The Oilsands’ Third Act

Written by Don Gillmor, BA’77
Illustrated by Pierre-Paul Pariseau

The landscape was dotted with rig towers and they were relentless — 24 hours a day, seven days a week, undeterred by lightning strikes, hailstorms, drunken drillers, unreliable crews and, on one occasion, a farmer firing a .22 rifle at us.

Every September, I returned to the University of Calgary with a swollen bank account and stories of oil patch madness. The city was booming and oil was god.

A few years after graduation, the price of oil cratered, and that infamous bumper sticker appeared: “Lord, please send me another oil boom and I promise not to piss it away.”

Though we did piss it away. Such is the nature of booms. Both the city and the Canadian dollar ebbed and flowed with the price of oil; a simple formula. But nothing about oil is simple these days. The world is beginning its pivot away from fossil fuels in what is proving to be a messy, expensive divorce.

Dr. Steven Bryant, PhD, grew up in Tennessee and looks more like a Nashville session musician than a scientist. He was drawn to Alberta because it was at the centre of the energy debate. Today, he’s the Canada Excellence Research Chair Laureate in Materials Engineering for Unconventional Oil Reservoirs at UCalgary, as well as the Schulich School of Engineering Research Chair in Materials Engineering.

“Right now, Alberta is this crucible for all the problems facing society in the next century,” Bryant says. “And some of those problems are in conflict with one another.”

Conflict is one of oil’s defining traits. The industry has spent billions on developing new technologies to reduce emissions, and, on a per-barrel count, has been successful, but increased production means it has increased overall emissions.

Canada has committed to a 40-per cent reduction in emissions from 2005 levels by 2030, and an 80-per cent reduction by 2050. The Canada Energy Regulator (CER) calculated that, if every Canadian industry other than oil went to net zero, the emissions from oil and gas alone would still cause us to miss the 2050 target by 32 percent, and this is assuming that emissions-per-barrel decreases by a further 30 per cent.

Politically, oil is caught between the lofty climate goals of Prime Minister Justin Trudeau and Alberta Premier Jason Kenney’s quixotic attack on global environmentalists and fund managers who divested from fossil fuels.

But divestment is a relative term; fund managers are also conflicted. In 2020, Larry Fink, CEO of BlackRock, the world’s largest private fund, with more than $10 trillion under management, announced that “climate risk is investment risk.” It was widely viewed as a call to arms to divest from fossil fuels, though BlackRock retained significant investments in oil and gas and still had $85 billion US invested in coal companies. Oil is a conflicting force, even within individuals; we want to reduce our carbon footprint, but still fly to Phoenix in January.

Oil’s end game is largely agreed-upon, but the transition and timeline are hotly contested.

The International Energy Agency (IEA) predicts that peak oil demand could plateau as early as 2030. Oil predictions are notoriously unreliable, but, at some point in the coming decades, the industry will contract. It is already less of an economic force domestically, its contribution to Canada’s GDP declining over the last 20 years. Tax revenues from oil and gas have gone from 14 per cent of all industry in 2009 to less than four per cent. Surging oil prices have allowed Alberta to recently post a surplus for the first time in eight years, part of a familiar boom/bust pattern. But, over the long term, the oilsands have become a smaller part of the economy while becoming a larger part of our environmental burden.

How the oilsands are stewarded affects us all. The transition needs to minimize both emissions and employment-disruption. There is a need for regulatory guidelines, but political forces can be capricious and self-serving.

“Net zero is possible, but it’s very complicated,” says Dr. Ian Hussey, PhD, manager of the Parkland Institute, a non-partisan research centre in Edmonton. “It’s more complicated politically than it actually is technically.” The best hope for reducing oilsands emissions and securing a sustainable final act may lie in technology.

The University of Calgary has 280 faculty members involved in energy-related research. Among them, there is a cautious optimism and an acute sense of urgency as they work to lower emissions, store carbon, clean the air, preserve water, reduce tailings ponds and bring Canada closer to its net-zero target.

