C’mon, Alberta, love the green recovery plan

2 green recovery ideas for Alberta: turn bitumen into carbon fibre, electrify the oil sands

Canadian oil and gas leaders should start believing their own rhetoric. They loudly insist that hydrocarbons will be around for many decades, co-existing with renewable energy, but they perceive the Canadian government’s plan for a green economic recovery to be a threat. The irony is that Ottawa’s intention to lower greenhouse gas emissions is the very thing that lowers costs for oil sands producers.

Extracting bitumen requires heat, in the form of steam, to make the peanut butter-like bitumen viscous enough to process (mining) or pump to the surface (steam-assisted gravity drainage or SAGD). Generating steam requires burning natural gas, which is both a huge source of emissions and a considerable cost to producers. Lower or eliminate the need for steam and both emissions and costs fall.

Source: IHS MarkIt. The GHG intensity of Canadian oil sands production: A new analysis. July, 2020

Note that another cost also falls: the industrial carbon tax that was introduced in 2007 by the Ed Stelmach PCs (SGER), improved considerably under the Rachel Notley NDP (CCIR), and diluted by the Jason Kenney UCP (TIER). Oil sands CEOs supported Notley’s Climate Leadership Plan in 2015 – and carbon pricing since at least 2008 – because they understand that increasing efficiency supports their drive to become more competitive in the market.

That’s why they frequently talk about becoming “cost and carbon-competitive.” And, as a recent report from IHS MarkIt shows, there is plenty of room to improve oil sands emissions.

The good news is that the 2018 average emissions-intensity per barrel is down to 70 kg CO2e in 2018, about 20% lower than 2009, but still some of the dirtiest oil on the planet. Absolute emissions are still rising, but they’re rising a bit slower, emphasis on “a bit.”

The bad news is that all the improvements came from the mining side of the sector, while SAGD emissions actually rose by two per cent (to 65 kg CO2e/b) from the year before. And guess where most of the production growth is forecast to occur? Yup, SAGD.

Focusing on the average emissions-intensity also obscures the fact that the worst-performing operations clocked in at 200 kg CO2e per barrel. The best performers achieved 40 kg CO2e per barrel, which is significant because it’s 1.6 per cent lower than the US average, according to IHS MarkIt.

It should be pointed out that other sources, such as the Pembina Institute, calculate the average oil sands emissions per barrel to be much higher at 174 kg CO2e.

Here are two questions policymakers and the industry should ask.

One, how much lower than 40 kg CO2e can the best performers go? If the answer is quite a bit, then producing more bitumen from these operations – IHS MarkIt estimates industry supply will rise one million barrels per day by 2030, roughly a third of current production – isn’t the short-term carbon disaster that environmental groups claim.

Two, what can be done to radically improve the worst performers? In this day and age, extracting 200 kg CO2e oil is not defensible.

2 suggestions for green recovery policies to help the oil sands lower emissions, costs

Source: IHS MarkIt.

One, accelerate the Bitumen Beyond Combustion program of Alberta Innovates (more on this in the next column). The provincial innovation agency estimates commercial production of carbon fibre using bitumen as a feedstock is five to seven years away. Then, using regulations or pricing mechanisms, direct bitumen from the highest emitting operations to carbon fibre manufacturing.

Industry’s umbrage at government high handedness will be tempered by Alberta Innovates’ estimate that making materials from bitumen will generate three to four times more value than refining it into transportation fuels.

Two, electrify as much oil sands production as possible. This idea has been around awhile. The federal government’s 2018 Generation Energy report made it one of the four pathways to national decarbonization. That report also floated the idea of using small modular nuclear reactors to supply the electricity, a happy coincidence because last month Alberta Premier signed a four-province memorandum to explore the possible opportunities of the technology.

Nuclear, however, isn’t cheap. Lazard’s 2019 Levelized cost of energy analysis estimates nuclear to be three to four times more expensive than wind and solar. By yet another happy coincidence, Alberta has the best renewable energy resource in Canada.

Cooperation won’t kill you, Alberta

It’s time to put aside the antipathy toward the Liberal government and leverage the green recovery program to meet Alberta’s objectives instead of reflexively opposing everything energy-related that comes out of Ottawa.

The suggestions in this column are hardly an exhaustive list of possible green investments the federal government could make to improve the oil sands competitiveness and environmental performance, specifically, and the oil and gas sector generally.

I chose these two because the upside benefits are significant, the Alberta government and industry are already working on them, and they fit neatly into federal climate policy.

Let’s hope Alberta has enough sense to recognize its own self-interest.

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