Canada: Energy @ Gowlings March, 2008

Edited by Paul Harricks

Contents

• Gowlings Increases Its Oilsands Bench Strength

• 2008 Federal Budget

• Oilsands Expectations 2008

• Ontario Centres of Excellence Injects $28 Million Into Breakthrough Clean Energy Technologies

• Ontario Reliability Outlook

• Alberta's Initiatives to Tackle Climate Change

• Getting to 2050: Canada's Transition to a Low-Emission Future

Gowlings Increases Its Oilsands Bench Strength

Gowlings is pleased to welcome Arnie Olyan as the newest member of our Energy and Infrastructure Team. Arnie's expertise extends to the project structuring, contract drafting and negotiation side of energy projects, from project design and build, through facility commission and start-up. His particular experience has been in the Oil Sands, whether in the engineering, procurement and construction stages of projects or in the operation and maintenance phases.

Arnie has extensive experience working with large mobile mining equipment that has become the icon of the oil sands industry, assisting clients in the purchase of these massive units or in drafting the mining services agreements that result in their use.

Arnie is the author of "Oilsands Expectations 2008", appearing in this issue of energy@gowlings, which describes the expected "Top 10 Events" of 2008 which will have an impact on Canada's ability to substantially increase its oil production capability.

2008 Federal Budget

The federal government recently tabled its 2008 Budget. The following are the highlights pertaining to the energy sector:

• The government plans to strengthen its ecoACTION plan by:

The government also plans to strengthen the ability of Canadian universities to attract and retain the world's top science leaders by providing $21 million, over two years, to establish up to 20 Canada Global Excellence Research Chairs. The new research chairs will be offered in what the government sees as four priority areas: the environment, natural resources and energy, health and information and communication technologies.
By: Michael Morrison

Oilsands Expectations 2008

Much has been written about the "Alberta Advantage" and the expectation that 3 million barrels of hydrocarbon product (anything from raw bitumen to light synthetic crude oil, but excluding natural gas) will be produced daily from the oilsands by 2015. About one-third of that amount is currently being produced. So what - fairly and reasonably - might be the Top 10 Events expected to occur in 2008 that will provide the major strides toward the achievement of new production levels?

1. Canadian Natural Resources - Horizon Oil Sands Project - Phase 1

By December, 2007 this project (mining - extraction - upgrading) approached 90% completion, with commissioning and start-up and then "first oil" anticipated in Q3 2008. Full production capacity of 110,000 barrels per day will not be achieved before 2009 at the earliest.

2. OPTI/Nexen - Long Lake Phase 1

While suffering some delay and cost overruns in 2007 (which has unfortunately been an all-too-common oilsands phenomenon), this steam-assisted gravity drainage (SAGD) extraction and upgrading project should come on-stream by mid-year. Nexen is currently "steaming" a majority of its wells and OPTI's "Orcrude" gasification, hydrocracker and utilities units are built. Because it is using new technology, achievement of the 60,000 barrels per day capacity will likely take some time. If OPTI is successful in using the "heavy upgrader bottoms" as a fuel source in lieu of natural gas, this project could well set a new paradigm in the industry.

3. Petro-Canada/UTS Energy/Teck Cominco - Fort Hills

Front-end engineering and design of this 190,000 barrel per day initiative is well underway. By late 2008 (Q4), the partners will be far enough along in their planning that a final investment decision (and authorization to spend the necessary billions of dollars) will likely be made.

4. Suncor Energy - Upgrader 2 Expansion

Construction is reaching 80% completion on this 100,000 barrel per day expansion in upgrading capacity. Commissioning and start-up will begin in 2008, while achievement of "name plate" capacity will only occur next year.

5. Imperial Oil/Exxon Mobil - Kearl Lake Phase 1

While this 100,000 barrel per day mining and extraction initiative (no upgrading is currently proposed) has already received regulatory approval, an evaluation of the costs associated with that approval is ongoing. Preliminary engineering continues and a commercial decision as to whether (and if so how) to proceed is expected this year.

6. Total E&P Canada/Enerplus Resources - Deer Creek/Joslyn

While new to the oilsands, Total is providing every indication that oilsands are an integral part of the "Total Strategy". The project is currently "staffing up". The design basis memorandum (DBM) for a 100,000 barrel per day mining and bitumen extraction facility is currently being settled. The hearing for regulatory approval of the project begins in the spring of 2008 and approval is anticipated by year end.

