Category Archives: Alberta

Oilsands not a good candidate for carbon capture

Turns out that carbon-capture is not the panacea for Canada’s oilsands that certain politicians have been saying, according to a briefing note (marked “secret”) obtained by the CBC:

Little of the oilsands’ carbon dioxide can be captured because most emissions aren’t concentrated enough, the notes say. For efficient capture, there must be a high concentration of CO2 coming out of a smoke stack.

“Only a small percentage of emitted CO2 is ‘capturable’ since most emissions aren’t pure enough,” the notes say. “Only limited near-term opportunities exist in the oilsands and they largely relate to upgrader facilities.”

The Canadian and Alberta governments are spending about $2.5 billion on developing carbon capture and storage, and the oilsands generally come up as the first reason for spending the money.

This doesn’t mean that carbon-capture and storage is a useless technological innovation, just that it’s of negligible use in the oilsands, which are extremely energy-intensive. CCS can be of some help in reducing emissions from upgraders — where sandy tar mined from the ground gets turned into flowing oil — but that’s only part of the production process. The upgraders on the drawing board now, which are likely to get built eventually even if they’re on hold till the economy recovers, are planned to meet pretty high standards, which is a mixed blessing. It’s good that they’re efficient and relatively low-pollution, but they’re not going to be low-hanging fruit in the hunt for emissions reductions.

The oilsands are an environmental nightmare. No getting around it.

Alberta’s climate-change “plan”

I guess it’s officially a “strategy,” but it comes across as more of a “wish list,” not unlike the federal government’s.

The promise is to cut greenhouse-gas emissions by 14 per cent from 2005 levels by 2050. That’s a relatively mild target, compared to what climate scientists say we need to do, but even so there’s no obvious mechanism to make sure this actually happens. The newly released strategy from the Progressive Conservative government of Premier Ed Stelmach talks a great deal about investing in carbon-sequestration (capturing and burying carbon-dioxide emissions, that is), but doesn’t describe a means of making major emitters adopt the practice.

Here’s the news release and here’s the document itself (PDF), complete with lovely full-colour images of wheat waving in the wind, close-ups of leaves and images of … chopped-down timber, it looks like, on page 22. (Somebody send down to the stock-photo library for a substitute, would you?)

Alberta’s in an exquisitely difficult position, having a roaring economy that’s almost totally dependent on extracting carbon-producing fossil fuels in an energy-intense (and therefore highly carbon-emitting) way. Alternative sources of power are a long way off and won’t easily displace the cheap natural gas that’s used to fire the boilers that separate oil from sand in the oilsands.

Here’s a generous way to look at Alberta’s position, if you want one. The province’s oil reserves are only worth exploiting if prices are high, and prices are high because supplies are getting tighter while demand is expanding. If Alberta’s oil economy is to continue growing, it’ll be because other oil-exporters are running low, which will mean less overall pumping and refining and burning in the world, even if more of the supply comes from Alberta in particular. Therefore, if Alberta makes its oil economy more ecologically friendly and takes over an increasing share of the world’s production, its own emissions can rise while at the same time representing a net global decline.

One likely flaw in this reasoning is that whatever their other problems, conventional oil producers like Saudia Arabia and Nigeria are probably less environmentally damaging than Alberta is, so maybe we’ll keep doing the same amount of damage, globally speaking, to extract less oil. The truth is, oilsands oil is bad news for everybody except Albertans.Deep cuts to emissions would certainly mean deep economic damage, and Alberta voters wouldn’t likely stand for it. So there’s only so much an Alberta government can realistically do and expect to not get crushed at the polls.

Nevertheless, I’d think it would be more than this.

While Alberta’s latest greenhouse-gas plan talks about an emissions cut of 14 per cent below 2005 levels, most of its graphs and whatnot use a “business-as-usual” baseline for 2050 emissions to make the province’s projected cuts look more impressive. Taking them at their word, Stelmach’s government promises to cut 24 megatonnes of emissions through conservation in regular old power use, 37 megatonnes through greener energy sources, and 139 megatonnes through carbon sequestration by major emitters.

What’s missing, as I say, is the mechanism. How are major emitters to be made to capture all that carbon? The strategy is silent. No dollar figure for government spending is included in the plan, no discussion of carbon taxes or a cap-and-trade scheme. Alberta already charges major emitters $15 per tonne of carbon emissions beyond a  high ceiling, but there’s no way that’s going to produce the kind of changes the government purports to be planning. The last page of the strategy promises implementation plans in the coming months, although it also declares that “Most importantly, this plan is about actions not words.”

Just, uh, stay tuned for the actions.

Stelmach’s choice

Alberta Premier Ed Stelmach is hiking royalty rates on the province’s hydrocarbons to bring in about an extra $1.4 billion for the government starting in 2010.  A review panel had suggested the figure ought to be $2 billion, starting sooner.

