Forum showcases benefits of Alberta oil sands development

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, May 7 -- Alberta’s oil sands represent not only a major North American source of energy and economic growth, but also an important laboratory for environmental management technologies, participants at a Washington forum agreed.

“They are a source of strategic value. Even with today’s economic conditions, oil sands projects are proceeding,” observed Alberta Premier Edward M. Stelmach in remarks opening the North American Energy Summit at the Canadian embassy on May 6. “They also create US jobs.”

The province was the first North American government to set a price ($15/ton) on carbon emissions from large manufacturers, and it is using the revenue to finance energy efficiency and renewable energy research, he continued. “We have real world experience,” Stelmach said. “We’ve done a lot of good work in Alberta, and we want the world to know it.”

The oil sands, which contain an estimated 170 billion bbl, are being developed with diminishing environmental impacts, according to Eric Newell, chairman of the Climate Change and Emissions Management Corp. and retired chairman of Syncrude Ltd. “Alberta has regulated intensity targets and an established carbon market,” he said. “We believe technology will provide the answers.”

Newell said that since 2007, Alberta companies producing more than 100,000 tons/year of greenhouse gases pay a fee that funds research and development. “Industries understand that transformative technology will be necessary to reduce [GHG] emissions and create more alternatives. Real reductions are occurring,” he said, noting that Syncrude has developed technologies that cut its GHG emissions by one-third.

‘Industry is committed’
“We’re still in our early days, but we think we have a working model with an ongoing commitment of funds dedicated to serving our mandate that is insulated from general government needs,” said Newell. “The industry is committed to solving the [GHG] emissions problem.”

Producers are using technology to do less mining at oil sands deposits and more activity underground to heat the peanut butter-like substance and make it recoverable, according to Greg Stringham, vice-president for oil sands at the Canadian Association of Petroleum Producers. The key will be to make development economically viable with minimal environmental disruption, he indicated.

“The industry is committed to expanding this secure, reliable source in an environmentally sound manner,” Stringham said. “It recognizes that it’s part of a broader supply mix that includes coal, renewables, and other sources.” Operating efficiency has grown so that one unit of energy input creates 6-10 units of energy output, he added.

Several pipelines have been built, according to Andrew J. Black, president of the Association of Oil Pipelines. He said Enbridge Inc.’s Alberta Clipper system runs 1,000 miles from Hardesty, Alta., to Superior, Wis., complementing the company’s recently completed Southern Access Project. The systems will have an initial 450,000 b/d of capacity, capable of reaching 800,000 b/d, in addition to Enbridge’s existing 2 million b/d systems. TransCanada Pipelines Ltd.’s Keystone and Keystone XL systems’ capacity has climbed from 590,000 to 1 million b/d, moving Alberta oil from Hardesty to the US Gulf Coast, he added.

The Canadian-US energy relationship has grown beyond oil and gas, observed David L. Goldwyn, international energy security coordinator at the US State Department. “We collaborate in many areas, including renewable energy,” he said. “The future mix of products flowing back and forth between our two countries 10 years from now will be very different from today. But we still will need to rely on oil and gas.”

Appropriate emphasis
Ongoing Alberta oil sands development discussions appropriately emphasize energy, environmental, and economic needs, Goldwyn continued. “Having technically recoverable oil reserves this large that can be transported by pipeline from a country on our border with which we have good relations helps not only US, but also global, energy security,” he said.

Policymakers also are thinking more in terms of North American than US energy security as a result of the province’s oil sands, noted James Burkhard, managing director, global oil group, IHS-CERA Inc. “Our continental oil supply has increased dramatically,” he said. “In 2005, 42% of the oil consumed in the US came from outside North America. Now, it’s 30%. Some of this is because of reduced demand. But US and Canadian oil production has grown as Mexico’s production declined.”

Canada’s hospitable investment climate is a major reason why production from oil sands there grew from 600,000 b/d in 2003 to 1.1 million b/d in 2009, he added. These oil sands potentially could become the largest US oil import source, according to a new IHS-CERA report.

Burkhard said while a pipeline from Alberta to Canada’s western coast has been proposed to export oil to China, the oil produced from oil sands is less fungible in world markets than sweeter grades from traditional overseas suppliers. “The market will determine how much. We’re a ways away from getting the necessary integration and infrastructure downstream in Asia, but it could happen,” he said.

Asked how the US government might react if some oil from Alberta’s oil sands is exported to China, Goldwyn replied: “It’s an open market and we would support it. No worries there.”

Short-sighted policies
Further US market penetration of oil from Alberta’s oil sands is threatened more by short-sighted federal energy policies which have been proposed and, in some cases, enacted, two other participants warned. Efforts to require the US military to use low-carbon fuels, such as Section 526 of the 2007 Energy Independence and Security Act, could be particularly harmful, said Thomas J. Corcoran, president of the Center for North American Energy Security, which sponsored the forum.

The US Environmental Protection Agency’s effort to limit GHG emissions under the Clean Air Act poses the biggest threat, added Michael Whatley, vice-president of the Consumer Energy Alliance. While their initial impact would be on stationary sources, Section 211-C of the law would affect motor vehicles once EPA expanded its enforcement, he said.

“EPA is where the action will be,” said Corcoran. “We believe within the White House as well as in the EPA administrator’s office that there’s support for creating a national life-cycle, low-carbon standard.”

“Demand has rebounded since the economy hit bottom in 2008 and 2009. China and India are trying to get more supplies than ever out of world markets,” Whatley observed. North America has sufficient energy supplies to meet growing demand, but US policies restricting access and mandating low-carbon fuels restrict their development, he said.

“Let’s be clear: Demand is going to increase,” Whatley said. “Taking North American energy resources off the table will affect consumer prices and hurt the economy. We saw many companies go out of business during the 2008 oil price spike.”

Contact Nick Snow at nicks@pennwell.com.

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