When talking about the oil and gas industry, it is now impossible to ignore the conversation about energy transition. With a broad, global push for net zero carbon dioxide emissions by 2050 to limit the global temperature increase to 1.5°C, the oil and gas industry has been criticized at best and demonized at worst. Contrary to popular belief in some circles, the Canadian oil and gas industry is very cognizant of the need for emissions reduction and energy transition. To this end, industry is pursuing several initiatives to further these objectives.
We cannot simply flip a switch and move to a world without fossil fuels. It is wholly unrealistic. Instead, let us switch perspectives and work together with industry and government on transitioning to a net zero world.
On June 9, Canadian Natural Resources, Cenovus Energy, Imperial Oil, MEG Energy and Suncor Energy, who collectively operate approximately 90% of Canada’s oil sands production, announced the Oil Sands Pathways to Net Zero initiative. The objective of this alliance is to achieve net zero by 2050. This collaboration will involve the companies working together, alongside the Government of Canada and the Government of Alberta, to advance new and emerging technologies required to reach net zero. Efficient application of capital, which we should all understand is finite, is crucial to reach net zero. By sharing technology, the oil sands companies are demonstrating their understanding of both the objective of reaching net zero and also the difficult pathway to get there.
One of the key components of the Oil Sands Pathways to Net Zero initiative is a major carbon capture, utilization and storage (CCUS) trunkline connected to a carbon sequestration hub. CCUS will be critical in Canada’s pursuit of net zero and, like all climate change initiatives, will require government subsidies. This fact is often contentious. Some view such subsidies as monetary supports for the demonized fossil fuel industry. However, net zero cannot be achieved without significant private investment. The Canadian oil and gas industry, which has invested $2 billion in environmental research and development (R&D) alone from 2015 to 2017, is possibly the largest source of R&D capital in clean technology in Canada. This R&D investment is crucial in any pathway to net zero and is only made possible because of the cash flow generated from existing oil and gas production. The investment is a significant cost for Canada’s oil and gas producers, but they understand that it is a cost they must bear – indeed, it is now an undeniable cost of doing business for these companies. One way to view this is that their existing business is subsidizing their R&D expenditures on clean technology, without which no such investment would be possible. Collaboration and significant investment by the oil and gas industry is a positive step forward on the path of energy transition.
Similar collaborations are happening in other segments of the oil and gas industry. On June 17, Pembina Pipeline and TC Energy announced a plan to jointly develop a carbon transportation and sequestration system capable of transporting more than 20 million tonnes of carbon dioxide annually. The Alberta Carbon Grid will utilize existing pipelines and a newly developed sequestration hub to reduce emissions and aid in the energy transition. This system is intended to be the backbone of CCUS in Alberta, with multiple locations across the province. Importantly, it is intended to serve multiple industries and is open to other infrastructure owners joining to maximize the reach of the project. The oil and gas industry is once again demonstrating its willingness to work together and with governments to combine existing infrastructure with new innovations and approaches, as well as billions of dollars of private investment, to transition towards net zero.
Combining the Canadian oil and gas industry’s abundant resources, technical knowledge, existing infrastructure, favourable geology and capital will be necessary if Canada is to achieve net zero.
The development of a hydrogen industry in Canada is another initiative in the country’s energy transition. This carbon-free fuel will be needed if there is to be a net zero world. Thankfully, with Canada’s abundance of natural gas, the transition towards hydrogen is a natural progression for this country as hydrogen can be produced from natural gas. Air Products, a world leader in hydrogen production announced on June 9 that it will develop a $1.3 billion net zero hydrogen production and liquefaction facility near Edmonton. That announcement came on the back of a May 11 announcement by Suncor Energy and ATCO that they are also collaborating on a clean hydrogen project near Edmonton. Both projects should be applauded as progress on energy transition. Combining the Canadian oil and gas industry’s abundant resources, technical knowledge, existing infrastructure, favourable geology and capital will be necessary if Canada is to achieve net zero.
As with all climate change initiatives, government support will be required for both hydrogen projects to proceed. Some critics argue that such supports must not go anywhere near the oil and gas industry. The two projects are blue hydrogen projects, which rely on CCUS to achieve net zero emissions (as opposed to green hydrogen which utilizes renewable power). To those critics, any production of oil and gas is unacceptable, regardless of any emissions reductions achieved by CCUS. If capital grew on trees, switching off oil and gas production may presumably be possible. However, as previously stated, the vast majority of people understand that capital is finite. Certainly, we understand this at PearTree. We are in the business of “expanding the universe of exploration capital”, so we understand better than most the vagaries of capital flows. Capital, from both industry and government, must be spent judiciously and efficiently. Canadian Energy Systems Analysis Research at the University of Calgary and The Transition Accelerator estimate that the cost of production of green hydrogen is three times the cost of production of blue hydrogen. In a June 2019 report, the International Energy Agency came to a similar conclusion. We must walk before we run, despite the best intentions and objectives.
We cannot simply flip a switch and move to a world without fossil fuels. It is wholly unrealistic. Instead, let us switch perspectives and work together with industry and government on transitioning to a net zero world.
