Perception, Reality and Transparency

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Industry is working to improve its communications, but more importantly its actual performance

This article appears in the October issue of Oilsands Review

by Peter McKenzie-Brown and Deborah Jaremko

The oilsands industry is under near-constant attack from environmental groups and other non-governmental organizations (NGOs) bent on putting an end to “the most destructive energy project on earth.” The phrase “stop the tar sands,” and the moniker “dirty oil” are well known, and not taken lightly. The Alberta government and various industry organizations are taking on the challenge of battling negative perception with the facts about existing development, but also with something even more powerful — commitment to do better, and to prove it.

The “Big Lie” and the Age of the Internet
As Adolf Hitler was dictating his book Mein Kampf in 1925, he coined the term “the Big Lie.” A propaganda technique, the Big Lie refers to a falsehood so “colossal” that no one would believe that someone “could have the impudence to distort the truth so infamously.” Hitler used the technique to good effect through his years of tyranny. However, in established democracies things are different. Government, media, academia and business are all held to account, and among those organizations anything like the use of the Big Lie encounters widespread derision.

“Government tends to be constrained by fact,” says Alberta government spokesman Jerry Bellikka, with withering irony. “We are held to account for what we say. If we were to knowingly put out misinformation, academics, environmentalists, opposition politicians, the public and traditional media would hold us to account. When the premier is talking about emission reductions in the oilsands, if he does not say ‘per barrel,’ he is called on it right away.”

But in emergent web-based media, accountability is self-imposed. Most of the influential NGOs use reasoned arguments and collaborate with government and industry as they advocate for their causes; the Pembina Institute comes to mind. However, some major environmental groups use those media without much regard for facts. Therein we may find the 21st Century version of the Big Lie.

“[Some] people are making pretty outrageous claims,” says Bellikka. “What they want is a reaction. It’s one thing to have a discussion based on fact and current data. It’s another thing to put out inflammatory material, not much of which is accurate...it’s to get a reaction and that’s what these campaigns are designed to do. They are based on emotions, on wild accusations. Yet these same groups call governments the propaganda machines.”

The message presented by anti-oilsands groups in various forms — from feature-length documentaries and short YouTube videos to online games and protest actions — is one of environmental and social degradation that has been called as much as “Armageddon.”

“We want to lift the lid on the horrors of oil exploration taking place in a country that has a reputation for being the cleanest in the world,” says Michael Marx, executive director of Corporate Ethics International, the group behind the recent ReThink Alberta campaign. The initiative, spread through the web and via billboards in four U.S. cities as well as London, England, encourages potential tourists to Alberta to reconsider their travel investment until the tar sands industry is no more. “Tar sands mining in Alberta has not only caused irreparable damage to the environment but the health of local communities which have seen a dramatic rise in rare cancers linked to the same compounds found in tar sands operations.”

The dramatic proliferation in the number of groups like Corporate Ethics International, and the growth in public and private grants and contracts flowing to them, have enabled NGOs to become powerful political forces. In a sense, they are now filling a credibility vacuum that has been developing for 20 years. Poll after poll has shown declining confidence in such institutions as government, business and traditional media. This has created great demand for independent information and analysis, which NGOs can easily deliver through web-based communications.

“They do not work with small budgets. They are often well-funded,” notes Bellikka. “[Some NGOs] have told us that when they do one of their campaigns they get lots of donations. Whether [that is] accurate or not, we don’t know; they don’t give us access to that sort of information directly. But, what we do know is that these are very well-funded campaigns. Greenpeace is an excellent example.” Last year Greenpeace had total worldwide income of about €200 million ($272 million), and directed about €28 million ($38 million) of that to off-oil climate and energy campaigns.

From Defence to Proactive Discussion and Education
Although often characterized by highly exaggerated and even inaccurate claims, it is more than big budgets and social media wizardry that grants off-oilsands groups a position in public perception. The truth is that the concerns are not entirely unfounded — oilsands development undeniably does negatively impact the environment. It is communicating the actual extent of this impact that has been the challenging burden of industry and government, but now that mission is being taken a step further.

