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Varcoe: Oilsands producers move to shed high-cost, high-carbon label

Varcoe: Oilsands producers move to shed high-cost, high-carbon label
Business
The oilsands have been dogged for years by criticism it’s one of the most expensive barrels of crude in the world to produce. It requires a lot of energy to extract the molasses-like bitumen, while generating greenhouse gas emissions — making it “dirty tarsands oil” in the eyes of fierce critics like former U.S. vice-president Al Gore.

But at the Energy Disruptors conference on Tuesday, Suncor Energy CEO Steve Williams painted the picture of an industry that is evolving, using technology, data and innovation to drive costs lower, while curbing emissions per barrel.

For example, the company’s new $17-billion Fort Hills oilsands mine has GHG emissions per barrel that are in line with the average crude produced in the United States, he said.

And the cost to produce it has been falling in the wake of the 2014 oil price collapse and ongoing efforts to squeeze expenses.

“That journey, in the last 10 years, has taken us from a cost of just around $40 a barrel down to today, just above $20 — and I can see it coming down into the teens. That’s been a journey of scale, of better technologies,” he told the audience attending the two-day conference in Calgary.

“Our challenge is to be competitive on price and competitive on carbon.”

The energy sector is going through a wholesale evolution today, powered by a growing global population and more people moving into the middle class. They’re rightfully demanding cleaner, more affordable energy supplies.

The International Energy Agency forecasts global energy demand will rise by 31 per cent by 2040.

A period of disruption is now in full swing, from the falling price of renewable energy to the phasing out of coal-fired electricity to the emerging presence of electric vehicles.

These factors, along with the ongoing shift to decarbonize, are putting pressure on Canadian energy producers to adapt.

Williams noted Suncor is moving into big data collection and analysis, while examining the potential of machine learning and artificial intelligence to improve operations.

The Calgary-based company is in the midst of adopting the first fully autonomous heavy vehicle fleet in North America at its oilsands operations north of Fort McMurray. It is using massive, 400-tonne capacity driverless trucks to move ore around its mining site.

“They drive almost perfectly, they accelerate perfectly, they brake perfectly, they don’t bump into things.”

Yet, as billions of dollars of investment flow into shorter-cycle energy investments in the U.S. shale oil plays, companies like Suncor, Canadian Natural Resources and Cenovus Energy must continue to lower costs and their carbon footprint in the oilsands.

It will require effort, but there are opportunities ahead. 

A Canadian Energy Research Institute study last year projected the oilsands sector can lower its supply costs per barrel by up to 46 per cent. The sector can also cut GHG emissions intensity by as much as 80 per cent per barrel through the use of emerging technologies.

Partial upgrading, using solvents and improving steam generation techniques in thermal oilsands operations hold promise, but will require major investments.

“It really depends on how fast the technological processes are adopted,” Dinara Millington, CERI‘s vice-president of research, said in an interview.

“There is no one silver bullet technology — no one technological solution — that will address these various issues.”

Williams pointed out Suncor is now using 50 per cent less energy per barrel than it did a decade ago, and has a target to bring that down by another 30 per cent by 2030.

But the entire oil and gas industry is the largest source of emissions in Canada, accounting for 26 per cent of all GHGs as oilsands production continues to increase.

Other producers are also trying to hammer home the point their oilsands costs and emissions are becoming more competitive.

Canadian Natural Resources executive vice-chairman Steve Laut noted recently the company’s methane emissions have dropped by 71 per cent from its conventional heavy oil operations since 2012.

Emissions from its Horizon oilsands project are within five per cent of the average global barrel, he added.

But the oilsands has other obstacles to overcome if it wants to keep growing, including the high capital costs needed to build new projects and the inability of Canada to construct pipelines to move product efficiently to market.

“There’s a ways to go before the perception of the (oilsands) industry has changed,” said industry analyst Jennifer Rowland with Edwards Jones.

“If there’s not a clear line of sight for new pipelines, then why would anyone in their right mind sanction a new project?”

Expect disruption to continue for both energy producers and consumers in the years ahead as these forces for change continue to accelerate.

For Canada’s oilsands sector, the question is how quickly will it adapt to these changes, and if it can alter perceptions in the process.

“You have to be low cost, high responsibility to survive and prosper,” speaker Michael Liebreich, founder of Bloomberg New Energy Finance, told the conference.

“The one thing we know in this energy city, this energy province, if you want things to stay as they are, everything will have to change.”

Chris Varcoe is a Calgary Herald columnist.
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