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By Patrick Rucker and Nia Williams
WASHINGTON/CALGARY (Reuters) – Canada is running out of time to offer U.S. President Barack Obama a climate change concession that might clinch the controversial Keystone XL oil pipeline, as the country’s energy industry continues to resist costly curbs on greenhouse gas emissions.
Two years of negotiations between the Canadian government and the energy sector to curtail carbon pollution have not produced an agreement. Oil producers have balked at anything more than the 10-cents-a-barrel carbon tax imposed by the province of Alberta.
Late last month, Environment Minister Leona Aglukkaq pointed to “good progress” in the talks but was unable to say when a resolution might come.
Concessions from Canada would make the pipeline more palatable in Washington, experts say, since Obama has made fighting climate change a second-term priority and has said that Canada could do more to reduce carbon emissions.
By linking Alberta’s fields to refiners in the Gulf Coast, the 1,200-mile (1,900-kilometer) Keystone XL pipeline would be a boon to an energy patch where oil sands are abundant but lead to more carbon pollution than many other forms of crude.
Keystone’s foes say that burning fossil fuels to wrench oil sands crude from the ground will worsen climate change, and that the $5.4 billion pipeline, which could carry up to 830,000 barrels a day, would only spur more production.
Increasing oil sands production will put Canada on track to miss its target of curbing greenhouse gas emissions by 17 percent below 2005 levels by 2020, according to a government report (full report:tinyurl.com/mgkghtc).
Keystone supporters say that is why Canada would be wise to offer a carbon-trimming plan before the White House decides the pipeline’s fate.
“If Canada were to volunteer new greenhouse gas restrictions, that would certainly help,” David Goldwyn, a former State Department official and energy consultant, told an industry conference in late October.
But the clock is running out. The U.S. State Department is finishing work on a report that will weigh the climate impacts of the pipeline in what could be one of last words before a decision. The White House is expected to rule on Keystone by next spring.
Canada and the United States have often moved together on climate policy, developing similar rules on auto and power-plant emissions while turning their backs on the Kyoto Protocol to limit climate change.
Regulating the oil and gas sector has been thornier, though, with oil sands producers particularly concerned that higher costs will erode their already narrow margins.
“Anything more stringent than today’s system will increase costs, possibly lowering investments and reducing production,” the Canadian Association of Petroleum Producers wrote in a memo to regulators in March that was made public under a freedom of information request.
Canada’s fast-growing oil sands sector will soon exceed the capacity of existing pipelines, and analysts say producers will be forced to rely on trains, barges and other transportation alternatives if Keystone XL and related projects are rejected. Those options are generally costlier and less certain than pipelines.
Nevertheless, industry executives say they doubt yielding on tougher pollution regulations will help secure Keystone.
“I don’t know any policies in Canada with respect to (greenhouse gas) emissions that would have any sort of material impact on the approval process,” Russ Girling, president of TransCanada, the pipeline operator, said last month.
Even if Prime Minister Stephen Harper were to offer new greenhouse gas limits this year, the vagaries of the regulatory process virtually guarantee those plans will not be in place until after a Keystone decision.
Canada needed 12 months to finalize regulations curbing emissions from coal-fired power plants that were ratified last year, and the rules were significantly weaker in the end than originally proposed.
“Judging by what we saw with coal-fired power plants, there is a real risk that a proposal to limit oil and gas emissions could be watered down before it’s final,” said P.J. Partington of the Pembina Institute, a think thank that has opposed oil sands development, which reviewed the industry memos disclosed under the freedom of information request.
(Reporting by Patrick Rucker in Washington and Nia Williams in Calgary; Additional reporting by David Ljunggren in Ottawa; Editing by Douglas
Demand forecast to increase by 28 per cent over the same period
CBC News Posted: Nov 22, 2013 1:04 PM ET Last Updated: Nov 22, 2013 2:41 PM ET
(Note: CBC does not endorse and is not responsible for the content of external links.)
Canadian oil production will increase by 75 per cent and gas production by 25 per cent by 2035, according to a report by the National Energy Board.
Its energy supply and demand projections report, released Friday, projects Canadian crude oil production of 5.8 million barrels a day by 2035.
