Disclosure of the scale of the Federal government’s “just transition” legislation- the tool to transition oil and gas workers to green jobs- has begun to echo across the industry, creating diverse statements both pro and con.
At issue is the admission in the report that the plan to transition the Canadian economy will “have an uneven impact” across certain regions, “creat(ing) significant labour market disruptions” in carbon-intensive industries and the provinces that depend on them— Alberta, Saskatchewan and Newfoundland.
Some energy industry leaders, like Cenovus CEO Alex Pourbaix, remain optimistic.
“We estimated that we will spend somewhere in the range of $70 billion over the next 30 years to decarbonize the production of the oilsands,” Cenovus CEO Alex Pourbaix said in an interview with The Canadian Press. “If we’re successful in doing that, that is going to create a boom in the oil-producing provinces that is equivalent to what happened in the ‘80s and the ‘90s.”
Alberta Premier Danielle Smith has been criticizing the intent of the Federal “just transition” plan in mainstream and social media.
“Just Transition is extreme environmental language,” Smith said. “It was coined by extreme environmental groups who want to completely phase out the oil and gas and fossil fuel sector. They (Ottawa) use that (term) knowing that was going to be the way it was interpreted.”
The unintended consequence of a Canadian government that phases out the Canadian oil and gas sector is that global oil and gas demand is forecast to continue to increase long term. In October 2022, OPEC raised its forecasts for world oil demand in the medium and longer-term in an annual outlook and stated that $12.1 trillion of investment is needed to meet this demand despite the energy transition.
“The overall investment number for the oil sector is $12.1 trillion out to 2045,” OPEC Secretary General Haitham Al Ghais wrote, expressing concern for “chronic underinvestment in the global oil industry in recent years” due to policies centred on ending financing in fossil fuel projects, as well as industry downturns, and the COVID-19 pandemic.
The result is that Canada will simply be offshoring oil and gas production to countries with little environmental accountability and poor ESG standards. Even worse, as Bloomberg reports the re-mixing and rebranding of Russian oil in redistribution hubs like Singapore and Fujairah in the United Arab Emirates, the reality is that Canada’s retreat from oil production will enable dependence on oil from oppressive regimes.
It is encouraging that Smith is calling for a responsible alternative. She has called for the Federal government to “ support Alberta’s plans for more LNG and oil export, more hydrogen and more CCUS”.
Could CCUS and hydrogen production be the key to stopping the offshoring of Canadian oil and gas production and GHG emissions to other countries?
At an event in Calgary, a discussion of CCUS tech and project developments presented by Francis Morin, senior geologist and carbon sequestration advisor at McDaniel Associates Consultants Ltd. promised an alternative to offshoring production and emissions. (Note- Matt Ng, geophysicist/investor relations at Entropy Inc also spoke about CCUS tech at this event and we will cover his insights in a later article).
The key is the rapid adoption of proven and operational tech and the joint venture collaboration of multiple companies as stakeholders in CCUS projects. Both Morin and Ng described how CCUS is emerging as a technology that is critical to the decarbonization of the oil and gas industry.
Admittedly, global competition for investment dollars is fierce. The U.S. is promoting new CCS/CCUS projects with a powerful combination of tax credits and incentives. Only Norway has created a financial environment that is as attractive to investors. The Canadian price on carbon handicaps projects as well as a constant Federal government focus on CCS technology that is not tied to oil production- a focus that has only recently been modified by the Prime Minister in comments to the media on Jan. 6, 2023. However, it is encouraging that the government of Alberta released CO2 evaluation permit outlines for the first round of applicants last week.
In his presentation, Francis Morin described a few scenarios in addition to the net zero scenario and pointed out that the current stated policies and announced pledges are a long way from the net zero scenario. In a comparison of the relationship between GDP vs Emissions, Morin noted that modelling indicates that carbon sequestration will increase significantly in the coming years. Since CO2 emissions and GDP (wealth) per capita correlate, countries will be forced to find alternatives to emitting CO2 in the atmosphere if they want to reduce emissions and still preserve wealth. CCUS is positioned as a key solution.
Morin described how underground storage offers an extremely large capacity for carbon, making it the preferred industrial solution with Alberta aquifers possessing hundreds of years of capacity. While detailing the state of the carbon industry, he noted that the last three years have seen exponential growth in projects with the recent Full Project Proposal (FPP) process in Alberta bringing twenty-five new Hub proponents with more to come.
Morin reviewed the state of the industry across provinces with Alberta granting 25 evaluation permits which will need to be converted to sequestration leases in order to initiate commercial CO2 hubs. British Columbia is currently reviewing their pore space application process with the Northeast BC Geological Carbon Capture and Storage Atlas study identifying, assessing, mapping, and cataloging carbon dioxide storage. A competitive process is expected. In Saskatchewan, regulation preventing the trading of carbon offsets is limiting project economics at the moment.
In addressing the path to commerciality, Morin asserted that Canada has the potential to have better economics than the U.S. unless the post-2025 price of carbon drastically reduces. There is uncertainty over what the carbon credit prices will be in the future. Emission Offset/Performance Credits (both Federal / TIER related to the carbon tax price), the Clean Fuel Regulation (CFR), the Investment Tax Credit (ITC) and the Enhanced Hydrocarbon Recovery Program (EHRP -which offers temporary royalty reductions to encourage enhanced recovery of legacy fields) are all strong financial incentives but the uncertainty of their continued value creates financial risk.
As well we know, industry likes certainty and Morin noted that the biggest barrier to entrance currently is political risk with Federal liberals looking at legislation or investor contracts to provide carbon price certainty while Federal conservatives are pointing to plans to keep the industrial carbon tax in place. He observed that with a large inventory of announced sequestration projects, the Alberta carbon market is at risk to become over-supplied.
Ultimately Morin predicted that despite challenges, CCS will reduce the carbon intensity of many industries (including oil and gas) and enable them to thrive beyond 2050.
Maureen McCall is an energy professional who writes on issues affecting the energy industry.