7. EnCana/ConocoPhillips - Foster Creek and Christina Lake Expansions

This 50-50 partnership of heavyweights uses SAGD to bring bitumen to the surface, before the pipelining of bitumen for further processing to one of two ConocoPhillips refineries in the United States. The SAGD capacity expansion (mainly at Foster Creek) has now been completed, resulting in an expected incremental increase in combined production to 60,000 barrels per day from the two sites, once the optimum results of steaming are achieved by late 2008 or early 2009.

8. Petro-Canada-Strathcona (Edmonton) Refinery

Construction has reached approximately the half way point in the conversion of Petro-Canada's refinery so that, instead of crude oil from the Western Canadian Sedimentary Basin, it will be possible to process light, synthetic crude oil (the product of the upgrading of bitumen) into the end-use products on which Canadians depend (gasoline, jet fuel, kerosene, etc). By year end, re-fit (construction) at the Strathcona Refinery should be complete and commissioning and start-up of this 135,000 barrel per day refinery will be underway.

9. Husky Energy - Sunrise Phase 1

By late 2007, Husky was nearing completion of front end engineering and design (FEED) for its "in situ" extraction of what will eventually be 60,000 barrels of bitumen per day. Regulatory approval of what is understood to be the SAGD of the resource has already been received and, upon completion of FEED, an investment decision by Husky is expected.

10. Devon Canada - Jackfish Phase 1

Construction of this 35,000 barrel per day SAGD bitumen extraction facility is essentially complete to the point that steam injection has begun. Warming of the "goo" will take some time, but initial extraction trending toward 35,000 barrels per day will ramp up in 2008.

Optimism is currently running high among oilsands operators. Given the foregoing, it is easy to understand why.
By: Arnie Olyan

Ontario Centres Of Excellence Injects $28 Million Into Breakthrough Clean Energy Technologies

The Ontario Centres of Excellence Inc. (OCE) announced, along with its industry and academic partners, an investment of $28 million in the research and development of six clean energy projects. OCE will inject $13 million into the six projects with the balance of the funding being provided by the industry and academic partners. The OCE notes that these projects "promise to create cleaner and more efficient ways for Ontarians to generate, consume and manage energy."

The six projects, involving breakthrough technologies in solar, hydrogen and energy conservation and demand management, address issues critical to Ontario's energy sustainability:

• The demand for solar power as a viable, cost effective alternative energy source;

• The need for systems and programs to help people manage their consumption; and

• The ability to access clean energy alternatives.

"OCE is committed to playing a significant role in transforming the energy sector to establish Ontario as a world leader in clean energy through the commercialization of innovative solutions," said David McFadden, Chair OCE of the Board of Directors and Chair of the National Energy and Infrastructure Industry Group at Gowlings.

The Minster of Research and Innovation, the Honourable John Wilkinson, added that, "Today's investment builds on the considerable talent of our world-class researchers to ensure Ontario maintains leadership in growing sectors and consistently turns global challenges, such as climate change and environmental sustainability, into opportunities for Ontario. These projects represent the strong partnerships among our top researchers, global business leaders and government that will provide Ontarians with a cleaner environment, a higher quality of life and more opportunities for success."

Before calling for project proposals, the OCE first engaged a wide range of Ontario's energy sector leaders to clearly identify gaps and market needs. The OCE received more than 100 expressions of interest for project funding reflecting the province's innovative capacity for clean energy solutions. After a rigorous selection process, the following projects were selected for their disruptive characteristics, promise of significant economic benefit to the province, research excellence and potential to transform the marketplace:

• Energy Consumption Management System Gives Consumers Control;

• Low Cost, High Performance Thin Film Cells Charge Solar Industry;

• High-Capacity Fuel Cell Helps Meet Commercial Demand for Power;

• Next-Generation Solar Material to Boost Solar Production;

• Decreasing Diesel Dependence in Remote Northern Communities; and

• Connecting Solar Farms to the Grid.

By: Michael Morrison

Ontario Reliability Outlook

Ontario's Independent Electricity System Operator (IESO) has released its Reliability Outlook. The Outlook states that Ontario's longer-term reliability picture is positive. Ontario's focus should be ensuring that generation, transmission and demand-side initiatives are implemented in time to meet needs as well as address any integration and operational challenges in the future.

Since the last report, there have been delays to the scheduled in-service dates for Phase One of the Goreway Generating Station in the Greater Toronto Area (GTA) and unplanned outages at the Pickering Nuclear Station which resulted in more than 1,500 MW of supply being unavailable. Aside from this outage, there was no major disruption in service.