The report predicts a steep rise in production of crude from oilsands and from shale, areas that are currently drawing millions in investment by companies such as Encana, Suncor and Royal Dutch Shell.
The figures from the federal regulatory agency come out the same day a poll shows Canadians are coming around to the federal government’s position that oil and gas are the key drivers to the economy.
The NEB says Canadian demand for oil and gas will increase by 28 per cent in the same period, with fossil fuels remaining the primary source of energy for transportation and home heating.
Emissions standards for automobiles should slow consumer need for fossil fuels, the report said. At the same time, there will be improved energy efficiency across nearly all sectors, allowing the economy to grow more quickly than energy demand.
“By 2035, the energy used per unit of economic output is projected to be 20 per cent lower than in 2012, due to improvements in energy efficiency,” the report said.
Power generation will shift away from coal toward gas and renewables at the same time.
But the slow growth of Canadian demand amid rising supply will force the industry to develop export markets.
And that will increase pressure for pipeline development and improved rail development, especially to the U.S. market and the West Coast. The NEB argues infrastructure is a bottleneck to developing export markets.
“Growth in export markets and the infrastructure to access them are key uncertainties in this report’s projections,” the NEB said in its report.
According to the Oil & Gas Journal, Canada ranks third globally in terms of proven oil reserves, behind Saudi Arabia and Venezuela. Canada has an estimated 171 billion bbls, 98 per cent of it in oilsands.
Canada has more energy than it needs
“Canada has vast energy resources – more than enough to meet Canada’s growing energy demand,” said Gaétan Caron, chair of the NEB, adding that oil and gas are a “key driver of the economy.”
The NEB says the “most likely” price for West Texas Intermediate crude will be about $110 US a barrel, about $15 more than it is now. However its report does not predict new policies or political developments that could sway oil prices or affect demand.
The report comes the same day environmental groups are warning that firms investing in the oilsands are running out of room to store the contaminated water that is a byproduct processing crude.
Several firms have obtained permission from provincial authorities to flood abandoned tar sand mines with a mix of tailings and fresh water, but the impact of these toxic lakes on the environment is unknown, the Pembina Institute says.
Documents raise concern over industry influence on delayed oilsands emissions regulations | Pembina Institute
Simon Dyer — Nov. 8, 2013
This week, the Pembina Institute reviewed a package of documents obtained under Alberta’s Freedom of Information legislation about future Alberta and federal greenhouse gas regulations.
The documents cover correspondence between the oil and gas industry association — the Canadian Association of Petroleum Producers (CAPP) — and Alberta’s environment ministry from January to May of this year. Obtained by Greenpeace’s Keith Stewart, the documents formed the basis of a report from the CBC.
First off, their contents raise real concerns about the potential weakness of the future federal emissions regulations for the oil and gas sector. CAPP’s proposal is very weak, offering little more than a token increase from Alberta’s current regulations. Today, heavy industry facilities in Alberta face a 12 per cent emissions intensity target and a maximum price of $15 a tonne. Alberta’s regulations sunset next year and must be renewed; CAPP would like to see the next set of regulations moved to a 20 per cent target and a $20 a tonne price in 2020. (If Alberta had indexed its $15 a tonne price to inflation when it went into effect in 2007, it would likely reach $19 a tonne by 2020 — so a $20 price in 2020 is a token increase at best.)CAPP’s negotiating position has been reported before, so that’s not new. What these documents add is economic modelling of the impacts of that proposal, which would see oilsands emissions grow from 55 million tonnes (Mt) today to between 95 and 98 Mt in 2020. The cost to companies would grow from 10 cents a barrel today to a maximum of 23 cents a barrel. Overall, the proposal would fail even to achieve Alberta’s 2020 target — a goal that’s far weaker than the 2020 target Ottawa has adopted.
The industry’s briefing notes also stake out new positions in a couple of important areas: social license and the role of technology in improving the oilsands industry’s environmental performance.
- On “social license,” meaning public support for their operations: In these documents, CAPP says that stronger rules are “unlikely” to improve the public’s perception of their industry. “The objection to the oilsands is ideological,” they write, so even if the strongest proposal on the table went into effect, “oilsands opponents would claim that they too were insufficient.”
