U.S. may protect oilsands

Considering move to exempt region from new crackdown

Claudia Cattaneo
National Post
Tuesday, March 11, 2008

Chris Schwarz/CanWest News Service
The oilsands are likely to produce more than three million barrels a day
by the middle of the next decade.

CALGARY -- In response to concerns that new U.S. environmental legislation will drastically impact development of Canada's oilsands, Washington is considering classifying oil produced from the region as "conventional" fuel rather than subject it to the stringent standards expected of "alternative" fuels.

The U.S. government passed a law that prohibits federal procurement of alternative fuels that generate more greenhouse gases than "conventional sources," which spurred a warning last month from Canada's ambassador to the United States, Michael Wilson. Mr. Wilson said a narrow interpretation of the legislation would include the vast deposits of the oilsands -- where U.S. firms are major investors and the U.S. government is a major customer.

An interdepartmental working group with representation from several U.S. agencies is looking into how to classify the Alberta deposits under the new rules, said a source who suggested the step was taken because "D.C. does not want to hammer" the region.

Mr. Wilson's letter to several senior members of the U.S. administration -- including Robert Gates, the Secretary of Defence, and Condoleezza Rice, the Secretary of State -- outlined concerns with the Energy Independence and Security Act 2007, passed in December.

"The U.S. government would be seen as preferring offshore crude from other countries over fuel made in part from U.S. and Canadian sources," Mr. Wilson argued. "Further, the U.S. government would be contradicting other stated goals to encourage greater biofuels use and Canadian oilsands production."

The letter also warned of unintended consequences for both countries if it compromised the oilsands, which are a key supplier to U.S. military and postal fleets.

The rationale for classifying the oilsands as conventional oil is that, unlike alternative fuel sources, the deposits are well established, yielding more than one million barrels a day and likely to produce more than three million barrels a day by the middle of the next decade. As such, they are no longer "a science experiment," as one source put it.

A decision is expected this spring.

The administration of George W. Bush has encouraged oilsands development from its early days to help reduce U.S. dependence on Middle East imports. U.S.-based companies such as ConocoPhillips, Chevron Corp., Exxon Mobil Corp. and Devon Energy Corp. are among the deposits' biggest investors.

The legislation and new low-carbon fuel standards adopted in California are seen as major setbacks for the oilsands industry because they restrict the market for its oil, all of which is exported to the United States. A major worry is that such rules could have a domino effect and be adopted in other jurisdictions.

In his Feb. 22 letter, Mr. Wilson argued that Canada does not consider oil extracted from the oilsands as alternative fuel. "Oil produced from the oilsands, like oil from other sources, is processed in conventional facilities," Mr. Wilson wrote, noting that it would be difficult to identify fuel on the U.S. market that was 100% extracted by conventional means.

Mr. Wilson also notes that the U.S. administration recognized the oilsands as part of the mainstream when 174 billion barrels of oilsands reserves were included by the U.S. Department of Energy in its annual tally of proved world oil reserves.

Put carbon burden on consumers, petro leaders say

EDMONTON -- Oil industry leaders called for a national carbon tax on consumers Monday to help pay for building new greenhouse-gas disposal systems.

The levy would put the burden where it belongs -- on fossil-fuel users that cause the most emissions, said Nexen Energy president Charlie Fischer and Enbridge president Pat Daniel.

"Our industry is prepared to do its share," Fischer said as environmental obstacles to oilsands development took centre stage at the 2008 World Heavy Oil Congress in Edmonton.

The comments came on the same day the federal government announced new measures to cut carbon emissions. They included requiring oilsands facilities that start in 2012 or later to capture and store the bulk of their carbon emissions. As well, emissions reductions would be required from existing facilities and those that start before the end of 2011.

About 30% of oilsands carbon-dioxide emissions come in Alberta from producing bitumen and upgrading it into synthetic light oil ready for conversion into fuels, Fischer said.

Refineries another 15% of the waste greenhouse gas into the atmosphere, he estimated, citing expert consultant studies commissioned by his company.

Fuel users account for a 55% majority of the emissions blamed for global warming, Fischer said.

A new carbon tax would serve a dual purpose of encouraging more efficient motoring and generating money for proposed industrial greenhouse gas collection and storage installations, Fischer suggested.

"Government has a big role to play if carbon capture and storage is to become a reality," Fischer said.

Suncor Energy president Rick George stopped short of calling for consumer taxation but said industry cannot shoulder the entire burden of paying for cutting greenhouse gas emissions.

"Everybody's got a piece of this," said George, whose firm leads an industry consortium proposing a multibillion-dollar collection, pipeline and disposal network for carbon-dioxide.

"Industry has taken the lead on carbon capture and storage. I'm glad to see governments are moving forward. Their support is absolutely essential," George said.

A task force appointed by Prime Minister Stephen Harper and Alberta Premier Ed Stelmach called in February for immediate creation of a $2-billion government fund to help kick-start construction of disposal networks.

Neither government has made financial commitments.

But the recommendation will be reviewed by a carbon capture secretariat that will be appointed as part of the province's developing green plan, Alberta Environment deputy minister Peter Watson said.

The technology is a cornerstone of provincial policy and a report making a detailed "business case" for construction partnerships between government and industry will be sought by the end of the year.

"We need clarity on greenhouse gas regulation," Fischer said.

An international carbon tax that treats all fuel users equally would be an ideal policy, Fischer said.

"We're doing very little to change consumer behaviour," he said. "People don't want to change and they want cheap fuel."

Collecting, transporting and disposing of waste carbon-dioxide will cost $80 to $100 per tonne of emissions, estimated Daniel, whose Enbridge is sponsoring a network stretching from the northern bitumen belt south to central Alberta.

"We're going in the right direction. We need to move a bit faster," he said.

The expense works out to "a couple of dollars a barrel," Daniel estimated.

The added costs would not likely be enough to force cancellation of any oilsands projects, the Enbridge president predicted. But the expense of carbon capture and storage would work out to one to two cents per litre of refined fuels.

Daniel urged enactment of "some form of carbon tax" because costs of cleanups should be felt by all that contribute to environmental problems, he suggested.

"It has to be a sharing."

Edmonton Journal

gjaremko@thejournal.canwest.com