What does "Decarbonized" oil & gas really mean?
Post 90 | Another pipeline, or just a pipe dream?
We’ve come to expect confusing speak from politicians, activists and special interests. So many words, yet often little being said. It has always been the case, but growing harder to decode as seemingly innocuous terms worm into the brains of millions who nod along thoughtlessly.
Recent years offer examples aplenty of toothless yet dangerous terms, particularly in the environmental space.
We’ve lived through the rebranding of global warming to climate change when data didn’t allow for enough alarmism. Carbon dioxide comprising 0.04% of the atmosphere and critical to life sustainment, was repackaged as pollution and a proxy tax applied to it that dug loonies from our pockets only to kinda pay it back in a costly bureaucratic circle. We’ve been terrorized by global boiling, heat domes, polar vortexes, atmospheric rivers and weather bombs while being constantly warned, alerted and told to beware of one naturally occurring event or another. And nearly any crappy product, substance or business can nowadays be sanctified by slapping a green, eco, clean, organic or natural label on it.
The most recent in this long line of specious terms is decarbonization, thrust into the lexicon by Mark Carney. And it seems to refer to removing, or cancelling out, or counteracting carbon dioxide from the hydrocarbon molecules that drive our world and contain upwards of 90% carbon atoms.
Frankly, though, we’re not exactly sure what it means in the most recent Canadian context. Certainly not in practice. And I’d really like to know.
But before we get to that…
I applaud the new government’s seriousness and urgency in pursuing several key issues that languished badly in Canada’s lost decade under Trudeau. And while it will take several years of seeing real actions, positive outcomes, proper governance and strong fiscal management that go beyond headline pronouncements before I put any trust in the current regime, the trajectory to bolster our military and grow national infrastructure are both welcome.
My concerns and distrust remain sky high regarding policy details, implementation and competence but I am directionally encouraged.
Carney’s structure and process by which to choose projects in the national interest offers an orderliness unseen during Trudeau’s years. The fact that it strikes some as remarkable (Doug Ford was practically swooning after the First Ministers’ meeting a few weeks ago) speaks more to the high school student’s council governing style of his predecessor rather than anything other than basic competence we should expect from our government. Yet still, it is also welcome.
The strong powers of the new Bill C-5 (Building Canada Act) worry me, however. The opportunity for abuse, overreach and flouting of democratic processes in the name of national interest brings to mind a version of what we’re seeing in the US, with democratic laws and traditions being trampled in the name of national emergency by calling on the 1976 NEA instituted by Jimmy Carter during that decade’s energy crisis. It has provided Trump a greasy slope by which to skirt congressional oversight and exercise his executive excesses.
Bill C-5 could prove similar in Canada under a Liberal party who’ve proven over decades that their corruption and bad judgement runs deep and wide.
Even if you believe in the good character of Mark Carney, the overnight discovery of competence by the gang that couldn’t shoot straight, and a religious rehabilitation from decades of backroom Liberal greed and grift – history speaks to one of the greatest certainties of mankind.
“Power corrupts. Absolute power corrupts, absolutely”.
Or how about…
“Give ‘em an inch, and they’ll take a mile”.
But that’s for another day.
Back to our latest non-word. Decarbonization.
This term from Mark Carney has recently been pinging through the news sphere, in context of the provinces clamouring for federal support of pet infrastructure projects. Like teenage boys flocking around the prom queen they’re all vying to catch Carney’s eye and meet his favour. Amongst them, Alberta is bidding for another pipeline, and with good reason.
Amnesia has largely settled on much of Canada, just a few months past an election cycle that briefly suggested historical levels of consensus around the need for more pipeline capacity to diversify our US energy market dependence. Alas, that fervour has melted away as Quebec and BC spines wilt and Carney’s government erects nearly impenetrable barriers to conventional energy expansion.
Let’s briefly peek at some data to help with context - starting with global energy needs.
1.2 billion (15%) of the world’s population have no regular access to energy
2.1 billion (26%) rely on inadequate cooking fuels (wood, charcoal, dung, coal, and kerosene) causing untold health issues
26% rely on coal as their primary energy source
Coal comprises 35% of global electricity production
Switching from coal to natural gas would reduce carbon emissions by ~50%
17% of the world’s oil & gas supply derives from Russia.
