Here's the real reason for Suncor's participation in the Pew/Sunoco funded Canadian Boreal Initiative -- allow for endless tarpit expansion while taking credit for some low-hanging fruit protected areas elsewhere in the boreal forest. An excellent business strategy indeed, especially given the fact that Pew/Sunoco actually *founded* Suncor in 1967. Though Pew/Sunoco sold off Suncor in 1995, they continue to refine large amounts of synthetic (mock) crude oil from the tarpits and desperately want more.
Tarpit Pete
"We can – and we must – do better. Again, that’s why we need to start thinking more creatively about potential solutions. You know, Suncor was recently recognized for the work we’ve done with the Alberta Conservation Association on "conservation offsets" – investments that help protect valuable boreal forest habitat in northern Alberta.
While I’m very proud of that initiative, I believe we need an even more innovative approach to this issue. Perhaps it’s time to start thinking beyond localized areas or corners of a province when it comes to conservation offsets for land impacted by development. Instead, how about a "no net-loss" approach to habitat protection?
Could reclaiming a gravel pit in Quebec or re-stocking a lake in Ontario achieve the same net benefit as restoring a mined parcel of land in northern Alberta?"
Creating New Value in the Oil Sands
Remarks by Rick George, President and CEO
at the World Heavy Oil Congress
March 10, 2008
CHECK AGAINST DELIVERY
It’s a great pleasure to be here today at the World Heavy Oil Congress in Edmonton – the gateway to Canada’s oil sands. I’m particularly pleased to be sharing the stage today with my friend, Pat Daniel.
This Congress may be a fairly new event, but it’s already become a critical venue for exchanging new ideas and innovative thinking about how heavy oil and oil sands can help meet growing world energy demands. I hope my comments today will add to that dialogue.
I’ve brought something with me here today to help make a point. It’s a small chunk of oil sands ore and about 400 kilometers northeast of here, there are literally hundreds of billions of tonnes of oil sands. And trapped inside is an estimated 174 billion barrels of economically recoverable oil – the world’s second largest reserve, after Saudi Arabia.
But here’s my point: oil sands may contain a hydrocarbon, but
You can’t use it as a lubricant. Quite the opposite – it contains minerals nearly as abrasive as diamonds.
You can’t pump it – at least, not without some serious technology. It’s as hard as a hockey puck in its natural state.
And you can’t burn it as a fuel – countless forest fires over the millennia have failed to ignite it.
The fact is, by itself, the oil sands are worthless. It has no value, other than the value we create.
Now, as CEO of the company that pioneered oil sands development four decades ago – and a company that remains the single largest investor in Canada’s oil sands industry – I’m proud of the fact that we’ve already created considerable value from a resource many thought could never be commercially viable.
But some hard lessons along the way have led me to another firm conclusion: our industry must continue to innovate and pioneer new ways of creating value from oil sands if we hope to remain a critical part of the energy mix for the 21st century. And we need to generate that value in a way that may be different from the approaches we have taken in the past.
In particular, I believe we need to do what capitalists do best – turn challenges into business opportunities. And this includes seizing the environmental challenges our industry now faces and turn them into business opportunities that enhance the long-term value of our resource base. We can do this best by pooling our expertise, our brainpower, and our proven ability to innovate in response to adversity. Creating – and maintaining – value from the oil sands is the focus of my remarks today.
But before I look ahead to how we may do that in the future, I want to briefly describe how our industry reached this important crossroads – because I believe the path taken so far says a lot about where we are headed.
Back to the Future
For decades, the huge potential of Canada’s oil sands remained locked in the ground. We knew it was there; we simply couldn’t figure out a cost-efficient way to separate the bitumen from the sand. Technology eventually solved that puzzle, starting with a hot water extraction process first proposed in the 1920s. But it wasn’t until the early 1990s that new technologies like hydrotransport and truck and shovel mining allowed us to drive down operating costs and make this business financially viable.
