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Emission reduction targets are set by legislators, guided by the expectations of societal norms and implemented by oil and gas exploration and production (“E&P”) companies. They are ambitious and complex.
What the federal government is aiming for is so ambitious, most believe it is impossible. They want GHG emissions from Canada’s upstream oil and gas industry reduced by 42% of 2005 levels by 2030.
The emissions reduction targets are possible, but the timeline is unrealistic and the long lead times associated with major new projects is problematic. Moving anything along this quickly is complicated by supply chains and labor shortages. But believe it or not, these aren’t the biggest obstacles to meaningful emissions reductions in Canada.
Federal and provincial programs do not align with the political desire to reduce emissions. In short, what the politicians are saying doesn’t align with what the bureaucrats are doing.
If everyone can agree that emissions are bad, then all tangible emission reductions efforts should be included in the structure of the programs themselves. This seems like a pretty simple bridge to build, but government hasn’t been able to get it done. The result is mixed signals and differing strategies to try and achieve the targets.
Some E&Ps are including ESG commitments and carbon reduction opportunities as key components of their purchasing decisions. This has persuaded some service and supply companies to invest in lower emission equipment, processes, technologies and strategies.
As a result, a lot of capital is being invested in decarbonizing the upstream supply chain. This can take many forms. All will contribute to helping the industry as a whole meet its greater goals.
Notwithstanding, matching emission reductions with the highly publicized commercial opportunities these efforts are supposed to create is proving considerably more complicated.
For Canada’s E&P sector, like all other sectors, Greenhouse Gas Emissions (“GHG”) are broken down into three categories. Scope I, Scope II and Scope III emissions. Scope I refers to emissions that are caused directly from company-owned and controlled resources. Scope II refers to emissions caused by the generation of purchased energy and Scope III emissions relate to activities from assets not owned or controlled by the reporting organization. While all forms of emissions impact climate change, most of the focus within the energy industry has been on Scope I emissions.
The most promising form of Scope I emissions reduction that regulators and industry will employ on a large scale is Carbon Capture Utilization and Storage (“CCUS”), the process of capturing CO2 at the source and storing it underground. However, there are many other ways to accomplish the same objective that aren’t getting the attention they deserve from industry and regulators.
Take Recover Inc. (“Recover”) for example. Recover is at the forefront of the opportunities and challenges associated with decarbonizing drilling new oil and gas wells.
To drill today’s modern extended reach horizontal wells quickly and efficiently, the industry has moved to using more oil-based drilling fluids, commonly called “Invert.”
Invert drilling fluids are attractive because of improved penetration rates, lubricating ability for the drill bit and drill string, their versatility in lifting cuttings to surface, and preventing formations like shales from swelling. As a result, 90% of the wells drilled today are drilled with Invert drilling fluids.
However, not all the Invert is recovered and recycled during drilling. Approximately, 10% (wt.) of the fluid remains on the Invert-soaked drill cuttings and cannot be treated on site. This waste must be removed and hauled to a landfill daily because modern drilling technology is creating higher volumes of drilling waste, compared to anytime in history.
At this point, there’s a fork in the road when it comes to emissions.
The common method is to mix the Invert-soaked cuttings with sawdust and dispose of them “as is” in a Class II landfill. Under this scenario, the hydrocarbon and wood waste biodegrades and releases GHG’s into the atmosphere.
There are numerous technical studies of how quickly hydrocarbons and sawdust will biodegrade. All of them say the same thing; both diesel fuel or sawdust will biodegrade and go into the atmosphere as either methane or carbon dioxide.
While there are no studies on the biodegradation of Invert soaked cuttings and sawdust mixed together, Low Carbon Fuel Standard programs have been able to overcome this problem at Municipal Solid Waste landfills where every day there is a new composition of waste streams being delivered to that landfill.
The opportunity that Recover saw was to take the invert-soaked cuttings to a dedicated recycling facility, where they separate the diesel fuel from the crushed rock, then re-use the diesel fuel again. Because the diesel fuel is removed and there’s no need for sawdust stabilization, the subsequent biodegradation is avoided. And under most Low Carbon Fuel Programs, if this eventual biodegradation is avoided, then the technology provider would be given credit for those emissions.
In Canada, for a fuel to be considered ‘low carbon’, it must come from biogenic sources. So while Recover’s diesel fuel has a scientifically lower Carbon Intensity than most biofuels, the fact that it isn’t biogenic in nature doesn’t allow it to fit into existing pathways. These programs were created specifically to stimulate decarbonization by replacing fossil fuels, not producing fossil fuels with lower emissions. When companies like Recover seek to access these programs, they face an incredible challenge of either meeting all the specific requirements or modifying those requirements to allow for GHG reductions that were not previously contemplated. The writing of a new pathway in BC or Alberta can take up to five years and cost hundreds of thousands of dollars each. The programs are clunky to say the least.
What would help is if Canadian and provincial governments would start treating all emission reductions the same way. In the U.S., recent federal legislation has created several programs including the 45Q and 45Z tax credits that are doing just that.
Right now the best opportunities for Recover and many other Canadian emission reduction innovators is leaning towards the U.S. because of the opportunities created by the Inflation Reduction Act (“IRA”), that will make US$369 billion available for emissions reduction over the next ten years. The 45Q and 45Z tax credits are part of the IRA. The IRA describes a ‘low carbon fuel’ as a fuel with a carbon intensity of < 50 (as opposed to fossil fuels, which have a carbon intensity of ~ 100). The IRA program allows the fuel producer to create a low carbon fuel irrespective of the origin of the feedstock, like what Recover has accomplished with its recycling technology. This is acting as a magnet for many Alberta companies leading the change in the energy transition, which is regrettable considering many of these new innovations are emerging from this province.
When this area gets the attention it deserves, what will be learned is that the fastest and most effective way to reduce all upstream oil and gas emissions is to broaden what qualifies, not focus on specific initiatives like large CCUS that are still under development.
The attractive feature of Recover’s contribution is that the research and development is done, the facility is up and running and they want to expand. But, they’re unable to access the otherwise clunky Canadian programs.
As recent events have illustrated for policy makers and thought leaders, the world isn’t going to be going out of the oil and gas business anytime soon. More attention is gradually being paid towards ways of decarbonizing beyond replacing fossil fuels.
About Recover Inc.
Recover is a waste-to-energy technology company with a method of cleaning oil-based drilling waste. Recover provides an industry leading, customer focused, waste management solution to upstream oil and natural gas companies operating in the west-central Alberta area and has plans to expand its business throughout North America.
For further information please contact:
Stan Ross, President & CEO, Phone: (403) 390-7797, Email: sross@recover-energy.com
Shane Kozak, Vice President Finance & CFO, Phone: (403) 471-7787, Email: skozak@recover-energy.com
Visit Recover Inc. Here
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