with an assist from Andy Kubrin
When it comes to net-zero transition plans, the ones that count the most are those of the largest emitters — the six major oil and gas firms that dominate the province’s upstream energy industry. Individually and collectively, these companies have announced plans to reach net-zero emissions by 2050.
Some client scientists and social critics consider net-zero emissions a dangerous illusion, and we’ll explore that idea in future posts. But for now, we’ll evaluate net zero on its face value, considering the merits of the plans put forth by Alberta’s Big Six.
Alberta’s Big Six
Six major companies dominate Alberta’s oil and gas industry — Canadian Natural Resources Ltd. (CNRL), Cenovus, ConocoPhillips, Imperial Oil, MEG Energy, and Suncor Energy. Together, they are responsible for 95 per cent of all oil sands production. In a typical year, the oil sands account for 80–85 per cent of all Canadian crude production, so we’re talking about a lot of oil.
As members of the Pathways Alliance, these companies are working together to reach net zero in upstream emissions by 2050.
Let’s see how their net-zero plans stack up.
CNRL at a Glance — FY 2022
- Total revenue: $42.3 billion CAD ()
- Net income: $10.9 billion CAD
- Market capitalization: $85.78 billion (May 25, 2023)
- Major projects: Horizon and Athabasca Oil Sands mining projects and the Primrose, Wolf Lake, Kirby, and Jackfish in situ projects
- Gross crude oil and NGL production: 933 Mbbl/d ()
- Natural gas production: 2,090 MMcf/d ()
CNRL claims to have reduced corporate scope 1 direct emissions intensity by 13 per cent between 2017 and 2021. At the same time, crude oil production increased by 36% (685 Mbbl/day to 933 Mbbl/day) and natural gas production increased by 26% (1,662 MMcf/day to 2,090 MMcf/day). The focus on scope 1 emissions accounts for only a small portion of the life cycle emissions of CNRL’s products, perhaps 10 per cent. The emphasis on emissions intensity, moreover, means that as production grows, overall emissions still rise even if upstream emissions intensity falls.
CNRL further pledges to reduce emissions by 40 per cent of 2020 levels by 2035. To meet this goal, the firm plans to rely chiefly on carbon capture utilization and storage (CCUS), but many analysts are skeptical about the feasibility of this goal, given the technology’s high costs, energy intensity, and limited scope of recovery.
Along with its industry peers, CNRL is banking on an investment tax credit for 50 per cent of capital expenses for carbon capture projects, previously announced by Ottawa. An investment tax credit means the government will forego revenue it would otherwise receive, which means we citizens will foot the bill. Call it a taxpayer contribution, at the same time that CNRL is promising to return 80 to 100 per cent of free cash flow to shareholders.
CNRL’s GHG emissions reduction efforts also include methane emissions reduction and the use of renewables to avoid scope 3 emissions. Just how (and when) these efforts will help CNRL avoid scope 3 emissions is unclear, but the plans seem to involve converting bitumen into non-combustion products like activated carbon, graphene and graphite.
We can be certain of one thing, though. CNRL’s production — and thus its life cycle emissions — will continue to grow.
For 2023, CNRL has a capital budget of $5.2 billion (). This budget includes $4.2 billion in “targeted base capital,” with which the company expects to realize near-term production growth of 70,000 barrels of oil equivalent per day.
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Cenovus Energy at a Glance — FY 2022
Cenovus has set three phases for decarbonization:
Phase 1 (2021-2026) will rely primarily on methane reductions, CCS, and various sorts of facility optimization.
Phase 2 (2027-2035) includes additional CCS projects, contribution to a carbon transportation line and joint storage hub being developed by the Pathways Alliance. Cenovus also plans to make process improvements in its steam-assisted gravity drainage (SAGD) facilities, relying on solvent use and the deployment of small modular reactors (SMRs). SMRs are still in the development phase, and they will not be ready for commercial deployment by 2027. The company’s phase 2 plans also include portfolio adjustments, which probably means the sell-off of certain assets. That is, Cenovus will simply dispose of assets with high carbon intensity and somebody else will operate them instead.
Phase 3 (2036-2050) includes additional CCS buildout, although specific projects are not mentioned. Cenovus refers to this phase as its “long-term vision,” but the company’s plans for this phase are so sketchy as to constitute no plan at all.
Like CNRL, Cenovus Energy plans to increase production, which will cause emissions to rise. The company unveiled its 2023 capital budget in December 2022. Its plans include total upstream production of 800,000–840,000 barrels of oil equivalent per day — a 3 per cent increase over its 2022 production rates. If the company continues to expand production at this rate, its scope 1 and scope 2 decarbonization efforts will be in vain.
The ConocoPhillips website is quite verbose, but if you persist in reading, you’ll find detailed communications about sustainability metrics and targets.