It’s also worth recalling that, as recently as 1998, when Suncor decided to make a big technology investment to expand our oil sands operations, many considered the move foolhardy. After all, world oil prices then stood at less than $15 per barrel and success seemed anything but certain.
We pressed ahead because we believed in the value of this resource – and I’m happy to say our confidence proved well founded.
Today, industry-wide oil sands production stands at over one million barrels per day. In 2008 alone, the oil sands sector plans $20 billion in new capital spending – a number Stats Canada says will exceed the total investment in Canada’s manufacturing industry this year. Of course, the point that Stats Can misses is that the oil sands is a manufacturing industry. Our production lines build petroleum products, adding tremendous value to our economy.
We are also enhancing continental energy security by developing an important source of new oil at a time when conventional reserves are becoming more difficult, and expensive, to find and develop. And as a result, oil sands have become a significant engine of economic growth across Canada.
Independent studies estimate that, by between 2000 and 2020, oil sands development will generate at least $123 billion in royalty and tax revenues for Canadian governments and boost total Canadian GDP by $789 billion. And it now looks like that estimate may be on the conservative side.
The oil sands industry is also expected to generate more than five million person years of employment – with four out of every five new jobs being created outside the oil sector.
Mission Accomplished?
It all sounds pretty rosy, doesn’t it? Perhaps we should just pat ourselves on the back, declare "Mission Accomplished!" and head to the links. But as much as I’d like to work on my golf swing, resting on our laurels is not what got the oil sands industry to this point. And complacency will not take us where we now need to go.
While the oil sands industry can take pride in past achievements, there are a number of storm clouds threatening to rain on our parade:
The environment now rivals health care as a top public concern and our industry is under intense scrutiny, particularly when it comes to climate change.
Royalty and regulatory changes demonstrate nothing is etched in stone. We’re constantly called upon to justify our practices, our profits, and our very existence.
Prolonged labour shortages and an inflated construction market continue to put upward pressure on the cost of doing business.
The bottom line? Even in a period of relatively high oil prices, the margins for shareholders are getting tighter. And that’s a status quo that’s simply not sustainable.
What’s needed are new ways to squeeze more value from the oil sands. And that will drive not just shareholder value, but also value for our economy, our environment and our communities. To do this, we’ll need to demonstrate the same bold leadership and innovative spirit that helped unlock the oil sands in the first place.
But it will also take something else – namely a willingness to break out of the silos in which we tend to operate. Where we previously focused solely on building value within our own companies, we must now start looking at how we add to the collective value of our industry. To do so, we’ll need to see far more communication, cooperation and collaboration.
And that’s no easy task – in fact, it may prove every bit as challenging as cracking the code for extracting bitumen from the oil sands. After all, our industry is inherently competitive. We’re all proud free-enterprisers and we all aspire to be the top dog. Competition is good. But it shouldn’t blind us to the responsibilities – and opportunities – our industry now faces.
Pursuing New Value – and New Values
The economic and environmental hurdles ahead are considerable. We can achieve so much more if we work with each other, and with all our stakeholders, than we could ever accomplish by retreating back into our individual silos. This logic is already evident in joint oil sands projects like the ones planned by EnCana and ConocoPhillips; and by Husky and BP. Faced with the daunting task of launching new megaprojects, these companies saw the wisdom of pooling their capital and expertise.
They also recognized that, together, they could benefit from the entire oil sands value chain without owning or operating every link in that chain. Such joint ventures can make sense. But I believe we need to expand our concept of collaboration well beyond the joint venture model.
When it’s to our mutual advantage, why can’t independently owned companies share engineering expertise, key operating facilities – and, yes, even employees? Greater integration is one way to create new value in the oil sands.
Technological innovation is another. Just as we used technology to unlock the resource, we must now redouble our research efforts to develop new ways of squeezing value-adding byproducts out of every tonne of oil sands ore.
