Oil sands producers seek pathways of least resistance

Canadian oil sands firms aim to up spending to lift capacity in 2022, with higher oil prices and more export capacity on the horizon. But government collaboration on carbon reduction plans could provide the long-term certainty investors seek.

Operators are embracing carbon capture, utilisation and storage (CCUS) on a scale unseen before in Canada and capital is already flowing to related projects. CCUS is not new to Canada, but the industry's most ambitious carbon capture plan has put the ball back in the federal government's court. The oil and gas sector accounts for a quarter of the country's greenhouse gas emissions, the IEA says. And although the oil sands sector has reduced its emissions intensity by 32pc since 1990, with an additional 17-27pc cut expected over 2018-30, rising oil and gas output means more work is needed to hit 2030 and 2050 emissions goals.

The Oil Sands Pathways to Net Zero initiative between sixCanadian producers announced in June 2021 targets net zero emissions from oil sands operations by 2050. The proposal includes a trunk line serving oil sands projects connected to a carbon sequestration hub. It also requires "significant collaboration" from government. Ottawa's consultation period for a planned CCUS tax credit ended on 7 December, having considered project proposals to cut CO2 emissions by at least 15mn t/yr. An announcement should be imminent, based on plans to make the credit available this year, and that could give the 68mn t/yr Pathways initiative the green light.

Provincial attitudes

Government has set more targets in the meantime. Prime minister Justin Trudeau signed the country up to the Global Methane Pledge at the Cop 26 summit, with a commitment to cut oil and gas sector methane emissions by a world-leading 75pc by 2030, against 2012 levels. But while oil firms seem used to waking up to new targets, the province in which most operate is not. "The provinces own the resource and under the constitution the provinces regulate the development of the resources," Alberta premier Jason Kenney said at a press conference with Trudeau after Cop 26. Ottawa "must put real resources behind a huge expansion of Alberta's carbon capture and storage technology", he added.

The same day as Trudeau's Cop 26 pledge, funding for technology and emissions reduction initiatives from the federal government and the province were announced in Alberta. Recipients include oil sands projects belonging to US independent ConocoPhillips and Canadian firms Canadian Natural Resources (CNR) and Suncor. Canada's Cenovus is pushing forward plans for CCUS projects for at least three facilities. Christina Lake, the largest bitumen producing in-situ oil sands project, is expected to get the CCUS treatment between 2027 and 2035. This and other major projects appear to be dependent on the successful launch of the Pathways initiative, so a lot is riding on the tax credit soon to be unveiled.

Collaboration with Ottawa is "well under way", Cenovus chief sustainability officer Rhona DelFrari says, but for now the industry is awaiting word following the six-month consultation period. In the meantime, Cenovus, CNRL, Suncor and others are looking to build on 2021's oil sands production records, expecting 2022 capital expenditure and output to climb as a result of higher oil prices and additional export capacity (see tables). Producers now have more certainty around export pipelines — be they cancelled or under construction — giving them a clearer path to increasing output. Prices are at their highest since 2014 and monthly output hit consecutive record highs of around 4mn b/d in the last quarter. Trudeau's blessing to maintain production growth, provided emissions reduction plans stay on track, is the signal that investors will be looking for.

By Brett Holmes