Shell exec calls for climate resolve

The jury is still out about whether Alberta’s climate leadership plan, announced a year ago Tuesday, has bought the peace required to clear the way for pipelines to Canada’s coasts — or chased away long-term investment in the oilsands.

Many already invested in the business still support it, including the Canadian affiliate of Royal Dutch Shell PLC, one of the large companies that last year cooperated with a group of environmental organizations to propose a 100 megatonne cap on oilsands emissions. The cap was incorporated in the plan by Premier Rachel Notley.

In an interview, Shell Canada president and country chair Michael Crothers said Alberta — and Canada — shouldn’t back away from the progress made so far on climate change policy, including staying the course on carbon taxes, while being ready to “pivot” to distribute its proceeds so trade-sensitive sectors like Canadian oil and gas remain competitive with their U.S. counterparts under a Trump administration. Alberta is introducing its controversial $3 billion a year carbon tax in January.

“We shouldn’t lose our resolve to progress down this path of protecting the environment and dealing with the reality we have of climate change,” said the 54-yearold Calgary native, who took over Shell Canada’s top job nearly a year ago. “Shell has for more than 20 years acknowledged the issue of climate change, and as a Canadian, I feel that I have a role to play as a leader in trying to deal with that.”

Still, he said the Anglo/ Dutch oil major is no longer in the business of large oilsands expansions, and now regards the deposits as a “cash engine” rather than a “growth engine,” a destiny the oil major is now reserving for shales and new energy sources.

The oilsands’ business operated by Shell produces about 300,000 barrels a day. Shell owns 60 per cent of that, and the rest goes to its partners. Even at today’s low oil prices, it’s a profitable business, said Crothers, who is also Shell’s vice-president, North America, for unconventional plays.

“At the moment we are focused on our oilsands’ competitiveness, and managing that carbon footprint and creating a viable long-term business, but having absorbed an $80-billion acquisition, we don’t have any near-term plans to be investing huge amounts of money into the oilsands sector,” Crothers said, referring to Shell’s acquisition of BP Group PLC to form a global liquefied natural gas powerhouse. Shell employs almost 8,000 people in Canada, including 4,000 in the oilsands, a business that in the past was earmarked for major growth.

Shell won’t be alone in harvesting its oilsands assets while looking for growth elsewhere. According to a new TD economics report, carbon taxes will challenge the economics of projects if oil prices are below US$60, though they won’t be as big a factor if oil prices are higher.

“Already, the oilsands are a higher cost resource,” says TD economist Dina Ignjatovic. “Hence, even with a rebound in oil prices, it is unlikely that oilsands will be the first place new investment flows into. Instead, investment will be dominated by sustaining capital to keep existing operations running, which at least puts a floor under total investment in the sector. The carbon tax will add another layer to production costs.”

The report estimates the average break-even operating cost in the oilsands is US$35 to US$38 a barrel, while the average break-even price for shale oil in the U.S. ranges from US$29 to US$39.

A $30-a-tonne carbon tax could add from 75 cents a barrel to as much as $4 a barrel for the most carbonintensive projects, the report estimates, though the most efficient projects could be better off.

U.S. production won’t face such added costs. Trump is expected to back out of the Paris climate-change agreement and boost oil, gas and coal production to enhance American energy security.

Crothers said Canada could give tax breaks to trade-exposed companies, ease up on funding renewable energy and rethink the pace of methane emissions control until the U.S. lines up with Canada on climate change policy.

But staying the course, Canada is offering businesses policy certainty, an incentive to invest in carbon reduction technologies and demonstrating a commitment to resolve differences, he said.

Already there is less tension and more focus on solutions between oilsands producers and some environmental organizations, he said.

Crothers and Ed Whittingham, executive director of the Pembina Institute, spoke to the Toronto Board of Trade Tuesday about the “unlikely alliance” between oilsands companies and green organizations that led to the proposal to cap oilsands emissions.

Now Crothers is looking forward to some “wins”, such as approval of Kinder Morgan’s Trans Mountain pipeline expansion. A decision on whether the project can move forward is expected from Prime Minister Justin Trudeau by Dec. 19.

“We think it’s far more productive to be working together in that way, than to be in our corners, if you will, arguing with each other,” Crothers said.