This is already underway. In 2001, Williams, an integrated U.S. natural gas company, built an extraction plant near Suncor’s oil sands facilities to recover natural gas liquids from our processing facilities. With further development, this type of technology approach could make the oil sands a player in petrochemical feedstocks in Alberta.
And we’re looking at other ways to unlock value. Suncor is investigating the potential for using petroleum coke – a byproduct of the heavy oil upgrading process – to produce synthetic gas. That gas could then be used to generate power and hydrogen. We’ve invested in a "next generation" technology and, if it proves successful, this will conserve energy and reduce our reliance on natural gas by tapping a previously unused energy source.
But it could go further still … large scale coke gasification could turn the oil sands industry from a net user of natural gas into a net supplier of natural gas to the North American market.
There are so many other possibilities:
What are the other unused products in our processes that we might tap into with the right kind of chemical engineering?
How could we best utilize geothermal energy?
What creative uses could we make of our sulphur byproducts?
None of these possibilities is a slam-dunk – far from it. But as the oil sands industry itself demonstrates, seeing the possibilities is the first step on the journey to success.
The Environmental Challenge
I’ve shared some examples of where I think we need to go with our thinking. But nothing better illustrates the need for more cooperation, innovation and technology than the environmental challenges our industry now faces.
And in case you think you’re listening to the wrong speech, I need to be clear that how we handle our environmental challenges – and the infrastructure investments that go into addressing these issues – is just as important to building and preserving value as upgraders, or pipelines, or refineries. We ignore these environmental challenges – and opportunities – at our peril.
Take the example of water. For decades, Suncor and Syncrude were the only oil sands companies drawing water from northern Alberta’s Athabasca River. Soon, we could have a dozen operations in the region, all relying on the same river basin. As a result, we must all redouble our efforts to reduce water use.
Suncor has already reduced our total water use by 40% over the past five years, but we can still look for new opportunities. For example, as we reclaim our tailings pond, the water could be networked to other oil sands operators to provide process water where it’s needed while reducing total river basin withdrawals. We see this water sharing idea on the drawing board here in Edmonton, where the city and the Industrial Heartland industries are looking at piping grey water from Edmonton to nearby upgrading operations where it can be repeatedly recycled.
An even more striking example is the climate change challenge. Given the level of public concern about this issue, it’s clear our industry’s long-term licence to operate depends on a comprehensive effort to better manage greenhouse gases. Again, cooperation and technology point to a potential solution.
That’s why Suncor joined with 14 Canadian and international companies to propose a large-scale application of carbon capture and storage technology. The idea is to capture CO2 from large industrial sources – including oil sands plants – and to safely inject the CO2 into deep geological formations. Think of it as "returning the carbon to the ground it came from." Our proposal would see at least 20 megatonnes per year of CO2 sequestered. That’s the equivalent of taking about four million cars off the road.
It’s worth noting industry has taken the lead on carbon capture and storage – and given the stakes involved, that’s understandable. But I’m pleased to see governments now rallying to carbon capture. Their support is essential if we are to broadly apply this technology and achieve deep, absolute emissions cuts down the road. Carbon capture could be a big piece in resolving the climate change challenge. But it isn’t a panacea. We must all do more to further improve the energy efficiency of our operations. And we have a vested interest in doing so – in addition to paying an environmental dividend, any energy saved also represents a potential reduction in our input costs.
This obviously applies straight through the value chain from resource recovery and upgrading to refinery and end-consumption. And it’s not just greenhouse gas emissions we need to address. In recent years, Suncor implemented new technology that cut the company’s SO2 emissions by 95%. We’re now planning to introduce new mobile mining technology to replace the traditional truck-and-shovel system. By doing so, we expect to reduce both noise pollution and air emissions – in particular, nitrogen oxides.
I believe our industry needs to find similar outside-the-box solutions to a wide range of environmental concerns.
Consider land reclamation. Critics of oil sands development are quick to decry the impact our industry has on pristine land resources. That’s not surprising, since we operate in an area of undeniable beauty and ecological value. We have a clear responsibility to tread lightly and do whatever we can to preserve the environmental integrity of this region.
