Launching Alberta's Energy Future, Provincial Energy Strategy

1.  Introduction and Context 

2.  Alberta's Energy Vision
3.  Outcomes

• Clean Energy Production
• Wise Energy Use
• Sustained Economic Prosperity

4.  Levers
5.  Implementation
6.  It is Time

acknowledgments
Message from the Minister of Energy

1.1 Energy : Our Platform

Energy has underwritten the story of our province. Today in Alberta, the energy sector directly and indirectly is the single largest contributor to provincial Gross Domestic Product, income, employment and government revenues. It comprises more than two-thirds of our exports. Our strength in energy has helped us cultivate a strong and vibrant economy, a skilled and productive workforce, the lowest overall tax burden of any province in Canada, leadership in innovation and knowledge-based progress, an  entrepreneurial and competitive business community, and a modern and efficient infrastructure. Energy has given us a lot to be proud of.

Alberta produces about five trillion cubic feet (Tcf) of natural gas, 250 million barrels of conventional oil, 500 million barrels of bitumen (a semi-solid form of crude oil) and, from 11 different mines, more than 30 million tonnes of coal each year.

Keep in mind that innovative Albertans have in the last two decades managed to extend established reserves of oil and gas approximately in tandem with production. In other words, there may still be dozens of years more of oil and gas to drill. We have an extensive pipeline infrastructure and a thriving petrochemicals sector. We have shown leadership in renewable energy development, including hydro, wind and biomass. Our electrical generation capacity is more than 12,000 megawatts, with demand growing at twice the rate of the rest of Canada.

Albertans have controlled the bulk of their energy resources since 1930. Many Albertans are employed directly in the energy industry. Others are not, but they still owe their livelihood to the sector. Alberta’s Aboriginal and Metis communities have a special role in the energy picture. All of us are energy consumers. Energy development has enjoyed a close connection with Alberta communities. What we see today, all around us, is a platform for our energy future.

How we will define that future is the question we must now answer.

Gross Domestic Product, GDP is a key measurement of economic activity and defined as the total value of goods and services produced.

1. 2 The Basin

Our energy story starts with the formation of the Western Canada Sedimentary Basin (WCSB), a massive wedge of rock underlying northeastern B.C., western North West Territories, most of Alberta, southern Saskatchewan and southwestern Manitoba. Created over hundreds of millions of years, the basin rock is about six kilometres thick at its western extent, thinning gradually to the east. We call it “sedimentary” because it is old sea bottom; it accumulated through the settling of water-borne sediments. Its layers gradually hardened with the pressure of overlying rock, trapping decayed organic materials that eventually became “fossil fuels:” coal, oil, bitumen and gas. The deepest layers of the basin are more  than 500 million years old. The fossil fuels we consume today are essentially storage vessels for solar energy; they started out as plant and animal matter whose life cycles were nourished by the sun’s light and warmth over millennia.

Energy also makes a substantial contribution to the economies of neighbouring B.C. and Saskatchewan, but of the jurisdictions that sit over top of the WCSB today, Alberta is uniquely blessed. We preside over most of the basin’s oil and gas and coal reserves and almost all of its bitumen. Alberta’s first peoples knew well of the outcrops of black rock, of groundwater that lit on fire, and of oily seepages that occasionally surfaced on the landscape. The Cree and Dene used bitumen to waterproof their canoes. Early-arriving Europeans, including fur trader Alexander MacKenzie, mapmaker David Thompson, and geologist Dr. George Dawson, took note.

A natural gas find was recorded near Medicine Hat along the Canadian Pacific Railway line in 1883, when a well meant for water produced gas instead; the escaping gas ignited, destroying the drilling rig. In what is now Waterton Lakes National Park, a successful oil well was drilled in 1902. The prolific “Old Glory” discovery gas well was drilled in 1909 at Bow Island, and the industry took on feverish dimensions when wet gas and oil were discovered at Turner Valley in 1914. A blow-out that burned for three straight weeks in 1924 confirmed the area as an oil producing centre. After mineral resource ownership was transferred from Ottawa in 1930, Alberta took leadership in matters of resource conservation that in the decades following set the standard for jurisdictions worldwide.

