Old, small and CO2 intense: why Canada’s most carbon-rich tar sands sites continue to pump

WINNIPEG, Manitoba, June 28 (Reuters) – In the shadow of Canada’s oil sands mega projects, smaller and technologically outdated facilities produce up to three times more emissions per barrel than the already high industry average – and the rise in oil prices gave them lease of life.

These projects present a further challenge to Canada’s goal of reducing emissions by 40-45% by 2030. With oil prices nearing two-and-a-half-year highs and bleak prospects for construction of new projects in the region. In a world moving towards net zero emissions, operators aim to pump as much as possible from existing installations – including the most carbon-intensive sites.

Finally, rising carbon prices can make projects unprofitable. For now, however, growers are cashing in as they seek to mend their balance sheets from the damage caused by the coronavirus.

“These assets are going under the regulatory radar and they could be for a while,” said Andrew Logan, senior director of oil and gas for the Ceres shareholder advisory group.

Prime Minister Justin Trudeau’s government is slowly increasing the national carbon price from C $ 40 per tonne of carbon dioxide equivalent (CO2e) to C $ 170 by 2030.

For oil producers to make decisions in line with government targets, authorities should accelerate the shift to higher carbon prices or impose other taxes on high-emission facilities, Logan said.

The Peace River site of Canadian Natural Resources Ltd (CNQ.TO) (CNRL) emits 0.197 tonnes of CO2e per barrel, the highest in the oil sands, according to 2019 data from the Government of Alberta. Peace River, which has been pumping oil since the late 1970s, expects to double production to 5,000 barrels per day (bpd) in the fourth quarter.

“In the pricing environment we find ourselves in right now, regions like Peace River would be good operating properties in terms of cash flow,” said Scott Stauth, COO of CNRL, adding that it could work for decades more.

Increasing production would reduce carbon intensity, he said. Increased production spreads a facility’s total emissions over more barrels of oil.

CNRL is testing technology to use less steam to extract oil at larger sites, and once proven commercially, hopes to apply this technology to Peace River, Stauth said. This would reduce the natural gas burnt to produce steam, a process which is one of the main sources of emissions in the oil sands industry.

Canada has the highest emissions per barrel of oil equivalent among the top 10 global producers, according to consultancy Rystad Energy.

Canadian Environment Minister Jonathan Wilkinson said the government had addressed some concerns about high-intensity sites, with measures such as stricter methane regulations and a new standard for low-grade fuels. in carbon, but added that he had to do more.

Alberta regulations encourage producers to reduce their emissions, regardless of their carbon intensity, rather than an approach that directly pushes operators to shut down high-emission facilities first, said Paul Hamnett, spokesperson for the minister. Provincial Environment.

For producers, the cost of reducing emissions is higher than the price of carbon and operating costs are low, making it worthwhile to continue operating the sites, said Chris Severson-Baker, regional manager. from Alberta for the Pembina Institute.

Greenfire Acquisition Corp, which has the second highest carbon intensity facility, plans to double production at Hangingstone over the next few months to 7,500 bpd, said managing director Robert Logan.

Logan said emissions intensity at Hangingstone is high due to production starts and stops, which use more energy. But he said keeping the facilities in operation for as long as possible made environmental sense, as exploring and drilling for new properties generates additional emissions.

When the price of carbon reaches the point where facilities are no longer profitable, they can shut down, he said.

“We’re going to leave a lot of oil in the ground from really good wells,” Logan added.

Imperial Oil’s Cold Lake (IMO.TO) has been in operation for 45 years and is one of the few large sites with a relatively high carbon intensity.

Imperial produces 11,000 b / d of solvents to reduce steam consumption and plans to add an additional 15,000 b / d over the next few years, converting approximately 19% of its total thermal output to production at more low emissions, said Simon Younger, senior vice president of upstream.

Cenovus Energy (CVE.TO), which owns two carbon-intensive sites, Tucker and Sunrise, plans to reduce its reliance on steam, having acquired them this year, said chief executive Alex Pourbaix.

“People are going to be very pleasantly surprised at how significantly we can improve the performance of these facilities.”

Reporting by Rod Nickel in Winnipeg; Additional reporting by David Ljunggren in Ottawa Editing by Marguerita Choy

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