The company plans to reduce operational GHG emissions by 40-50 per cent by 2030 and to reach net zero by 2050. It is fair to point out that, like its peers, ConocoPhillips has no plans to address the downstream emissions of the products it sells — and indeed hopes to sell as much of them as possible.
The company’s plans emphasize reductions in emissions intensity, scope 1 and 2 emissions, use and flaring of methane, and water usage. At first glance, the 2021 performance results are impressive. I’ll quote them directly:
- Scope 1 and 2 GHG emissions intensity declined 22 per cent to 26.9kg CO2e/BOE.
- Methane intensity declined 24 per cent to 2.6kg CO2e/BOE.
- Flaring intensity declined 8 to 1.81 per cent (total flaring volume as a percent of gas produced).
I was about to stand up and cheer until I read, in the following paragraph, that the company’s absolute emissions increased to 18.7 million tonnes of CO2e, mostly because it acquired additional assets in the Permian basin spanning Texas and New Mexico.
In other words, the company’s expansion plans made a mockery of its upstream intensity reductions.
I could go on about the company’s metrics and targets, but you won’t find them encouraging. The company will strengthen its “previously announced GHG emissions intensity reduction target to 40–50% by 2030.” It will also expand it to “apply to both a gross operated and net equity basis to ensure active engagement in our non-operated investments.” Whatever that means, it does not include a reduction in the only quantity that matters — absolute life cycle emissions.
Reading the company’s plans is like hearing an alcoholic solemnly declare that they’ll kick the habit —tomorrow, maybe — by drinking fewer glasses of the hard stuff while drinking more — many more — glasses of beer and wine. You know the plan will never work.
But in this case, we’re not talking about the fate of a single individual. We’re talking about the hardship visited on all Albertans, Canadians, and the entire world by the production and combustion of fossil fuels.
Imperial Oil at a Glance — FY 2022
- Total revenue: $59.41 billion CAD
- Net income: $7.34 billion CAD
- Market capitalization: $46.99 billion (May 22, 2023)
- Gross crude oil and NGL production: 402,000 bpd
- Major projects: Cold Lake in situ, Kearl mine, Syncrude mine, Strathcona refinery
Imperial Oil is pursuing a climate strategy based on four pillars:
- Pillar 01 — Transformational technology solutions
- Pillar 02 — Helping customers reduce their emissions
- Pillar 03 — Mitigating emissions in company operations
- Pillar 04 — Finding solutions with partners and policy makers
These four pillars constitute a strategy of pursuing upstream emissions reductions (in scope 1 and 2 emissions) while avoiding any reduction of downstream (scope 3) emissions. That’s a problem, of course — scope 3 emissions make up approximately 80 per cent of all oil and gas emissions.
Imperial Oil has pledged to reduce its GHG emissions intensity by 30 per cent from 2016 levels by 2030, for example — although considering the company’s robust production levels, this goal does not constitute a meaningful advancement in climate safety.
Pillar 01 focuses on upstream emissions, minimizing water use in its in situ operations and using CCS to reduce the emissions resulting from energy inputs. Imperial Oil has invested $2.4 billion in R&D over the last 20 years in support of Pillar 01, but this sum is not a large investment over a period of 20 years. The company claims its investment will help it achieve a 90 per cent reduction in GHG intensity per barrel, but we must recognize that such a reduction in upstream emissions fails to abate the larger life cycle emissions — particularly if production grows.
Pillar 02 aims to reduce the emissions of Imperial’s customers by producing 1 billion litres per year of renewable diesel at its Strathcona refinery in Edmonton. The company claims this investment will reduce emissions from diesel fuel by 3 million tonnes per year. The refinery will use hydrogen produced with CCS and plant-based feedstock.
Pillar 03 aims to reduce upstream emissions through solvent-based technology (presumably for in situ operations), CCS, low-carbon intensity hydrogen, and small modular reactors (SMRs). The company does not specify the emissions reduction that will result from this pillar. SMRs are still one to two decades from deployment, so it is unlikely that they will deliver timely emissions reductions.
Pillar 04 focuses on collaboration with government, Indigenous groups, and industry partners to reduce scope 1 and scope 2 emissions. Imperial does not provide figures for investment or emissions reductions to be achieved under this pillar, but the company speaks of “government support” in this context, which suggests that public investment is involved.
The kicker in these plans is that most of Imperial’s net zero by 2050 pledges explicitly address scope 1 and scope 2 emissions only. Yet Imperial has big plans for future expansion, which include (for example) squeezing another 50,000 barrels per day out of its Cold Lake facility. These expansion plans will crush the four pillars of its climate strategy, turning them to rubble.
Reducing upstream emissions while increasing production means Imperial Oil’s life cycle emissions can only grow.
