Oil sands industry turns to algae to appease Obama

Oil sands in Canada's Fort McMurray
Studies show that a gallon of fuel produced from the oil sands crude, known as bitumen, releases between 8 per cent and 37 per cent more carbon than conventionally produced fuel. Image: Eamon Mac Mahon, Associated Press/Canadian Press via LA Times

Canada’s response to President Barrack Obama’s challenge to reduce emissions of global-warming gases from the oil sands starts with sewage and algae.

The paste-like crude extracted from the oil sands is softened by heat and steam to make it flow though pipelines. Burning natural gas to process the fuel creates carbon dioxide that researchers believe can be combined with waste water and fed to algae, which can be processed into cattle feed and other useful products.

“We’re taking CO2 and making it into a valuable product,” said John Parr, vice president at Canadian Natural Resources Ltd. (CNQ), the country’s third-largest oil-sands producer by market value, in a phone interview. “There’s a business case that can be made for it.”

Such efforts by Canadian Natural and rival oil producers, including Imperial Oil Ltd. (IMO) and Suncor Energy Inc. (SU), are partly aimed at convincing US decision makers that the industry can mitigate the climate-change impact of TransCanada Corp. (TRP)’s proposed Keystone XL pipeline to the Gulf Coast from Alberta.

Obama has said he won’t issue the permit TransCanada Corp. needs to build the $5.3 billion pipeline to link Alberta with refineries on the Gulf of Mexico if it would significantly worsen global warming. In a July 28 interview with the New York Times, Obama said that Canada “could potentially be doing more to mitigate carbon release.”

Canada’s edge

Canada’s Natural Resource Minister Joe Oliver is quick to point out that the nation is ahead of the US in reducing its carbon emissions. Canada has committed to reducing greenhouse gas emissions by 17 per cent by 2020 from 2005 levels, in line with US promises made in 2009 at United Nations climate-change talks. Prime Minister Stephen Harper’s government says the country is almost half-way to the target.

Canada has achieved this with tighter rules on coal-fired power plants, as well as new methods to account for how forests absorb carbon and slower economic growth. Provinces including Ontario and Nova Scotia are also boosting the use of renewable energy like wind turbines and hydropower to reduce reliance on fossil fuels.

Some provinces, including Alberta, have imposed a tax on carbon emissions while Manitoba says it will be the first North American jurisdiction to ban the use of petroleum coke and coal for heating, starting in 2014.

Emissions increase

The booming oil sands, which attracts more than C$20 billion ($19.4 billion) in annual investment, represent a challenge, however. Studies show that a gallon of fuel produced from the oil sands crude, known as bitumen, releases between 8 per cent and 37 per cent more carbon than conventionally produced fuel, according to a production-to-final-consumption review by the Calgary-based environmental consultancy Pembina Institute. That’s because it takes more energy to extract and refine compared with lighter forms of crude.

Alberta, where most of the 170 billion barrels of recoverable reserves of bitumen are located, collects C$15 per ton of carbon from industrial emitters who don’t meet mandatory reduction targets established by the provincial government.

Even with that, emissions from the oil sands have increased 62 per cent since 2005. A carbon tax in neighboring British Columbia has resulted in a 19 per cent decline in per capita fuel consumption since 2008, according to a study by Ottawa-based think tank Sustainable Prosperity.

Even as emissions from the oil-sands industry are rising faster than any other source, Harper has delayed imposing tougher regulations on the oil and gas industry.

‘Wrong Direction’

Greenhouse gas output will continue to go in the “wrong direction” without better policies, said Pembina Institute policy analyst P.J. Partington.

“Our biggest customer is asking good questions and our government isn’t providing good answers,” said Partington, who’s based in Ottawa. “If you look at the current trajectory, emissions are going way up” from oil-sands production.

Many look to science for help. University of Calgary Professor Pedro Pereira-Almao and Nexen Inc., an oil-sands producer owned by Cnooc Ltd. (883), are testing the use of nano-particles to process bitumen before it’s pumped to the surface. This “underground refinery” would result in less combustion of natural gas and lower emissions by eliminating at least one heating cycle for the fossil fuel.

Other efforts by industry include using geothermal heat, solvents and electricity to replace natural gas. Most remain in the pilot-project stage.

Canadian Natural

Canadian Natural expects the algae project to be operating by the first quarter and plans to share the technology with competitors, said Parr. The technology may be able to reduce carbon emissions at the company’s Horizon oil-sands mining site in northern Alberta, where the first algae pond is being built, by 15 per cent and by as much as 30 per cent at the Primrose facility which uses a steam-injection process, Parr said.

The company is already lining up customers for the dried algae and is counting on the technology to be applied across Canada and the world. Canadian Natural’s shares gained 9.6 per cent this year through Aug. 9, beating the Standard & Poor’s/TSX Composite index’s 0.9 per cent gain.

“The grander plan for this technology would be that it would be employed in a lot of places across Canada, North America and the world eventually,” said Parr.

Leaving industry to come up with solutions on its own will result in failure to curb emissions on the scale needed to halt climate change, said Danielle Droitsch, a director at the Natural Resources Defense Council, a New York-based environmental group that opposes the Keystone pipeline. Better to leave the bitumen in the ground, she said.

‘Public Relations’

“Until policy is in place, technology won’t drive emissions reductions,” she said in an interview. “These efforts are being used as more of a public-relations exercise and don’t represent a serious effort to reduce emissions.”

Canada, the world’s seventh-largest emitter of greenhouse gases, increased carbon dioxide emissions from oils-sands production 1.8 per cent to about 47.1 million tons in 2011, the most recent figures available, according to a report from the Canadian Association of Petroleum Producers. Emissions of carbon from oil-sands production has risen to about 6.5 per cent of Canada’s total from about 1 per cent in 1990, the Pembina Institute estimates.

Production of bitumen is poised to double from last year to 3.8 million barrels a day by 2022, according to Alberta’s energy regulator. With output rising faster than per-barrel emissions are falling, total emissions are set to climb.

High Bar

Canada has made few efforts to curb rising emissions from the oil-sands industry, said Andrew Logan, director of the oil and gas program at Ceres, an investor network promoting sustainable business practices. That will make approval of Keystone more difficult, he said.

“The president made a much clearer statement of the hurdles the project will have to overcome,” he said in a phone interview from Washington. “It set a high bar and it’s not a foregone conclusion that he will approve the project.”

Ceres represents investors with $11 trillion worth of assets.

With uncertainty about Keystone XL’s future, regardless of efforts the industry is making, and the US boosting energy output, some chief executives in Canada are already casting an eye elsewhere for customers.

“The US is a good market today, but I don’t think it’s the natural market for future growth because there is a lot of increased production down there,” said Sveinung Svarte, chief executive officer of Athabasca Oil Corp. (ATH), in an interview. “The Pacific Rim should be the Canadian target for export.”

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