This is the North Portal gas plant, owned and operated by Steel Reef Infrastructure Corp. 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 o the province’s oil and gas industry. Pipeline Online is republishing both letters. This letter, republished verbatim, focuses on the Methane 75 regulations, introduced by Guilbeault just before Christmas last year. 

 

February 14, 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 draft Regulations Amending the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector), commonly referred to as draft Methane 75 regulations as outlined in the draft regulations, released on December 16, 2023. Methane 75 is the latest in a multitude of federal greenhouse gas emissions policies, creating a complex patchwork of overlapping compliance obligations that jeopardize Canadian oil and gas supply and global energy security.

While Saskatchewan agrees with the goal of reducing methane emissions across all sectors of the economy, the draft Methane 75 regulations are not a cost-effective or practical means of achieving emission reductions and will effectively restrict and shut-in Canadian oil and gas production. The inclusion of the oilsands in the methane baseline, while not assigning any methane reduction requirements from oilsands, means that conventional production in Saskatchewan will carry a disproportional burden to achieve additional reductions.

As proposed, the draft regulations have serious implications for Saskatchewan’s oil and gas industry. Federal analysis estimates a $4.2 billion (B) cost to Saskatchewan producers to comply with the federal regulations, which is likely underestimated given that the analysis only considers direct cost of the regulations and not the broader economic impact of lost investment. Furthermore, prescriptive federal rules that are not technically feasible at every facility will result in shut-in production and put thousands of good-paying jobs at risk and restrict Saskatchewan’s economic growth. Saskatchewan’s upstream oil and gas sector has a demonstrated track record of success, supported by efficient regulatory policies and programs. The Methane 75 regulations are complex, inefficient and unnecessary.

Saskatchewan’s flexible approach to managing methane emissions allows industry to choose where investments make sense while still meeting methane emissions reduction targets. Reducing methane emissions by 75 per cent or greater in Saskatchewan will be much more difficult than the current 45 per cent methane reduction. Further abatement will be both expensive and technically difficult. General assumptions typically made by the federal government for a ‘one size fits all’ regulation do not apply to methane reductions in Saskatchewan due to several factors, including different geology (resource extraction technology, well life spans, etc.). In particular, our production of natural gas associated with oil production is far greater than natural gas production from gas wells. Furthermore, our gas wells and oil wells are not co-located. Thus, gas gathering infrastructure that is in close proximity to oil reservoirs has not been built in Saskatchewan. The cost for associated gas conservation, the preferred mechanism to reduce methane emissions while also avoiding the Output Based Performance Standard, is much higher in Saskatchewan than in other jurisdictions.

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Importance of the Upstream Oil and Gas Sector to Saskatchewan and Canada

Saskatchewan’s oil and gas industry is the province’s largest industry and 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 Saskatchewan’s upstream oil and gas industry.

In 2022 Saskatchewan produced 454,000 barrels of oil per day, 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 per cent of Saskatchewan’s Gross Domestic Product. 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.

The continued layering of inefficient and discriminatory emissions policies on Canada’s oil and gas sector will reduce investment, employment, productivity and revenues needed to fund high quality public services. It will also result in carbon and investment leakage to the Unites States, including North Dakota, which shares an oil production region with Saskatchewan. The cumulative costs of inefficient federal policies, whose interactions with other federal and provincial policies are still unclear, will continue to exacerbate the affordability crisis.

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Saskatchewan’s Actions and Progress on Methane 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. Saskatchewan has mandated a 45 per cent 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. 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. With our made-in-Saskatchewan approach, industry has exceeded expectations.

The Methane 75 Regulations Intrude on Provincial Jurisdiction

Methane 75 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.

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The Proposed Methane 75 Regulations are Unnecessary

Despite the demonstrated success of Saskatchewan’s efforts to reduce upstream oil and gas sector methane emissions, the federal government intends to move forward with enhanced methane regulations.

Not only will the draft regulations result in shutting-in existing production, but the proposed regulations would also reduce future production by making some potential resources uneconomic to develop. The proposed regulations create a regulatory and investment environment that reduces the production of Canadian oil and gas, in favour of increasing imports from other jurisdictions which often do not have the same ethical or environmental standards.

In response, Saskatchewan requests that:

  • The federal government pause on advancing the regulations and immediately share provincial modelling and assumptions related to the Methane 75 regulations; and,
  • The federal government immediately open discussions on the $2B Futures Fund to support workers and communities in oil producing provinces, a commitment that appears to have been abandoned.

 

Saskatchewan strongly opposes the Methane 75 regulations and the jurisdictional overreach it represents. We are proud of the oil and gas sector and of the benefits and opportunities it creates, helping to fund hospitals, roads and other essential services. The Government of Saskatchewan will consider all possible options within its power to mitigate federal overreach into areas of provincial jurisdiction.

Sincerely,

Jim Reiter

Minister of Energy and Resources

 

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