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Domestic U.S. oil production is expected to grow much faster than was thought just a few months ago, according to a new report from the U.S. federal government, placing an even larger question mark on the future of Canada’s oilsands.
The U.S. Energy Information Administration’s preliminary outlook for 2014 predicts U.S. oil imports next year will be one million barrels per day less than previously forecast.
By way of illustration, Alberta’s total oil exports to the U.S. were 1.3 million barrels per day in 2011.
“With growth in both oil and natural gas production, we see the U.S. moving closer toward self-sufficiency, and there are some very interesting economic and geopolitical implications to all that,” EIA head Adam Sieminski said at a briefing, as quoted at Inside Climate News.
One of those “geopolitical implications” could be that President Barack Obama feels less pressure to approve the Keystone XL pipeline, the news site reported.
The news comes as Keystone builder TransCanada prepares to start operating the southern leg of the pipeline, which runs from an oil terminal in Cushing, Okla., to Gulf Coast ports in Texas.
At the same time, Canada’s oil industry is facing another competitive threat: The opening up of Mexico’s state-controlled oil industry. Mexico’s Congress recently passed a bill allowing foreign investment in the oil industry, whose production has been controlled by state-run Pemex for decades. It’s expected new investment will boost Mexican oil production.
“Adding Mexico’s oil and gas resources to world markets, given the U.S.’s tight oil and gas and Canadian oil sands, could have dramatic implications in the medium and long term,” Barclays analyst Michael Cohen wrote in a note to clients quoted at the National Post.
Between booming oil production from unconventional domestic sources, the oilsands and now Mexican oil exports, the U.S. will be spoiled for choice when it comes to sources of oil in the coming years.
Canadian oil has been selling at a “discount” in the U.S. for years, sometimes trading for 30 per cent below U.S. crude oil prices. Keystone backers say the pipeline will fix that by giving Canadian oil access to new markets, but the EIA’s report makes that less certain.
If there’s a bright spot for Canadian oil exporters in this, it’s that the U.S.’s oil boom won’t last that long. The EIA forecasts that domestic production will start leveling off in 2016, and then start declining in 2020.
The share of oil and other liquid fuels that comes from imports will fall to 25 per cent in 2016, the EIA said, but will then start to climb, reaching 32 per cent by 2040.
But natural gas production will continue to climb for decades after that, and that — combined with greater fuel efficiency for cars — means the U.S. will continue to become less reliant, overall, on energy imports through 2040, the EIA said.
Opponents of the Keystone XL pipeline were quick to seize on the report.
“We simply don’t need this tar sands pipeline,” Anthony Swift of the Natural Resources Defence Council — a major Keystone opponent — told Inside Climate News.
Shawn Howard, a spokesman for Keystone builder TransCanada, begged to differ.
“Our customers have signed long-term commercial contracts because they understand the need for the oil that Keystone XL will bring to U.S. refineries,” he said. “We have a waiting list of customers interested in securing capacity on Keystone XL if it becomes available.”
Not all Keystone XL customers feel this way anymore. Harold Hamm, the CEO of Continental Resources, which signed up to use the Keystone XL, said this week the pipeline is no longer needed.
But Continental Resources is betting that oil-by-rail, rather than pipelines, will be the solution going forward. Many observers have argued, in the wake of the Lac-Megantic disaster, that pipelines are a safer option than rail for transporting oil.
The Keystone XL pipeline would ship Canadian oilsands oil across 1,800 kilometres to U.S. refineries on the Gulf Coast. (Eric Hylden/Associated Press)
A sudden surge in U.S. oil output could derail plans to build the massive Keystone XL pipeline to ship Canadian oil from Alberta to refineries on the American Gulf Coast, Canada’s U.S. ambassador was warned in internal emails.
In a series of emails unearthed by an access to information request from energy think tank Pembina Institute and provided to CBC News, Canadian energy counsellor Paul Connors warned ambassador Gary Doer in the summer that America’s current oil boom could alter the viability of cross-border pipeline plans.
Keystone XL is a proposed 1,900-kilometre pipeline being pitched by Calgary-based TransCanada that aims to bring Canadian oilsands oil from Hardisty, Alta., south through five U.S. states to oil refineries on the Gulf Coast in Texas.
The plan is an ambitious one, coming with a price tag of more than $7 billion, and has faced numerous regulatory hurdles over several years while various governments and companies try to negotiate the final details.
Broadly, Canada lacks the refining capacity to adequately process the billions of barrels of oil that are contained in the Athabasca oilsands. America, meanwhile, has more than enough refineries operating at less than full capacity, so the plan has been pitched as an economic bonanza for both sides.