“We have spent a long time being framed as villains by environmental organizations, and we have been trying to prove them wrong. That was not an effective approach,” says Janet Annesley, vice-president of communications for the Canadian Association of Petroleum Producers (CAPP). “We have to show Canadians our business. We have to show them the kinds of people who work in our companies and the solutions we find to problems in a difficult business. We need to exit the discussion about who is right and focus on doing good work.”

She says that according to CAPP polls, 74 per cent of Canadians say that the industry should be developing the oilsands. “Our strategy should be to say, ‘Yes, Mr. and Mrs. Canadian. You are right. And that is exactly what the industry is doing today.’ The advertising campaign we launched last June is simply following that plan.”

Annesley describes the off-oil NGOs as being driven by an agenda, but shares some consternation about what that agenda is. “They really seem to think that Big Oil is the only thing standing between society and a renewable energy future. That doesn’t make any sense, but they do seem to believe it.”

She continues, “We fundamentally beg to differ. The solutions are not available today. We know that energy demand is increasing, that energy resources are declining and that much of the conventional energy available is in countries that are very difficult to do business with. We know that energy supplies must diversify. We know that energy development is under greater scrutiny than ever before. And we know that the industry has to meet the planet’s growing energy needs in ways that are increasingly environmentally accountable. That is the rock and the hard place in which we sit.”

The industry is widely understood to offer economic benefits to Canadians, she says, and “we are widely understood to be reliable suppliers of energy. However, we are not widely understood to be providing environmental solutions. That’s where we need to focus. We need to be talking about the issues of economic benefits; energy security and environmental care in a balanced way, but that conversation shouldn’t begin with someone dangling from the top of the Calgary Tower [a recent Greenpeace action].”

Roger Gibbins, president and chief executive officer of the Canada West Foundation, sums up the problem nicely. “The oilsands proponents will to some degree always be on the defensive on the environmental front,” he says. “The oilsands industry has a lot of negative images to deal with. The industry has to acknowledge that its work has had an adverse environmental impact in the past, and begin there. I think that if the industry is a bit repentant, and admits it hasn’t done the best job in the past, it will be in a better place to win people’s minds and hearts. Just arguing with environmentalists doesn’t have that effect.”

CAPP’s Responsible Canadian Energy program
In announcing the winners of its Steward of Excellence awards this spring, CAPP launched a new program dubbed Responsible Canadian Energy, which is designed to be a platform from which the industry, unified, can demonstrate and communicate its commitment to responsible resource development.

“The way the world sees us is defined by our performance. The linkages between stewardship and the reputation of the energy sector have never been clearer,” says CAPP president David Collyer. “This is not at all about communicating our way out of a problem. It never has been and it won’t be in the future. We certainly need to focus on communications to improve awareness and understanding, but it is essential that this be underpinned by ongoing improvement. In a world that is always moving and changing, we can’t stand still. We have to do better, and we will.”

Collyer continues that, “For some, the oilsands is the economic saviour of a recession-weary country. For others, oilsands development symbolizes a world that has grown far too dependent on fossil fuels. In reality, the oilsands is neither. The truth, as they say, is somewhere in between. CAPP and its members fully recognize that the reputation of this increasingly important industry is determined by two things: performance and communication. We also know that both must be delivered consistently and authentically over time.”
CAPP says a performance report based on the Responsible Canadian Energy initiative will be issued this fall, with 2010 serving as the baseline year as producers “refine and advance” the program. The report will include data on environmental and social performance, and will be followed by a white paper in December 2010 based on an energy dialogue series in Canada and the United States.

The Oil Sands Leadership Initiative
One of the worst-kept secrets in the oilsands industry is under wraps no longer — that is, the Oil Sands Leadership Initiative (OSLI), a consortium of five major players with a self-described “laser focus” on improvements in environmental performance.

