by Yogi Schulz
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Last year, Prime Minister Mark Carney met with Canadian premiers to discuss nation-building projects. He stated that he wants Canada to become an “energy superpower” with “decarbonization barrels of crude oil.”
His comments were received with a wide range of responses, including:
Canadian taxpayers will revolt once they realize they will be paying billions for decarbonized crude oil.
Due to Premier Danielle Smith’s incessant messaging and lobbying, Carney has finally realized that increasing energy-related tax revenue can help the federal government move toward a more sustainable budget.
Carney has coined a catchy slogan he hopes will appeal to everyone, unaware that it’s an oxymoron.
Unlike the previous Liberal government, Carney has recognized that additional energy exports to Asia are likely the fastest way for Canada to reduce its dependence on the volatile US market with its whiplash-inducing trade policies.
Carney is trying to find a middle ground between those in the Liberal Party who remain committed to a rapid energy transition and the need to spur economic growth in Canada’s dormant economy.
The Liberal government is finally abandoning its unrealistic rapid energy transition policies to address climate change.
Carney has burned his gold-plated credibility as a climate leader in environmental circles.
What is the reality? Here’s an analysis of the likelihood that Canada can succeed by offering decarbonized crude oil to global markets.
Is it politically feasible to decarbonize crude oil?
Once Canadian taxpayers realize they are paying at least 62% of the $16.5-billion Pathways Alliance carbon capture, utilization, and storage (CCUS) project, they are likely to create an uproar. Some taxpayers may be willing to make small financial sacrifices to address climate change. However, none are willing to make such an enormous sacrifice for modest progress on climate change.
Vehement taxpayer opposition will kill Carney’s dream of decarbonizing crude oil.
Is decarbonizing crude oil an oxymoron?
In a literal sense, decarbonizing crude oil is an oxymoron. By removing the carbon atoms from the molecules in crude oil, the result is no longer crude oil.
Splitting the carbon atoms in crude oil produces carbon black and hydrogen. These are valuable products in their own right. However, they’re not the products that crude oil buyers want to buy to feed their refineries and other production facilities.
Carney appears to have coined the phrase “decarbonized crude oil” to build political support for his goal of making Canada an “energy superpower,” while maintaining his support within the Liberal caucus and standing with various environmental groups.
Is there a market for decarbonized crude oil?
Canada’s offering decarbonized crude oil to global markets is only feasible if buyers are willing to pay a premium. So far, no such buyers have emerged. Most buyers are price-focused to remain competitive in their product markets.
Some producers promote their crude oil as having lower greenhouse gas (GHG) emissions than other producers. A similar concept is gaining traction in the natural gas market. In 2024, around 7.5% of global natural gas production was certified, with volumes primarily originating from North America. Perhaps decarbonized crude oil will also attract environmentally conscious buyers in the future.
Certified natural gas is natural gas whose environmental and social attributes – such as GHG emissions performance, water use, local community impacts, and worker safety – have been independently verified against defined criteria or benchmarks.
Is it technically feasible to decarbonize crude oil?
It is technically feasible to decarbonize crude oil by capturing CO2 during production and storing it through CCUS projects. CCUS projects prevent CO2 from being released into the atmosphere, thereby reducing its contribution to global warming.
CCUS is a well-understood technology in routine use across various projects. Approximately 45 commercial facilities are in operation that apply CCUS to industrial processes, fuel transformation, and electricity generation. The Quest CCS project (Shell) and the Alberta Carbon Trunk Line (Enhance Energy) are operational in Alberta.
Hundreds of projects are at various stages of development across the CCUS value chain in multiple countries. Various government grants, subsidies and tax credits support most projects.
However, the CO2 produced during production accounts for only 20% of the CO2 associated with crude oil. The consumption of refined products accounts for about 80% of CO2 emissions. Therefore, CCUS solves only a small part of the environmental problem. Perhaps that’s enough for Carney to maintain his environmental credibility.
Is it economically feasible to decarbonize crude oil?
The Pathways CCUS project is a non-starter economically for Canadian oilsands producers because:
CCUS projects significantly reduce their profitability.
Oilsands producers are proud of the significant reductions in GHG emissions they have already achieved and their plans to continue that work.
Oilsands producers are crude oil price-takers. They do not influence the price they receive. Market demand and OPEC+ production volume mainly determine the price. Adding the cost of CCUS to their expenses significantly increases risk.
No other producing region in the world requires crude oil producers to build and operate CCUS projects as part of their production facilities.
The Pathways CCUS project, billed by participating oilsands producers as “the world’s largest carbon capture, utilization, and storage project,” will cost approximately $16.5 billion to deploy for the oilsands. The industry is requesting that the government cover roughly 75% of the total capital cost.
The Pathways project is receiving so much attention because the federal government insists the oilsands producers must proceed so that Canada can move toward achieving the climate goals it has committed to under the 2015 Paris Agreement, an international treaty to address climate change.
To overcome producer resistance, the federal and Alberta governments are funding most of Pathways and other CCUS projects through subsidies and tax breaks as follows:
The federal government provides a 50% investment tax credit.
Alberta created the Alberta Carbon Capture Incentive Program, which provides a 12% grant for all CCUS projects.
The Pathways Alliance and governments are negotiating to determine who will pay for the missing 13%. In effect, the Canadian taxpayer is paying at least 62% while oilsands producers are paying at least 25%. Most taxpayers likely don’t realize they’re paying billions for a major CCUS project that only modestly addresses climate change.
Is there an alternative to CCUS to decarbonize crude oil?
Capturing CO2 and injecting it into underground reservoirs as part of an Enhanced Oil Recovery (EOR) project is an appealing alternative to CCUS. In EOR projects, injected CO2 increases formation pressure, boosting production and revenue for the producer. Whenever producers inject CO2 for EOR, the cost of CCUS becomes an acceptable part of production costs and no longer undermines overall profitability.
Over 375 EOR projects operate globally. Over 40% of them inject CO2. Canada’s most successful EOR project is Weyburn-Midale in Saskatchewan.
Unfortunately, the Pathways CCUS project scope does not include supplying CO2 for EOR injection projects.
Is it competitively feasible to decarbonize crude oil?
Decarbonizing crude oil increases capital and operating costs for oil production. Operating competitively with CCUS requires one or more of the following events to occur:
The emergence of Asian or American environmentally conscious buyers willing to pay a premium for Canadian decarbonized crude oil.
A dramatic reduction in the capital cost of CCUS projects.
A significant increase in crude oil prices makes more EOR projects attractive to investors.
Taxpayers who are willing to pay for CCUS projects to address climate change.
Until one or more of the events occur, decarbonizing crude oil is not competitively feasible.
Prime Minister Mark Carney’s “decarbonized crude oil” slogan may appeal to some. However, because neither buyers nor taxpayers are willing to pay, this slogan will die soon.
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