Think outside the sands box

The backlash against the oil sands is forcing companies to find creative ways to tackle their biggest environmental and social problems


 

The energy industry is not generally known for sharing. Technological breakthroughs are closely guarded secrets. Patents and trademarks are fiercely defended.

So it’s remarkable that when Alberta oil-sands company Cenovus developed a new drilling rig light enough to be transported by helicopter, potentially saving millions in road-building costs, it turned around and offered the blueprints to its competitors.

Cenovus used its SkyStrat rig to drill 16 in-situ wells in remote locations last year and is planning to use the drill on another 23 this year. The technology is a potential game-changer—not just for the industry, but for the environment, since moving a rig by helicopter means companies will no longer have to destroy large swaths of pristine wilderness to construct access roads to drill sites, or waste a lot of water by reapplying it to ice roads to keep them driveable in the winter. And now everyone can share in the breakthrough because Cenovus submitted the rig designs to the Canadian Oil Sands Industry Alliance, a year-old consortium of oil and gas companies that have agreed to share proprietary technologies to help the industry improve its environmental performance.

The push to turn former rivals into allies comes as the growing environmental backlash against the oil sands hits the industry’s bottom line. Controversies over TransCanada’s Keystone XL pipeline to the U.S. and Enbridge’s proposed Northern Gateway pipeline to B.C. have made it harder for oil-sands producers to get their bitumen to international markets. That has pushed down the price of Alberta crude to as much as $40 a barrel below global oil prices over the past year. Every oil-sands company was hit with the same discount, whether they were considered environmental leaders or villains. “You’re starting to see a change in culture where companies are starting to share what they normally would not share, especially on the technology,” says Craig Stenhouse, head of corporate responsibility at Cenovus. “If we can keep advancing the reputation of the industry, that will help us, in our case, to have access to markets, which in the end will get us a higher price for a product anyway.”

The alliance now includes companies covering nearly 90 per cent of the oil sands. It added China’s state-owned CNOOC Ltd. as a member this year after the company acquired oil-sands firm Nexen.

Oil-sands companies have been coming to terms with the fact that ignoring environmental concerns can prove bad for business, says Bob Walker, vice-president of Ethical Funds, which invests in socially responsible firms, including oil-sands companies such as Husky Energy, EnCana and Cenovus. “The story is not quite as dismal as some might want you to believe,” he says. “It’s been slow, but we are seeing progress in a number of key areas.”

Under pressure from investors, several companies have begun tying executive bonus packages to environmental and safety targets. Many now incorporate “shadow pricing” for carbon into their long-term forecasts, a recognition by the industry that it will eventually face a national, or even international, carbon tax. Despite the Harper government’s warning that a carbon tax would “kill and hurt Canadian families,” Walker says oil executives believe Canada needs to show leadership in the area of climate change or risk getting shut out of international markets, as was the case when the U.S. delayed approval of the Keystone XL pipeline. A carbon tax of $25 per tonne of carbon emissions might work out to just two to three dollars per barrel of oil, a small price to pay if it means getting political support for projects that would unlock the true value of Alberta crude. “The industry is not necessarily afraid of a price on carbon,” he says. “For whatever reason, we have some ideologies at the highest levels of government that are not interested in it.”

While the carbon-tax debate rages, firms are designing their own enviromental agendas. Suncor is one of the few companies to publicly set specific environmental targets, such as reducing polluting air emissions by 10 per cent by 2015. It publishes annual reports showing if it met its goals that year. “The fact that they publicly commit to these goals and put numbers and timelines on them is really progressive,” says Dayna Linley-Jones, a senior analyst at Sustainaylstics.

Cenovus, which was spun out of Encana in 2009, has developed new technology to recycle the water used for steam in its in-situ mining operations, allowing it to use less fresh water. This has the added benefit of reducing Cenovus’s carbon emissions, since it can burn less natural gas.

The company is also planning to launch a pilot project that tests the use of the solvent butane on a commercial scale at its new Narrows Lake development. The solvent would be pumped into wells along with steam to help soften bitumen, potentially slashing water use by 25 per cent. The firm is also researching solvent-only drilling, which could eliminate water entirely. Solvents are considered more environmentally friendly because they eliminate the use of gas-powered steam boilers, while the solvents themselves emit few greenhouse gases and can be recovered and reused.

Cenovus incorporates a preference for local suppliers into its corporate social responsibility policy. That led it to choose a local Aboriginal-owned company to supply heat pumps for a new plant, even though a supplier in India was selling them for less. The decision proved cheaper in the long run, Stenhouse says, when the company changed its plant design. The local firm came in at the last minute to refit its pumps.

Such improvements have helped Cenovus become the first oil-sands company named to the Dow Jones Sustainability Index, which Stenhouse says has helped open new markets in Europe. “It’s not greenwashing,” he says. “It’s not philanthropic cheque-writing. It’s actually making improvements in the performance of our company, which is good for business and good for the community.”

But while technological innovation has helped the industry cut back on its per-barrel carbon emissions, that progress has been dwarfed by the sheer pace and scale of oil-sands expansion, says Jennifer Grant, director of the Pembina Institute’s oil-sands program. “Corporate social responsibility is valuable, but it’s not a substitute for regulation,” she says. “The industry overall is really limited by the lack of regulation and policy, and this is hindering real environmental progress.”

Without government regulation to push them, says Grant, few companies will tackle the more pressing environmental and social issues on their own.

So far, for example, the industry hasn’t come to any agreement over how much water it should be able to draw from the Athabasca River during low-flow periods—there are no rules—nor how much land should be set aside to protect threatened woodland caribou. Companies also have little incentive to invest in technologies such as carbon-capture and -storage systems, which can cost $220 per tonne of carbon emissions, compared to the $15-a-tonne price Alberta’s government has imposed on companies that miss emissions targets.

New regulations are a political minefield that both companies and politicians would prefer to avoid. But in their absence, oil-sands producers are finding the idea of self-regulation too difficult to ignore. As the intense focus on oil sands over the past year shows, the world is looking for a sign that Canada’s oil producers take their responsibilities seriously. The future of the environment—and the success of the industry—may depend on it.


 
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