With a $10-million budget for 2010 (expected to double or triple in the coming years), Suncor, ConocoPhillips, Nexen, Statoil and Total have a mind to change the bitumen game.

Gordon Lambert, Suncor’s vice-president of sustainability, explains that OSLI has been up and running for about a year and a half, with 2010 as its first official operational year. He says that the group’s genesis was a recognition of the need to accelerate the pace of environmental performance measurement and improvement, while understanding that in order for continued success in this particular space, the needs of the whole outweigh the needs of each individual company.

“We compete in some areas of the business. We don’t compete in reducing our environmental footprint,” says Lambert. “We felt we could make more progress by working collectively than by working individually. The more ideas you get on the table, the better the chance of success.”

The OSLI charter outlines working groups designed to address water management, carbon management and energy efficiency, land stewardship, sustainable communities, technology breakthroughs and other focus areas as agreed on by its steering committee.

One of the first initiatives that OSLI is working on is a $2.5-million feasibility study into a potential new water distribution plan for the Athabasca oilsands region. Dubbed the Regional Water Solutions Study, Lambert says the idea is to work out whether it is environmentally and economically viable for oilsands producers in the area to reuse water left in mining tailings as steam generation source water for local in situ projects. The notion is not as “blue-sky” as it may sound — Suncor itself already uses its tailings water from mining operations to supply its Firebag steam assisted gravity drainage project. However, Lambert says applying it on a regional scale would require a broad consensus — the subject of the feasibility study.

Another key OSLI initiative is OSTECH, a “technology identification structure based on a web portal.” The group says that through this portal, inventors, entrepreneurs and the general public will be able to submit projects and ideas that can be further developed within OSLI. Lambert says it will be a one-window system for the member companies to share in evaluation of the new technology ideas that are presented to them, reducing duplication of due-diligence efforts.

“Innovation and the oilsands go hand in hand. It has always been that way,” he says. “New ideas are coming forward all the time.”

A key part of OSLI’s mandate is transparency around advancing its performance improvement efforts, which is one of the reasons it did not publicly herald its initial creation.

“We’ve been cautious of waiting to communicate on results and action versus intent,” says Lambert. “In 2011, you will see us stepping out more visibly.”

LNG Trumped

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The burst of enthusiasm for shale gas could put LNG on the sidelines of global gas trade

This article appears in the October 2010 issue of Oilweek

By Peter McKenzie-Brown

If you want to understand the performance of global natural gas markets in the next few years, think hockey. On one side the team captain is liquefied natural gas (LNG); on the other natural gas from shale reservoirs (“shale gas”).

The matches are serious, but they are also friendly. Each side is a team of rivals. The squads frequently swap players in and out, but they can play nail-biting games.

Robin Mann’s description of an annual CBM conference in Asia calls the game during two days of play. The first day of the Singapore conference, the president of AJM Petroleum Consultants says, the dominant theme was that “if there is a lot of shale gas development in India, Europe and China, there will be no need for much LNG project development.”

Shale Gas one; LNG zip.

On the second day, however, “the speakers suggested that new LNG projects will be needed no matter how much shale gas is developed in those countries. LNG development might not be as dynamic as people had thought it would be, but the projects now built or on the books to be built will remain viable.”

Game tied.

He cautions, though, that “In the end price will be the deciding factor.” Of course, everything from geopolitics to economics can influence price. This is the recurring theme in the competition between LNG and shale gas.
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Three Sources of Gas
From the perspective of North American producers, the future of three gas sources (not two) is of interest. The first is the wild success of shale gas production in the US and Canada. The shale gas revolution, as it is called, is largely the result of rapid innovation in such down-hole technologies as horizontal drilling, better bit design, coil tubing, down-hole motors, geo-steering, microseismic, measurement-while-drilling tools and more powerful fraccing systems. It has truly been a revolutionary development.

