Canada must step up and offer a safe haven for natural gas and oil investment

By Bruce Lantz

Canada’s oil and gas sector is struggling to determine the impacts of the Canadian government’s recent announcement that the deadline for cutting greenhouse gas emissions will be moved ahead five years.

The tightened timeline was announced in September by newly re-elected Prime Minister Justin Trudeau, who said emissions would be capped at 2020 levels and five-year declining targets would be set starting in 2025. Trudeau’s Liberal government had been saying, up to that point, that national emissions – not just in the oil and gas sector – needed to be cut 40-45% by 2030, not 2025. Some estimates put the cost of carbon capture at C$75 billion by mid-century and some experts say it represents the end of oil and gas expansion in Canada.

Perhaps significantly, Trudeau’s announcement of new targets came just ahead of the United Nations’ Climate Change Conference in Glasgow, Scotland. U.S. President Joe Biden has announced a nationwide target of a 50-52% reduction in greenhouse gases by 2030 and a net zero emissions economy by no later than 2050.

But it’s not that easy. The new International Energy Agency (IEA) World Energy Outlook 2021 STEPS scenario shows the planet reaching higher levels of demand for oil and natural gas compared to 2020 projections, and needing these sources of energy for decades to come. And producers, while doing what they can to reduce emissions, are not confident they can meet the new federal target. The companies have prioritized repaying debt and returning cash to investors, but Trudeau seems to be indicating that he wants producers to spend some profits on curbing emissions.

In fact, many experts are saying that Trudeau’s 2025 target is too ambitious, and a more realistic goal would be to have the oil and gas industry make major emissions reductions a decade later.

Suncor Energy Inc. (NYSE:SU; TSX:SU), the nation’s second-largest crude producer, is ignoring the new emissions target, while Canadian Natural Resources Ltd. (TSX:CNQ) and Cenovus Energy Inc. (TSX:CVE) were planning to reveal their emissions targets by the end of this year but have not indicated if their plans would include the new target. As it stands, CNRL has already cut its methane emissions by 28% since 2015, while Cenovus has cut its methane emissions by nearly half since 2015.

“We should pursue an energy evolution that will allow for Canadian resources to attract investment and help meet growing global demand,” Jay Averill, spokesperson for the Canadian Association of Petroleum Producers (CAPP), told Resource World Magazine. “Through effective dialogue, government and industry can pursue a way forward for Canada that achieves the shared goal of producing more energy with fewer emissions.”

He said that the energy crisis now in Europe should be a warning to Canada of the possible consequences of getting energy policies wrong, noting that developed nations that once benefited from stable energy supplies now face energy shortages, price volatility and a lack of the infrastructure capable of bringing additional base energy online. Added to that are the energy policies and economic impacts from the COVID-19 pandemic which are hampering the ability of the market to respond to energy needs, particularly by turning investment away from natural gas and oil production in democratic nations.

“The result is our allies and customers are now asking OPEC (the Organization of Petroleum Exporting Countries) and Russia for oil and natural gas.”

Canada has the world’s third-largest oil reserves. Of the 168 billion barrels of Canadian oil that can be recovered economically with today’s technology, 162.5 billion barrels are in the Alberta oil sands. In 2020, Canada’s oil production averaged 4 million barrels per day, of which 94% came from producing areas in Western Canada. Currently, 99% of Canada’s oil exports go to the U.S. but with improved market access and infrastructure Canada can increase global market share.

Canada also has vast reserves of natural gas, particularly in British Columbia and Alberta. In 2020, natural gas production averaged 16 billion cubic feet per day. Canada has enough natural gas to meet domestic needs for 300 years, with enough remaining for export. The export of natural gas as liquefied natural gas (LNG) will enable Canada to access markets in Asia. In 2019, exported oil, natural gas and petroleum products earned C$112 .6 billion, Canada’s top export by value.

Emissions reduction is an easier job, perhaps, for smaller companies. Yangarra Resources, a small Alberta firm producing the equivalent of 10,000 barrels of oil per day, has plans to reduce its emissions 47% by the end of 2022 by powering its pumpjacks with electricity rather than natural gas, and replacing older equipment that leaks large volumes of methane.

“Cutting carbon in the oil patch is going to be a whole lot easier than anyone thinks,” CEO Jim Evaskevich told Reuters. “All of the changes we are implementing make incredible economic sense.”

Innovative technologies and production efficiencies can have a significant impact, says CAPP in a report. Many producing companies are researching, developing and deploying technologies, and the industry also has a significant commitment to collaboration and knowledge sharing, aimed at improving performance across the sector and contributing to Canada’s international climate change commitments. Also, many technologies developed in the industry are transferable to other industries and to other producing jurisdictions internationally .

The industry has a broad portfolio of innovative solutions to deliver emissions reductions . “Technological advances are not aspirational, they are actual: the industry is taking serious, substantial steps to reducing emissions intensity,” CAPP says in its report, noting that the natural gas and oil industry accounts for 37% of environmental protection spending by industry, according to data from Statistics Canada .

Averill noted that Canada’s natural gas and oil industry already is the nation’s leading investor in emissions reduction and clean technology, and that investment in that sector supports hundreds of thousands of job. The industry can provide the foundation for economic recovery while generating billions of dollars in government revenues which can be used to help fund emissions-reducing technologies for use in other industries and around the world, he added.

“Canada must step up and offer a safe haven for natural gas and oil investment, so our trading partners do not have to rely on others who are not as committed to lowering their emissions, compared to Canada, for their energy needs.”