It comes as no surprise that investors, insurers, banks and lenders increasingly demand strong environmental, social and governance (ESG) performance from the companies that they do business with. This becomes even more prevalent when those companies – or entire industries – are tied to greenhouse gas (GHG) emissions. This scrutiny is a new reality for the oil and natural gas industry, and rightfully so. But can all the players in all the producing countries be painted with the same brush? The short answer is no. The long answer deserves a closer look and starts by looking at the need.
So far in 2020, our industry has faced some new challenges, including unprecedented turmoil in the equity and commodity markets related to the COVID-19 pandemic and exacerbated by the oil price war between Saudi Arabia and Russia. While the current macro-economic environment is expected to have a significant continued negative impact on near-term global oil demand, the longer-term demand outlook remains strong. Led by a growing middle class in the developing world, long-term forecasts tell us that the demand for energy will continue to rise as the global population increases and more and more people worldwide join the middle class. On the one hand, that means a greater need for renewables. And, according to all credible forecasts, it also means oil will remain a significant part of the future energy mix, alongside other forms of energy, for decades to come. While not the focus of this article, the misconception that renewables or ‘clean tech’ have the potential to outstrip the need for oil is worth mentioning. In The “New Energy Economy”: An exercise in magical thinking (2019), Senior Fellow with the Manhattan Institute, Mark P. Wells, investigates the movement to replace hydrocarbons. His examination highlights that “scientists have yet to discover, and entrepreneurs have yet to invent, anything as remarkable as hydrocarbons in terms of the combination of low-cost, high-energy, stability, safety and portability” of this energy source. He goes on to argue that “the physics of energy…illustrate why there is no possibility that the world is undergoing, or can undergo, a near-term transition to a new energy economy.1”
So while reducing and managing global GHG emissions is a must, the numbers also tell us that it’s not feasible for the world to abandon fossil fuels overnight. In fact, according to the International Energy Agency’s “Stated Policies Scenario”, oil is expected to account for 27% of the total energy mix in 20402 (see Figure 1 above) – not surprising, given forecasts that the global population is expected to rise to nine billion people in that same timeframe3. Given the projected demand for oil in the coming decades, the next focus naturally turns to the source. How much is there, can it be reliably accessed and how much will it cost? And so on. To add to the complexity, because ESG measures are more important to the global community than ever before, the world also wants assurance that there is accountability on the part of the oil and gas industry to develop the resource ethically and responsibly. For that reason, there is a compelling argument to be made that Canada should be the energy provider of choice for meeting that growing demand.
In Canada, the oil and gas industry has been a reliable supplier of energy, both domestically and internationally, for over 150 years. The country has the third-largest reserves in the world, and of the 170 billion barrels that can be recovered using today’s technology, 96% are found in the oil sands in the western Canadian province of Alberta (see Figure 2 left). To date, only 7.5% of those reserves have been developed. It’s also worthwhile to note that only one-fifth of the world’s oil reserves are accessible to private sector investment. Of that, 56% are found in Canada’s oil sands. Ample, available supply aside, we also know that if Canada doesn’t help meet the world’s demand, that demand will be met by other oil producing jurisdictions that are likely to have much lower ESG standards than Canada. In fact, Canada has a tremendous opportunity to continue demonstrating and leading as a responsible energy producer.
For Cenovus, and the country’s oil and gas industry overall, that means continuing to develop new technologies and ways of operating that could help develop the resource in a manner that is both low cost and low carbon.
Just one of the reasons Canada has such a high global ESG ranking (see Figure 3 right) is the strict regulatory environment in which it operates (see Figure 4 overleaf). In fact, the country’s oil sands industry adheres to some of the most stringent environmental policies and rigorous regulatory regimes in the world.
