Market News

 October 25, 2006
Carbon neutral oil sands - $2 per barrel

 Calgary, Canada (GLOBE-Net) -- Oil sands operations in Alberta could become carbon-neutral by 2020 at a cost of US $2 to $13 per barrel, says a new report from the Pembina Institute. The study evaluates the use of carbon capture and storage and the purchase of emissions offset credits to allow the industry to produce net-zero greenhouse gas emissions.

Carbon Neutral 2020 considers only carbon capture and storage and purchase of emissions offsets, although other emissions reduction options exists for many oil sands companies. Energy efficiency investments and alternative fuel usage were not considered due the variability of cost and effectiveness of such measures across different companies.

With oil sands production expected to triple by 2015, greenhouse gas emissions will rise substantially. The Pembina Institute predicts that oil sand development will contribute up to 47 percent (42.7 Megatonnes) of the projected increase in Canada's annual greenhouse gas emissions between 2003 and 2010. Emissions from oil sands could nearly double by around 2015, although the report notes many other industries are also major contributors to Canada's total greenhouse gas emissions, and must play a part in emissions reduction initiatives in the future.

The industry has seen record profits and capital investments in recent years, with the earnings of four of the largest companies increasing by an average of 42 percent annually between 1999 and June 2006; during that time, the price of oil has increased by 156 percent. Capital spending has increased dramatically, and the return on capital investments is around 21 percent, according to the Globe and Mail's Report on Business.

Given these facts, the Pembina Institute suggests it is time for companies to take the necessary actions to reduce greenhouse gas emissions.

Three options for achieving carbon neutrality were considered: capturing and storing all carbon dioxide from point sources; capturing CO2 only from hydrogen production and purchasing credits for other emissions; and capturing no CO2 but purchasing offset credits for all emissions. These options were evaluated based on three operating situations with differing levels of mining versus in-situ extraction.

The costs for capturing and storing one tonne of CO2 were estimated as ranging from US $34 to $100, based on data from Natural Resources Canada. This does not take into account the use of CO2 for enhanced oil recovery, which provides a financial incentive through increased oil production along with long term storage, as demonstrated at EnCana's Weyburn oil field.

The costs of emissions offsets were estimated as US $22 to $66, based on GHG market projections and economic forecasts.

Evaluating these costs, the Institute estimates that it would cost between US $1.76 and US $13.65 per barrel for the entire industry to produce zero net greenhouse gas emissions. The figures are sensitive to changes in the estimates for carbon capture and storage as well as a price reduction for offset credits, and the costs per barrel would be substantially lower with improvements in technology.

It is estimated that the industry will only be willing to pay in the lower ranges for emissions reductions without major government policy changes, and that companies with predominantly mining operations would pay slightly less than those using in-situ Steam Assisted Gravity Drainage (SAGD), which is expected to be used in most future projects.

Major sources of greenhouse gas emissions from the oil sands include the use of energy to extract the sands during surface mining, transportation, and hydrogen production during upgrading. The most emissions intensive operations are the boilers and plants used in in-situ extraction, which is mainly fuelled by natural gas, a relatively cleaner fuel compared to the crude oil that is produced from the oil sands.

Emissions intensity (emissions per barrel) of any given oil sands operation can vary substantially depending on the quality of the bitumen, the technologies applied, the fuel source for power generation, and the level of process controls and integration that improve energy efficiency.

Many improvements can be made to the extraction, processing and refining processes to reduce emissions per barrel, as has been demonstrated by leading companies in recent years; Suncor reports that emissions intensity of greenhouse gases, sulphur dioxide, and nitrous oxide have decreased steadily since 2000.

For more on oil sands development and the related environmental and business issues please visit the Klean Sand Project at "by clicking here" and visiting this section of our website "here"

For further information and presentation on the unique Klean Industries technologies please contact:

Mr. Scott Carley
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