For the record, we should note that when news of Alberta’s 40/40 proposal broke in April, we wrote that it “is encouraging, and it shows leadership.” The standard we used to assess that proposal, and any other proposal on the table, is whether it’s strong enough to help get Canada on track for its 2020 climate target. Since the federal government says it remains committed to that target, we think it’s an entirely appropriate way to assess the effectiveness of potential regulations for the sector. We also think that most Canadians would be supportive of the oilsands industry doing their fair share to reduce emissions.
- On technology: Throughout its memo, CAPP objected to the proposals that would see a higher technology fund price — and thus leverage more technology deployment and innovation, two things they say publicly they want to support. Instead, CAPP’s private briefing note told the Government of Alberta that technology development is a cost to industry that affects the sector’s “near term competitiveness.”
Traffic near the Syncrude production site outside Fort McMurray. Photo: Julia Kilpatrick, Pembina Institute.
CAPP also makes the claim that the oilsands won’t reduce its emissions more quickly no matter which policy the government chooses, because “current technology is not yet available for deployment to a significant degree.” Thus, its own modelling concludes that the oilsands would reduce its emissions just 2 Mt below business as usual — in absolute terms, that means growing 100Mt rather than 102 Mt in 2020, a huge increase from 55 Mt today — under any of the scenarios for oil and gas sector regulations described in these documents.Pembina’s primary concern with regards to the oilsands has always been the cumulative impact of the oilsands which is driven by the pace and scale of development. While technology can help to drive down the carbon intensity of a barrel of oilsands crude over time, as CAPP itself shows it’s no panacea. The best way to control absolute greenhouse gas emissions is to manage the pace and scale of development — something governments and companies are reluctant to discuss.
Unhelpful to the case for the Keystone XL pipeline?
Interestingly, the industry’s briefing note also seems to undercut one of the key arguments for the Keystone XL pipeline.
This one takes a bit of explanation. The context is that President Obama said in June that he would only approve Keystone XL if it won’t significantly increase greenhouse gas emissions. Right now, the U.S. State Department’s draft environmental assessment says the pipeline would have virtually no impact on greenhouse gas emissions because oilsands crude will find a way to market with or without Keystone XL. State’s analysis assumes that rail adds about $5 a barrel in extra costs to oilsands producers, relative to moving oil in a pipeline. In public, oilsands companies have been saying that rail is a viable option for them, one that allows the oilsands to keep expanding production.
In its private briefing note, CAPP says that a stronger environmental regulation would increase costs, “possibly lowering investments and reducing production.” Elsewhere in the briefing note, CAPP writes that under stronger regulations, “projects on the margin will be cancelled. Investments will go elsewhere.” CAPP concludes with a rhetorical question: “Will higher stringency requirements impact production and revenue? Very likely.”
But the most stringent proposal in these documents — Alberta’s 40 per cent target and $40 a tonne technology fund price — would add less than a dollar a barrel in new costs to oilsands companies.The most stringent proposal in these documents — Alberta’s 40 per cent target and $40 a tonne technology fund price — would add less than a dollar a barrel in new costs to oilsands companies.
There is no way to square those two perspectives. How does a dollar-a-barrel increase to address pollution curb oilsands production, while a five-dollar-a-barrel increase to ship oilsands by rail represents an insignificant cost that allows production to grow?
Industry can’t have it both ways.
To us, it seems clear that building a pipeline like Keystone — which provides oilsands companies lower-cost access to desirable markets — would create favourable conditions for oilsands expansion and the associated greenhouse gas emissions.
None of the proposals on the table is likely to be strong enough to get Canada on track for its 2020 target.
Oilsands emissions grow significantly in all the scenarios on the table. The most stringent proposal would see at least a 60 per cent increase in emissions, reaching 88Mt in 2020 from today’s level of 55Mt.
But the Government of Alberta also looks at the total effect of these policy options on the province’s emissions and compares that to Alberta’s 2020 and 2050 climate targets. While none of the proposals would get Alberta on track for its 2050 target, both the federal and provincial proposals (as opposed to CAPP’s) could be strong enough to hit Alberta’s 2020 target.
