Emissions cap will mean cuts in oil and gas production: Deloitte

A new report from Deloitte shows that Canadian oil and gas companies facing federal emissions caps will choose to cut production rather than invest in overly expensive carbon capture and storage technologies.

The report commissioned by the Alberta government – a copy of which was obtained by The Canadian Press – aims to assess the economic impact of the proposed restriction.

His findings contradict the federal government’s position that its proposed cap on greenhouse gas emissions from the oil and gas sector would be a pollution cut, not a production cut. It also confirms Alberta’s position that a mandatory restriction would lead to production cuts and serious economic consequences.

However, Deloitte’s report also casts doubt on the notion that widespread implementation of carbon capture and storage technology will reduce emissions from the oil and gas sector in the coming years, suggesting that such a scenario does not make financial sense.

“We expect that by 2030, producers will be subject to a cap of 20 megatons of emission reductions, which will have to be achieved by investing in CCS (carbon capture and storage) or by reducing production,” reads the Deloitte report.

“Reducing production would be a more cost-effective option compared to investing in CCS.”

The oil and gas sector is Canada’s highest emissions industry, and growing oil sands production means that total emissions from this sector are rising at a time when many other sectors of the economy are effectively reducing total emissions.

Global oil demand is growing – the International Energy Agency forecasts that global oil demand will be 3.2 million barrels per day higher in 2030 than in 2023, although the agency also suggests that growing supply will outpace demand growth later this decade .

In a draft framework released last December, the federal government proposed a cap on oil and gas emissions to help slow climate change. The regulations would require the industry to reduce greenhouse gas emissions by 35-38 percent from 2019 levels by 2030. Companies would also have the option to purchase offset credits or contribute to a decarbonization fund, which would lower the requirement to just 20-23 percent.

However, a Deloitte report suggests that between 2021 and 2040, oil production in the country could increase by 30 percent and gas production by more than 16 percent. These numbers are based on the Canadian Energy Regulator’s forecast and current government policy.

This means that manufacturers will have two options to meet the emissions cap restrictions, Deloitte argues. They can invest heavily in carbon capture and storage – capturing greenhouse gas emissions from oil extraction on site and storing it safely underground – or limit planned production growth.

The oil and gas industry itself promotes carbon capture and storage as the key to reducing emissions while increasing production. The oil sands industry, which accounts for most of Canada’s total oil and gas sector emissions, has proposed spending $16.5 billion for a massive carbon capture and storage network in northern Alberta.

However, the group of companies behind the proposal, called the Pathways Alliance, has not yet made a final investment decision, saying more certainty is needed about the level of government support and funding for the project.

In its report, Deloitte states that the cost of carbon capture and storage is so high that it is “economically unviable” in many cases.

It states that many companies are unlikely to go this route in trying to comply with emissions limits and would instead simply reduce production.

“It is important to note that once implemented, the investment in CCS is irreversible,” the report states.

“However, the reduction in production can be reversed. Taking these factors into account, we do not anticipate making any oil sands CCS investments.”

The Deloitte report says a mandatory cap on greenhouse gas emissions from the oil and gas sector would result in reduced production, job and investment losses, and a “significant” decline in GDP in Alberta and the rest of Canada.

The mining, refined products and utilities sector will also see a decline in real output if emissions are cut, Deloitte says, due to its proximity to the oil and gas sector.

The Deloitte report shows that oil production in Alberta in 2030 would be 10 percent lower. lower with the limit than without it, and natural gas production would be 16 percent lower. lower. The cap would also mean a reduction in fossil fuel production in British Columbia, Saskatchewan and Newfoundland.

According to Deloitte, by 2040, Alberta’s GDP will be 4.5% lower and Canada’s GDP will be 1% lower than if no emissions cap were in place.

Alberta Environment Minister Rebecca Shulz said the report confirms what the province has been saying all along.

“We must use common sense. When we look at policies like (cutting emissions), you have to take socioeconomic data into account,” Shulz said in an interview.

“I don’t think Canadians want us to plunge the country into further economic decline.”

Shulz added that Alberta recognizes that the economics of carbon capture and storage are challenging. She said harsh government policies that reduce business profitability will only have the effect of discouraging investment in emissions reductions.

“Politically, the overlapping of all these punitive measures continues to displace the emission reduction technology that we actually want to see introduced here,” she said.

The Deloitte report predicts that in 2030, there will be 54,000 fewer jobs in Alberta with emissions restrictions than without it.

This report by The Canadian Press was first published June 17, 2024.