Imperial Oil’s oil strike near Leduc in 1947 helped people begin to realize the global scale of our resource. A massive blow-out on Leduc #3 commanded world media attention for six months in 1948, permanently connecting the words “oil” and “Alberta.” In 1958 another substantial milestone was reached when piped western Canadian gas arrived in Toronto; the Trans-Canada pipeline was the longest pipeline in the world until the 1980s.

Conventional oil production peaked in Alberta in the 1970s and conventional gas production has now also peaked. But the resources of the WCSB have impressive  diversity. Technology, commodity prices and escalating global demand are combining to extend our relationship with fossil fuels by allowing us to tap “unconventional”  resources. Building on pioneering work in the 1920s by Dr. Karl Clark at the Alberta Research Council, the Alberta Oil Sands Technology gas production has now also peaked. But the resources of the WCSB have impressive diversity. Technology, commodity prices and escalating global demand are combining to extend our relationship with fossil fuels by allowing us to tap “unconventional” resources. Building on pioneering work in the 1920s by Dr. Karl Clark at the Alberta Research Council, the Alberta Oil Sands Technology and Research Authority (AOSTRA) was created in 1974 to promote the development and use of new technology for oil sands and heavy oil production. For a multi-year expenditure that came in under $1 billion in total, we learned how to economically extract bitumen from our mammoth deposits. Many hundreds of billions of dollars of private investment have followed. More recently, we have made striking advancements making it economic to extract “unconventional gas” – such as natural gas from coal, natural gas from shale layers and natural gas from tight (and previously uneconomic) pockets in the ground. Unconventional gas may be recoverable in
quantities that are a multiple of our original conventional gas reserves.

The progress we have experienced has not been continuous. Alberta has surmounted many, many obstacles over the years, including regulatory and ownership hurdles, protectionist sentiment, nationalization, economic recessions, wars, environmental threats, cyclical price downturns, skill and labour shortages, exploration disappointments, and the trials and tribulations of research.

As we look to the future, Alberta must continue to be nimble—responding to challenges, and taking the long-term approach to capitalize on opportunities.  Success as we taste it in Alberta today is sweet, but it has been hard-earned.  Tomorrow’s challenges will be no different.

1. 3 Fossil Fuels

The basin’s resource diversity has afforded us the opportunity to sustain wealth generation for a century now. How are these assets holding up?     

Natural Gas
Alberta is today the world’s second largest exporter of natural gas and its fourth largest producer. We supply the United States with more than half of its gas imports. Natural gas is also the main contributor of provincial energy royalties. Conventional production peaked in 2001, but some of the decline has been offset by recovery of “unconventional gas,” mainly natural gas from coal (known as coalbed methane) thus far. Unconventional gas offers us the potential to extend production of this valuable resource, the cleanest burning of the fossil fuels, well into the future.  There is huge potential for tight and shale gas in Alberta, as well as natural gas from coal. New technology will be required to make the most of it.
Conventional Oil
Alberta still leads the country in conventional oil reserves, with 39% of the Canadian total. To continue the production of conventional light oil, industry is searching for remaining undiscovered pools, drilling infill oil wells, and redeveloping existing pools using enhanced oil recovery (EOR) techniques such as waterfloods and carbon dioxide injection, which increase reservoir pressure permitting greater extraction. Currently, only about 27% of light oil is recovered in Alberta, suggesting there is still plenty in the ground awaiting improved technology or improved prices. To produce more conventional heavy oil, industry is exploring new zones in undrilled portions of the basin, or applying EOR schemes such as waterfloods, thermal projects, and miscible floods. Only 15% of heavy oil is currently being recovered. With massive quantities of light and heavy oil still available to be tapped, one could say there is truly another Alberta lying beneath our feet.