“If I’ve learned anything about the climate challenge, the CO2-mitigation challenge, the net-zero challenge, it’s that it’s got to be a collection of myriad solutions,” says Bryant. In other words, there won’t be a silver bullet.

The mandate for Bryant’s group of researchers, he says, is “to bridge the gap between the current technological status of the oilsands industry and where it needs to be for a sustainable, globally competitive future.” His lab has worked on incremental technologies; using nanotechnology to make steam in SAG-D (steam-assisted gravity drainage) operations more viscous and, therefore, more efficient. But they have also tried more radical solutions, such as looking at the feasibility of leaving bitumen in situ and extracting energy through a molecular transfer, though the technology wasn’t really scalable.

It is one thing to have encouraging results in the lab; it’s another to create technology that results in a commercial application.

“The whole thing I’ve done with the research program is try and push things out the door,” Bryant says. “You can move at the speed of business, instead of at the speed of graduate students with their dissertations.”

One startup company to come out of Bryant’s lab is CalAgua, which innovates an environmentally sustainable ionic liquid bitumen extraction method that doesn’t involve the creation of tailings ponds. Every barrel of bitumen results in 1.5 barrels of tailings, and these ponds contain hydrocarbons as well as toxic chemicals like ammonia, mercury and napthenic acids. The contaminants can seep into groundwater, affecting wildlife, and are among the biggest environmental concerns in the oilsands. CalAgua’s ionic liquids reduce the need for water and eliminate the creation of tailings ponds, significantly decreasing greenhouse gas emissions.

But any radical technology runs into the fiscal realities of the oilsands infrastructure. The industry has spent billions building that infrastructure and any new technology needs to fit into what already exists. “One of the things about the oilsands is right now the zeitgeist has shifted and folks are not looking at building new-anything,” Bryant says. “It’s a very tough environment to go in and say, ‘We can do things differently.’”

Dr. Ian Gates, BSc (Eng)’90, PhD, is a professor in the Department of Chemical and Petroleum Engineering and director of UCalgary’s $75-million Global Research Initiative in Sustainable Low Carbon Unconventional Resources. “I always tell the folks downtown, the last 50 years of wealth-creation with respect to oil and gas are not going to be the next 50 years of wealth-creation,” he says. “We have to shift to be cleaner. We have to shift toward maybe alternative projects. Globally, the world is moving on. There are massive forces which are leading to a sense of low-carbon sources.

“We’ve seen lowering of emissions, but, to move forward, we have to accelerate it. We certainly don’t want to find that, at some point, Alberta gets stranded behind other jurisdictions which have moved faster toward cleaning their operations. It means a lot of focus, a lot of risk-taking. It means a different form of investment.”

One of the areas Gates’ researchers looked at was taking hydrogen out of the oilsands while leaving the emissions in situ. It involves converting the oil and the water in the reservoir to hydrogen, leaving the carbon dioxide in the ground, and producing clean hydrogen from existing oil reservoirs. “This could change the entire basis of energy on the planet,” Gates says.

He and his research engineer, Dr. Jingyi Wang, MEng’08, PhD’21, co-founded Proton Technologies, a Calgary-based startup, and they first tested the technology in the field in 2018. Gates’ research group has since been working on refining the technology and scaling it up. It can be used in the oilsands or abandoned oil and gas wells, where hydrogen is extracted, leaving the CO2 in the ground.

“Producing hydrogen from the resource produces an energy vector and a chemical feedstock vector, which on end use is clean,” says Gates. “So, it makes sense.”

Gates says a multi-pronged approach is necessary in order to meet the 2050 timeline. “It’s behaviour change among people, it’s about industry doing what it needs to do, but that requires massive investment,” he says. “It’s also about government policy to support all of that. And none of these things are fast.”

Dr. Stephen Larter, PhD, is associate vice-president of research and innovation for UCalgary and he invokes the Second World War-era Manhattan Project in comparing the level of focus, urgency, investment and effort we need to avoid climate chaos today.

“The Manhattan Project went from zero to a bomb going off in four years when little was known of nuclear processes at the project start,” he says. “And how did they do it? It was government plus academia plus industry driven by a timeline.”