But a bit of a reality check may be in order here. Canada’s boreal forest covers one-third of the country’s landmass. To date, oil sands mining has disturbed less than 1/100th of 1% of that boreal forest. Over the last 40 years, this industry has disturbed far less land than was lost to the urban sprawl of Toronto during that same period of time. The difference, of course, is that we are committed to reclaiming all of the lands we uproot.
It’s also worth noting that more than 80% of Canada’s vast oil sands reserves are recoverable only through in-situ technology. In-situ operations use about 15% of the land disturbed by traditional oil sands mining. So going forward, our industry’s environmental footprint should be proportionately less.
Having said all that, the status quo is not an option. We can – and we must – do better. Again, that’s why we need to start thinking more creatively about potential solutions. You know, Suncor was recently recognized for the work we’ve done with the Alberta Conservation Association on "conservation offsets" – investments that help protect valuable boreal forest habitat in northern Alberta.
While I’m very proud of that initiative, I believe we need an even more innovative approach to this issue. Perhaps it’s time to start thinking beyond localized areas or corners of a province when it comes to conservation offsets for land impacted by development. Instead, how about a "no net-loss" approach to habitat protection?
Could reclaiming a gravel pit in Quebec or re-stocking a lake in Ontario achieve the same net benefit as restoring a mined parcel of land in northern Alberta? Again, I realize I’m posing more questions than answers – and none of the answers will be simple.
But my basic premise is this: just because we did things one way in the past, doesn’t mean we have to do them the same way in the future. The possibilities are limited only by the strength of our imagination.
A Call to Action
Now, as some of you know, I’ve been around-the-block a couple of times when it comes to these kinds of challenges. When I took over as Suncor’s CEO in the early 1990s, our company was struggling to survive.
While there was a lot of internal restructuring to be done, I also believed we needed an entirely new vision for how we moved forward as a company, and as an industry.
That’s how Suncor became one of the first major energy companies to adopt a vision of sustainable development: a vision that takes into account how we manage not just economic performance, but also how we manage social and environmental performance. And that’s why, more than a decade ago, Suncor implemented a comprehensive climate change action plan – and why we’ve made industry-leading investments in biofeuls and wind power.
I’ll be candid: we took some flak for this. Many observers wondered what any of it had to do with the growing and preserving shareholder value.
You know, it’s funny – I don’t hear that kind of talk much anymore.
In today’s reality, the vision we adopted more than a decade ago is more relevant than ever. Increasingly, how an energy company approaches issues beyond the plant gate or the pipeline influences both investor confidence and stakeholder consent to operate and expand. And that’s the key point.
When you’re in a long-term, capital-intensive business like this one, you have to think not just about how you create value – but also how you protect that value over the long haul. You need to anticipate consumer and public demands. Then, you either adapt – or watch the value you’ve created evaporate.
Let me give you a concrete example. With the addition of new pipelines and infrastructure, California could be a strong potential market for oil sands crude. But we face a clear barrier due to a recent executive order requiring that fuels sent into that state contribute to a targeted 10% reduction in the carbon content of all passenger vehicle fuels by 2020.
California’s objective is laudable – to better manage greenhouse gas emissions. But the reality is that the light sweet crude they are pinning this initiative on is in decline. They’ll figure that out at some point. And when they do, heavy oil and oil sands producers need to have our own carbon house in order through investments like capture and storage technology, further energy efficiency measures and carbon offsets right through our value chain.
Because the energy challenge in the 21st century is not about limiting options. It’s about exploring all the ideas available to us along the energy value chain. And that’s the thought I’d like to leave with you.
If we again consider this chunk of oil sands ore. I think we can agree its ultimate value remains in flux. But I’m confident if we do the things I’ve talked about – collaborate, innovate and invest in new technology – the future looks very bright indeed.
Thank you.
