Canada seeks oil sands exemption
 Click here to go directly to this story within the full PDF version of this issue, with any maps, photos or other artwork that appears in some of the articles.
Email it to an associate.
U.S. legislation banning use of ‘nonconventional’ fuels by military, agencies, rising political tide sets off counter-arguments regarding Alberta oil sands development
Gary Park For Petroleum News
Forget about greenhouse gas regulations, royalty hikes, construction costs and labor shortages.
The Alberta oil sands sector may be getting dragged into its toughest fight yet, especially if Democrats take over the White House and Congress in the November election.
Senators Hilary Clinton and Barack Obama have already pointed to tougher controls on unconventional fuels that generate more lifecycle GHGs than those derived from more conventional sources.
And just to compound the worries, if Sen. John McCain becomes president he has talked about introducing stronger measures to combat GHGs.
That gives added teeth to the United States Energy Independence and Security Act adopted in December 2007 that includes a provision banning military and federal agencies from buying those alternative fuels.
Section 526 specifies a prohibition on the purchase of “alternative or synthetic fuel, including a fuel produced from nonconventional petroleum sources.”
Canadian concerns growing At first, the law made scarcely a ripple in the Canadian government and the petroleum industry.
But, as the U.S. election year has unfolded, concerns have grown that the legislation will drastically affect oil sands development in Alberta.
“The Canadians do, in fact, have something to worry about, particularly from a Democratic administration,” said Amy Meyers Jaffe, an energy expert at Rice University, although she pointed out that eliminating the oil sands as a source of fuel in the U.S. could end up making current oil prices “look cheap.”
Currently half of Canada’s 2.77 million barrels per day of oil production come from the oil sands and 65 percent of the combined output ends up in the U.S. By 2015, oil sands volumes are forecast to reach 3.5 million bpd, while conventional volumes are expected to shrink by 50 percent.
Faced with such an uncertain outlook in the U.S., the Canadian government has finally been stirred into action.
In a letter to Defense Secretary Robert Gates, Secretary of State Condoleezza Rice and Energy Secretary Samuel Bodman, Canada’s ambassador to Washington, Michael Wilson, warned about the “unintended consequences for both countries” of any restriction on oil sands shipments from Canada.
He argued that only an “expansive interpretation” of Section 526 would include oil from the oil sands, which he said is not a “nonconventional petroleum source” because the output is processed in the same facilities as conventional crude.
“There was no indication when the legislation was considered in Congress that (the procurement rule) was intended to go beyond a limited scope,” Wilson said.
He said the legislation puts the U.S. at risk of “preferring offshore crude from other countries over fuel made in part from U.S. and Canadian sources” and would undermine U.S. goals of improving energy security by reducing its dependence on oil from volatile political regions.
Canada largest foreign supplier to U.S. Wilson pointed out to Gates that Canada has surpassed Saudi Arabia as the largest foreign supplier of crude oil to the U.S., in large measure because of rising production from the oil sands which has been encouraged by Washington and financed by a growing number of U.S.-based companies, such as ExxonMobil, ConocoPhillips, Marathon, Chevron and Devon Energy.
A spokesman for the American Petroleum Institute agreed with Wilson that the new law does not include a definition of nonconventional petroleum sources and, thus, should not include the oil sands.
He said “synthetic crude” is a term more properly applied to coal-to-liquid fuels, which are the result of a chemical process, whereas the oil sands are exploited by adding heat to sands.
However, the Natural Resources Defense Council argues that the oil sands spawn three times the carbon emissions of conventional crude on a per unit basis.
Stelmach: transportation a factor Alberta Premier Ed Stelmach said that by the time low-carbon fuel standards are in place in the U.S., his government’s own climate-change regulations will meet or exceed those standards.
He also argued that fuel derived from the oil sands is cleaner than imports from the Middle East because those shipments have to travel greater distances, generating greater GHGs in the process.
A spokesman for Stelmach said the U.S. drive, led by California, to target so-called “dirty” fuels may only discourage research and investment in technology that can reduce GHGs at the point of production.
Stelmach told the World Heavy Oil Congress in Edmonton March 10 that when his government releases a plan this fall to guide oil sands expansion it will ensure the industry grows in an “environmentally sustainable and responsible manner” and accelerate the gains already made by the industry which has lowered carbon dioxide emissions by 45 percent per unit of production since 1990.
Canada’s most immediate hopes of a favorable resolution of the issue rest with a working group headed by the Department of Defense that is developing a detailed classification that will recommend whether oil sands production could be included in the “nonconventional” ban.
| 
