What role should oil sands play in the world's future energy mix?

Contributed to The Toronto Star
Greg Stringham
Vice President of Oil Sands
Canadian Association of Petroleum Producers
July 19, 2011

This article originally appeared as part of an oil sands discussion on the website www.commentvisions.com.

Canada's oil sands producers believe oil will play a pivotal role in meeting global energy needs for several decades, a view shared auspicious organizations such as the International Energy Agency and the U.S. Energy Information Administration.

Even "off oil" activists recognize people can't simply stop using fossil fuels overnight. But some argue Canada's oil sands should not be developed - they urge the world to ignore the third-largest oil reserve on the planet - and unlike the oil industry, they offer no realistic alternatives to meet growing global energy needs.

Canada's oil sands industry takes a balanced approach to energy security and reliability, economic growth and environmental performance. Our goal is to ensure we continue to develop oil sands responsibly, including continuous improvement in environmental and social performance.

The IEA's 2010 "new policies" scenario predicts worldwide energy demand will increase by 36 per cent between 2008 and 2035, with more than 90 per cent of the growth coming from China and India. Although demand rises more slowly in the United States, the U.S. remains the world's second largest energy consumer. Fossil fuels meet the bulk of demand and remain the dominant energy sources at the end of the forecast period. By itself, oil provides 28 per cent of the energy mix, down just five per cent from 2008. Over the same time period, the forecast predicts energy from renewable sources doubles to about 14 per cent.

It's clear the world will continue to need all forms of energy and Canada's abundant oil sands reserves are a big part of the solution to our energy challenge.

Technology and innovation will enable more development of the oil sands, with a reduced environmental footprint and at a lower cost. Oil sands production will reduce North America's need for foreign-sourced oil and those supplies will help meet demand in other parts of the world. Depending on the pace of development, there is also an opportunity for oil sands to play a direct role in meeting the needs of other markets via offshore exports from Canada.

All industries impact the environment - including development of fossil fuels and renewable energy - but oil sands impact is being managed, reduced and ultimately reversed. The evidence is readily available, just beyond the anti-oil sands rhetoric.

Growing oil sands production must be reconciled with the expected transition to a lower carbon energy system and Canada's international commitments. These issues are best dealt with in the broader context of global energy systems, rather than solely with respect to the oil sands.

While Canada's oil and gas industry doesn't oppose carbon reduction policy, well-designed policy is an important enabler, there must be emissions reduction opportunities available to producers, transporters and consumers of energy at a reasonable cost. GHG-reduction technology development and deployment must be a key priority for industry, governments, academia, research institutions and other organizations.

A good example of poorly designed policy can be found in proposed measures related to GHG emissions from Canadian oil sands now being contemplated in the European Union. Although oil sands GHG emissions are in the same range as many other crude oils being used in Europe, the European Union has included draft language in is Fuel Quality Directive that discriminates against Canadian oil sands.

The proposed policy inappropriately singles oil sands when it is apparent the oil is similar in carbon footprint to other global heavy oils and conventional oils produced with associated flaring of natural gas. The Canadian industry has been active in trying to remove this discrimination. A decision is expected later this year.

In Canada, oil sands producers continue to take action on a major scale to reduce "on the ground" GHG emissions associated with operations. These initiatives are good business - they lower capital and operating costs and reduce environmental impacts. Our objective is to be as good or better than competing supplies in the world market.

And we're making considerable progress. According to a 2011 analysis by IHS-CERA, oil sands crude is about 11 per cent more greenhouse gas intensive than the average light European average crude supply on a wells-to-wheels basis. This figure is significantly lower than often-quoted figures for oil sands crude. Additionally, oil sands crude will be competing with heavier crudes over time, as the world's oil supply continues to shift steadily from light, conventional oil to heavier, unconventional supplies.

Examples of oil sands environmental performance to date include a 26 per cent reduction since 1990 in GHG emissions per barrel of oil produced, increased use of recycled or non-potable water, reduced surface disturbance and the development of game-changing technology for settling pond reclamation.

New and emerging technological innovations will continue to improve environmental performance. Examples include processes that combine naturally occurring hydrocarbons with steam to improve oil recovery rates and reduce GHG emissions per barrel; technologies to process bitumen and remove the heaviest hydrocarbon components on-site and non-aqueous extraction techniques to reduce or eliminate the need for water and settling ponds.

Further, climate policy initiatives are already in place in some jurisdictions in Canada, including Alberta, where the oil sands are primarily located, and where industry must reduce its GHG emissions by 12 per cent or pay a price on carbon of $15 per tonne under Alberta legislation - comparable to the price paid under Europe's current carbon trading regime. The revenue accumulates in a technology fund earmarked for reinvestment in GHG reduction-related solutions such as carbon capture and storage and efficiency advancements.

What role should oil sands play in the world's future energy mix? That conversation is over - oil sands cannot be viewed in isolation from the expanding global energy system.

The conversation must be about a balanced approach to energy security and reliability, economic growth and environmental performance - all are important.

While we acknowledge the "off oil" position advocated by some groups is rooted in deeply held views regarding the need to reduce GHG emissions through reductions in production and use of hydrocarbons, we must be realistic about the pace and scope of transition to a lower carbon energy system.

We recognize the growth potential of other sources of energy, along with the ongoing need for hydrocarbons and the increased environmental performance of fossil fuel production that is enabled by technology and innovation.