New Supply

Almost 4,000 MW of new gas-fired supply is expected to come into service over the next three years. This new supply is sourced from the Greenfield Energy Centre near Sarnia, the Portlands Energy Centre in Toronto, the Sithe Goreway facility in Brampton and the Halton Hills Generating Station near Milton. In addition, approximately 630 MW of grid-connected wind power is also expected to come into service before the end of 2008.

With 475 MW of wind resources currently being installed, it is expected that this type of generation will take on an increasingly significant presence in Ontario's future supply mix. Challenges could arise from the intermittent nature of wind and demand peaks. The IESO's Wind Integration Standing Committee has developed recommendations and implemented decisions to reduce barriers to the successful integration of wind generation into the system.

Operability of the Power System

Previously, the IESO had identified operability as a key parameter for future supply mix. Since then, the OPA has submitted the Integrated Power Supply Plan (IPSP) to the Ontario Energy Board (OEB) for approval. The IESO has also discussed operability matters with the Ontario Power Authority (OPA) through the preparation of the IPSP and will follow up with an operability review, simulating future operating conditions under the proposed supply portfolio to assess whether there is enough operating flexibility. The findings will be released shortly.

Transmission

Timely implementation of proposed transmission facilities still remains a key component for addressing future reliability needs. Over the next decade, enhancements will be implemented in Southwestern Ontario, Northern Ontario, the Greater Toronto Area, York Region, South-Central Ontario, and many other places. The development of new transmission across Southwestern Ontario still remains a high priority. It is expected that new facilities from Bruce to Milton will deliver the full capability of the Bruce refurbishment and the regions expected new wind resources. Transmission enhancements are also required to enable the replacement of the coal-fired stations with cleaner resources.

Conservation and Demand Management

The Ontario government has set aggressive load reduction targets for the near future, with a target of 2,700 MW reduction in peak demand by 2010. It is expected that Ontario's Smart Metering Initiative can also help enhance the reliability of the power system. This initiative calls for smart meters to be installed in homes and small businesses throughout the province by 2010.

Approvals Process

The IPSP filing with the OEB has represented a major milestone in Ontario's supply program. However, the IESO remains concerned about the uncertainty surrounding the length of the approvals process. Substantial work is currently underway by a number of stakeholders to address the inefficiencies in the process. The improvements should ensure appropriate public review of energy and other infrastructure proposals.

For information, please refer to:
http://www.ieso.ca/imoweb/pubs/marketReports/ORO_Report-2007-2-2.pdf
By: Nicole Chen

Alberta's Initiatives To Tackle Climate Change

The Alberta Government released its new Climate Change Strategy 2008 on January 24, 2008. The Strategy envisages that Alberta will reduce its greenhouse gas emissions by 50% below "business as usual" levels and 14% below 2005 levels by 2050. The 50% target would amount to a 200-megatonne reduction.

The Strategy consists of three elements:

• carbon capture and storage initiatives;

• an increase in investment in clean energy technology; and

• increases in conservation and energy efficiency initiatives.

Carbon Capture and Storage. The Alberta Government will form a government-industry council to establish specific ways to significantly reduce greenhouse gas emissions by capturing air emissions from industrial sources and locking them permanently underground in deep rock formations. The council will respond to a federal-provincial task force report on carbon capture and storage and will develop a made-in-Alberta strategy for creating and adopting new technology. The Strategy notes that Alberta has the capacity to be a world leader in this developing area. Carbon capture technologies are intended to account for 70% of the planned 200-megatonne reduction.

Clean Energy Technology. The second element of the Government's Strategy is an increased investment in clean energy technologies and increases in the use of renewable and alternative energy sources such as bioenergy, solar power, wind power, hydrogen and geothermal energy. Alberta anticipates that 18% of its planned reductions will be accounted for through the use and implementation of these forms of clean energy technologies.

Conservation And Energy Efficiency. The final aspect of the Strategy states that 12% of Alberta's proposed emissions reductions are to come from conservation and energy efficiency. The Government will create consumer incentives which will be set out in a detailed plan to be released in the Spring.

The Strategy was announced on the heels of an unfavourable report card issued by the Pembina Institute and the World Wildlife Fund Canada, which criticized the environmental record of various oilsands operators. Their report, entitled Undermining the Environment: The Oilsands Report Card, stated that, while emissions intensity has decreased, the actual amount of emissions is on the rise as a result of increases in overall energy production. Critics of Alberta's new climate change Strategy argue that Alberta's initiative is not aggressive enough and that it does not target overall reductions. However, industry players are commending the Alberta Government for taking a step in the right direction.