Bitumen
The reserves of our three major oil sands areas – Athabasca, Cold Lake and Peace River – dwarf those of the conventional oil fields. The oil sands contain 173 billion barrels of economically recoverable crude bitumen (approximately 10% of the mineral deposit), a volume that, when confirmed in 2006, vaulted Canada into second place behind Saudi Arabia in global proven reserves. If we add our bitumen reserves to our reserves of conventional crude, Alberta’s borders contain more than 98% of total Canadian oil reserves – about 13% of global proved reserves.  Oil sands are a mixture of sand, clay, water and bitumen.  Sitting beneath 141,000 square kilometres of northern Alberta, they are much less expensive to locate than conventional oil, but they are costlier to produce. We began commercial production by surface-mining these
deposits and we are now recovering deeper bitumen by heating the oil sands and drawing bitumen up wells to the surface – a process called “thermal in-situ recovery.”
Ultimately, 80% of the bitumen will be developed via the in-situ process which has a significantly smaller footprint on the landscape than strip mining.  With the dramatic rise in oil prices in recent years, oil sands activity has grown quickly. Materials and labour have emerged as significant limiting factors to the pace of growth. With that growth in activity has come an increased environmental focus. Much of that has focused on the significant amounts of water and energy— with its resultant emissions—used to recover and process bitumen. Strip mining and tailing ponds create environmental pressures for the landscape and watershed.  These remain critical issues that must be addressed in the years to come by industry, government and the research and technology sector.
Coal
The WCSB contains about 90% of Canada’s usable coal resources. Alberta sits on about 70% of Canadian reserves, much of it low in sulphur. Make no mistake; the oil sands are big, but Alberta’s coal reserves contain more than twice the energy of all the province’s other non-renewable energy resources.  Coal in Alberta is generally low in sulphur and therefore burns cleaner than coal found elsewhere around the world. This lower sulphur coal is consumed here at home for electricity generation, where coal is the main fuel for our power grid. About a third of Alberta’s usable coal is “bituminous,” attractive as coking feedstock and thus shipped to areas of concentrated heavy industries in Asia and elsewhere. At current production levels, our reserves will last for hundreds of years.  Despite its abundance, coal is not without its challenges to be addressed. The phrase “clean coal” is heard a lot these days, and even while boasting some of the most technologically advanced coal-fired electricity plants in Canada, there remain significant opportunities for Alberta to lead growth in advancing this technology. Carbon dioxide (CO2) emissions are a central issue of coal-fired generation, but there are other emissions that can affect Alberta’s air quality—despite the fact that Alberta is a leader in managing air emissions from coal-fired generation. The electricity we consume in our homes and workplaces is a big part of the standard of living we enjoy, but when it comes to coal, there are huge opportunities for Alberta to pursue cleaner methods to generate that power.
Bituminous coal has a high carbon content and can be processed (coked) by a prepartion plant to meet requirements for applications such as the manufacturing of steel.

1. 4 Beyond Fossil Fuels

Gas, oil, bitumen and coal owe their energy content to the sun—a pretty old energy source. They exist on earth in finite quantities, thus earning the designation “nonrenewable.”  Once they are used up, they are gone.

Nuclear energy, dependent on mined uranium, is one alternative to fossil fuels.  Uranium is still plentiful globally, however issues include waste management and environmental, health, safety, and social concerns. Nuclear has experienced resurgence as the world attempts to reduce its CO2 emissions. Some synergistic applications involving bitumen processing may be available. Alberta is currently examining the merits and challenges of nuclear power.

Then there are “renewables.” Alberta has a wealth of renewable biomass feedstock in the forestry and agriculture sector that will drive considerable production of low-carbon transportation fuels and power generation. We have long benefited from power generated by hydroelectric dams. Wind, wave, tidal, solar, geothermal, biomass, biogas and run-of-river hydro have increased their presence on the global scene. These are seen to be cleaner, more sustainable sources of energy—although not entirely without environmental impact.

