Alberta

As the global economic crisis has made all too clear, there is one choke point for almost any business: its source of financing.

Rainforest Action Network activists were thinking about that this morning as they hung a banner outside the Toronto offices of RBC, Canada’s largest bank and the nation’s biggest financier of efforts to extract oil from the Alberta tar sands.

The banner had its own unusual pressure point: It called on Janet Nixon, wife of CEO Gordon Nixon and a known environmental supporter, to persuade her husband to stop RBC’s financial support of the energy-intensive tar sands.

In a personal video plea to Janet Nixon at the Web site PleaseHelpUsMrsNixon, RAN Executive Director Mike Brune says:

“Your husband can make history. RBC can lead Canada towards a clean energy future, and you’re our best hope, Janet.”

Tar sands extraction and production are a significant source of greenhouse gas emissions, producing two to three times the greenhouse gases of conventional oil, polluting water supplies, and making it difficult for Canada to meet its climate commitments.

RAN sees a better way to power North America, but to get the Shells and Suncors of the world to move on to clean energy, it needs to turn off the funding taps for the tar sands.

That’s easier said than done

Where the natural gas from the Alaska Natural Gas Pipeline will end up is a murky question tied up in a 30-year-old treaty, expansion of Canadian tar sands operations, and trends in natural gas supplies both in the United States and in Canada.

Environmentalists fear at least half of the relatively clean-burning Alaskan North Slope gas will end up fueling tar sands operations in Alberta, where the pipeline will end, instead of coming to the lower 48 states to replace carbon-intensive coal in power plants. The tar sands operations already consume about 20 percent of Canada’s natural gas, and they are expected to need as much as twice that by 2035.

Michael Brune of the Rainforest Action Network calls the pipeline "a stealth dirty oil mega-project … conceived by Big Oil.”

“Under Plan Palin, ExxonMobil and TransCanada would construct a 1700-mile natural gas pipeline from the Arctic, heading south,” Brune writes. “About half of it is likely to be siphoned to help produce the dirtiest oil on earth.”

It might not be that simple, though.

Canada's Conservative government is funneling two-thirds of its $860 million "clean energy" fund into carbon capture and storage (CCS) technology. Most of that $580 million is headed to Alberta to clean up the province's dirty tar sands operations, which emit more global warming gases than the entire nation of New Zealand.

If it sounds like hogwash, or rather greenwash, it is.

The tarry bitumen of the oil sands is one of the world's filthiest hydrocarbons. Mining it produces two to six times more greenhouse gases than light oil.

In theory, CCS, or so-called "clean coal," could strip carbon from exhaust gases, pipe it away and bury it in depleted oil and gas reservoirs elsewhere in Alberta. But that doesn't hold up in practice, and there's no evidence that it ever will.

"Few people in this room can truly appreciate what this award means to the people of Alberta."

That was Alberta’s Energy Minister Mel Knight speaking last night as he accepted an environmental award from the Aspen Institute. You'd think it was the year 2030, the world had gotten a leg up on climate change, and Alberta had played an instrumental role. Fade in the sentimental music, take out the handkerchiefs, cut to commercial.

No such miracle, alas. Instead, a large and disturbing dose of wishful thinking: an award given for an effort that has barely begun — Alberta’s Carbon Capture and Storage Initiative — involving the largest and dirtiest energy project on the face of the Earth. The tar sands-supporting government of Alberta was being honored alongside true climate leaders Van Jones and A123 Systems for its supposed good intentions, which many environmental groups fear is merely a greenwashing campaign.

Environmentalists in the room cringed, but others at the forum must have appreciated that award as much as Alberta did – starting with the forum's corporate sponsors: Duke Energy, Shell Oil and General Motors.

The governments of Alberta and Canada have championed carbon capture and storage (CCS) as a creative solution to the growing clouds of greenhouse gases from bitumen production in the tar sands.

Bitumen is one of the world’s dirtiest hydrocarbons, producing two to six times more climate changing gases than light oil. So Canadians, the chief exporters of “dirty oil” to the United States, keenly want to start a clean energy dialogue with President Barack Obama. They made their first overture last month when the U.S. president visited Ottawa and agreed to collaborate on developing energy technology, including CCS.

Alberta, home to the tar sands, proposes to clean up its ugly bitumen with the magic of this largely unproven technology. Local politicians now boast that Alberta is the only jurisdiction in the world to have set aside $2 billion of taxpayer’s money to give carbon a proper funeral in a secure cemetery: old oil formations or salt aquifers.

But fools often rush in where Angels fear to tread.

Chasing CCS is a money burner and an energy hog, and it may not deliver much carbon savings. The whole reactive proposition raises extreme security and liability issues for industry and taxpayers alike.