Now consider Canada’s ability to positively impact global needs given our energy largesse:
Our massive stores of clean and transitional energy include:
71 trillion cubic feet of proven conventional natural gas reserves; and an estimated 1,368 trillion cubic feet of total recoverable volume. We are the world’s fifth largest producer, generating 18 billion cubic feet each year (.0013 of our reserves)
10% of the world’s established oil reserves (4th largest) measuring 168 billion barrels. Annually we extract and export 1.5 billion barrels (0.9% of our reserves)
Total Canadian O&G industry revenue sits north of $270 billion with more than $60 billion flowing back to government through royalties and taxes
Western Canada export pipeline capacity is forecasted to be maxed out by 2027 or 2028
97% of our exported energy trades to the United States, much of it at discounted prices, with ~3% going to Asia.
And finally, let’s ground our carbon dioxide emissions in some context:
Of the world’s 52 gigatons of CO₂ emissions, Canada generates less than 1.5% (702 megatons)
30% (208 MT) of our emissions come from the fossil fuels industry - oil sands, natural gas, conventional oil and refining
Our fossil fuels industry represents a miniscule 0.4% of global carbon output!
Meanwhile, Mark Carney has laid out three blockades before a new energy project will be considered.
First, we need provincial consent and indigenous agreement. If you read any recent news, I needn’t expand on this as you’ll know that each on their own is a near death knell. Taken together, the challenges are monstrous.
We then bump up against a devilish conundrum. Multibillion dollar industry partners must be lined up before a project will be considered, yet the regulatory impediments (most notably IAA and production emissions cap) dissuading external investment remain unchanged, with a promise only that Bill C-5 exceptions might be made after the fact. But how will we get previously burned partners onboard without those exceptions being committed in the first place? A Gordian Knot, indeed.
Then the plot really thickens with Carney’s caveat that he’ll consider fast-tracking a new pipeline only if it ships “decarbonized barrels” to new markets.
Do you know what that means?
Neither do I.
And here’s the fun bit. I don’t think anyone else does either - not really.
Vagueness is likely the intent.
Because if intransigent consensus and gun shy partners don’t cause pipeline proposals to fall off a steep cliff, decarbonization will be a flexible enough stake to shove through its twitching heart.
But let’s look at what decarbonization might mean starting with a quick question to ChatGPT, which seems a bit flummoxed in its response.
“Decarbonized oil" is not a standard or commonly used term in the energy industry, but it generally refers to efforts or processes to reduce or eliminate the carbon emissions associated with oil production, processing, or use”.
It then goes on to list several things it could mean in the context of production.
Use of offsetting emissions
Improved production efficiencies
Use of carbon capture and storage (CCS)
That it’s just marketing language.
Let’s wander through these possibilities.
Offsetting emissions is a non-starter not least because global carbon markets remain underdeveloped and function inefficiently despite three decades of effort. They simply can’t scale to the level required for this volume of production. And the reality remains that carbon markets are mostly a steal from Peter to pay Paul proposition that’s like sinning freely Saturday night, knowing you can receive absolution in church confessional Sunday morning.
It’s not a complete head fake, but in totality it changes little while mostly moving around money and shifting the burden of responsibility.
Just as with other energy intensive industries like concrete, steel, ammonia and plastics the oil & gas industries have already plucked much of the low hanging fruit from the efficiency tree. They have incorporated renewable energy sources including hydrogen, biofuels, and electrification while massively improving production and operational efficiencies. They are now mostly in diminishing returns in these areas, particularly if not incentivized by tax credits, innovation funds and subsidies.
By most standards Canadian energy is already considered some of the most environmentally friendly, clean and ethical fossil fuel in the world. Yet still, we insist on putting ourselves in a self-imposed penalty box by demanding our 0.4% of CO₂ is abated - preventing us from generating tens of billions more in revenue each year and improving our own country, while helping the world economically, geo-politically, and environmentally.
That leaves carbon capture and storage (CCS) as the great hope to somehow decarbonize our carbon-based fossil fuels. But let me lead with the punchline because reality beyond the headlines is disappointing.
It has not been proven at scale, remains hopelessly uneconomical, and after several decades the total global carbon quantity being captured is a tiny fraction of emissions.
In a world producing 52 billion tons (GT) of CO₂, we collectively capture 45-50 megatons (MT) using CCS - a mere 0.09%!
