A provision which was inserted into the Energy Independence and Security Act of 2007 to keep the US Air Force from developing coal-to-liquids fuels could limit imports of Canadian crude oil produced from tar sands.
Section 526 of the law says that no federal agency will enter into a procurement contract for "an alternative or synthetic fuel, including a fuel produced from non-conventional petroleum sources, for any mobility-related use, other than for research or testing, unless the contract specifies that the lifecycle greenhouse gas emissions associated with the production and combustion of the fuel . . . [is] less than or equal to such emissions from the equivalent conventional fuel produced from conventional petroleum sources."
While the requirement applies only to federal fuel contracts, it would be significant. US military services are the biggest single domestic purchaser of petroleum products. During fiscal 2007, they bought nearly 136.1 million bbl of products worldwide, according to data from the Defense Energy Supply Center.
That included 68.239 million bbl of JP-8 and JPTS, 13.625 million bbl of JP-5 and 19.38 million bbl of four other jet fuel grades. (Jet fuel is used not only for aviation but also as the main battlefield fuel for land combat, support vehicles and electricity generation.) US military petroleum purchases in that period also included 22.786 million bbl of distillates and diesel fuel and 1.904 million bbl of leaded and unleaded motor gasoline.
Michael Wilson, Canada's ambassador to the United States, expressed his concern on Feb. 22. "Canada would not want to see an expansive interpretation of Section 526, which would then include commercially available fuel made in part from oil derived from Canadian oil sands," he said in a letter to US Defense Secretary Robert M. Gates.
Oil sands' contribution
Noting that the two countries have an extensive, integrated trade relationship under the North American Free Trade Agreement, and that Canada is the largest, safest and most secure source of imported energy for the US, Wilson said: "Canadian oil production and Canada's share of US oil supply are increasing, mainly because of oil sands production in Alberta."
US and Canadian firms compete equally there, and US companies "are among the largest investors, producers and new technology developers in the oil sands, to the benefit of both our countries," he continued. Roughly half of the 1.8 million bbl a day of crude oil and 500,000 b/d of products which Canada supplied the United States in 2006 came from oil sands, according to Wilson. "With announced investments, oil sands production is projected to grow from the present 1.4 million b/d to 3 million b/d by 2015. Most of this new production is destined for the US market," he said.
Wilson's main point was that the Canadian government does not consider oil extracted from oil sands an alternative fuel because it is processed in conventional facilities and is produced commercially. The US Energy Information Administration has classified 174 billion bbl of Canadian oil sands as proved reserves since 2003, he said. "There is little fuel on the US market that is 100% petroleum extracted only by conventional methodology. Oil sands-derived petroleum represents approximately 5% of US supply and is not segregated from other petroleum" unlike biofuels, the ambassador said.
House Oversight and Government Reform Committee Chairman Henry A. Waxman (D-Calif.), who was the provision's author, disagreed. While it became part of the legislation in response to proposals to develop coal-to-liquids fuels which the Air Force was considering, Section 526 also applies to tar sands, "which produce significantly higher greenhouse gas emissions than are produced by comparable fuel from conventional petroleum sources," he said in a March 17 letter to Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.).
Implied subsidies, support
"The development and expanded use of these fuels could significantly exacerbate global warming, with highly dangerous effects. Thus, it is important to ensure that the federal government does not subsidize or otherwise support the expanded use of these fuels through government purchasing decisions," Waxman maintained.
Section 526 is intended to keep federal agencies "from spending taxpayer dollars" for fuels from alternative or unconventional sources if those fuels produce more greenhouse gases than comparable conventional fuels, he continued. "It was not intended to bar federal agencies from entering into contracts to purchase fuels that are generally available in the market, such as diesel or jet fuel, that may contain incidental amounts of fuel produced from non-conventional petroleum sources," the federal lawmaker said. But it would apply to any contract for a coal-to-liquids or other alternative fuel, or for "a fuel produced from a non-conventional petroleum source such as tar sands," he added.
The provision's language requires only a determination of whether a fuel has higher lifecycle greenhouse gas emissions than a comparable conventional counterpart and not a precise estimate of each fuel's specific greenhouse gas emissions, Waxman said. "While there is a range of numeric estimates of the lifecycle greenhouse gas emissions of coal-to-liquids fuels produced without carbon capture and sequestration and fuels derived from tar sands, there is no debate over the fact that both of these fuels have substantially higher lifecycle greenhouse gas emissions than the comparable conventional fuels. There is no barrier to the immediate implementation of Section 526 with respect to these fuels," he told Bingaman.
A Canadian Embassy spokesman told OGJ Washington Pulse that officials are waiting to see how the Bush administration plans to comply with the provision, or if it will seek its modification or repeal.
Contact Nick Snow at [email protected]