We think these regulations should be designed to achieve our climate targets, so it’s heartening to see Alberta asking the right questions in the documents. Unfortunately, Alberta’s target is much weaker than Ottawa’s: Alberta allows provincial emissions to grow by over 25 Mt from the 2005 level, while Ottawa’s target requires national emissions to drop by 125 Mt from the 2005 level. So it’s safe to say that a regulation that only just achieves Alberta’s target is likely too weak to achieve Ottawa’s target.
Overall, what we read in these documents gives us real concern about the way these negotiations are heading. Getting the rules for oil and gas right is a make-or-break moment for Canada’s climate credibility. We need tough, effective rules to have any chance of hitting our national climate target in 2020.
In our view, strong rules are in the oilsands industry’s own best interests: as it stands today, the sector is facing tough questions about its environmental track record and doesn’t have good enough answers to give.
Greenhouse gas reduction called threat
Alberta’s proposed oil and gas regulations are too ambitious and will hobble the Canadian industry’s ability to compete, says the industry association in Alberta government documents obtained through provincial freedom of information laws.
The industry group says the proposed regulations won’t buy any goodwill and the government should delay their introduction.
The 200-page trove of memos, correspondence and reports offers a rare glimpse behind boardroom doors at the negotiations between industry and government to craft rules to reduce greenhouse gas emissions.
The Canadian Association of Petroleum Producers offers blunt assessments of Alberta’s plan to introduce rules that would demand industry reduce greenhouse gases by 40 per cent per barrel and charge $40 per tonne of CO2 above that level.
Alberta already has a carbon pricing scheme that costs CAPP members about 10 cents per barrel of oil. The new plan could cost industry up to 94 cents per barrel.
“Proposed 40/40 is 9 fold increase over current. Why such a dramatic step?” writes David Daly, CAPP’s manager of fiscal policy. The average price that a barrel of western Canadian bitumen fetched in 2013 was about $75, so the carbon-pricing increase would represent about a one per cent increase in the cost of a barrel oil.
That is just one quote from a file titled, CAPP Concerns and Questions for Alberta and Consultants. It tells the tale of an industry afraid that strong oil and gas regulations will rob it of what little competitive edge it has.
Strikingly candid comments
The candour is striking:
- “Will higher stringency requirements impact production and revenue? Very likely.”
- “GHG policies should be done in concert with other jurisdictions. US has no carbon tax. Why be so far out in front of them? What is that based on?”
- “Will higher stringency requirements [oil and gas regulations] deliver greater GHG reductions? Unlikely. The challenge with the oil sands is that current technology is not yet available for deployment.”
In the end, the industry’s prescription is to delay putting the regulations into effect.
“Major policies like this one should not be fast-tracked. Adequate time is required for study analysis and consultation,” writes Daly.
That suggestion irks environmentalists, who point out that negotiations over oil and gas regulations between industry and the federal and provincial governments have been going on for over two years.
“This is not a case where we need more research. We need more action and that’s what hasn’t been happening,” argued Clare Demerse of the Pembina Institute, an environmental think-tank.
The industry defends itself by pointing out that the documents provide just a snapshot in the middle of negotiations and that nothing is final yet.
“What we want to ensure is that we’ve got a competitive industry in Canada that can continue to grow, but also, very importantly, can continue to invest in the technologies that are going to be extremely important in driving down greenhouse gas emissions,” said David Collyer, CAPP’s president, in an interview with CBC News.
In the documents, the CAPP plan calls for a 20 per cent intensity reduction and $20 per tonne of CO2.
That is half of what the Alberta government’s plan is and only marginally stronger than the regulations now — 12 per cent and $15, said Demerse.
But the CAPP document explains the association’s approach.
“Will higher stringency requirements ‘secure’ social license [public support] and forestall negative policy action elsewhere? Unlikely,” writes Daly.
Demerse, on the other hand, believes that weak regulations are just going to make doing business harder for the oil and gas industry.
“The customers of the oilsands are asking very tough questions. Right now, the sector does not have good answers to give. When they continue to ask for what is essentially the weakest possible regulation, I don’t think that is working for their real best interest.”
