Oil sands players believe Climate Leadership Plan will help them lower production costs, crude oil carbon-intensity
This weekend members of the Wildrose Party and the PC Assoc. of Alberta are deciding if they want to merge into a United Conservative Party. If the merger goes ahead, the new party will eventually generate a policy platform. When that happens, a glaring Achilles Heel will be exposed: the oil sands sector is solidly behind Rachel Notley’s energy and climate policies.
In contrast, Alberta conservatives prefer Donald Trump’s policy vision, which can be summed up as the Energy Dominance Doctrine – deregulation and putting the full power of the American government behind US oil and gas exports.
Trump has many admirers in Calgary energy company head offices, whose executives have always chafed at what they see as excessive regulations and the accompanying high costs.
“We are heavily regulated. I know a lot of people who are opponents of this industry would take the view that we’re lightly regulated or unregulated or not regulated enough, but I think we are highly regulated,” Gary Leach, CEO of the Energy and Explorers Assoc. of Canada, the industry group representing juniors and medium-sized producers, told me in an interview.
“We are a high-cost place to operate, we are a long way from markets and with our world-class regulatory system there are regulatory costs of compliance that add to the cost burden of operating in Western Canda where we already have a higher cost structure due to geography, climate, remoteness, transportation costs, high wages, you name it.”
While not minimizing the regulatory burden and its cost for Alberta producers – which is grist for several upcoming columns – and acknowledging that companies have some legitimate concerns, the oil sands sector of the industry takes a somewhat different view.
And in Alberta, the oil sands rules because it produces 2.7 million b/d, compared to the 530,000 b/d of conventional oil that makes up only 20 per cent of provincial oil production, according to Alberta Energy. When oil sands production rises to 4 million b/d by 2030, conventional production – slated to remain static or decline slightly – will comprise only 13 per cent of Alberta production.
Clearly, the oil sands is where the action is. And what are oil sands companies up to?
They are rapidly lowering carbon-intensity by one-third (which will be roughly the same intensity as the average American crude oil) and reducing costs by 30 to 40 per cent in order to thrive in a global market they believe will be will be marked by peak demand and too much supply, while increasingly carbon-constrained as a result of national policies agreed to as part of the Paris Climate Accord.
The big oil sands producers are investing in new technologies, sharing technology through organizations like COSIA (Canadian Oil Sands Innovation Alliance), and making GHG reduction an important part of their climate change risk mitigation strategies going forward.
CEO Steve Williams of Canada’s largest energy company, Suncor, spoke for the oil sands industry in his message to the company’s 2017 sustainability report:
Consider the global challenge of tackling climate change. We know climate change is happening. Clearly, we all have a shared interest in finding solutions…We did so by collectively recognizing we can’t, at this point, affix a permanent solution to a long-term challenge like climate change. But we can lead in a way that moves us in the right direction. That collaboration helped inform a policy plan that couples a broad-based carbon-pricing regime with an overall emissions limit for the oil sands. Why would we, as energy producers, support public policy that imposes a first of its kind, emissions limit on our resource basin? And why would Suncor, as a company, commit to an ambitious program to reduce its own GHG emissions? The answer to both questions is rooted in two interrelated convictions. The first is our belief that bold, ambitious action will be required by all of us to effectively tackle the climate change challenge. The second is our conviction that technology will continue to transform our industry to a place of global cost and carbon competitiveness.
In case anyone missed it, the policy plan Williams is talking about is the Climate Leadership Plan of Rachel Notley’s NDP Alberta government.
The plan he and three other oil sands CEOs endorsed when they stood onstage Nov. 22, 2015 with Notley for the unveiling of Alberta’s new climate strategy.
Oil sands industry support for the Climate Leadership Plan creates a huge political disconnect for a merged conservative party, one that Wildrose leader Brian Jean and PC leader Jason Kenney skillfully avoid like the plague, preferring instead to stoke public anger over the province-wide carbon tax.
As I’ve argued in other columns, the conservative parties have no real energy policy, beyond broad and shrill criticisms of the Notley policies. They advocate mindless cheer leading from the sidelines, flirt with outright climate change denial, and couldn’t spell “Energy Transition.”
In other words, the exact opposite of the oil sands companies.
If industry likes the emissions cap/carbon levy/output-based allocations regulations it helped the Alberta government draw up, then conservative politicians have to confirm if they will deep six those regulations, as promised.
If the answer is yes, then that puts the biggest players in the Alberta oil industry squarely in the Notley camp, if for no other reason than the Climate Leadership Plan best serves their long-term interests.
No doubt Jean and Kenney – and new leadership hopeful Derek Fildebrandt – hope to avoid publicly confronting their unpleasant political conundrum.
Someone needs to ask them to explain how they plan to resolve it. Stay tuned.