Until recently they were also more expensive, but the rising prices of fossil fuels have leveled the playing field considerably. Renewables are growing off a very small base, but their viability is improving and innovation is percolating. As such, they have the potential to become a significant part of the global energy mix this century, but based on  demand here in Alberta and globally, they cannot entirely replace fossil fuels any time soon. Alberta’s development and use of renewables will help in reducing greenhouse gas emissions, enhance Alberta’s diversity of energy supply, stimulate regional activity, and fortify collaboration across industry sectors.

An additional—and very real—category of energy that must be mentioned is saved energy. Energy not consumed is energy that can be used productively elsewhere.  Energy savings contribute to ensuring adequate and efficient supply for all Albertans, while at the same time, reducing incremental emissions. Legislation is being prepared in Alberta to advance energy efficiency and conservation and to help educate Albertans on the benefits of both.

Each source of energy brings challenges with it. The consensus seems to be that in the future the world will need to maximize the provision of energy from all sources—fossil fuels and the rest—in order to satisfy our growing needs. Alberta will have a role to play in helping to keep global energy markets in balance.

1. 5 Electricity: Facilitator of Prosperity

 

Electricity is not pumped out of the ground, hence the tag “secondary” energy source. But it plays an essential role in the living standards and prosperity of Albertans. Simply put, when they flick the switch, Albertans expect the lights to come on.

About 21,000 kilometres of transmission lines cross the province, delivering electricity generated from coal, gas, hydro, wind and other renewables to homes, offices, plants
and other facilities. Power in Alberta is supplied under a different market system than in other provinces in that the generation and retail sale of electricity are open to
competition. Wholesale power is an $8-billion market in Alberta.  Power consumption has been growing at an annual pace exceeding 3%, a function of population growth as well as today’s more power-intensive lifestyles. But it has been more than 20 years since the backbone of the Alberta transmission system between Edmonton and Calgary was reinforced. By 2027, we will need twice the power we currently consume.

Generation sources are becoming more diverse as renewable energy grows, testing the grid in new ways and creating pressures not experienced before. Our system also remains one of the least “interconnected” in the country with limited capacity to either import or export electricity when necessary to maintain the integrity of the grid. This creates challenges for safety, reliability and affordability. Our electricity system will play a large role in delivering more and cleaner energy to Albertans in years to come.

1.6 The Canadian Energy Picture

According to 2005 figures, Canada is among the top five energy producing nations in the world, thanks in large part to Alberta’s petroleum industry. Canada produces a lot more energy than the nation consumes, and the resulting exports drive much of our country’s economic wealth.

In 2007, Canada’s energy industry accounted for 5.6% of national GDP and directly employed 372,200 people (2.2% of the Canadian labour force). Energy export revenue totaled $90 billion, which accounted for about 20% of the value of all exports. This proportion has held steady for the last three years, with energy playing twice the role in Canada’s exports that it did in the 1990s. 

As one of the most important sources for U.S. energy imports, Canada is well positioned to play an increasing role in America’s goal to gain independence from overseas oil imports. This is key as neither Alberta nor Canada can operate as an island in North America’s integrated energy market.

As this strategy clearly outlines, Alberta fits prominently into Canada’s energy picture. The development of Alberta’s energy resources—and the demand for those energy resources—provides enormous economic advantages that reach well beyond the province’s borders.

Growth in Alberta’s energy sector has significantly increased the demand for goods and services from other provinces creating jobs throughout the country and significant tax revenues for the federal and provincial governments. In addition, Alberta’s resources provide Canada with energy security and the potential to be energy self-sufficient.

While Canadian law is very clear that the province has jurisdiction over the development of its natural resources, the province has a responsibility to work with the federal government to ensure that any national legislation or policy does not negatively impede Alberta’s responsible development of energy. This includes seeking alignment between provincial and federal policies, such as those on climate change.