The industry’s unhappy:

Pierre Alvarez, president of the Canadian Association of Petroleum Producers, said he had “tremendous concern.”

“Financial markets are going to respond negatively,” Mr. Alvarez said, adding that the government didn’t listen to industry’s questioning of the costs to produce oil and gas in Alberta.

“The market may be surprised that more was done than less, and that the government didn’t back off on more of the provisions,” said Ari Levy, a vice-president at TD Asset Management Inc. “I fear the risk premium may rise on future projects built in Alberta.”

So’s the Left:

But NDP Leader Brian Mason says the premier has caved in to Big Oil.

“The phasing in of the royalty program means that the take will be significantly less … than the royalty task force has proposed,” he said. “I think the premier has compromised yet again on a report that represented a compromise in the first place.”

He said Alberta will continue to be one of the lowest royalty jurisdictions in the world under the new formula.

While Stelmach’s betting Albertans will be satisfied and — having become premier after the last guy retired and not yet won an election — might call an election to reinforce popular support for his choice.

Is it the right call? As I wrote last week, nobody has the faintest idea, though I’m pretty confident that one government-set price for anything is likely to be wrong.

The only way to set a “fair” price for Alberta’s oil and gas, as Andrew Coyne echoed yesterday, is to make the companies decide how much the rights are worth for themselves and bid on them. Anything else — the existing price, a higher one or a lower one — is bound to lead to an inefficient, inappropriate price.

Ed Stelmach de Bolívar

The Globe and Mail‘s David Ebner has an occasionally wordy but comprehensive survey of Alberta’s oil patch, which is holding its breath waiting for an announcement from the provincial government on whether and how it’ll change the royalty scheme whereby oil and gas companies pay the government to exploit an officially public resource.

In a nutshell, this is how it works: Alberta’s oil and gas, like that of other Canadian provinces, are owned by the provincial government. Oil companies lease the rights to explore and exploit those resources, and pay the government a percentage on what they find, extract and sell. And Premier Ed Stelmach is to make up his mind by the end of the month on how much that percentage will increase.

Stelmach, responding to a sense among Albertans that they were being taken for a ride by low royalty rates set when the industry was practically dormant, asked a review panel to make a recommendation on new rates. Simplistically put, the panel recommended jacking up the royalties on mature projects from 20 per cent of profits to 33 per cent, on the grounds that, indeed, Albertans weren’t getting a “fair share” of the profits from their publicly owned natural resources.

Aaaiiiiiiieeee!, the oil industry responded, including in an instant-classic analyst’s note from Deutsche Bank comparing Alberta to Venezuela (PDF). Behind that overblown rhetoric from the kind of Wall Street analyst who gives Wall Street analysts their superior reputation for probity and manners, there’s a fair point: Alberta’s oil reserves are exceptionally expensive to extract. Many projects are borderline even with oil costing $80 a barrel, and if Alberta wants to increase its royalty rates, maybe riskier but higher-profit projects in places like Saudi Arabia and Angola make more corporate sense.

Partway into Ebner’s story is this reminder that for all the talk of the economic riches and environmental perils of the oil sands, work on “unconventional” reserves in Alberta is really just getting started:

The critical and most controversial issue – natural gas – has underpinned Alberta’s economic success and its overflowing treasury. The so-called Calgary oil patch is in fact a gas capital, with a shift only now beginning to swing to the oil sands. Canadian Natural Resources Ltd., the country’s second-largest producer, is the embodiment of this evolution, beginning life in the deep recession of the late 1980s as a scrappy gas producer and growing into a giant gas producer – and now making a big, long-term bet on the oil sands.

But the oil sands remains a tomorrow story, a key source of the province’s long-term revenues.

And the key to that key source of long-term revenue is just how much Alberta wants to extract from the oil companies. This is not a simple question, as Ebner explains.

It’s Stelmach’s job to try to set a royalty rate that maximizes the oilsands’ value to his taxpayers and voters. His trouble is that it’s an impossible task, requiring him not only to set one provincewide rate where rates for individual projects would be more appropriate, and to “balance,” somehow, the reasonable arguments made in Deutsche Bank’s note with a vague “feeling” among Stelmach’s voters that they’re being hard-done-by. Not only that, but we’re talking not only about maximizing the price the province gets from the oil, but maximizing the oil’s long-term value — which means factoring in the other economic activity the oilsands support.

The Star‘s David Olive points out that in the long term, the vastness of Alberta’s reserves likely matters more than the cost of extracting them:

Global oil firms are desperate for reserves, and Alberta’s oil sands represent more than 50 per cent of the world’s reserves available for non-state investment. Threats to move to other jurisdictions are almost laughable. Where will the producers go in search of a similarly giant reserve base that also boasts a politically stable regime – Russia, Kazakhstan, Iraq, Venezuela, Sudan?

