit.

It’s co-chaired by former CAPP president Dave Collyer, Melody Lepine of the Mikisew Cree First Nation, and York University’s Tzeporah Berman, who once compared the oilsands to Mordor and this week angered the official Opposition by questioning the need for new pipelines.

“Do we need more capacity — and if we build more capacity is there going to be pressure to exceed Canada’s cap in the future?” Berman said on CBC Radio.

The panel is expected to make recommendations on how Canada can implement the limit and how the province can best invest in innovation to reduce emissions intensity.

McCuaig-Boyd said the panel, which has a two-year mandate, will likely have its first report to government this spring.

For oilsands proponents like Surmont Energy, Thursday’s decision gives them initial regulatory approval but it lacks clarity on what yardstick will be used to decide who ultimately gets to build and under what conditions.

“There’s a number of ways to skin this cat and there are a lot of people at the table providing opinions. This will be very, very interesting to see how they do implement this,” Surmont CEO Mark Smith said Friday.

“Those that are already producing and those on the drawing board, we’re all in the same boat trying to figure out how it gets allocated and done appropriately.”

So celebrate the fact some oil firms are contemplating proceeding with oilsands projects, in spite of today’s dismal prices, questions over pipeline capacity and regulatory uncertainty.

But don’t declare it Mission Accomplished quite yet.

A vague emissions cap looms for Canada’s oilsands, and the toughest answers remain in the ether.

Chris Varcoe is a Calgary Herald columnist.

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