Alberta must ensure that national policies take into account our unique position as an energy providing jurisdiction and a key driver of the nation’s economy.

1.7 The World Energy Picture

   

We should not forget the potential of energy to address disease, poverty, illiteracy and, ironically, the environment. There is a positive correlation between energy use and human development. Provision of pumped well water, natural gas for cooking, or power for lighting can spur fundamental shifts toward the more equitable, more  compassionate world in which most of us want to live. Greater energy production capacity will be required to sustain the improvement occurring in living standards in developing nations, as well as to enable technologies directed at environmental protection.

The price of a litre of gasoline or a kilowatt-hour of electricity is derived primarily by the supply-demand balance of the underlying commodity. World energy demand has grown at a steady pace in the last three decades and that growth is now accelerating as consumption rises in populous developing nations including China and India. At the same time, global energy supply has become more problematic. Issues of technology, geology, politics, access and environment stand in the way of an assured, continuing flow of energy from traditional sources.

We see the effects of these supply-demand imbalances in rising prices. Over the last decade, the price of natural gas has experienced a structural upwards shift. Oil, which was about US $15 at the turn of the millennium, went over US $100/ barrel earlier this year and kept climbing before its recent pullback. Even the price of coal, one of the world’s readiest energy sources, has more than tripled as manufacturing industries in previously rural economies have taken off.

  

  

At home in Alberta, energy also supports community development and prosperity.  Many Albertans and Alberta communities owe their livelihood and economic success, either directly or indirectly, to oil and gas development. 

Alberta’s main global impact is on the supply side. We preside over immense energy resources, we are located adjacent to the U.S.—the world’s largest consumer of energy—and we offer a level of stability and security that is rare given the all-too-exciting geopolitical conditions worldwide. We have earned a place of respectability—and responsibility—on the global energy scene.

  

 

 

 

 

 

1. 8 Bringing It Home

Our energy sector continues to deliver wealth. Alberta has been, on a per capita basis, by far the largest net federal fiscal contributor since 1962, to the benefit of the other regions of Canada. Our GDP product on a per-person basis is the highest among provinces and fully 70% higher than the average for the rest of Canada. A study undertaken at the University of Calgary (see figure below) suggests that our economy without the impact of oil and gas would be barely recognizable—less than half its current size. Energy has allowed Alberta to become a substantial and growing engine, propelling the national economy.

While all fossil fuel development has contributed to Alberta’s current position of strength, investment in Alberta’s conventional oil and gas industry still dominates total  Canadian oil and gas investment. But it is the oil sands that are beginning to have what can be described as a transformative impact on our economy. Construction activities in the oil sands have triggered an unprecedented investment boom. Representing the majority of major Alberta project investment, these are long-term, multi-billion dollar projects—many of which are already well into planning or even construction.

In a few years’ time, when the majority of the oil sands plants move into operation, an enormous continuing demand for goods and services will be spawned. The oil sands plants will require more labour on a more sustained basis than the conventional oil and gas sector. Their impact on employment, demand for goods and services, provincial tax and royalty revenues will be substantial. Of note, according to a Canadian Energy Research Institute report, more revenues from oil sands operations will be recieved by the Canadian federal government than the Government of Alberta over a 20-year period.

Energy prices historically have tended to be volatile and cyclical, driven by forces outside the control of Albertans. While we cannot neutralize the periodic booms and busts that characterize this sector, there are some things we can do, secure in the knowledge of the attractive long-term prospects of the industry. Government policy must be driven by this long-term focus. As the industry confronts issues related to climate change, skill shortages and infrastructure, a sustained vision by government becomes all the more important, if not critical.