‘Our customers remain extremely supportive of Keystone XL.’– TransCanada statement
But recent events may have changed those economics somewhat. A series of oil discoveries in the Bakken, Eagle Ford and Permianbasins scattered across the continental U.S. have increased America’s possible oil output to a far higher level than previously believed.
The U.S. now has so much recoverable oil that it’s now expected to surpass Saudi Arabia as the world’s largest oil producer at some point in the next 10 to 20 years.
Refineries are configured to process different types of crude — heavy crude goes to heavy refineries, light crude to light ones. Currently, heavy oilsands oil from Alberta goes to heavy oil refineries predominantly on the U.S. Gulf Coast.
“The significant increase in U.S. domestic production in recent years is light sweet crude which has lower [greenhouse gases] than heavy crude,” Connors wrote in an email to Doer in June.
The best way for America to profit from its current oil boom could be to export its new sources of light crude, because that’s what’s most in demand internationally and that’s what fetches the higher prices.
“However, if reducing U.S. [greenhouse gas] emissions is the goal, the U.S. could decline to export its light sweet crude surplus [and] domestic light sweet crude would begin to [replace] heavy oil imports.”
U.S. President Barack Obama has repeatedly said that his government would only approve the Keystone XL project if it would not materially alter America’s greenhouse gas emissions. So a suddenly plentiful energy alternative with a smaller environmental footprint could change the lay of the land.
For its part, TransCanada says it remains fully committed to the plan — as are its customers.
“TransCanada does not build pipeline projects and then hope we can fill them. Our Keystone XL customers have signed 20-year, binding commercial agreements because they needed to connect oil supplies in Canada and the U.S. to refineries,” the company said in an email to CBC News.
“Our customers remain extremely supportive of Keystone XL, and the markets understand that you need to have the right infrastructure in place to move product at the right time.”
Natural Resources Minister Joe Oliver agrees with that statement, telling CBC News that even with the conventional oil boom, “the U.S. Energy Information Administration projects that the U.S. will need to import 7.4 million barrels of oil per day in 2035.”
“Therefore, Keystone XL will displace an unstable source of heavy oil from Venezuela, with the same or higher greenhouse gas emissions, with a friendly, stable and reliable source of Canadian oil,” Oliver’s statement reads.
Indeed, if the project doesn’t go ahead, the U.S. State Department acknowledges that alternative modes of oil transport (such as rail) that emit as much as eight per cent more greenhouse gases will likely deliver the oil that Keystone XL would have.
Ottawa backs plan
“Our government supports the Keystone XL pipeline because it would enhance national security, create tens of thousands of jobs and generate billions of dollars in economic activity in both Canada and the U.S.,” the spokesperson said.
Still, any indication that the Americans have less of an appetite for Keystone could be bad economic news for Canada, which mainly produces heavy oil, almost all of which currently goes to the U.S.
If America chooses to use more of its own lighter oil domestically and needs less heavy Canadian oil, there is little Canadian oil producers could do in the short term to maintain a market for their product.
Canadian oil, known as Western Canada Select, already trades at a discount of about $30 compared to the American benchmark, West Texas Intermediate or WTI, mainly because it’s heavier and therefore more expensive to refine, which limits the number of refineries willing to take it.
“While this is economically sub-optimal for the heavy oil refineries, it would make the mix of U.S. crude oil lighter and less [greenhouse gas] intensive,” Connors wrote.
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.
Harper’s 5 Stages of Grief Over Climate Change | John McKay. (FULL ARTICLE)
The IPCC published an intensely detailed report on climate change last week. Even the 36 page executive summary is packed with detail, graphs and data all of which drives any reasonable person to the conclusion that climate change is real and largely driven by human activity. Consider its first conclusion: “Global mean surface air temperatures over land and oceans have increased over the last 100 years.”
There is no denying it, “we” have a problem. Admitting that you have a problem is probably the most difficult first step for a Prime Minister addicted to “bull horn diplomacy,” intolerance of dissent, and dumbed down public policy. Yet, even for PM Harper it is difficult to deny a 95 per cent certainty.
You have to have some sympathy for the Minister of the Environment who is obliged to maintain the Harper fiction regardless of the evidence and how foolish that it may make her look. To do so would be to acknowledge anthropogenic climate change and the fact that her government has done little to deal with that reality. That would be counterproductive to the PM’s efforts to secure approval for the Keystone XL pipeline. So, poor Minister Aglukkaq is left to dangle in the winds of non-sequiturs and contradictions….
- Climate change report sparks partisan attack by Environment Minister Aglukkaq (macleans.ca)
- The 5 Stages of Grief (heyredhey.com)