Canadian oil sands

Canadian oil sands

Alberta oil sands not discriminated against by California Low Carbon Fuel Standards program

It’s ironic that not far from Hollywood, and the residences of American film star eco-activists, sits the Placerita field, which produces the most carbon-intensive oil in North America. No one protests for Placerita to be shut down. One reason for that is California’s approach to low-carbon fuel standards, which I wrote about in this column from dec. 4, 2014. Enjoy.

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There has been a lot of talk recently about how some California crudes are “dirtier” than Alberta oil sands crudes. Guess what? Under the new Low Carbon Fuel Standards regime, California doesn’t care if Canadian oil is “dirty.”

Dave Clegern, a spokesperson for the California Air Resources Board.

“The way the LCFS is is designed it does not single out any particular particular crude as good or bad. It simply provides a comparison of the carbon intensities of all the variables and leaves it to the refiners to determine how they put those things together,” said Dave Clegern, a spokesperson for the California Air Resources Board.

The LCFS came into effect in 2011. The regulation established a baseline carbon intensity of 11.36 for crude oil. Crudes under the baseline receive a carbon credit, which they can sell or keep for future use. Crudes over the baseline must purchase credits to offset the extra carbon in their product.

To avoid the penalty, if the refiner buys a high intensity crude – say, from Placerita, a California crude with a carbon intensity of 31.66, far higher than the “dirtiest” Alberta oil sands crude – then it must blend it with a lower intensity crude or biofuel – such as ethanol – to achieve a final fuel product that comes under the baseline.

But California’s focus is not on the producer, as it is in other jurisdictions.

“I mean there’s only so much you can do if you’re pumping a particular kind of crude oil,” acknowledges Clegern. “[If] you’re having to use some sort of heat intensified method to do it or you’re fracking or something like that, then you kind of have what you have at that point.”

Below are examples of California and Alberta oil sands crude oil carbon intensities from a table supplied by the California Clean Air Board:

California crudes       Carbon Intensity       Volumes (bbls in 2012 and 2013)

Arroyo Grande                     27.81                     727,414
Coalinga                                25.36                11,068,127
Kern Front                           25.06                  6,770,131
Placerita                               31.66                  1,896,781

Canadian crudes       Carbon Intensity       Volumes (bbls in 2012 and 2013)

Suncor Synthetic               24.49                  7,824,657
Albian Heavy Synthetic   21.02                  7,666,165
Cold Lake                            18.74                 11,312,831

Greg Stringham, VP of pipelines and markets for the Canadian Association of Petroleum Producers, says the Canadian industry is pleased the California LCFS doesn’t discriminate against Alberta oil sands crude oil.

Greg Stringham, VP of the Canadian Association of Petroleum Producers.

“We are supportive of making sure there is no discrimination and as we’ve seen now in the iterations of the LCFS, they have got to the point where they don’t have discrimination of Canada versus their own California crude, even though it may be heavier,” said Stringham in an interview. “They just said ‘Here’s our objective. We don’t care how you meet it, go ahead and meet it.’”

But Stringham notes that Alberta oil sands producers are also penalized in Alberta by the $15 per tonne of CO2 under the provincial Specified Gas Emitters Regulation.

He says the situation is further complicated by President Barack Obama’s recent move to tax carbon emissions, beginning with coal-fired power generation. Oil and gas producers expect their industry will be next. And there is always the possibility of a Canadian carbon tax or some other form of carbon policy.

The worst-case scenario, according to Stringham, would be a hodgepodge of national, state, and provincial carbon policies that conflict and excessively penalize producers, but he is confident the various jurisdictions will come together to harmonize their respective carbon reduction regimes.

As for California, Cleghern says the State is very pleased with the results of its three-year old LCFS program. Under former Governor Arnold Schwarzenegger, California pledged to reduce its greenhouse gas emissions to 1990 levels by 2020 and is on track to meet targets.

“So far everybody [refineries] is over-complied. Which means we have a surplus of credits. Which is what we’d like to see. Because it means that basically the baseline is intact,” he said.

Cleghern says the LCFS program is one of a number of programs designed to reduce greenhouse gas emissions. They have been so successful the State intends to commit to a further 80 per cent reduction by 2050.

In the meantime, Stringham says the Canadian industry continues to concentrate on reducing carbon intensity at the wellhead. He points to two Alberta oil sands technologies already enjoying great success.

Imperial Oil’s Kearl oil sands mining project uses low-energy extraction methods to reduce GHG emissions to just two per cent over the average American crude oil carbon intensity.

And a number of Canadian producers are using lighter hydrocarbons and in situ production methods to dilute bitumen downhole instead of steaming it. This allows them to use little or no steam, again reducing carbon intensity to levels very close to average crude oil levels.

As jurisdictions in Canada and the USA ramp up programs to reduce carbon emissions, the Alberta oil sands will be ready with new technologies and production processes, says Stringham.

For now, California doesn’t mind if Alberta oil sands crudes are “dirty.” Soon, no one else may, either.