MEG Energy pledges to reduce its GHG emissions by 30% of 2019 levels by year-end 2030. By the company’s own calculation, this equates to a reduction of 0.63 megatonnes. MEG also has a target to achieve net zero emissions by 2050, although it does not specify how it will reach this target or hold itself accountable if it does not.
The company also publishes a timeline to chart its progress, but you won’t learn much by looking at it, since it reports little more than a cryptic list of projects and phases in engineering jargon. The timeline does not enumerate the carbon savings from any of these projects. But reading between the lines, we can figure out a few things.
MEG is a SAGD producer, so it focuses on improving the steam-oil ratio (SOR) of its operations. That means reducing the amount of steam required to melt the bitumen in its subsurface deposits, which in turn leads to a reduction in energy and water inputs. The company relies chiefly on two technologies to reduce its SOR — eMSAGP and eMVAPEX.
eMSAGP stands for enhanced Modified Steam and Gas Push. This patented technology involves co-injecting methane gas along with steam. After the reservoir reaches an acceptable temperature, the gas is used to maintain pressure, freeing up steam for redeployment in an additional pair of wells. MEG also drills single “infill” wells between SAGD well pairs to collect additional bitumen.
eMVAPEX stands for enhanced modified vapour extraction. It’s apparently similar to eMSAGP, relying on co-injection of a light hydrocarbon and the use of infill wells to lower steam requirements.
MEG Energy announced its 2023 capital investment plan and operational guidance in November 2022. The company intends to make capital investments of $450 million. It expects to realize an 8 per cent production increase over its 2022 guidance. Looking to the future, the Christina Lake site currently has regulatory approvals to produce 210,000 barrels per day, a massive increase over the current production level of 95,000 bpd.
Finally, we come to MEG’S ESG report, whose latest issue documents the company’s 2021 operations. In a section entitled “Canadian Energy & ESG,” the report blandly asserts that “energy demand is anticipated to grow,” that “stakeholders will look to the companies with the highest ESG standards and performance” and that the “Canadian energy industry is globally recognized as an ESG leader committed to climate action.”
It all sounds great until you realize that these platitudes are unsourced and that they fly in the face of scenarios from Equinor, bp, the IEA, Bloomberg New Energy Finance, and Rystad Energy, which all envision peak oil demand before 2030, followed by long-term decline.
Suncor Energy has pledged to reduce annual GHG emissions by 10 megatonnes by 2030 and to become a net-zero company by 2050. It aligns its plans with the global goal of limiting global heating to 2℃ by 2100 — not the 1.5℃ goal commonly proclaimed by others.
How does Suncor plan to reach these objectives? Its methods include fuel switching, carbon capture, utilization and storage (CCUS), development of renewable fuels, low-carbon electricity generation, and hydrogen production.
Suncor provides more information in its Climate Report 2021 (). Fuel switching means replacing coal and petroleum coke as electricity generation fuels with methane gas and hydrogen. The company combines fuel switching with cogeneration. In addition to retiring coke-fired boilers at its Base Plant, it also uses the new gas-fired boilers to generate steam and electricity, exporting the surplus power to Alberta’s provincial grid.
CCUS plays two roles in Suncor’s net-zero strategy. Suncor uses it to capture some of the CO2 in flue stack gases at the company’s electricity generation plants. It also uses it to capture emissions from blue hydrogen production, where methane gas is split into hydrogen and CO2.
Suncor plans to reduce emissions at its SAGD operations by a variety of methods. It will lower SOR by partially replacing steam with solvents, reducing the temperature and pressure of its SAGD operations, and improving the efficiency of its heating mechanisms.
Additional decarbonization efforts include the production of renewable fuels from woody biomass, municipal solid waste, and gas fermentation.
Suncor’s most interesting decarbonization strategy is in corporate governance. The company recognizes carbon as a principal risk to its business and considers that risk in its management systems and decisions. The board of directors and executives are responsible for approving and implementing strategies, and the company uses goals for safety, environmental factors, and social performance to determine incentive payments for the CEO and the rest of the executive leadership team.
Suncor considers risks of all sorts in a variety of ways, basing its considerations on scenarios created by IHS Markit (acquired in 2022 by S&P Global). I won’t summarize this aspect of its strategy here, but if you’d like to learn more, consult Suncor’s Climate Report 2021 () or S&P Global’s Energy and Climate Scenarios. There’s a lot to read there.
Finally, Suncor reports its scope 1, 2, and 3 emissions. Its reporting is the most transparent I have encountered so far.
You have to hand it to Suncor for preparing a comprehensive strategy for upstream decarbonization. We can also laud it for publishing copious and detailed documentation of its plans and results. But unfortunately, all that strategizing and communicating — to say nothing of its large investments — will be for naught if the company continues to expand production.
What Unites the Big Six
What unites the Big Six — aside from a love of vagueness and the supreme irrelevance of their plans — is an umbrella organization called the Pathways Alliance. We’ll take a closer look at the Alliance in a future post.