They had a crisis to motivate them then, Larter says; the western world was threatened. We have a crisis now, but it still isn’t close enough to home. On this continent, wildfires decimate millions of hectares every summer, the Arctic is melting, there are floods and record heat, and record droughts. The science and the prognoses are increasingly clear. But, for many Canadians, it is still happening “offstage.”

“The crisis hasn’t been big enough yet to really change that narrative,” Larter says. “There’s clear signs of a real crisis and the language from the Canadian oil and gas companies is that they see a crisis coming too, or it’s already here. I think there’s some move beyond talk, but it’s still mostly talk.”

The industry is in brilliant shape to initiate change. Oilsands companies trimmed costs to deal with US$40/barrel oil, but oil is back in the $100 range and profits are at historic highs. They have less debt and leaner operations than they had a decade ago and are better capitalized (though this has triggered higher royalty payments). How they spend the current windfall is critical.

“If the oil companies are serious about decarbonizing, we’ll see that revenue stream going into mitigating existing emissions, new clean technology and an urgent energy transition away from where they are today,” says Larter. “If they’re not serious about it, then we’ll see stock buybacks and executive bonuses and all the usual stuff. It’s a good time to watch what they do, not what they say.”

One of the areas of Larter’s research is removing CO2 from the atmosphere. “Much of the carbon capture and storage discussion is around large emitting sites — refineries, power plants, things like that — which is important,” Larter says. “But the bulk of the emissions from oil and gas are downstream emissions.” It comes from our cars and our homes. “We are looking at different types of carbon-capture storage, focusing on a variety of air-capture routes, including geochemical routes, because that’s the only way that you can deal with a lot of the emissions that have already happened.”

The industry is also hoping that carbon capture, utilization and storage (CCUS) solves most of its emissions issues. In the 1990s, federal scientists started with the vague idea of how to store emissions safely. That initial exploration led to further research and development at the provincial level, and Canada currently has enviable global expertise in CCUS. In its 2021 budget, the federal government stipulated a tax credit for CCUS investment. To capitalize on this, the industry launched the Oil Sands Pathway to Net Zero initiative, which involves the six main oilsands players — Suncor, Canadian Natural Resources Ltd., Cenovus Energy Inc., Imperial Oil Ltd., MEG Energy Corp. and ConocoPhillips Canada — who account for 95 per cent of oilsands production. One of its plans is to build a carbon dioxide pipeline from Fort McMurray and Cold Lake to a sequestration hub.

Carbon capture comes with good news and bad news. The good news is that it can reduce emissions (CO2, as well as nitrogen oxide and sulphur dioxide) and is relatively safe.

The bad news is that it is energy-intensive (the processes of separation, transportation and injection) and, if the captured CO2 is used for enhanced oil recovery — getting more oil out of existing wells — then it may actually add to emissions (though it does reduce the number of new wells drilled). Carbon capture is complicated to scale up to what the oilsands needs, and, finally, it is expensive.

The industry is hoping that government will pay 75 per cent of the cost. Brad Corson, CEO of Imperial Oil, told investors that getting the oilsands to net zero by 2050 would require $70-75 billion in investment. But the federal government likely won’t pay 75 per cent of the cost, and won’t give tax credits if the CO2 is used for enhanced oil recovery.

The view in the scientific community is that carbon capture is part of the solution, but there is a danger in relying too heavily on it.

“I really hope that they’re considering beyond just putting CO2 in the ground,” says Gates. “Because that tells me that they’re going to continue the same stuff at the recovery process level. I’m hoping to see modular nuclear reactors, I’m hoping to see rich solvent processes. I’m hoping to see hydrogen-based systems, because I think they have to go hand-in-hand with carbon sequestration.”

Government funding may dictate the fate of sequestration. A report from the Canadian Institute for Climate Choices, a federal agency under the auspices of Environment Canada, noted that, “Public investment in assets at elevated risk of being stranded in low-carbon scenarios could generate less economic and job benefit than investment in areas that could capture a share of growing, transition-opportunity markets.”

