Emissions cap not possible without oil, gas production cuts, Deloitte

Canadian oil and gas companies facing a federally imposed emissions cap will decide to cut their production rather than invest in too-expensive carbon capture and storage technology, a new report by Deloitte says.

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

Its findings contradict the federal government’s stance that its proposed cap on greenhouse gas emissions from the oil and gas sector would be a cap on pollution, not a cap on production. And it supports Alberta’s position that a mandated cap would lead to production curtailments and severe economic consequences.

But the Deloitte report also casts doubt on the idea that widespread deployment of carbon capture and storage technology will drive down emissions from the oil and gas sector in the coming years, suggesting that scenario doesn’t make financial sense.

“We expect that the cap (will impose) 20 megatonnes in emissions reduction on producers by 2030, which will need to be achieved by CCS (carbon capture and storage) investments, or through production curtailment,” the Deloitte report states.

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

The oil and gas sector is Canada’s heaviest-emitting industry, and rising oilsands production has meant total emissions from the sector are increasing at a time when many other sectors of the economy are successfully reducing overall emissions.

Globally, oil demand is growing, with the International Energy Agency forecasting global oil demand to be 3.2 million barrels per day higher in 2030 than in 2023, though the agency also suggests growing supply will outstrip demand growth sometime this decade.

In a draft framework released last December, the federal government proposed mandating a ceiling on oil and gas emissions in order to help slow climate change. The rules would require the industry to cut greenhouse gas emissions by 35 to 38 per cent from 2019 levels by 2030. Companies would also have the option to buy offset credits or contribute to a decarbonization fund that would lower that requirement to cutting just 20 to 23 per cent.

But the Deloitte report suggests oil production in this country could increase 30 per cent, and gas production over 16 per cent, from 2021 to 2040. Those figures are based on a Canada Energy Regulator forecast and on current government policies.

Producers will have 2 choices

This means that producers will have two choices to meet the constraints of an emissions cap, Deloitte argues. They can invest heavily in carbon capture and storage — trapping greenhouse gas emissions from oil production at site and storing them safely underground — or cut back on planned production increases.

The oil and gas industry itself has been promoting carbon capture and storage as the key to reducing emissions while still increasing production. The oilsands industry, which is responsible for the…