One of the World’s Dirtiest Oil Patches Is Pumping More Than Ever

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Jan 20, 2022, 4:35:24 PMJan 20
One of the World’s Dirtiest Oil Patches Is Pumping More Than Ever
By Vipal Monga, 1/13/22, Wall St. Journal

Major oil companies, under pressure from investors & environ-
mentalists, are fleeing Canada’s oil sands, the 4th-largest
oil reserve in the world and by some measures one of the most
environmentally unfriendly. Investment in existing projects has
stalled, and banks are refusing to fund new ones.

Nevertheless, oil production there is expected to continue for
at least 2 more decades. Local companies have stepped in to keep
working the existing mines and wells. Last year, the oil sands
were on track to deliver more oil than ever.

Govts and financial institutions are pushing to wean the world
from fossil fuels to address climate change. But demand for
energy remains robust. So long as existing oil fields—no matter
their carbon footprint—remain profitable, they are likely to
remain in production long after big-name multinational companies
walk away.

There are still roughly 170 billion bbls of thick, tar-like
bitumen under boreal forests in the Canadian province of Alberta,
the largest amount outside of Saudi Arabia, Venezuela & Iran.
Domestic companies such as Canadian Natural Resources Ltd.,
Suncor Energy Inc., Cenovus Energy Inc. and Imperial Oil Ltd,
an affiliate of Exxon Mobil, extracted more crude from those
fields in last year’s 3rd qtr than the same period a year earlier.

Politicians and others pushing for a rapid transition to cleaner
energy sources face a conundrum. Despite intensifying efforts to
transition the global economy away from fossil fuels, alternative
energy sources currently come nowhere near meeting present demand.
That means companies will continue to pump oil even from carbon-
intensive sources.

“We'll continue to see growth,” said Alex Pourbaix, CEO of
Calgary-based Cenovus, which doubled its dividend last year.
Cenovus increased 3rd-qtr oil sands production by almost
50,000 bbls/day.

Pourbaix said the world-wide push for renewable energy wouldn’t
reduce oil’s importance as a cheap energy source anytime soon.
“There’s no technology at all of scale that can replace what
oil can do,” he said. “That’s just reality.”

The benchmark West Texas Intermediate oil price in the U.S.,
which fell to record lows in the spring of 2020, rose above
$70/bbl in June for the first time since 2018.

The sharp rise in prices has prompted even world leaders committed
to reducing emissions to call for more production. Biden asked
OPEC last year to boost production, after gasoline prices climbed,
and in Nov he released oil from the U.S.’s strategic reserve in a
bid to tame gas costs. He also supported the construction of a
replacement for Line 3, a pipeline operated by Calgary-based
Enbridge Inc. that brings crude from the oil sands to the U.S.

Canadian PM Justin Trudeau is spending over $12.5 billion to
expand the Trans Mtn pipeline, which carries crude from the oil
sands to Canada’s west coast. The expansion, when it's finished
sometime in 2023, will triple Trans Mountain’s capacity to almost
900,000 bbls/day, giving companies such as Cenovus and Suncor
greater access to growing markets in Asia.

Trudeau has said that money from Canada’s oil industry will
fund its transition to greener energy.

The production increases in Canada’s oil sands are happening
despite a yearslong flight of capital from the area. The region,
once one of the energy world’s hottest investment destinations,
has become a dead zone for foreign investment.

Since 2017, major oil companies such as Royal Dutch Shell,
ConocoPhillips & Total SA have announced plans to sell their
Canadian assets or have sold them. The reasons cited include
greenhouse-gas emissions and unattractive returns. Chevron Corp.
CEO Michael Wirth said he was open to selling a stake in the
region because it wasn’t a strategic asset for the company.

Some investment funds managed by BlackRock Inc. & Norway’s
sovereign-wealth fund have cut oil sands investments from
their portfolios. Last year, the Caisse de depot et placement
du Quebec, one of Canada’s largest pension funds, announced it
will sell all its holdings of oil company stocks, including its
interests in Canadian companies, by the end of 2022.

“The philosophy behind this is to avoid contributing to
additional oil supply,” said Charles Emond, CEO of the fund,
in Sept. The Caisse manages over $300 billion in assets for
public employees in the province of Quebec, about 1% of which
is invested in the stock of oil producers. “This is a leadership
decision in the face of the climate crisis.”

As international energy companies have moved out of the oil
sands, though, smaller independents and private investors
have come in, and some have moved to increase production.

Adam Waterous, CEO of the Waterous Energy Fund, a Calgary-
based private-equity firm, said the firm has bought 3 oil
sands projects in Alberta over the past 2 years. Together,
the projects produce between 50,000 -60,000 bbls/day, a number
he said could increase to 100,000 bbls/day within the next
5 years. As a private investor, he said, his company has more
freedom to increase production, while investing in technologies
to reduce carbon emissions, because it doesn’t have to answer
to public shareholders.

Canada’s petroleum industry accounts for roughly 5% of the
nation’s economic output. For all but two of the years since
2008, oil has been Canada’s top trade export.