The second is the evolution of a global market for liquefied natural gas. This development has been decades in the making, and it has eliminated the need for pipelines to tie stranded gas into the world’s industrial markets. To cite the extreme example, Qatar is developing liquefaction facilities for an offshore reservoir with more than a quadrillion cubic feet of proved reserves, and it will be able to deliver that gas around the world for a century or more.
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The gas industry’s third area of interest lies in the huge conventional gas reserves in Alaska and the Northwest Territories. While companies are proposing expensive pipeline systems to deliver those resources to southern markets, Mann doubts that those proposals will go ahead in the foreseeable future. “Because of the development of shale gas formations like the Montney and Horn River and other with great potential right next to infrastructure and right next to pipelines, and with our existing conventional gas and our exports to the United States going down daily, we have more than enough (gas) for our own (use) so why is it important to build these pipelines? Why are we worrying about anything north of Alberta and BC?” asks Mann.

“Their costs keep going up and up and up, and economics will trump any national sovereignty argument for the Canadian pipeline. Maybe the best way is to develop LNG facilities in the north, but what will the economics of that kind of project be? Will the price of LNG justify building facilities up there? Certainly at the Singapore conference there was no strong feeling that there would be much in the way of LNG exports from North America, apart from a few small projects” like the proposed LNG terminal in Kitimat, BC. The only really positive argument for developing LNG facilities is that the many existing receiver terminals in the world offer a lot of flexibility. Given a Northwest Passage free of ice, you could take Arctic LNG anywhere – if the price were right.
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Arctic Gas Pipelines: benched.
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International sketches
While Robin Mann acknowledges the large potential for shale gas development in Asia, especially in China and India, he is sceptical that this will happen in the near term. “North America’s shale gas sector is advanced, it’s more of a mature industry” he says, sketching out the situation around the world. “Europe is in its infancy. In Asia it isn’t even that far – it’s in its beginning stages. People have barely gone beyond looking at resource potential. The idea of unconventional gas in Australia, China, India and Indonesia is still CBM” (coal bed methane) – a resource the North American industry is not heavily investing in anymore. “Europe is more interested in shale gas because they don’t have much CBM.”

One problem those countries face in developing a shale gas industry is “getting the hardware needed to properly develop the resource – getting the right equipment to the right spot and (having) the expertise and manpower to get things developed. That’s why CBM is still on the books in those regions. To manage in the CBM world you don’t need (heavy-duty) frac equipment or (specialized) manpower.”

Here is the kind of problem he is talking about. Huge fraccing jobs for shale gas development in north-eastern B.C. require a great deal of logistical support. Each horizontal hole can require 2,000 to 3,000 tonnes of fine-grained sand as a propping agent. To take on one such project may require a 40-member crew and 20 or more hydraulic compression systems mounted on huge fraccing trucks. This equipment isn’t widely available outside North America, and there are gas-bearing shales around the world that are remote from the kind of sand quarries needed.

Moreover, a great deal of water is required. While the water commonly comes from deep formations, a typical shale gas fraccing job requires a large water storage pit in addition to a string of high-volume steel tanks. According to Dave Russum, an AJM vice president who also attended the Singapore conference, “in India and Australia they are drilling their first holes into shale just to gather information. They aren’t even into pilot projects yet.” Given those realities, Mann concludes that shale gas will not have a large impact on LNG development – at least not initially
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Geopolitics and the local community
As a domestic source of supply, shale gas is an attractive alternative to imports. For the United States, which has huge trade deficits, it slows down the haemorrhage of US dollars. For Europe it offers a geopolitically smart alternative to Russian supply. Also, governments want this kind of development because it contributes to security of supply
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In recent years Russia has turned off the taps a couple of times because of disputes with Ukraine over payment. As collateral damage, countries in the European Union were temporarily cut off, too. It is therefore ironic that the best shale gas prospects in the European Union are in the north – especially Poland, Ukraine’s neighbour. In northern Europe, according to Mann, “you can get access to enough land to make a viable shale gas project.” In more developed and densely populated southern parts of the union, this is much harder.

