Brian Zinchuk is editor and owner of Pipeline Online
Alliance Drilling Rig 3 drilling north of Benson on Jan. 27. Photo by Brian Zinchuk
Editor’s note: Saskatchewan Minister of Energy and Resources Jim Reiter sent two letters in February to federal Minister of Environment and Climate Change Steven Guilbeault regarding climate change initiatives that will have a detrimental impact to the province’s oil and gas industry. Pipeline Online is republishing both letters. This letter, republished verbatim, focuses on the proposed oil and gas emissions cap, introduced by Guilbeault Dec. 7 last year.
February 6, 2024
The Honourable Steven Guilbeault
Minister of Environment and Climate Change Canada House of Commons
Dear Minister Guilbeault:
Saskatchewan is strongly opposed to the federal government’s proposed emissions cap on the upstream oil and gas sector (Emissions Cap), as outlined in the draft regulatory framework released on December 7, 2023. The Emissions Cap is the latest of a multitude of federal emissions policies, creating a complex patchwork of overlapping compliance obligations that jeopardize Canadian oil and gas supply when the world needs it most.
While Saskatchewan agrees with the goal of reducing emissions across all sectors of the economy, an Emissions Cap applied to the upstream oil and gas sector is not a cost effective or practical means of achieving those reductions and will effectively restrict and shut-in Canadian oil and gas production. Preliminary analysis suggests that compliance with the Emissions Cap will cost Saskatchewan’s oil and gas sector between $7 billion (B) and $9B by 2030.
Saskatchewan’s upstream oil and gas sector has a demonstrated track record of success, supported by efficient regulatory policies and programs. The Emissions Cap is complex, inefficient, and unnecessary.
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Importance of the Upstream Oil and Gas Sector to Saskatchewan and Canada
Saskatchewan’s oil and gas industry is a major contributor to the provincial economy and to the quality of life enjoyed by the citizens of this province. Each year, Saskatchewan’s oil and gas sector invests significant capital to maintain and grow production and to reduce emissions. In 2022, capital investment totaled $2.8B. This investment supports roughly 30,000 direct and indirect jobs connected to the province’s upstream oil and gas industry. In 2022, Saskatchewan produced 454,000 barrels of oil per day (bpd), an estimated $17B in value of production. In 2022, the value of Saskatchewan’s oil exports exceeded $13B, and have averaged $8.5B annually over the last 10 years.
The oil and gas sector typically accounts for 15% of Saskatchewan’s Gross Domestic Product (GDP). Oil and gas generates annual provincial royalty revenues in excess of $1B, which is matched by sales, property, corporate, and income taxes tied to the sector.
These revenues fund the schools, hospitals, roads, and other critical public services that people rely on every day.
Leading economists agree that the Emissions Cap will cost all Canadians, not just those living in oil and gas producing jurisdictions. Provincial economies are highly integrated. For example, Trevor Tombe, a well-respected economist at the University of Calgary, estimates that 40% of the costs of the Emissions Cap will be borne by non-oil and gas producing provinces and that every province will be negatively impacted.
Initial modelling of the impact of the Emissions Cap, alongside Methane 75, indicates that between 100,000 and 150,000 bpd in Saskatchewan are at risk of being shut-in or lost due to do reduced investment in drilling. This represents 20% to 30% of Saskatchewan’s total production and would result in significant reductions in royalty and other tax revenues.
This does not consider the broader impacts on direct and indirect employment and on the many communities that rely on the oil and gas sector. It also does not consider impacts after 2030 given the lack of clarity on the trajectory of the Emissions Cap post-2030.
The continued layering of inefficient emissions policies on Canada’s oil and gas sector will reduce investment, employment, productivity, and revenues needed to fund high quality public services across the country. The Emissions Cap will restrict access to the capital required to invest in emissions reductions projects, counter to federal climate objectives. The Emissions Cap, combined with other federal emissions policies, increase the cost of living for all Canadians. The cumulative costs of these inefficient policies will continue to exacerbate the affordability crisis.
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Saskatchewan’s Actions and Progress on Emissions Reductions
Saskatchewan’s actions to address climate change commit our province to a robust plan to implement greenhouse gas (GHG) emissions reductions that help to achieve our climate change goals, while providing industry with the flexibility to implement those reductions in an economically viable way. These commitments are detailed in Prairie Resilience: A Made–in-Saskatchewan Climate Change Strategy. The strategy emphasizes the important role that technology can and should play in reducing emissions.
Our success story is impressive. According to the federal government’s National Inventory Report, from 2019 to 2021, Saskatchewan’s upstream oil and gas sector reduced their emissions by 34%. Further reductions are expected in 2022 and 2023. This compares very favourably to the 2030 target reductions of 35% to 38% set out in the regulatory framework for the Emissions Cap. Saskatchewan’s oil and gas sector is doing its part and will continue to do so.
