Ottawa’s Policy Reversal on Oil Recovery Sparks Optimism Among Energy Leaders
Ottawa’s about-turn to allow access to federal tax credits for capture carbon projects that then use the C02 to boost oil production in old wells is a “game changer” for industry, the oil services sector says.
The change was part of the energy accord signed by Prime Minister Mark Carney and Alberta Premier Danielle Smith on Thursday. Not only could it boost production, it can make Western Canada’s conventional oil sector more competitive with its peers in the United States, says Mark Scholz, chief executive of the Canadian Association of Energy Contractors, which represents the energy industry’s services sector.
Enhanced oil recovery, or EOR, is a process in which carbon-dioxide gas from carbon capture utilization and storage (CCUS) projects is injected underground to draw oil to the surface. It can be used to extract oil from reservoirs that have already been pumped so thoroughly that they no longer yield easily to other methods.
When Ottawa introduced a tax credit in 2021 to incentivize CCUS projects, those that planned to use the carbon dioxide for EOR were excluded from the cash – a move that puzzled the oil sector, Mr. Scholz told media Monday.
“We were always concerned that EOR was removed from the conversation,” he said on the sidelines of the association’s state of the industry luncheon in Calgary.
The U.S. oil and gas sector has for years had access to a federal carbon capture tax credit for EOR projects, and the Canadian conventional oil business has fought hard for the same.
Thursday’s memorandum of understanding says Canada will extend federal tax credits and other policy supports “to encourage large scale CCUS investments, including Pathways and enhanced oil recovery.”
That is a “game changer for the conventional [oil] business,” Mr. Scholz said, and good news for his members – the companies and contractors that crew the drilling rigs and perform maintenance and well abandonment operations.
“I think this is very constructive. It’s very pragmatic, and it makes us, I think, well-positioned to be much more competitive with the United States.”
It doesn’t matter what is done with the carbon captured from industrial processes, he said; removing the emissions in the first place is good for the environment.
Various EOR facilities already operate in Canada, including a site operated by Whitecap Resources Inc. which uses carbon dioxide purchased from the coal-fired Boundary Dam Power Station in nearby Estevan, Sask. And there are projects near Lloydminster, a city that straddles the Saskatchewan-Alberta boundary.
But many environmental groups argue that using captured carbon in EOR increases oil production, which in turn increases the total output of carbon emissions.
Ms. Smith told media Monday after the state of the industry event that EOR is “one of the best examples of how an industry has taken a waste product and turned it into a source of revenue.”
That includes in Saskatchewan, she said, where it has been used for years to sequester emissions from the coal-fired power plant.
Ms. Smith acknowledged that the bulk of carbon captured through CCUS will be buried underground.
“But if you can also rejuvenate some of our existing fields … and maybe as many as 40 fields could potentially have new life with CO2 injection, then I think we should do that,” she said.
Ms. Smith said she mentioned the EOR issue to Mr. Carney in their first meeting after he was elected, and it seems he was amenable to the change.
The MOU also laid the groundwork for a new oil pipeline to the West Coast, suspended clean-electricity regulations for Alberta with the proviso that the province increase its industrial carbon price, and said the federal government wouldn’t implement its oil and gas emissions cap.
The agreement also laid out a plan for construction of the Pathways Project – a massive CCUS effort that the deal said would be built by 2040 to achieve emissions reductions at date-specific intervals.
“We have seen a complete 180 turn in policy, in tone, in attitudes towards resource extraction and our natural resources,” Mr. Scholz said Monday.
This article was first reported by The Globe and Mail
