Proud oil & gas producers
Canada’s oil and gas producers have a major problem on their hands these days and it has nothing to do with performance, production or profitability. Nor do the industry’s troubles have much to do with its contribution to the Canadian economy or to the well-being of individual Canadians. Energy companies employ 550,000 people directly and indirectly, according to the Calgary-based Canadian Association of Petroleum Producers (CAPP). They paid $18 billion in taxes to various levels of government in 2010, again according to CAPP, and that year invested $51 billion in new plant and equipment, making the industry the largest single source of private investment in the country. Canada ranks third in the world in crude oil reserves, behind only Venezuela and China, and has enough natural gas to meet demand — at current levels — for 100 years. In short, oil and gas companies can continue to be an economic force for decades to come.
The industry’s problem — and it is immense, given the forces gathered against it — is its image. Environmental activists, non-governmental organizations and even some wealthy individuals have launched blistering attacks on the oilsands of northern Alberta. They are equally determined to halt Trans-Canada’s Keystone XL pipeline that would deliver bitumen to the U.S. and Enbridge’s proposed Northern Gateway pipeline that would transport the same product to tidewater at Kitimat, B.C. and, ultimately, to Asian markets. The industry stands accused of being a major contributor to greenhouse gas emissions, and therefore climate change. Opponents portray the oilsands as a global threat to the environment and, by extension, to the planet and humanity itself.
“The NGO activity against the oilsands began to accelerate about 10 years ago and it hasn’t subsided,” says Janet Annesley, CAPP’s vice-president of communications. “The NGOs have initiated campaigns against the pipelines because they think that if they can stop the pipelines they can stop the oilsands. They have tried to brand Alberta and the oilsands as a global threat which is utterly ridiculous.”
The industry is up against adversaries of all sorts–some with money behind them, other with hefty academic credentials. Tom Steyer, for instance, is a California-based billionaire who made his fortune as founder of Fallon Capital Management, a hedge fund that frequently invested in energy companies, but he has emerged as a powerful opponent of the Keystone pipeline. Recently, he hosted a $5,000 a head fundraiser for U.S. President Barack Obama, who will ultimately decide Keystone’s fate, likely this fall.
Canadian academic Thomas Homer-Dixon, another prominent opponent, argued against the oilsands in an op-ed article that ran in the New York Times on March 31 under the headline “The Tar Sands Disaster.” Homer-Dixon, who teaches global governance at the University of Waterloo’s Balsillie School of International Affairs, described bitumen as “junk energy,” called the oilsands “one of the world’s most environmentally damaging activities,” and charged that “Canada is beginning to exhibit the economic and political characteristics of a petro-state.”
Homer-Dixon wants no part of environmentally sustainable development. As he put it: “Many of us want to see the tar sands wound down and eventually stopped, even though it pumps tens of billions of dollars annually into our economy.” The key first step to achieving that objective is to stop the construction of new pipelines and an American organization called All Risk No Reward has begun broadcasting 30-second anti-Keystone ads nationally. The voice-over text warns that oil spills are inevitable, that the oil will be shipped through the U.S. and on to export markets “putting us at risk while big oil gets the rewards. Connect the dots. It’s a pretty ugly picture.”
Both the federal and Alberta governments have been vigourously lobbying for Keystone in Washington and taking out ads in prominent media like the New York Times to counter the opponents. In mid-April, Alberta Premier Alison Redford made her fourth trip to the U.S. capital in recent months to meet with congressional leaders and policy makers. Furthermore, her government is now floating its so called 40-40 plan, which would compel companies to reduce their emissions by 40 per cent and impose a $40 per tonne carbon tax.
Alberta currently levies a tax of $15 per tonne. The province also passed regulations stipulating that facilities emitting more than 100,000 tonnes of greenhouse gases per year had to reduce the per barrel intensity by 12 per cent as of 2007. Environment ministry compliance results show that the industry made reductions of 10.1 million tonnes in 2011 and had reduced greenhouse gas emissions by a cumulative 32.3 million tonnes between 2007 and 2011.
“Alberta’s 40-40 plan is a reaction to Obama,” says Bob Page, director of the Enbridge Centre for Corporate Sustainability at the University of Calgary. “Obama has made it very plain to both the Alberta and Canadian governments that without significant and dramatic change on the environment, Keystone will not be approved.”
If the U.S. president vetoes Keystone, it will have a significant impact on Alberta producers, Page adds. “By the end of next year, we will have run out of pipeline capacity,” he says. “Then you have to shut in oilsands capacity and lose all that revenue to industry and government. New productive capacity is coming onstream and the only market is the U.S.”
For the opponents, a victory in the Keystone fight would have real and symbolic ramifications. “They imagine if they do that, they’ve made a great start toward shutting down the hydrocarbon industry worldwide,” says Michal Moore, a professor of energy economics at the University of Calgary. “The idea that you can shut down the worldwide hydrocarbon industry by shutting down the Canadian industry is remarkably naive and dangerous.”
Apart from its ideological opponents, Canada’s oil and gas producers are facing market conditions that are largely unfavorable to their cause. At the moment the U.S. is awash in new supplies of domestic oil from the Bakken formation in North Dakota and the revival of the long-established Permian Basin in west Texas. As well, the return of Iraq as a major producer has changed the international supply picture.
“Canada’s oil producers find themselves in a position where they’re pushing on a string,” says Moore. “If you could erase the Bakken, erase the new supplies coming out of the Permian, if Iraq oil was still off line, then the dynamic would be dramatically different. You would have a very different climate in which to propose new pipelines.”
The Canadian public has been bombarded in recent years by claims and counter-claims, arguments and counter-arguments about the oilsands and pipeline. But most Canadians appear to be largely unmoved by the doomsday scenarios presented by extremists such as Homer-Dixon. Annesley says CAPP polling routinely shows that only 12 to 15 per cent of respondents want to see an end to fossil fuel consumption and would support the closure of the oilsands. A national Harris Decima poll conducted in June 2011 revealed that 78 per cent of participants believed that a strong oil and gas sector is in Canada’s interest and 75 per cent supported the same level of development or more. The same percentage indicated they would support more development provided environmental impacts were manageable or being reduced.
In addition to polling, CAPP has mounted a major communications effort in recent years to sway public opinion, including slick TV ads that frequently run during Saturday evening Hockey Night In Canada broadcasts. Environm
ental groups say polished public relations won’t solve all the industry’s problems. “We understand why CAPP spends the money they do on communications,” says Simon Dyer, the Edmonton-based policy director of the Pembina Institute, an energy and environmental think tank.
“Pembina’s position,” he adds, “is that there are legitimate environmental issues that need to be addressed. We’ve identified 19 key gaps in environmental management and we haven’t seen much uptake or dialogue from the industry. Canada’s industry is now environmentally uncompetitive and it’s hindering their market access.”
The industry is currently producing about 1.8 million barrels per day from the oilsands and output is scheduled to rise to 2.3 million b/d in 2015 and 5.0 million b/d in 2030. Extraction techniques and technologies have improved greatly over the years, but technology alone won’t improve the industry’s performance on environmental metrics or its image, Dyer argues.
He says new government policies and regulations are needed if the industry is to become environmentally competitive. “In almost every instance where we’ve seen breakthrough technology, it’s been because policy provided the prod to get us there,” Dyer adds. “Policy drove companies to take the lead out of gasoline. Policy changes drove the acid rain issues in eastern Canada. Regulations change and smart people quickly figure out how to comply. That’s where we’re at with the oilsands.”
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