Saskatchewan has also mandated a 45% reduction in methane emissions from the upstream oil and gas industry by 2025 relative to 2015 levels under the Oil and Gas Emissions Management Regulations (OGEMR). With this made-in-Saskatchewan approach, industry has exceeded expectations and reduced reported GHG emissions from upstream oil facility venting and flaring by 64 per cent below 2015 levels. This includes a 70 per cent reduction in methane emissions from those sources.
Saskatchewan is a leader in carbon capture, utilization, and storage (CCUS). The world’s first fully integrated, post-combustion carbon dioxide (CO2) capture and storage project is located at SaskPower’s Boundary Dam coal-fired power plant. This facility can capture up to 800,000 tonnes of CO2 each year, preventing nearly 5.8 megatonnes (Mt) of CO2 from entering the atmosphere since it began operation. This is equivalent to taking up to 200,000 vehicles off the road per year.
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Saskatchewan is also a leader in CO2 utilization for enhanced oil recovery (CO2-EOR). Over the past 25 years, Saskatchewan’s CO2-EOR projects have sequestered more than 40 Mt of CO2, led by Whitecap Resources Ltd. who operates the world’s largest CO2-EOR project near Weyburn. Using CO2 as a key input for reservoir management, CO2-EOR is among the lowest emissions oil production in the world.
The examples above illustrate our practical and innovation driven approach to reducing emissions while protecting competitiveness and preserving economic growth. This is why our government continues to advocate for inclusion of EOR, with equal access and treatment, under the federal CCUS Investment Tax Credit. This includes expanding eligibility to design costs and extending the eligibility timelines. Additional details on Saskatchewan’s actions to date, including both regulatory and programmatic measures, are contained in our technical submission.
The Emissions Cap Will Increase Reliance on Imported Energy Products
In recent years, Canada’s reliance on imported crude oil has decreased, owing in part to increased oil production in western Canada and the ability for more of that crude to reach eastern Canada by pipeline. The Emissions Cap risks reversing this trend. Regardless, Canada still imports significant volumes of crude oil, including in recent years from Saudi Arabia, Nigeria and Azerbaijan. Imported crude oil feeds into refineries in Ontario, Quebec and New Brunswick.
The Emissions Cap will restrict Canadian oil and gas supply and increase reliance on foreign crude oil imports from countries that do not have the strong human rights or environmental records. Federal officials have indicated that there are no plans to subject imported crude oil to emissions scrutiny to level the playing field with Canadian oil and gas products. Punishing Canada’s oil and gas sector, while not applying the same level of scrutiny to imported oil and gas products, is extremely counterproductive.
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The Emissions Cap Intrudes on Provincial Jurisdiction
The Emissions Cap represents another example of federal overreach into areas of exclusive provincial jurisdiction. As confirmed in The Saskatchewan First Act, which came into force on September 15, 2023, Saskatchewan has exclusive legislative jurisdiction, under Section 92A of the Constitution Act, 1867, over the development, conservation and management of non-renewable natural resources, which includes the exclusive authority to regulate GHG emissions from the oil and gas sector.
The Proposed Emissions Cap is Unnecessary
Despite the demonstrated success of Saskatchewan’s efforts to reduce upstream oil and gas sector emissions, the federal government intends to move forward with an Emissions Cap. The Emissions Cap will apply to emissions sources already fully covered by carbon pricing and legislated reductions; it is complex, inefficient, and unnecessary.
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In addition to other overlapping federal emissions policies, the Emissions Cap will:
- Place a cap on Canadian oil and gas production and disproportionately impact Saskatchewan’s conventional oil production;
- Severely curtail capital investment into Canada’s oil and gas sector, including for impactful emissions reductions projects;
- Create additional complexity and uncertainty for industry in determining how best to address various regulatory obligations;
- Reduce employment, productivity and negatively impact government revenues across Canada;
- Increase the cost of goods and services during an affordability crisis;
- Exacerbate global energy security concerns; and,
- Increase Canada’s reliance on imported oil and gas from jurisdictions that do not have strong human rights or environmental records.
In response, Saskatchewan requests that:
- The federal government immediately retract the draft regulatory framework for the proposed Emissions Cap and clearly signal its intent to abandon the policy;
- The federal government immediately include EOR as an eligible use of CO2 under the CCUS Investment Tax Credit to support low emissions intensity oil production;
- The federal government immediately share modelling and assumptions regarding what is considers to be technically achievable emissions reductions by 2030; and,
- The federal government immediately open discussions on the $2B Futures Fund for oil producing provinces, a commitment that appears to have been
Saskatchewan strongly opposes the Emissions Cap and the jurisdictional overreach it represents. The Government of Saskatchewan will consider all possible options within its power to mitigate federal overreach into areas of provincial jurisdiction .
I look forward to continued discussions on the need for the Emissions Cap.
Sincerely,
Jim Reiter
Minister of Energy and Resources
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