WINNIPEG/TORONTO (Reuters) - Canada’s struggling oil patch is seeking government aid to clean up its impact on the environment after the industry cut spending on green initiatives to weather the COVID-19 downturn.
Canada, the world’s fourth-largest oil producer, pumps out the highest emissions per barrel among major oil nations, according to Rystad Energy. Most Canadian crude comes from hydrocarbon-soaked sands in the province of Alberta and extracting it comes at a high environmental cost.
In the past five years, international oil majors, banks and investment funds have shunned financing oil sands projects as dirty and expensive.
European oil majors, under governmental pressure, have embarked on a difficult transformation toward more renewables like wind and solar. Canada’s industry, on the other hand, wants to reduce emissions while still focusing on oil.
When fuel demand collapsed last spring during pandemic lockdowns, some Canadian oil producers cut spending on projects aimed at reducing emissions.
Now, two of Canada’s biggest producers are asking the federal government to pick up some clean-up costs by supporting major green initiatives. Any specific dollar requests have not been made public, and Ottawa has not said if it would consider such aid.
Suncor Energy is pushing for government investment in several projects, including a C$1.4 billion cogeneration project to replace boilers fired by petroleum coke with natural gas. The project would reduce Suncor’s emissions and displace some coal-fired power from Alberta’s grid.
Suncor suspended that project to conserve cash.
“Let’s collaborate. We’re not asking for a handout,” said Martha Hall Findlay, chief sustainability officer at Suncor, the second-largest Canadian producer. “It’s what do we have to do to make sure the business is economically viable.”
Oil prices crashed in the spring as the pandemic spread across North America. They have rebounded to $41 per barrel, but are down about one-third this year.
Alberta companies currently produce 16% below pre-pandemic levels and many have laid off workers as refinery demand remains weak.
Suncor this month said it would cut its workforce by up to 15% over the next year and a half.
The industry’s approach to gradually reducing emissions per barrel has the backing of Prime Minister Justin Trudeau’s government, which often clashes with Alberta.
The sector accounts for 7% of Canada’s gross domestic product.
“Certainly for the coming decades, oil will continue to be used and Canada needs to continue to extract value from its resources,” said Canadian Environment Minister Jonathan Wilkinson. “The first step is reducing carbon intensity.”
Oil and gas emissions grew 22% between 2005 and 2018, though oil sands producers reduced their average emissions per barrel by 20% during that period.
REACTORS AND CARBON CAPTURE
Suncor is discussing with Ottawa investments in building small nuclear reactors that would supply power to oil sands operations and more facilities that would capture carbon emissions, although it has not yet made specific proposals, Hall Findlay said.
Small reactor technology has not been widely deployed worldwide. The Canadian government is working on a national plan for the technology to help reach climate goals, said Ian Cameron, spokesman for the natural resources minister, when asked about Suncor’s requests.
Using such reactors as a power source would cut oil sands’ emissions, Hall Findlay said.
However, the technology is years from commercial deployment, said Keith Stewart, senior energy strategist at Greenpeace Canada, who described the plan as an industry stall tactic.
GRAPHIC: Canada's bet on cleaner crude Canada's bet on cleaner crude -
Husky, a major Canadian producer, is courting federal investment in its West White Rose project off the Atlantic coast, describing it as potentially Canada’s first “net-zero facility.” Husky suspended the project due to economic uncertainty caused by the pandemic.
Husky says reduced flaring at the floating oil facility could offset 85% of new emissions from undersea extraction, with the remaining 15% accounted for with carbon credits and lowered use of diesel power.
“All eyes are looking to the federal government,” said an industry source familiar with Husky’s plans. “The ultimate cost of not working with industry to solve these problems is jobs.”
Cameron declined to comment.
Longer term, Ottawa is developing a plan to adopt greater use of cleaner-burning hydrogen and has said it will impose a clean fuel standard starting in 2022.
Alberta is also looking at cleaner alternatives, such as hydrogen for export and as a means to expand oil output without raising emissions.
Hydrogen could meet 27% of Canada’s energy demand by 2050, but that market is not yet well-established, said Dan Wicklum, chief executive of The Transition Accelerator, a non-profit organization.
In trying to develop a larger hydrogen industry, Canada is “in that vicious cycle of ‘how do we get there from here?’” he said.
Midsized Canadian oil producer Whitecap Resources bills itself as a net negative emissions producer, and says it is an example of how clean oil extraction is possible with government help.
The company buys carbon dioxide from two coal plants, then injects it at high pressure into a Saskatchewan oilfield at a facility originally funded by the provincial government. The carbon dioxide forces otherwise unrecoverable oil to the surface.
The 2 million tonnes of carbon dioxide that it stored in 2019 exceeded Whitecap’s 1.4 million tonnes of direct emissions, which does not include emissions from refining and burning the fuel.
“There’s a lot of technological advances by (Canadian) energy companies. We’re just not being recognized and respected for it,” said Whitecap Chief Executive Grant Fagerheim.
In communities near oil sands deposits, debate about the industry’s future is polarizing. Fort McKay First Nation started a trucking company to serve the industry and may develop its own oil reserves, said Chief Mel Grandjamb, adding that the oil sands must adopt higher environmental standards.
But at Smith’s Landing First Nation in the Northwest Territories, downstream of the oil sands, indigenous people have watched fish and wildlife levels thin out, said Chief Gerry Cheezie.
“We get zero benefits from that activity,” Cheezie said. “But we get 100% of the environmental problems.”
Reporting by Rod Nickel in Winnipeg, Manitoba and Jeff Lewis in Toronto; additional reporting by David Ljunggren in Ottawa; Editing by David Gregorio
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