Kudos to Cenovus Energy for 2050 net-zero ambitions, but why not do more, quicker?

Cenovus Energy says it is establishing ambitious environmental, social and governance (ESG) targets to guide performance in its four ESG focus areas.

Source: Cenovus’s Carbon Disclosure: Managing climate-related risks, 2018.

“Business as usual” in the Canadian oil patch is unacceptable, but “only slightly better than business as usual” is just as unacceptable

CEO Alix Pourbaix is being praised for Cenovus Energy’s aspirational goal of net-zero emissions by 2050, but why isn’t the Alberta oil sands major doing more in the face of an accelerating energy transition, impending peak oil demand, and the climate crisis? Frankly, all Canadian oil and gas producers need to set the bar higher.

Source: Cenovus Jan. 9, 2020 press release.

“The meaningful targets we’re announcing today build on our achievements to date and position us to thrive in the transition to a lower-carbon future,” said Pourbaix in a January 9 press release announcing Cenovus’ new “bold sustainability targets.”

The headline-grabbing announcement is the 2050 net-zero emissions goal. MEG Energy was the first oil sands producer out of the gate, announcing a similar objective in 2019, but other oil sands producers will likely follow. Hydrocarbon companies face an increasingly competitive market for capital and climate risk has emerged as a major consideration for investors, hence Pourbaix’s focus on lowering greenhouse gas (GHG) emissions.

How might Cenovus meet its mid-century target?

Source: Cenovus Q4 2019 investor presentation.

The bulk of the company’s 400,000 barrels per day come from SAGD (steam-assisted gravity drainage) operations. Operational efficiencies, like producing electricity through co-generation, have helped lower per-barrel GHG emissions by “about 30 per cent” over the past 15 years, according to the release.

The 2030 goals are to reduce emissions-intensity by a further 30 per cent using a 2019 baseline while holding absolute emissions flat. The reductions will come from operating even more efficiently and reducing – perhaps even eliminating – burning natural gas to create the steam that thins out bitumen so it can be pumped to the surface. Tougher methane emissions regulations are coming this year or next and Cenovus is already working on reduction initiatives at its Deep Basin operations, according to the release.

“Building on this, the new 2030 GHG emissions targets are among the most ambitious in the world for an upstream exploration and production company,” Cenovus said in the release.

Alex Pourbaix, CEO, Cenovus Energy.

There are two important takeaways from the Cenovus announcement.

One, the company should be roundly praised for its commitment to climate action and emissions reductions (and, of course, its other environment, social, and governance commitments around indigenous partnerships and water stewardship, for example). Cenovus says it set targets to guide performance in four areas over the next 10 years: Indigenous engagement, land and wildlife, and water stewardship, and climate and greenhouse gas (GHG) emissions. ESG – measuring the sustainability and social impacts of business  – has become a hot management issue for oil and gas companies. How corporations perform on ESG is an important metric for up to 70 per cent of investors, according to a recent Royal Bank international survey.

Investors aren’t just worried about climate change. The transition from fossil fuels to electricity generated by low-carbon technologies has also emerged as a material risk for corporations, especially those engaged in fossil fuels extraction.

Even though one rarely hears the words “energy transition” mentioned in the halls of Calgary’s downtown office towers, at least not without contempt and a sneer, Pourbaix at least addresses the issue publicly.

Source: Cenovus Q4 2019 investor presentation.

“A global transition to a lower-carbon future is underway and Cenovus intends to be a part of that future,” he said. “Our culture of innovation and sustainability leadership at Cenovus, alongside our relentless focus on cost management and operational excellence will support us in determining the best actions to pursue.”

Cenovus acknowledges that companies that “fail to adapt will face growing carbon-related risks, while those that act now will position themselves for long-term business resilience.”

Pourbaix is the incoming chair of the board of the Canadian Association of Petroleum Producers (CAPP) and Energi Media encourages him to infuse the lobbying group’s leadership with the energy transition vision. Aligning CAPP’s vision with the energy transition and the climate crisis would go a long way toward changing Canadians’ perception of the industry and its expansion ambitions that include building more pipelines to tidewater.

Two, why can’t Cenovus do more, faster?

Source: Cenovus Q4 2019 investor presentation.

The company is a leader in substituting solvents (light hydrocarbons like propane or butane) for steam in its SAGD operations; not burning natural gas to create steam is the industry’s principal strategy for lowering emissions. Cenovus is also an industry leader in adopting partial upgrading of its gooey bitumen into medium or heavy crude oil, a process that also lowers emissions downstream by as much as 17 per cent, according to a University of Calgary study.

The point here is that lowering emissions is a technology play, the industry has developed emissions-reducing technology, and Canadians are justified in asking Cenovus and the other oil sands producers why they cannot deploy that technology more quickly.

Since the Kenney government is lowering the Alberta corporate tax rate from 12 per cent to eight per cent to stimulate investment, why doesn’t Cenovus use those savings to accelerate investment in emissions-reducing technology? Thus far, the Big 5 (Cenovus, Suncor, CNRL, Imperial Oil, Husky) has booked several billion in tax savings but continue to lay off workers. If they aren’t likely to create jobs with the UCP gift from the public treasury, then they could at least use the free money to speed up emissions reductions.

Source: Cenovus Q4 2019 investor presentation.

Similarly, since Cenovus brags in its Q4 2019 investor presentation that it is exercising “capital discipline” while growing production and significantly increasing investor returns, perhaps some of that capital should be redirected to greater emissions reductions?

No doubt there are many other opportunities to do more, quicker. CEOs like Pourbaix naturally want to proceed at a pace that is comfortable for them and at the least cost to produce the most results. Fair enough, Canadians should support excellent management practices.

But it’s also true that the energy transition and climate crisis are potentially existential threats to Canada’s largest export sector. And it’s also true that Canada has sound moral and economic grounds to enact policies that help – and force if necessary – the pivot to the low-carbon future.

At the very least, Prime Minister Justin Trudeau should exert moral suasion on Pourbaix and his fellow oil sands CEOs. If that fails, then perhaps more stringent policies and regulations will be necessary than those currently being implemented by Ottawa.

“Business as usual” strategies are unacceptable, but so are “slightly better than business as usual” approaches, which appears to be Cenovus’ intent.

Update: CP and The Globe are reporting that Teck Resources is committing to net-zero emissions from global operations by 2050, including its proposed Frontier oil sands mine in northern Alberta. The Canadian Governor-in-Council (the federal cabinet) will make a decision on the project by the end of February.

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