For Alberta in the coming 30 years, no other activities will have the scale or impact of energy development. Agriculture and other sectors are important to Alberta and diversification is good for us, but energy’s impact is pervasive. It is, and will be, our province’s dominant economic engine. Now is the time for Alberta to be proactive on pursuing innovative energy development and environmental protection to help ensure the long-term economic prosperity of the province.
Canadian Energy Research Institute, Economic Impacts of Alberta's Oil Sands, October 2005

1. 9 Challenges Ahead of Us

Traditionally, the energy challenges Alberta has faced have included making sure we have a secure supply for ourselves, offering competitive exports for our economic benefit, and taking care of our environment. Relative to comparable jurisdictions, we have excelled in these areas. In the future, our challenges will still boil down to these fundamental three. But the dimensions of the challenges will take on greater complexity. Here are a few of the dimensions we will need to pay particular attention to:

Climate change. We are entering a future where emissions of carbon into the atmosphere will be constrained. Although we have made some progress in lowering the “carbon intensity” of energy production, carbon emissions are still more or less attached at the hip to fossil fuels. Because the world will continue to need fossil fuels, we will need to find cleaner ways to produce and consume fossil fuels. Alberta’s oil sands for example, while they account for just four per cent of Canada’s greenhouse gas  emissions and less than one tenth of one per cent of all global greenhouse gases, are a large fossil fuel resource and therefore provide a tremendous responsibility and opportunity for Alberta to lead.

Global markets. The United States has long been our central destination for energy exports. Americans are excellent customers. But the U.S. no longer enjoys uncontested dominance in the world’s economy. China and India want our energy supplies, too. Alberta has opportunities to reduce our singular dependence on the U.S. market – and improve our bargaining power – by cultivating additional markets.

Technology. Innovation in the energy sector is most apparent when near-term benefits can be achieved through incremental change. The timeframe demanded for payback is not consistent with some of the high risk, long-term innovations we must develop to solve our energy challenges. We must move the results of our research through  technology development and commercialization to fullscale commercial deployment in order to see our energy research investments pay economic and social dividends.  Specifically, that will involve pursuing applied research that will enable us to solve the challenge and the practical issues our province is facing now. There is, consequently, a new and needed role for government in the “innovation supply chain.” We need technology more than ever today to keep our energy industry competitive and sustainable. With all the challenges now lining up for technology solutions, a concerted effort by industry and government is required.

Adding value. Oil and gas has spawned some diversification in Alberta, including development of our financial and telecommunications sectors. Alberta has grown a petrochemical sector, and while it is the largest in Canada, it cannot yet be described as world leading. How can we add more economic value? Carefully planned upgrading and refining capacity provides options for realistically adding value to fossil fuels while contributing to cleaner energy. This provides even greater reason to encourage additional investments that will see more of Alberta’s products advance up the energy value chain.

Labour. The energy sector has endured periods where it was not among students’ top choices when it came to choosing careers. This is unfortunate and must be addressed given that Alberta’s future will be shaped around energy. We need to bring more people into the industry at all levels in order to fully tap the opportunities in years to come.

Energy use. As a resource-rich province we have often considered development before energy efficiency or conservation. But times are changing. More than two-thirds of the energy from a lump of coal is consumed or wasted before the resulting electricity actually enters our households. The efficiency we experience by burning a litre of gasoline in our cars or lawnmowers—following the chain of processing it undergoes from crude oil—is even worse. The way we use energy leaves a lot to be desired: we drive long distances on congested roadways to work; we leave lights on or fail to stem the quiet energy consumption of electrical devices such as phones, televisions and computers; we inadequately insulate our homes.

The majority of global emissions result from the consumption, rather than the development, of energy. The U.S., for example, is not among the top energy producers globally; nevertheless it leads all nations in emissions. Managing the demand side of energy use may cut consumption by as much as one-third. The importance of stemming emissions is bringing our energy consumption patterns squarely into the spotlight.

Awareness and understanding. A better informed debate on our energy sector—both outside and within our boundaries—stands to benefit Alberta.  Misunderstandings risk actions with potential to harm our province’s economic advantage and dramatically impact the quality of life Albertans have come to expect. We need to connect fully with our customers on steps we are taking to “produce energy better.” Now is the time to move past the platitudes towards a fully informed debate.

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