This framework, in part, explains why a 2019 international Ipsos survey4 indicated that people prefer to get their oil from Canada over other countries globally. Digging a little deeper, there’s good reason for that. Alberta was the first jurisdiction in North America to introduce carbon pricing for industrial emitters. Now called the Technology Innovation and Emissions Reduction (TIER) system, proceeds are used for new and cleaner technologies to reduce emissions through measures such as improved oil sands extraction methods, as well as research and investment in carbon capture, utilization and storage. But TIER is just one of the many provincial and federal policies, programs, laws and directives within which Canada’s oil sands producers operate. Another example involves the recently announced Government of Alberta directive5 that will see a 45% methane emissions reduction from 2012 levels by 2025.
Comparing GHG emissions globally can be challenging because other countries are not as open and transparent with their environmental reporting as Canada, so a lot of assumptions need to be made with any sort of analysis. Traditionally, oil sands companies have been labelled as being among the highest – if not the highest – emissions producers worldwide. But that’s simply not the case in Canada, as we show in Figure 5 overleaf. Through a predecessor company in 1997, Cenovus was the first to commercialize a made-in Alberta breakthrough extraction technique called Steam Assisted Gravity Drainage (SAGD) that dramatically increased the amount of oil that could be recovered from the oil sands. SAGD processes involve pumping steam deep underground to extract the crude oil or bitumen in place (or in-situ) without disturbing the surface land. Now the predominant production technique in the deeper reservoirs of Canada’s oil sands, the GHG intensity of the average SAGD barrel is only slightly higher than the average barrel produced globally. Cenovus has reduced its per-barrel GHG emissions intensity by about 30% since 2004, but the work isn’t done. Through technology development efforts, combined with bold targets announced in January 20206, Cenovus continues to focus on ways to reduce emissions intensity, water and land use even further. It’s also important to note that Cenovus’s reservoirs and SAGD production techniques are in line with the global average at its Foster Creek facility. And at Christina Lake, one of the most efficient projects in the industry, the emissions intensity is lower than the average barrel refined in the United States. All this information and more opens the door to tremendous opportunities, while demanding the record be set straight on the environmental performance of Canada’s oil sands.
Cenovus is focused on sustainably producing Canada’s oil and natural gas resources – knowing that striking the right balance among environmental, economic and social considerations leads to long-term value. Beyond its efforts so far, the company has taken even more steps to set itself apart. With an estimated 40-year reserve life index, sustainability is critical to Cenovus’s business resilience and long-term success. Starting with a strong and unwavering focus on safety, Cenovus has also embedded ESG considerations and practices into its capital allocation framework and business decisions, assessing ESG criteria alongside financial metrics. When it comes to the environmental aspect of ESG, innovation and technology development are key – and are backed by a proven track record. Cenovus also has strong relationships with communities in its operating areas – especially Indigenous communities. The philosophy has always been to ensure communities share in the company’s success and to be open and transparent with community members about business plans and operations. Transparent disclosure, proactive shareholder engagement, tying executive and staff compensation metrics with ESG performance and other key measures underpin a strong governance framework to support the direction of Cenovus at all levels and functions. A new 2025 aspirational target to have at least 40% of independent Board members be represented by women, Aboriginal peoples, persons with disabilities and members of visible minorities is another step in the right direction7.
As mentioned earlier, in January 2020 Cenovus took the next step by continuing to integrate ESG performance into its strategy for enhancing business resilience. With an eye to adding value for shareholders and other stakeholders, specific targets related to climate & GHG emissions, Indigenous engagement, land & wildlife and water stewardship were established through a rigorous process that involved work with global experts, external consultants and robust scenario analysis (Figure 6 to the left).
Starting with arguably the most important of the four focus areas, Cenovus has set a target to reduce emissions intensity by 30% and hold absolute emissions flat by 2030. On top of that, the company identified a long-term ambition to reach net zero GHG emissions by 2050. These are among the boldest emissions targets and ambitions in the world for an upstream exploration and production company. Cenovus set these important targets with the intention of managing climate-related risks and opportunities while supporting business resiliency through the energy transition to a lower carbon economy. In addition to the technology and process advancements to reduce emissions intensity that the company has already realized in its operations (Figure 7 left), Cenovus has identified a number of levers to achieve its GHG target, including optimization of its assets and steam to oil ratios, solvent technology, cogeneration, methane emission reductions and data analytics as well as considering offset opportunities.