In other words, whatever the royalty rate Alberta sets, there will eventually come a world oil price where digging all that oily muck is worth the effort. Indeed, the longer Alberta makes the oil companies wait, the more the oil will be worth. But all the jobs in pipefitting and trucking and fabrication and engineering are worth an awful lot, too, in 2007 prosperity that could set the stage for an oil-independent economy by, say, 2050.

You’d almost think that this problem of trying to maximize the oilsands long-term value would be one better set by, well, a market, rather than this system, reminiscent of the Klondike era, of staking claims and paying arbitrary percentages and having provincewide policy decisions made by one guy.

What’s a particular project worth to an oil company? Why not make them put their cards on the table and bid? Let the companies do all the exploring they like (and no leasing exclusive exploration rights that are little more than lottery tickets with multibillion-dollar payouts) but before they can put a steamshovel in the ground, they’d have to tell the government what they’re willing to pay for the oil they get out. A flat amount, a percentage, whatever the company thought would be fair. Let anyone else bid, too, and take the best, maybe with some automatic payout to the finder if that company doesn’t win the bidding.

Whatever form it took, it’d almost inevitably be superior than leaving Alberta’s whole economic future to one farmer from just northeast of Edmonton, no matter how clever a fellow Stelmach is.

Alberta needs nukes

The closest thing Alberta’s likely to see to a mushroom cloud
is an unusual cloud formation like this one.
Photo credit: Flickr/Nicholas_T

Alberta’s being all coy about whether it’ll give permission for a nuclear-power plant to be built to power a major chunk of the energy-sucking oilsands operations. According to the Financial Post, a private consortium wants to build one and has a major customer (pretty definitely a global oil company) ready to sign up for most of the electricity it generates. But the provincial government is squeamish about whether to allow it.

Alberta Premier Ed Stelmach says the jury is still out on whether a proposed $6.2-billion nuclear plant will be built in oil-rich northwestern Alberta.

“We first have to decide whether we’re open to nuclear energy,” he said Tuesday in Edmonton.

“You don’t build nuclear reactors over an evening. These are important decisions . . . beyond one person, and we’ll structure soon the kind of public discussion that will occur in the province.”

Alberta uses about 9,000 megawatts of power now, but getting usable oil out of the oilsands is an energy-intensive activity, and forecasts are that demand will double in the next decade and a bit. The biggest energy demand is to produce steam, which separates sticky tar from the sand it’s mixed with in the ground.

I can understand having serious reservations about the technology — Ontario’s nuclear “fleet,” as it’s grandly called, has been an utter nightmare of billion-dollar repairs and slipped schedules as the reactors enter middle age — but that’s a management decision, not one of deep principle.

What baffles me, while principle is on the table, is that the Alberta government would have no problem with powering the oil-sands operations by burning natural gas and spewing carbon dioxide into the air — would indeed warn other provinces not even to whisper about the possibility that might be bad — but will go all twittery about a technology that’s been used successfully the world over, with the only significant problem (albeit a doozy) having been a consequence of gross mismanagement in one of the most corrupt and half-assed industrial regimes ever to befoul the earth when it was embarking on its final collapse.

Certainly, more, lots more, needs to be done to reduce the oilsands’ extractors’ voracious appetite for energy. But if we take as a given in the discussion that more power is needed, nuclear plants seem the only remotely sensible option.

Preston Manning the environmentalist

Preston ManningIn the late 1980s and early ’90s, when he was at the head of the right-wing–populist Reform Party, Preston Manning was the only major political leader in Canada talking sense about the monstrous federal budget deficit. Now, he’s among the only ones really talking sense about the environment.

In a way, they’re very similar problems. Throughout the 1970s and 1980s, Canada’s government got used to borrowing and spending way more money than it took in in taxes. Things were at their worst in 1985, when the feds spent $37 billion more than they took in, but the problem wasn’t taken seriously by any government until the International Monetary Fund cleared its throat in 1995 and warned that the country’s economy was dangerously vulnerable to a sudden shock like a global interest-rate hike.

Till then, the deficit was the sort of problem politicians occasionally paid lip-service to, but little more. Everybody knew that you couldn’t spend more than you were taking in forever, but actually doing something about it would have meant cutting spending or hiking taxes, and nobody wanted to do that.

Except Manning, who had spent most of the last decade insisting that the party had to end. The idea that borrowing billions of dollars each year for the routine operations of the government wasn’t sustainable wasn’t popular, and it was partly a stalking-horse for a generalized dislike of social programs, but it was Manning’s unpopular but very necessary message.

Now in the elder-statesman phase of his career, Preston Manning is articulating solutions to environmental problems in a language not many other public figures use:

Manning argues for something called full-cost accounting, or integrating the environmental costs of producing a good into its market price.

