Oil-Sands Chases Carbon Technology Fix as Canada Fights Bad Rap Jeremy Van Loon Rebecca Penty
November 22, 2015 — 4:00 PM PST
Updated on November 22, 2015 — 9:01 PM PST
Canada’s oil sands are about to be put on a carbon diet as the country strives to overcome the “dirty oil” label used by President Barack Obama in rejecting the Keystone XL pipeline.
With Alberta’s plan to arrest rising emissions from Canada’s fastest-growing source of greenhouse gases, announced Sunday, producers from Suncor Energy Inc. to Royal Dutch Shell Plc are counting on technology to help make bitumen a low-carbon fuel. The pressure is mounting as Premier Rachel Notley’s new policies are poised to be matched by federal as well as global efforts to curb CO2 pollution at United Nations talks in Paris next week.
“My belief is Canada will move to a leadership position in the world in terms of the real steps you can take around innovation and technology to manage serious climate issues,” Suncor Chief Executive Officer Steve Williams said in an interview on Bloomberg TV.
The changes won’t be cheap or easy. Oil-sands producers in northern Alberta have become some of the largest carbon emitters in the industry because they burn huge amounts of natural gas to make steam used to melt bitumen and pump it to the surface.
Most of the technology that would significantly put a dent in their carbon emissions — such as using electromagnetic waves and solvents instead of steam — is still years away from being deployed on a large scale. The challenge is to reverse annual carbon output that’s quadrupled since 1990 to about 70 megatons.
Alberta is setting a limit to that amount for the first time, capping it at 100 megatons of carbon emissions a year. That gives the industry little room to grow in the coming years with current technology, before reaching that ceiling.
One test many are watching is Shell’s Quest carbon capture and storage, or CCS, project near Edmonton. The C$1.35 billion ($1 billion) venture will extract 1 million tons of carbon from Shell’s Scotford refinery each year and then inject the gas into an underground saline formation about 80 kilometers (50 miles) from the plant, a first in North America. Half of the project’s cost was paid by Alberta — the only way to make it economical.
At Suncor’s Dover oil-sands lease, a startup called NSolv has produced 60,000 barrels of bitumen over the past two years with a reduction of 80 percent in greenhouse-gas emissions, making the solvent-based process cleaner than most oil production methods in the world. Slowing Investment
Carbon is just one of several hurdles holding back Canada’s oil sands. Surging costs and a lack of pipelines have caused investors to think twice before committing funds to the world’s third-largest crude reserves. Without new projects and fresh money, producers won’t be able to reach the scale needed to the implement those low-emission solutions, said Eddy Isaacs, who heads an Alberta government-led initiative that promotes innovation.
CCS projects such as Shell’s need a $60 to $80 price for carbon dioxide to justify their construction, compared with C$15 a ton imposed now in Alberta, Shell Chief Executive Officer Ben Van Beurden said Nov. 6 at the opening of the plant. While NSolv’s technology is ready to go, no one has committed to using it on a commercial scale.
“A meaningful price on carbon can provide the incentive needed to deploy these new technologies and can level the playing field,” Amin Asadollahi, oil-sands program director of the Pembina Institute, a Calgary-based environmental think-tank, said in an interview.
Alberta plans to increase its carbon price to C$20 a ton by 2017, and to C$30 in 2018. The province will make it an economy-wide policy, as opposed to the current price just for large emitters.
Canadian Natural Resources Ltd. spent more than C$450 million in 2014 on projects including one to inject carbon dioxide into a tailings pond, storing the gas and accelerating clean-up of the toxic water. A recovery plant under construction is expected to be able to capture an additional 438,000 metric tons a year.
“We expect to be able to go to, if not zero carbon, darned close to zero carbon, in the future,” said Joy Romero, the company’s vice-president of technology development. “This is a game changer” and such solutions could be applied around the world.
Those technologies are a few years away from being applied commercially, though, she said.
Canada’s oil sands industry made leaps in the past to generate billions of dollars in profits with adaptations to steam-based processes and replacing traditional mining shovels with back-hoes and trucks. Innovation that would have kept emissions and costs in check took a back seat.
“We used to do a lot more collaboration with government, industry and academics,” said Harbir Chhina, vice president at Cenovus Energy Inc. “That stopped when the oil sands took off because we had lots of money and everyone did their own thing. Our industry has had a closed mind.”
Cenovus is already using solvents mixed with steam to melt bitumen at its Christina Lake site, which is expected to reduce the steam used by as much as 25 percent. The producer is also considering ways to tackle emissions from vehicles, which contribute three-quarters of the greenhouse gases associated with a barrel of oil.
Carbon capture, while uneconomic under current conditions, may be the most important way the oil-sands will deal with its emissions problem, said Isaacs of Alberta Innovates.
“Carbon capture and storage is a bet we have to make because there are no significant greenhouse-gas reductions in the 60 to 90 percent range without it.”
We would love to hear from you and discuss leasing or investing opportunities.