The federal government is looking for a middle ground that supports clean energy initiatives while protecting jobs in the legacy oil and gas industries. But employment in the oil and gas sector peaked in 2014. That year, in Alberta, there were 166,028 employed in oil and gas; in 2021, the number was 139,004, a drop of 16.3 per cent. The largest growth area in oil and gas jobs may be cleaning up orphan wells.

Meanwhile, the renewable market is growing exponentially. In 2021, there were more deals involving renewable energy projects announced than in all previous years combined, and the volume of those deals tripled all previous years combined. Renewables made up only six per cent of Alberta’s energy mix in 2018, but have grown to 26 per cent in 2022. Renewable energy projects will bring an estimated $3.75 billion worth of investment to Alberta, along with 4,500 jobs. Clean Energy Canada projects that, by 2030, 560,000 jobs will be created across the country in renewable energy, though jobs in wind and solar are mostly in the installation field; they don’t require a great deal of maintenance. In 2021, the European Union used more renewable energy than fossil fuel energy for the first time. Even Saudi Arabia is desperately trying to diversify.

At their inception, the oilsands were largely viewed as a fool’s errand by conventional oil companies. They required risk-taking, massive investment, and had to overcome daunting technological challenges. These same qualities need to be employed once more to ensure a timely efficient transition.

There are areas of intersection between oil and green energy. Alberta has lithium, a key ingredient in battery production. Lithium is also a byproduct of bitumen mining and is found in tailings ponds and scientists are working on ways to efficiently extract it. Because wind and solar are intermittent, they need storage capacity to make them reliable and battery storage is one option. Another is hydrogen, and Suncor is the largest producer of hydrogen in the country. Canada is the largest producer of green hydrogen (manufactured using renewable sources of energy) in the world. These technologies are increasingly coming together in inventive ways — technologies and expertise we can export.

Since the 2016 Paris Accord, five of the G7 countries have reduced emissions. Only Canada and the U.S. have increased them, with Canada the worst offender (a 3.3-per cent increase). Oil and gas production accounted for 26 per cent of our emissions. If we fail to meet our target in 2030, there will be a lot of blame to go around. Blame may be the largest petroleum byproduct — blame the government, the markets, the industry, Trudeau (pick one), OPEC, the Russians. We have eight years to avoid becoming the G7’s climate goon.

“We are slowly starting to move away from our domestic dependence on fossil fuels,” says Hussey. “But it is far more important to Alberta’s oil and gas industry that the U.S. continues to buy our oil and gas than our domestic policies.”

The current American administration, along with individual states like California, is aggressively moving toward a greener economy. The next administration could double down on existing targets and so called “dirty oil” will be even less welcome. Or a Trump-inspired administration could reopen shuttered coal mines and allow fracking in national parks. Whatever the short-term political vagaries, globally, we are moving toward a greener world.

The oilsands’ third act may be helped by geopolitics. The U.S. is now the world’s largest producer of oil, but 50 per cent of its oil comes from fracking, which is almost as environmentally contentious as the oilsands, and, more critically, has been largely unprofitable. And shale fields have a high depletion rate. Saudi Arabia is the world’s second largest, an unpalatable regime with a dismal human rights record, including Crown Prince Muhammad bin Salman’s implication in the assassination of foreign journalist Jamal Khashoggi. Russia, run by an insecure thug, is the world’s third largest oil producer and a rogue nation both environmentally and politically. Vladimir Putin’s invasion of Ukraine sharpened the need for energy security in the consciousness of most nations.

Canada is No. 4, followed by Iraq and China. Of these, Canada is the most stable democracy, has the third largest reserves, and carries the least amount of geopolitical baggage. In the long run, if there is one, Canada could emerge as the most politically acceptable source of fossil fuels. But it is critical that we become the most environmentally acceptable, as well.

Much has been made of Norway’s prudent stewardship of its oil and gas resources, treating it as a finite, shared resource, and resulting in a sovereign wealth fund worth $1.4 trillion. By contrast, Alberta was a multi-decade keg party, with years of roaring fun, crippling hangovers and searing regret — though we were able to save enough ($18.9 billion) for cab fare and to hire someone to help clean up.