Reaction from stakeholders across Canada has been swift following the joint announcement by Alberta Premier Alison Redford and B.C. Premier Christy Clark that their provinces had reached an agreement on how to move forward with pipeline proposals.
Critics of the move to transport Alberta oil and gas by pipeline to terminals on B.C.’s coast largely panned Tuesday’s agreement, saying Clark has changed her position on pipelines several times.
“We’re hearing that there’s actually a framework that could allow these pipelines to go forward. I think the real flip-flopping is coming from Premier Clark of British Columbia,” said Ben West, environmental activist with Forest Ethics.
“You know the province made some very strongly worded statements during the joint review panel about the safety concerns associated with [Enbridge’s Northern Gateway pipeline proposal].… Now what we’re seeing is quite to the contrary.”
West’s sentiments were echoed by Greenpeace — a vocal opponent of proposed pipeline projects, which staged a daylong protest at Kinder Morgan’s Trans Mountain Pipeline terminal in Burnaby, B.C. in October.
“This so-called deal will not break the unbroken and growing wall of opposition to tarsands pipelines and tankers in British Columbia,” said Mike Hudema, a climate and energy campaigner with Greenpeace Canada.
“Today’s announcement doesn’t address the concerns of more than 130 First Nations, supported by communities along the route and people across the country, who oppose the movement of tarsands oil through their lands and waters,” said Hudema.
Industry officials, however, were largely positive about today’s developments, saying the deal is a sign of co-operation that might be a preview of things to come.
“We’ve always said that resolving the issues related to energy infrastructure is a collaborative effort that will require a number of different stakeholders and governments to achieve solutions,” said Todd Nogier, an Enbridge spokesman.
Enbridge’s proposed Northern Gateway pipeline has been at the centre of disagreements between the governments of B.C. and Alberta.
When asked about the Alberta-B.C. agreement during a press conference at the Vancouver Board of Trade on Tuesday, Greg Stringham of the Canadian Association of Petroleum Producers started by simply exclaiming, “Yay.”
Stringham went on to say, “We still know there’s a ton of work left to do to be able to do this. It was very good to see that they can actually come together and say we’re going to work to try to resolve these things.”
The agreement does not ensure any of the currently proposed pipeline projects will be approved, but sets the groundwork for all future negotiations between the provinces.
As almost everyone knows by now, Canada has some interesting challenges looming when it comes to transporting increasing oil production to markets both inside and outside of Canada. What many Canadians might not realize is how important oil exports are to Canada’s economy. Canada has the world’s third largest proven oil reserves, is the fifth largest exporter of crude oil, and is the fifth largest producer of crude oil in the world. And that’s only expected to grow: According to the Canadian Association of Petroleum Producers, production of oil from Alberta’s oil sands is expected to more than double by 2030, rising from the 2012 level of 3.2 million barrels of oil per day to 6.7 million barrels per day.
What would that mean for the Canadian economy? In 2011, CERI, the Canadian Energy Research Institute projects that investments and revenues from new oil sands projects would be approximately $2-billion over the period from 2010 to 2035, with a total GDP impact of $2.1-billion in Canada. Employment, both direct and indirect stemming from new oil sands investments is projected to grow from 75,000 jobs in 2010 to over 900,000 jobs by 2035. And CERI’s estimate is somewhat more conservative than CAPP’s, estimating oil production at only 5.4 million barrels per day by 2035….
- Pipeline – Oil and Economy or Environmental Disaster? (netnewsledger.com)
- Oil sands facts that will blow your mind (mining.com)
- Tar Secret #2: What percentage of Canada’s GDP comes from the tar sands? (vancouverobserver.com)
- Scraping the barrel (nzherald.co.nz)
- Northern Gateway hearings enter final two weeks of submissions (beaconnews.ca)
- Northern Gateway’s biggest risk to Canada is not approving pipeline: Enbridge (business.financialpost.com)
- Northern Gateway is in best interest of all Canadians, company tells review board (vancouversun.com)
- Enbridge backers Cenovus, Suncor to make their case for Northern Gateway (business.financialpost.com)
- Federal panel to hear final pitch for and against Northern Gateway pipeline (theprovince.com)
- Final Enbridge Northern Gateway hearings begin in Terrace today (vancouverobserver.com)