Since 2009, Cenovus has spent over $2.8 billion doing business with Indigenous-owned and operated businesses. With its new ESG targets, the company has committed to spending at least an additional $1.5 billion with Indigenous businesses by 2030. Since 2012, Cenovus has also awarded over $660,000 in post-secondary scholarships to Indigenous students and continues to support non-profit organizations that address local community needs. Additionally, the company has introduced mandatory Indigenous awareness training for its staff. On the heels of Cenovus’s ESG target announcement, the company followed up with an unprecedented commitment. Over and above the Indigenous spending target, an initiative was announced in January 2020 to help address the chronic housing crisis among Indigenous communities in Canada. Until 2025, the company will spend a total of $50 million building about 200 new homes in six communities located closest to its oil sands operations – while also providing skills training for Indigenous peoples. Enhancing these already strong relationships improves the social fabric of local communities and supports regulatory certainty for the company’s projects. Beyond its own efforts, Cenovus is encouraged by the industry-wide engagement with Indigenous communities, recognizing it as a key component to support reconciliation. Despite the economic downturn in recent years, in the most recent data available from 2016, the Canadian oil and natural gas industry employed almost 12,000 Indigenous workers and oil sands producers spent $3.3 billion on procurement from Indigenous-owned companies. Beyond that, producers also invested almost $49 million to support Indigenous community programs and initiatives, as evidenced by Figure 8 left.
It’s been said that the oil sands are damaging Canada’s boreal forest; however, it is important to understand the context. The boreal forest in Alberta covers approximately 381,000 square kilometres, with the oil sands lying under 142,000 square kilometres of it. However, it is estimated that only 0.2% of the total area has been disturbed by oil sands extraction activity over the past 40 years. And while some mining occurs, 80% of the available resource is too deep to mine and is recovered using in-situ, or drilling, technology – which involves minimal surface disturbance. Put in perspective, the area disturbed by all in-situ oil sands operations today is about 850 square kilometres. Of this, Cenovus’s oil sands approved development area accounts for just 55 square kilometres, and the actual area disturbed is much smaller at about 20 square kilometres. To truly understand the impact that oil and gas development can have on land, one must also know that in Canada we’re required to reclaim the land we use for our operations to a state similar to how it was before. With that in mind, reclamation plans start long before equipment is ever moved on site. For example, that means storing all the top soil from well pads so that it can be put back into place once the well is no longer producing. Additionally, Cenovus has proactively earned 1,600 well site reclamation certificates since 2009 and is committed to reclaiming 1,500 more by 2030. As part of its reclamation efforts, Cenovus routinely monitors local wildlife movements via motion-activated cameras to improve its understanding of how wildlife move across the land at its operations and interact with its facilities. Another unique commitment announced through the company’s ESG targets is to complete $40 million of caribou habitat restoration work by 2030. Started in 2016, this voluntary initiative uses proven reforestation techniques to restore old seismic lines, access roads and other linear disturbances. In turn, this work aims to reduce the fragmentation of the Cold Lake caribou herd’s habitat and the associated wolf predation on this threatened species. To date, over one million trees have been planted as part of this initiative with long-term plans for five million trees planted by 2030.