An 88,000-sq-mi area in northeast Alberta, the oil sands boomed
between 2000-2014. Global companies, lured to the region by
high oil prices and plentiful supply, raced to Alberta to
build extraction megaprojects with names like Sunrise, Peace
River and Surmont.

During the boom years, investment in the oil sands totaled
$183 billion. Capital spending rose steadily, from $3.3 billion
at the beginning of the century to $26.4 billion at its peak
in 2014, acc. to the Alberta Energy Regulator, the provincial
dept that regulates Alberta’s energy industry.

Alberta’s crude is buried under quartz sand and is difficult
to extract. Producers either claw the oil-infused sand out of
the ground using excavators that look like dinosaurs, or pump
the crude out of wells by injecting steam deep into the earth
to liquefy it.

The oil requires a lot of energy to extract and visibly scars
the landscape. The mining process creates a slurry of quartz
sand, water & toxic chemicals, which is kept in huge reservoirs
called tailings ponds that are so big they can be seen from
outer space. At the oil wells, thick plumes of steam billow
overhead from the millions of gallons of water heated by
natural-gas facilities.

Acc. to research firm Rystad Energy, oil sands production in
Alberta generates roughly 160 lbs of carbon/barrel, a higher
greenhouse-gas emission than any other oil in the world. The
firm described the level as “staggering.” U.S. shale oil
producers, by comparison, generate an avg of 26 lbs/barrel.

Environmentalists began to target the region around 2002,
when officials in Alberta first quantified the size of its
reserves. “They are arguably the most visible human scars on
the planet,” said Bill McKibben, a prominent environmentalist
and co-founder of 350 dot org, a group dedicated to stopping
the use of fossil fuels world-wide.

Actor Leonardo DiCaprio visited the oil sands in 2014 and
produced a National Geographic documentary on climate change
that singled out the region. Groups such as 350 dot org,
Rainforest Action Network and Sierra Club organized protests
in Washington, disrupted pipeline construction projects and
pressured banks and financial institutions to pull funding
for oil sand projects.

A drop in the price of oil in 2014, coupled with pressure
from shareholders of energy co's to reduce emissions,
affected investment. In 2020, capital spending on oil sands
projects hit a 16-yr low, totaling $5.8 billion, acc. to the
Alberta Energy Regulator. Such capital investment has declined
every year since it peaked in 2014. It was forecast to have
risen slightly in 2021, but remain lower than it was in 2019.

In 2017, when Shell announced the sale of several oil sands
assets for $7.25 billion, CEO Ben van Beurden said that the
company wanted to boost returns. The announcement came at the
same time the company said it was linking director bonuses to
greenhouse-gas emission reductions.

In June 2021, Calgary-based pipeline operator TC Energy Corp.
announced it was ending a 12-yr effort to build the Keystone XL
pipeline extension, a conduit for Canada to get its oil to the
U.S. market. The announcement came 6 months after Biden kept
a campaign promise by canceling the permit that had allowed
the pipeline’s construction to move forward.

Almost 60 financial institutions, including Deutsche Bank,
HSBC Holdings PLC & insurance company Hartford Financial
Services Group, have curbed their oil sands investments.
In July, Japan Petroleum Exploration Co., Japan’s state-backed
oil-&-gas co known as Japex, which first leased land in Alberta
in 1978, announced it sold its stake in the Hangingstone
oil sands project at a loss of $800 million.

Employment in Canada’s oil-&-gas industry declined by 17%
between 2014-2019, from 226,500 to 188,760 in 2019, acc. to
Petroleum Labour Market Info, a division of the Energy Safety
Canada, an org that works with companies and workers to set
industry safety standards. The nonprofit estimated that Covid-19-
related layoffs accelerated the downward trend, and that the
industry shed another 20,000 jobs in 2020.

The toll is visible in Calgary, the corporate hub of Canada’s
energy industry. The steel and glass skyscrapers that tower
over the prairie landscape on the shores of the Bow River were
built during the industry’s heyday. Today, many are nearly
empty. Downtown Calgary had a commercial real-estate vacancy
rate of 33% in the 3rd qtr of 2021, the highest in North America,
acc. to CBRE Group, a commercial-real-estate services firm.
Houston’s vacancy rate, by comparison, was 24%.

Eventually, the lack of investment will cause production to
dwindle as oil from some projects is depleted, analysts say.
Some projects could start to deplete by the middle of the next
decade, acc. to Kevin Birn, an analyst with IHS Markit.

Some mines are being modified as the original reserves run low.
The North Mine at the Syncrude project, which is operated by
Suncor, is expected to be depleted by the middle of this decade,
but an extension of the mine is being built that will keep it
producing for another 14 years.

Newer projects, though, are likely to produce far into the
future. Fort Hills, an open pit truck and shovel mine run by
Suncor, completed in 2018, can produce almost 200,000 bbls of oil
a day. It can run for the next 50 years, based on current plans.

In October, producers extracted over 3.84 million bbls/day from
Alberta, a record, acc. to the Alberta Energy Regulator. Between
Jan-Oct, production totaled 1.09 billion bbls, also a record.


Jan 21, 2022, 12:50:01 AMJan 21
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