Industry groups have consistently expressed the view that it is imperative that the Alberta Government balance industry's ability to remain competitive with whatever plan it implements to address climate change. Industry has stated that it is willing to work with the Government in developing new technologies to address the issues of climate change in the Province.

The Alberta Strategy also shortly followed the release of a report from a body known as the ecoENERGY Carbon Capture and Storage Task Force, entitled Canada's Fossil Energy Future, on January 9, 2008. The report of this joint industry-government Task Force was addressed to the Alberta Minister of Energy and the federal Minister of Natural Resources and set out a number of recommendations as to what steps should be taken to begin implementing and testing new carbon capture and sequestration technology while balancing the financial and regulatory risks involved.
By: Lisa Jamieson

You can access Alberta's new climate change plan at:
http://environment.alberta.ca/documents/ Climate_Change_Strategy_2008_brochure.pdf

To read the government of Alberta's report entitled Alberta's Climate Change: Facts About Climate Change go to:
http://environment.gov.ab.ca/info/library/7774.pdf

To read the ecoENERGY Carbon Capture and Storage Task Force report entitled Canada's Fossil Energy Future, go to:
http://www.nrcan.gc.ca/com/resoress/publications/fosfos/fosfos-eng.pdf

To access the report card issued by the Pembina Institute and the World Wildlife Fund Canada entitled Undermining the Environment: The Oilsands Report Card, go to:
http://pubs.pembina.org/reports/OS-Undermining-Final.pdf

For further information please contact:
By: Lisa Jamieson, David Brett, James Smellie, Ron Hansford and Heather Tanaka

Getting To 2050: Canada's Transition To A Low-Emission Future

In the fall of 2006, the Canadian Government asked the National Round Table on the Environment and the Economy (NRTEE) to look at issues concerning national long-term climate change and air pollution policies. NRTEE was asked to provide advice on how Canada's greenhouse gas (GHG) and air pollutant emissions could be reduced significantly by 2050.

The NRTEE based its research on the federal government's Turning the Corner policy. In the policy, the targets for GHG were 20% below 2006 levels by 2020 and 60% to 70% below 2006 levels by 2050. The NRTEE research concluded that, with some key enabling conditions and acknowledgement of certain uncertainties and risk, the transition would be manageable. In reaching that conclusion, NRTEE had three core assumptions:

1. The overall objective of Canada's climate change policy should be to contribute to the global goal of climate stabilization;

2. Canada's medium- and long-term emission reduction targets have been defined; and

3. Canada has national environmental and economic circumstances that need to be taken into account when designing climate change and clean air policies.

Enabling Conditions for Managing the Transition

The NRTEE concluded that there need to be five enabling conditions that should be reflected in Canada's climate change policy framework in order to manage the transition to a low-emission future. They are:

• A need to ensure Canada will work in concert with the rest of the world and that any adverse economic consequences of policy action are minimized;

• A need for policy certainty beyond the short term, to create long-term predictability for new investment in innovation and technology;

• An economy-wide emission price signal, complemented with regulatory policies, as the core element of a policy framework;

• Wide deployment of low-emission technologies and specific technology policies; and

• An integrated approach to climate change and air pollution.

Recommendations for GHG Emissions

1. Implement a strong, clear and consistent GHG emission price signal across the entire Canadian economy as soon as possible to avoid higher emission prices;

2. Institute a market-based policy that is similar to an emission tax or a cap-and-trade system or a combination of both;

3. Develop complementary regulatory policies in conjunction with the emission price signal, which would support research, development and demonstration of technologies, as well as strategic investment in infrastructure;

4. Establish a Canada-wide plan as soon as possible to better coordinate all complementary federal, provincial and territorial GHG emission reduction policies; and

5. Apply GHG emission reduction policies that incorporate adaptive management practices and have built-in monitoring and assessment mechanisms to allow for regular review to ensure efficiency and effectiveness.

Future

The NRTEE concluded that, to better understand risk minimization associated with transitioning to a low emission society, additional policy research must be conducted. These issues include:

• Further analysis of data gaps and modelling;

• Policy design issues on proposed market-based instruments;

• A "bottom-up" analysis of sectoral and regional implications of policy design;

• Governance issues related to all levels of coordination of climate change policies; and

• Consideration of potential benefits of addressing climate change.

For more information, please refer to:
http://www.nrtee-trnee.ca/eng/publications/getting-to-2050/Getting-to-2050-low-res-eng.pdf
By: Nicole Chen

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