In Canada, the use of water is highly regulated. In total, the energy sector accounts for only 10% of Alberta’s water allocation – that includes 8% for oil sands facilities and 2% for conventional oil and gas, as per Figure 10 right. Companies apply to the Alberta Energy Regulator for water allocation volumes and the Regulator closely monitors and regulates water usage in the oil sands. And across the industry, companies are using much less non-saline water than what is allocated to them. In fact, Canada’s oil sands industry continues to look for ways to reduce fresh water sources; instead, it uses saline water that is unfit for human and animal consumption or agriculture use. Additionally, in-situ operators recycle 86% of all water used, which at Cenovus amounts to about 60 million litres annually. That has a positive impact on the company’s fresh water performance. Cenovus also doesn’t have tailings ponds and uses virtually no surface water for steam generation. By enhancing existing technology and innovating through new opportunities, the company has set a path to achieve a fresh water intensity maximum of 0.1 barrel per barrel of oil equivalent by 2030. That’s well below a target set by Canada’s Oil Sands Innovation Alliance (COSIA), of which Cenovus is a founding member, for in-situ producers of 0.18 barrel by 2022. Already a leader in managing fresh water intensity compared to its oil sands peers, Cenovus is improving this performance further to reduce the impact of the company’s operations on the environment and bring down its capital and operating costs.
In addition to the industry’s performance on several ESG markers, Canadian oil sands operators also have a strong history of innovation and technology development to continue their trajectory of improvement.
Since COSIA began, its members have invested $1.4 billion to develop over 1,000 distinct technologies that reduce industrial impacts on air, land and water. Currently, $773 million is dedicated to 294 active projects. In fact, as the epicenter of Canada’s oil and gas industry, Calgary, Alberta surpassed other major Canadian cities in 2018 to hold the most patents per capita8. This technology innovation, through both competition and collaboration, has led to more efficiency and lower emissions industry-wide. It wasn’t that long ago that drilling in Alberta’s oil sands was thought to be impossible. The oil in the oil sands can at times be as hard as a hockey puck and it’s embedded in tonnes of sand deep underground. But through resilience, innovation, and smart business practices, companies like Cenovus are balancing environmental concerns with investor value to provide long-term sustainable energy solutions.
Michele Waters is the Director of Risk for Cenovus Energy Inc., and is accountable to develop, operationalize and monitor the effectiveness of the company’s risk management governance and control framework.
Cenovus Energy Inc. is a Canadian integrated oil and natural gas company. With over seven billion barrels of oil equivalent of reserves, it is committed to maximizing value by sustainably developing its assets in a safe, innovative and cost-efficient manner, integrating environmental, social and governance considerations into its business plans. Operations include in-situ oil sands projects in northern Alberta, which use specialized methods to drill and pump the oil to the surface and established natural gas and oil production in Alberta and British Columbia. The company also has 50% ownership in two U.S. refineries, operated by Phillips 66, and owns a crude-by-rail loading terminal in Alberta. Cenovus shares trade under the symbol CVE and are listed on the Toronto and New York stock exchanges. For more information, visit cenovus.com.
1 Manhattan Institute, New York, NY, United States of America (2019) 2 https://www.iea.org/reports/world-energy-outlook-2019 3 https://www.un.org/en/sections/issues-depth/population/index.html 4 Ipsos survey commissioned by the Canadian Association of Petroleum Producers (2019). https://www.newswire.ca/news-releases/canada-continues-to-be-the-world-s-preferred-supplier-for-oil-and-natural-gas-ipsos-international-survey-897974271.html 5 Reducing Methane Emissions, Government of Alberta news release. https://www.alberta.ca/climate-methane-emissions.aspx. Additional details on Alberta’s methane emission reduction efforts are provided by the Canadian Association of Petroleum Producers. https://www.capp.ca/explore/methane-emissions/ 7 In February 2020, Cenovus’s Board revised their Board Diversity Policy to reflect the company’s commitment to the principles of diversity. The policy now includes a 2025 aspirational target to have at least 40% of independent members be represented by women, Aboriginal peoples, persons with disabilities and members of visible minorities, with at least three women as independent members of the Board. While diversity is an important and valuable consideration in assessing potential candidates for the Board, all nominations and appointments are made on merit in the context of the skills, expertise and experience that Cenovus requires.
8 C.D. Howe Institute, Toronto, Ontario, Canada (2018). https://www.cdhowe.org/expert-op-eds/move-over-waterloo-and-ottawa-calgary-now-out-innovating-you-cbcs-road-ahead