A shift to a mindset in which people commit to buying only environmentally friendly products, and are willing to pay a premium for them, is key, said Manning.

“That force would have greater impact on the market than all the speechifying or policy declarations by governments put together,” he said.

Still, that won’t happen unless the government is willing to step in and provide incentives to encourage consumers to make environmentally conscious choices, Manning added.

“If Alberta started pricing water, even if it just establishes some nominal price to get people used to the idea that it isn’t free, anybody that’s using water would have to take that into account,” he said.

Manning acknowledges that this approach would have its problems, but “at least we’d be starting down the right road.”

In other words, the party’s over. Time to face some hard facts and do something about them.

Here’s a version of this as reflected in notes for a speech Manning gave last week (the notes start out sparse and get more precise and readable as he gets to the good parts):

Somebody once said, “If it’s important, measure it.” Full cost accounting says that if the environmental consequences of producing a good or a service are important, then the costs of those impacts and actions to mitigate or eliminate them should be measured and internalized into the price of the good or service being produced.

In a competitive market, if all firms are required to measure and mitigate those harmful environmental impacts and incorporate the cost in their prices, it will be those who can do so most efficiently that will survive and prosper. And prices that incorporate environmental stewardship costs send an important conservation signal to you and me as consumers as well.

In this province, perhaps one of the best places to start applying the concept of full cost accounting and pricing is with respect to water. Our province includes some of the most important and valuable watersheds and aquifers on the continent. We are also enormous consumers of fresh water, especially by the agricultural and petroleum sectors. And as individuals, because most of us consider water to be free or virtually free, there is no substantial price constraint on our personal usage.

Application of the concept of full cost accounting and pricing to the conservation of water would require us as a matter of public policy to meter, measure, and appropriately price all water used by Albertans if we want to effectively manage and conserve this vital national resource.

Would such an approach impose some initial hardship and inequities on some individuals and industries? Yes it would, and public policy would have to include measures to recognize and mitigate those.

But if you want a clear and comprehensive signal with respect to the value and environmental costs of using and sustaining water resources, to be sent to every Albertan every day, dozens of times a day, every time any one of us turns on a tap or any business or industry sticks a pipe into a river or reservoir, there is absolutely no substitute for communicating those messages through full cost accounting and a properly established pricing system.

Needless to say, I agree with Manning that mechanisms like the ones he’s talking about are the only way this is ever going to work.

Instead of proposing such things, Canadian federal politicians fall into three camps:

  • Problem? What problem? (Conservatives)
  • We need regulations to make certain evil people do what everyone else agrees is important (New Democrats)
  • Let’s talk and talk and talk and talk and talk and eventually come up with some half-assed regulations to make people do what everyone agrees is important (Liberal)

Maybe ironically, the people who sound like they’re closest to Preston Manning on this stuff are those in the non-crazy wing of the Green Party. I sure hope Manning keeps talking like this, and sending pointed notes to his old friends still in the government in Ottawa.

Alberta’s oilsands need an energy infrastructure as big as Ontario’s

Ontario nuclear plantBrian Wang, who blogs at Advanced Nano, has a guest post at The Oil Drum surveying what’s involved in using nuclear reactors, rather than natural gas, to power the vast facilities in Alberta’s oilsands that extract the oil from the sand.

I’m not going to lie to you: it’s extremely technical, and probably needlessly so. But here’s the nut:

If oil prices stay high and we go past peak oil and the prices go higher then it seems that making the nuclear reactors to extract the most oil for other purposes is the way to go. If all current conventional oil in North America had to be replaced with oil from the oilsands that would be about 24 million bpd [barrels per day]. 9 billion barrels per year. If Henuset/AECL/CERI are correct in the 500,000-630,000 bpd estimate [for the extraction work that one nuclear plant can power] then 48 of the 2.2[-gigawatt] twin reactors would be needed for the SAGD extraction process.

Forty-eight plants, 96 actual reactors, to power all the oilsands production if they were to supply all of North America’s oil needs.

So it’s an outside estimate, current production being only about a million barrels a day and even optimistic estimates of expansion reaching only about four million barrels a day in the foreseeable future. At four million barrels a day, we’d be talking about 16 reactors, in a province that currently has none.

Ontario, Canada’s most nuclear-dependent province, has 22 reactors for power-generation, only 16 of them functional and none of them as big as the ones Wang is talking about. The “fleet” has been a nonstop headache of underbudgeted repairs and blown-schedule refuelings for years for the succession of poor suckers who’ve been energy minister in the province, and the taxpayers who pay the bills for the provincial power system.

So anyway, that gives us a sense of the scale of what’d be involved in taking the oilsands nuclear. It’s big.

(Photo credit: Untitled, Flickr/Bahman.)