As Europe develops shale gas, geopolitics is again likely to enter the fray compliments of the Russian bear. “Are the Russians just going to sit by and let Poland and northern Europe develop natural gas so they can turn off the taps from Russia?” asks Mann. “I don’t think so. They could retaliate with price, and make shale gas uneconomic.”

So could LNG producers. In fact, rather than shale gas driving LNG out of global markets, the exact opposite could take place, with LNG putting the screws to shale gas development irrespective of its geopolitical and trade balance advantages. Qatar, you will recall, has huge reserves that it can liquefy and deliver cheaply, causing international gas prices to crater and rendering some shale gas projects uneconomic.

Yemen and other exporters could do the same. According to Dave Russum, “It wouldn’t take much of a gas surplus on the oceans to really drop the price of gas in many markets. Although (shale gas) reservoirs can be prolific, gas from shale is not cheap, and whether production is sustainable over time is a real question.”

In addition to the prospect of price competition, shale gas development is likely to face environmental and population density issues in Europe and Asia. Environmental concern is likely to be most intense in Europe, and to echo concerns already being expressed in a number of places in the US. Will fraccing contaminate groundwater reservoirs? Are the chemicals used in development safe? Will shale gas production lead to unintended consequences of the undesirable kind?

The matter of population density ranges from critical in India and coastal China to highly significant in much of the southern states in the European Union, where the industry can’t get access to enough land to develop a viable shale gas project. Shale gas development requires drilling many wells. Multilateral horizontal drilling and fraccing from a single pad can take weeks and even months to complete. These drilling pads are large and operations can be dirty and noisy. Moreover, in densely populated countries good drilling prospects can be covered over with villages, small farming operations, markets and industrial operations. This inconvenient truth is hard to ignore

Game plans
Mann’s assessment of the situation involves pretty raw political analysis of the situation. “In China the communist government would just do it,” he speculates. The country has almost the same landmass as Canada, yet the population is mostly located along a relatively thin band along the east coast. There are many prospective sedimentary basins within the country, which is geologically more like the United States than Canada. “The ones that are now being looked at for shale gas are out in a desert in the western China, where there is virtually a zero population problem and access is not a problem either. None of these projects are commercial yet, they are just at the stages of looking at resource potential, doing some tests, seeing whether they are viable and then going down the road” to development.

Having said that, he recalls an argument from Singapore that “Even if China developed shale gas at the same rate and volume as North America did over the past ten years they would still require LNG because (in ten years) shale gas would meet only around 15% of their total requirements.” That’s a compelling argument against the notion that shale gas will displace global LNG
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Shale gas development is going to be difficult in most places except northern Europe, potentially China and eventually India. “In India, you do have British law covering land ownership so you do have land issues but you wouldn’t have the same environmental issues as you have in Europe. (Gas producers) could get (to viable projects) if they worked with the local population, most of whom have very low incomes. In much of Europe, where the amount people make on average is much higher and people have a much higher standard of living, it would likely be more difficult to work with local populations.”

Shale gas and LNG can coexist, but as team captains for the gas industry’s two big new hockey clubs there are many ways they can affect price and therefore development. Too much LNG on world markets could hinder development of shale gas in certain parts of the world. A great deal of shale gas development could hinder LNG development in others. But, says Mann, “Either thing could happen. It’s going to depend on geography, on what resources you have, on governments’ want to develop security of supply – a whole bunch of political things can get rolled up into that.”

“North America is a great example,” he concludes. “A few years ago we wanted to have LNG receiver terminals dotting the east coast, the southern coast and the west coast of North America. People didn’t want them. Then all of a sudden by some miracle we ended up with the shale gas revolution and we suddenly found we didn’t need them. So LNG – go away.”

For North America, at least, shale gas was the game changer. Shale Gas five; LNG one.