Study shows the oil sands can both reduce emissions and lower production costs

Is it time to change the political debate around the Alberta Climate Leadership Plan? A new study from the Canadian Energy Research Institute shows the 100 megatonne oil sands emissions cap and the carbon levy are driving the adoption of new technologies that both lower production costs and GHG emissions. That conclusion explicitly contradicts the talking points of the Alberta opposition parties.

For instance, just days ago Wildrose leader Brian Jean issued a press release calling on the Rachel Notley government to immediately repeal the carbon tax and emissions cap on the oil sands (current emissions are about 70 megatones). The PC party also opposes both NDP policies.

Dinara Millington, VP of research, is one of the authors of the CERI study and she said in an interview that the emissions cap, in particular, is accelerating technological innovation by oil sands producers.

“It’s a big, significant factor in driving adoption of the next suite of technologies that will significantly reduce the environmental footprint of the oil sands,” she said. “How quickly they will reach that emissions cap if nothing else is done has created urgency among the producers.”

CERI estimates the emissions cap will be reached by 2028 if industry doesn’t act immediately. If it does act, the CERI study says “fuel-derived emissions” from in situ production can be reduced by more than 80 percent and that oil sands crude will one day have the same GHG-intensity as any conventional oil.

“Industry will come to the metrics where we see oil sands bitumen has the same – or even lower – intensity than a conventional barrel of oil. I think industry is moving towards that and I think that’s what drives the innovation from companies, industry organizations, and federal and provincial governments,” she said.

Another “big, significant factor” driving innovation is the high cost of bitumen extraction. According to the study, “West Texas Intermediate-equivalent diluted bitumen [$58.32USD] and bitumen upgraded to synthetic oil [US$56.50] have the highest average production costs and GHG emissions when compared to other world crude oils.”

CERI says the six “technology configurations” – one for brownfield and five for greenfield developments – it discusses in its study have the potential to reduce bitumen supply costs by 34-40 percent. With the implementation of any of those configurations (see Figure E.1), chances of reaching the 100 MtCO2eq./year cap are reduced to zero within the study period of 2016 to 2036.

Millington says some of the technologies are field tested and ready to go, while others show great promise but still need to be commercialized.

“Some technologies, especially on the steam generation and the reservoir side, they have been around for awhile and some of them are actually already piloted or tested at sort of the concept stages,” she said.

“And some of them are actually quite new. They’re not commercially available, but we evaluated them on the assumption that they will become commercially available within five to seven years time.”

When asked why the commercial technologies haven’t been adopted before now, Millington explained that high oil prices until late 2014 made the new processes unviable. Solvent was too expensive because it is priced against oil. Those prices have now come down as oil hovers in the $50/b range.

“On the technical side, producers piloting or testing these solvents and solvent hybrid projects have run into constraints that are associated with solvent recovery and solvent recycling ratio,” she said.

“Those issues are specific to an individual oil reservoir and companies like Cenovus are spending the capital to replace some or all of their steam injection with solvent.”

Millington says oil sands producers sat on the Alberta government panel that came up with the emissions cap and most were calculating a carbon tax on their balance sheet long before the Province imposed a carbon levy.

“Overall, global communities are moving towards lower carbon economies. Ensuring the Alberta industry remains an important global energy suppliers means extracting oil and gas from the oil sands with a lower carbon footprint,” she said.

Lowering the oil sands’ carbon footprint means addressing the amount and type of energy that is used to extract the the resource. Technology is going to be key, says Millington: “Alberta has been really innovative and implemented some of the best commercial technologies available today. I think new technology adoption is now going to happen a lot faster than previously.”

She points out that Steam Assisted Gravity Drainage (SAGD) processes took over 20 years to become commercially viable. The new technologies will be adopted much quicker.

“These issues [production costs and GHG emissions] are important to address for both the politicians and industry. If producers want to stay in the game, they’ll have to address them,” she said.

“Carbon management is quickly becoming a part of regular ‘business-as-usual’ scenarios.”

The study points out that further research and development work is needed to “de-risk” the promising technologies through pilot and field demonstration studies if “the prospects of delivering these costs and emissions reductions are to be realized.”

But Millington is confident the work is well underway and will be successful.

There is no going back, she argues. Global markets, regulators, and producers have crossing the tipping point about the need to reduce GHG emissions.

Now Alberta opposition politicians need to come to grips with that fact. Calls to reduce regulations to make Alberta “competitive” with the US industry fail to recognize that energy-producing states like Texas and Colorado are also concerned about environmental protection and emissions reduction. And in the US, states have the primary responsibility for regulating the oil and gas industry.

That issue aside, the CERI study demonstrates that lower costs and lower emissions can be achieved with new technologies. Instead of demonizing climate change policies, Jean and Kenney should get behind and support new technology adoption by oil sands producers, especially technology that helps Alberta crude oil become more competitive.

Going backward on climate policy is not a smart option.