Pipelines run at Suncor's McKay River oilsands operation near Fort McMurray, Alta., in 2014. Suncor is one of five major oil producers that has signed on to the Pathways project.Todd Korol/Reuters
Alberta, Ottawa and the five largest oil sands companies in the country have signed an agreement to push forward a massive carbon capture project in the province’s north, while setting the stage for a substantial increase in crude production.
The non-binding deal clears away another hurdle to the construction of a new West Coast oil pipeline, a major priority for both the federal and Alberta governments. And it also opens the door to Ottawa and Alberta providing more financial support for Canada’s largest oil sands producers to cut their emissions and expand production.
The agreement stems from a memorandum of understanding signed by the provincial and federal governments in November, which tied the construction of the new oil pipeline from Alberta to the West Coast to lowering emissions through the carbon capture project, called Pathways. However, the level of emissions reductions through Pathways has been dramatically scaled back from the original project plan.
Under the new agreement – signed July 2 but made public Monday – the governments and companies signalled their support for the development of new financial and regulatory frameworks that would “enable sustained and substantial oil sands development and production growth.”
The companies involved are Suncor Energy Inc. SU-T, Cenovus Energy Inc. CVE-T, ConocoPhillips COP-N, Canadian Natural Resources Ltd. CNQ-N and Imperial Oil Ltd. IMO-T Collectively, they comprise an industry group called the Oil Sands Alliance.
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Kendall Dilling, president of the alliance, said in an interview that details on federal and provincial policies to boost production will be ironed out over the coming months.
“We were satisfied from the discussions that we have line of sight to what those are going to look like, and that it’s going to work for industry,” he said.
The final policy details are due Nov. 15 - one month after an Alberta referendum on whether to hold a binding vote on separation from Canada. Prime Minister Mark Carney has made co-operating with Alberta and unleashing its energy sector with a massive expansion of its fossil fuel industry a key part of his case for the province remaining in Confederation.
Pipeline capacity - or rather, the lack of it - has long been a point of contention for oil companies and the province. That is slowly changing, as Enbridge and Trans Mountain work to increase capacity on their lines, and South Bow Corp. pursues the Prairie Connector pipeline from Alberta to Montana.
Alberta has also proposed the new West Coast oil pipeline, for which the provincial and federal governments are on the hook financially as equal partners. Mr. Carney has said the federal government expects a decision on whether this pipeline will be a project of national interest will be made by Oct. 1.
Oil companies have argued that the volume of crude needed to fill the pipelines would require the federal government to overhaul policies that they say constrain growth.
Mr. Dilling said that governments now recognize the proper fiscal framework needs to be in place if they want the industry to double production.
The Pathways project includes a 400-kilometre pipeline that would transport carbon trapped at oil-sands facilities to an underground hub near Cold Lake, Alta.
Under the new agreement, Pathways will be built in stages, but is expected to be in service by Jan. 1, 2032, and fully completed by Jan. 1, 2035. At that point, it will be expected to cut emissions by six megatonnes a year. To reach an additional 10 megatonnes a year of emissions cuts by 2045, both Ottawa and Alberta “will maintain appropriate fiscal supports which may be required” to achieve the extra reductions.
The federal government will also update its clean fuel regulations and may offer financial support for the operating costs of carbon capture projects. Federal Natural Resources Minister Tim Hodgson’s spokesperson Carolyn Svonkin said Ottawa is exploring financing for projects connected to the clean fuel regulations through federal investment agencies.
The clean fuel regulations will also help cover operating costs for Pathways because the companies will be allowed to sell credits equal to 20 per cent of their emissions reductions, she said.
Under the terms of the agreement, each company that meets reduction goals will be entitled to a smaller increase in the amount it would otherwise have to pay under the province’s carbon price. But should they fail to meet the target, or have no plan on how to get there, a 2-per-cent increase will apply.
In a statement posted to social media, Mr. Hodgson said the Oil Sands Alliance and Pathways are critical to the government’s dual goals of cutting emissions in conventional energy and spurring major new investments in clean technology.
All signatories agreed to consult and work with Indigenous groups, including pursuing their participation in Pathways.
The most recent agreement comes on the heels of the Alberta-Ottawa MOU, but negotiations between oil companies and the federal and provincial governments have been happening since 2022.
The process wasn’t easy, Mr. Dilling said. Industry was concerned about maintaining its global competitiveness, attracting capital and being mindful about investing shareholder cash. Governments, meanwhile, had to be diligent in how they put money into a public-private partnership.
While alignment between the governments to capture a significant global demand opportunity was a long time coming, he said, “if we don’t come together and do it, others will step into that space.”
The deal was criticized by some close watchers of the oil and gas sector.
“The government is using the project to provide political cover for buying another oil pipeline,” said Julia Levin with Environmental Defence. Mr. Carney’s government “keeps finding more ways to give an extremely profitable industry more corporate handouts.”
Janetta McKenzie, with the Pembina Institute, said her organization is not supportive of the level of public funding that appears to be on the table for the new Pathways project, to expand oil production and to construct the new oil pipeline to the B.C. coast.
“That’s potentially a lot of public financial support for a pretty profitable sector.”
Former pipeline executive Dennis McConaghy though, said he believes the country’s real objective of spurring economic growth through increased production is at odds with the Prime Minister’s insistence on imposing more costs on industry through the carbon price and the carbon capture project.
Editor’s note: This story has been updated to correct the date when the Pathways comes into service and to clarify the target for emissions reductions.