Few issues illustrate the dirty nature of bitumen production better than growing lakes of toxic mining waste along the Athabasca River in northern Canada.

These industry-made impoundments now contain 187 billion gallons of sludge that includes phenols, arsenic, mercury, cancer-makers such as polycyclic aromatic hydrocarbons and fish-killing naphthenic acids.

The dams not only pose multibillion-dollar liabilities for investors but also threaten water quality in the world’s third largest watershed, the Mackenzie River Basin. Their determined accumulation also confirms a genuine state of regulatory neglect in the tar sands, the world’s largest energy project and number one supplier of U.S. oil.

Here's a startling coincidence. A first-ever assessment of Canada's shallow geothermal resources has exposed some of the country’s clearest evidence yet of global warming.

The study, published in the journal Natural Resource Research (payment required) and brought to light by Tyler Cowen in the Toronto Star, sought to evaluate the prospect of emissions-free geothermal energy down to 250 meters.

What it found was a "vast" potential of shallow hot rocks all across Canada – equivalent to more than 190 million barrels of oil. It also found that climate change was a factor.

Global warming has caused ground temperatures to climb across Canada over the past few decades, according to the research. As shallower depths warmed up, the temperature differences at 50 meters, 100 meters and 200 meters – typically large – shrunk.

The data, says study co-author Stephen Grasby of the Geological Survey of Canada, provides

"one of the best records of climate warming there is in Canada.

"Depending on where you are ground temperature has increased by a few [Celsius] degrees."

Evidence of accelerated warming is never good. But there is a silver – and even green – lining in this discovery, say the researchers. Climate-induced heat trapped inside the rocks offers the nation a shot at "significant CO2 reduction."

One of the welcome casualties of the dramatic fall in oil prices has been the slowdown in the exploitation of Canada's tar sands, the biggest and dirtiest energy project on the planet. No corner of the global oil industry, Forbes reports, has been hurt as badly: 

Most producers are struggling just to cover operating costs – forget about paying off billions of dollars invested in strip mines and bitumen refineries.

That's the short-term news. Long-term, the story is the same, if not worse, for investors. A new report released by Innovest Strategic Value Advisors says that even with a recovery in oil prices, tar sands projects will not be economically viable. It's an analysis that has left investors surprised and perplexed, according to Yulia Reuter, author of the report, who presented it last week at the annual Riskmetrics Canadian Proxy Season Briefing in Toronto. 

The report, called The Viability of Non-Conventional Oil Development (see pdf attached below), warns that the Alberta tar sands projects "place significant value at risk for investors."

Current levels of financial and environmental, social and governance (ESG) disclosure do not fully reveal the extent of these risks. In addition, the business plans issued by the companies to justify these projects do not take into consideration the most overarching risk to their success: the macroeconomic limits of the price of oil and the opportunity costs of natural gas.

Reuter, in the report, takes these factors and others into account, and as a result has added another dimension to the debate over tar sands development: Not only environmentally, but even financially now, the projects are looking like a bad idea, a lose-lose proposition. 

A public forum at NYU's Center for Global Affairs last week provided a snapshot of how oil patch Canadians view the Obama administration's concern about about climate change and President Obama's upcoming visit this Thursday: warily, and perhaps even with barely concealed hostility.

Canada's Consul General in New York, Daniel Sullivan, introduced the panel discussion with these words:

Canada, not Saudi Arabia, is the #1 foreign supplier of crude oil to the United States. ... I think the United States can feel very secure that it has Canada as a secure and very reliable source of energy.

That was a bit of diplomatic code that really meant this: Why would the U.S. want to mess up a good thing by worrying too much about climate change and restricting the development and the vast profits that could flow from the tar sands?

As President Obama prepares for his first foreign trip to Canada on Thursday, attention is focusing on the biggest energy and environmental issue on the North American continent: Canada's vast deposits of tar sands.

About 10% of U.S. oil imports now originate from this dirty source. Restricting use of the highly polluting supply will be essential if the president is going to meet his greenhouse gas reduction targets. How Obama deals with the issue in his talks with Canadian Prime Minister Harper could demonstrate how the president intends to scale back on fossil fuel energy development as the clean energy economy expands.

Required reading on the subject is the book Tar Sands: Dirty Oil and the Future of a Continent by Andrew Nikiforuk which was published to wide acclaim in Canada in the fall and is slated for release in the U.S. in March. It details the impact that the $200 billion of oil money that has poured into the region has had in creating the world's largest energy project and one of its dirtiest and most dangerous.

By all means order the book and read it; and while you're waiting for it to arrive, watch this video which Nikiforuk produced.