Of that, Canada captures an anemic 4 megatons, largely generated by Shell’s Quest AB facility storing 1 MT from hydrogen production, 1 MT from SaskPower’s Boundary Dam, and Alberta Carbon Trunk Line transporting 1.6 MT.
Feeling a bit futile about this carbon capture thing yet?
Simply put, the scale at which Canada would need to deploy CCS to zero out carbon dioxide from production is light years beyond anything in the world, collectively.
But wait, you say, while looking toward Calgary-based Pathways Alliance, a group of six major oil sands producers who pitched a large-scale carbon capture, utilization and storage (CCUS) network project in 2021. It was proposed to be the largest upstream carbon abatement project in the world, targeted to capture up to 12 MT annually by 2030 and up to 40 MT by 2050 – a veritable lifetime away and still only a fraction of current emissions. Projected to cost upwards of $20B, the plan is to reroute carbon from nearly two dozen facilities to an underground hub near Cold Lake, AB.
The project has been stalled for years with feasibility, environmental impact assessment and government funding at the nub. An independent study this year by the Institute for Energy Economics and Financial Analysis predicts it would lose money saying, “Even under optimal conditions, the Pathways project may struggle to break even, and real-world operations are rarely optimal.”
“An unprofitable carbon capture project will struggle to bring lasting positive economic benefits to host communities and become dependent on external financial subsidies to maintain operations.”
More broadly, carbon capture and storage is plagued by:
Poor Cost Recovery | The required $50-$150+ per captured ton cost for breakeven is far above global carbon prices, making it non-viable without massive government subsidies
Energy Penalty | Capturing and compressing CO₂ requires significant energy (parasitic load), reducing the efficiency of power plants or industrial processes
Storage & Transport Infrastructure | To scale CCS, massive infrastructure investments are needed — pipelines, storage sites, monitoring — much of which doesn’t yet exist
Limited Deployment | As noted, the total global CCS capacity is currently around 45–50 million tons/year, a wee fraction of global CO₂ emissions
Seems carbon capture won’t be our saviour - at least not in my lifetime.
Might have better luck desalinating the ocean than generating carbon-free oil and gas.
On top of this all what does “decarbonized” even mean in practice for Carney?
Must every molecule of new carbon dioxide production be accounted for?
Within what timeframe of production?
Will rules apply equally to oil and gas extraction? And processing? And transporting?
How much carbon must be captured versus other abatement and set off strategies?
Based on what pricing structure, trading on which carbon market and with what government involvement?
What will be the rules around utilization of captured carbon? Can it be shoved down a big hole or must it be recycled into an e-fuel and resold?
The caveat of decarbonization in Carney’s grand bargain feels like a game of Snakes & Ladders. No matter where you step, you’ll either slide backward or be gobbled. Personally, I think there’s a better chance of my winning the lottery despite never buying a ticket, than for another pipeline to be developed in Canada with this qualifier in place.
And, no, this isn’t just an Alberta issue nor an anti-Alberta thing. This is a Canada issue and an anti-fossil fuels, climate change, net zero thing. Government led activism and advocacy continues - just with a different face.
Maybe ChatGPT is right on its fourth point. Decarbonization is little more than another sneaky marketing word. Like green, eco, clean, natural and organic it will be flung about while meaning nothing more than whatever the government deems it to be - defined loosely, applied subjectively and bounded by ill-defined metrics.
Watch for it to accelerate in use as climate change, net zero and carbon pricing schemes by a different name creep their way back into the government lexicon.
And start asking what the heck it really means.
And so we set out with the beast and his horns
And his crazy description of home.
After many days journey we came to a peak
Where the beast gazed abroad and cried out.
We followed his gaze and we thought that maybe we saw
A spire of gold - no, a trick of the eye that's all,
But the beast was gone and a voice was heard:
They've got no horns and they've got no tail
They don't even know of our existence
Am I wrong to believe in a city of gold
That lies in the deep distance
~ Genesis | A Trick of the Tail ~
Stay tuned and stay pragmatic.
Decarbonized hydrocarbons make about as much sense as dehydrated water!
Correct! The “plan” is just a ruse so that the Liberals will be able to dodge the blame when literally nothing gets done at the grand scale. We’d be smarter to promote “a vegetable garden in every yard” as a national carbon capture strategy; it has zero political value but it makes more sense on every level.