“It is tarsands that we don’t need — that in fact is [a] very, very high pollutant” – Biden
If Joe Biden triumphs on Nov. 3, he intends to cancel the permit for the Keystone XL (KXL). The Alberta government and the oil and gas industry promise to furiously lobby for the 830,000 barrels per day pipeline project. This approach failed when Biden was Vice-President, why would it succeed now? But there is a three-point KXL narrative that might work because it appeals to American self-interest.
Alberta has a lot at stake. In March, Kenney committed $7.5 billion ($1.5 billion of equity, $6 billion credit facility) to KXL because private investors wouldn’t touch the litigation-plagued project with a barge pole. The Premier desperately needs a win on this file.
As a cabinet minister, Kenney had a front-row seat to the spectacularly unsuccessful lobbying of the Harper government when President Barack Obama, supported by Biden, nixed KXL’s permit in 2015. Albertans will be surprised to learn that Energy Minister Sonya Savage is committed to repeating that failed strategy.
In May, she called on “our closest friend and ally” to “respect the Canada-U.S. relationship” while committing Alberta to “work with TC Energy and the Government of Canada to defend the value of our investment in this project.”
Then, for good measure, she trotted out the Ethical Oil talking point that cancelling KXL would lead to more heavy crude imports from “places like Venezuela” and raised the spectre of increased vulnerability to the whims of oppressive dictatorships like Russia and Saudi Arabia.
#1 – Tight global heavy crude market thanks to Venezuela troubles
Perhaps Minister Savage’s speechwriter should have double-checked Venezuela’s crude oil production data, which shows that the troubled Latin American country, devastated by American economic sanctions, simply can’t ship more oil to America.
The US is the largest heavy crude market in the world. Until recently, Venezuela was a significant supplier to the US Gulf Coast (USGC) refinery cluster. In just four short years Venezuelan production has fallen from over three million barrels per day to about 400,000 barrels per day.
Minister Savage’s remarks notwithstanding, the United States couldn’t buy more oil from Venezuela if it wanted to. And that will be true at least as long as the US continues sanctioning the troubled Latin American country.
Mexico’s heavy oil production is also in long-term decline and has been for years. Other sources of heavy crude supply, such as Russia, have fallen in recent years. The graphics in this section illustrate the dramatic tightening of supply from the USGC’s traditional suppliers.
Why don’t US refineries simply switch to the light sweet crude produced so bountifully by American shale basins? The answer is that they can’t. At least, not without incurring significant costs and downtime.
America needs Canada’s heavy crude oil. Without it, either crude prices rise or refineries spend billions converting back to light sweet crude oil.
If there is anything that gets the attention of American consumers, it’s rising gasoline prices.
#2 – Pivot from bitumen as a feedstock for fuels to feedstock for materials
The second part of the new narrative needs to be about the oil sands companies’ recent decision to promote non-combustion uses for bitumen. This was launched by Suncor CEO Mark Little and Alberta Innovates CEO Laura Kilcrease Monday in an op-ed published by the Corporate Knights magazine.
One of the first non-combustion products to be manufactured from bitumen will likely be carbon fibre, according to Alberta Innovates, the provincial agency that spearheads innovation support by the provincial government.
Who is the biggest potential customer? American automakers launching full lineups of electric vehicles to compete with the Chinese and European manufacturers. Carbon fibre could significantly lower the weight of an EV, thereby enabling longer range from existing batteries and reducing costs, says Alex Walk, VP of sales for Missouri-based Zoltek, a large carbon fibre manufacturer.
“The cost barrier to using carbon fibre in automotive is very critical,” he told Energi Media. Alberta Innovates, the provincial research agency leading the Bitumen Beyond Combustion research program, estimates that commercial production in Alberta at half the cost of current feedstock could begin in five to seven years.
To sweeten the pot, Kenney could offer to divert the highest emissions-intensity bitumen (200 kg of CO2e per barrel) to carbon fibre feedstock while sending the lowest (37 kg of CO2e per barrel, about the same level as the average US crude oil) on KXL to American refineries. Producers might balk at the administrative complexities, but if it meant earning a new American president’s support for KXL, they could learn to adapt.
Positioning the Alberta oil sands as a potential competitive advantage for the US auto industry would be a bold move, but it sure beats futile lobbying efforts.
#3 – Alberta is the only heavy crude oil-producing jurisdiction actively decarbonizing production
This part of the narrative comes with some caveats. Both the industry and the Kenney government have a penchant for overselling the oil sands’ efforts to lower emissions. Energi Media has consistently called it greenwashing. And the “aspirational” net-zero emissions by 2050 goals of companies CNRL and Cenovus are weak sauce when jurisdictions like California and the UK are banning the sale of internal combustion engine cars by 2035.
Let’s also stop claiming that oil sands emissions are falling; the truth is that emissions-intensity per barrel is declining but absolute emissions are rising and they’re not likely to stop for at least a decade, maybe longer.
But of all the countries selling oil with high emissions-intensity, only Canada is doing something about it.
Alberta-based companies are developing new technologies and processes to reduce oil sands emissions. Cenovus Energy’s work to substitute solvent for steam – diluting the bitumen instead of melting it – is one example. Another is CNRL’s IPEP technology, which processes bitumen at the mine face instead of transporting it kilometres to a processing plant. Partial upgrading of bitumen to a medium or heavy crude oil that doesn’t require diluent to flow in a pipeline is yet another uniquely Canadian innovation.
There are dozens more.
And there are plenty of great stories to tell: billion-dollar investments in co-generation, the Alberta large emitter carbon tax, the national carbon tax that Albertans now pay, and the tremendous innovation undertaken by the big companies and the myriad of organizations – like provincial agency Alberta Innovates – that are working on solutions.
The current global market for heavy crude oil is 10.5 million barrels per day, which is arguably much better off with decarbonizing Canadian production and technology than without it.
Don’t leave KXL to Kenney and CAPP
The Premier and the Canadian Association of Petroleum Producers, industry’s largest lobbying group, have proven over and over again that they are inept at selling the oil sands to a non-oil and gas audience. They are truly awful at telling their own stories.
Minister Savage’s weak appeal to Biden illustrates the ways in which the oil sands companies, industry associations, and the Alberta government consistently get their narratives jumbled.
Perhaps the time has come to enlist Prime Minister Justin Trudeau to intercede should Biden become the 46th president?
Trudeau can articulate a narrative clearly and with a modicum of charm, not the strong suit of Premier Kenney, whose pugnacious press conference performances often resemble a drunk at last call spoiling for a fight. If anyone can persuade Biden about KXL, it is the Prime Minister and the senior government.
Perhaps Kenney and his industry backers might want to sit this one out or, at the very least, let Trudeau take the lead.