Drilling for opportunity: geothermal, carbon capture and the Canadian energy industry

October 2021 | EXPERT BRIEFING | SECTOR ANALYSIS

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One of the greatest drivers of future change in the Canadian economy is the increasing desire of governments around the world to reduce their reliance on traditional carbon-based energy systems in favour of lower emitting alternatives. For decades, Canada has relied heavily on natural resource development, including oil & gas, heavy industry and transportation to fuel its economic growth. However, these sectors are also the source of a significant percentage of Canada’s greenhouse gas emissions and, considering the global desire to reduce emissions, there is no doubt that the coming years will usher in significant changes in each of those industries, among others. For example, Canada’s federal government has established a goal of reducing domestic greenhouse gas emissions by 30 percent below 2005 levels by 2030 and recently committed to exceed this target and achieve reductions of 40-45 percent below 2005 levels by 2030. In addition to this medium-term goal, the federal government has committed to a net-zero emissions target by 2050 and many provincial governments have established their own emissions reduction targets.

While the degree of change that will accompany national efforts to reduce emissions is potentially significant for Canada’s oil & gas sector, the industry is also able to draw on its existing expertise and help spur innovation in two areas that could help reduce emissions both in Canada and around the world: geothermal energy production and carbon capture, utilisation and storage (CCUS). Investment in these two areas could help the western Canadian provinces of British Columbia, Alberta and Saskatchewan leverage existing infrastructure and knowledge to diversify their economies, enhance their economic resiliency and repurpose inactive wells.

The federal government and each of the provincial governments in western Canada are attuned to these opportunities and have started to develop policy instruments intended to encourage early-stage development in these areas. These initiatives include high-level policy initiatives, direct funding support or tax incentives, such as the federal investment tax credit for CCUS, and the development of dedicated regulatory regimes.

Geothermal

Geothermal energy is energy sourced from the natural heat of the Earth and provides energy for heating, including in industrial operations such as large-scale greenhouses, as well as generating electricity. If managed properly, geothermal energy is renewable, emissions free and, unlike other renewable energy sources such as solar and wind, capable of providing consistent ‘base load’ energy year-round. Historically, geothermal development was confined to regions that, like certain locations in Iceland and New Zealand, offer relatively easy access to volcanic zones and are removed from major urban centres.

However, technological advances have recently pushed geothermal energy into the public conversation in western Canada, in part because of the geological, drilling and fracking expertise of the oil & gas industry and the possibility of repurposing inactive oil & gas wells to extract geothermal energy. In Alberta, for example, research suggests that there is potential to generate more than 6100 megawatts of thermal power capacity potential and more than 1150 megawatts of technically recoverable electrical power capacity from this largely untapped resource. In British Columbia, the province’s government-owned utility, BC Hydro, has identified 16 prospective geothermal sites in the province and estimates of the province’s geothermal potential range as high as 3000 megawatts.

Both Alberta and British Columbia have developed legislation to regulate their burgeoning geothermal industries, including with respect to ownership, permitting and operational matters. In addition, several proposed geothermal plants are currently in the early stages of development, including Eavor Technologies’ ‘Eavor-Loop’ System and the South Swan Hills Hybrid Power Project.

Unlike British Columbia and Alberta, Saskatchewan has not developed a dedicated legislative or regulatory framework for geothermal production, but it is home to Canada’s first geothermal power plant, a project supported by both the provincial and federal governments.

CCUS

CCUS is an emissions reduction strategy that involves either sequestering carbon dioxide (CO2) in porous and permeable underground formations or utilising the CO2 for some other purpose, such as concrete production. CCUS continues to be a vital strategy because it has the potential to significantly reduce the emissions associated with existing energy technologies and even create ‘negative emissions’ that can help countries achieve their net-zero ambitions. CCUS can also assist in enhanced oil recovery techniques, improving the efficiency of future oil production, as well as manufacturing other low-emissions fuels such as blue hydrogen. According to the International Energy Agency, CCUS will form a key pillar of the push to reduce global emissions, in part because it is the “only group of technologies that contributes both to reducing emissions in key sectors directly and to removing CO2 to balance emissions that cannot be avoided”.

From a policy perspective, federal and provincial greenhouse gas emissions pricing programmes, such as the federal Greenhouse Gas Pollution Pricing Act or Alberta’s Technology Innovation and Emissions Reduction Regulation incorporate emissions offset trading programmes intended to create secondary markets that may be able to help commercialise this important technology. Western Canada is emerging as a leader in this area due to its technical knowledge base, ideal geology (including depleted reservoirs in the Western Canadian Sedimentary Basin), experience with enhanced oil recovery technologies and experienced regulators. Recently, Canada and Alberta launched a joint Steering Committee to advance CCUS development and we anticipate that CCUS will come to play an important role in Canada’s efforts to meet its international climate commitments.

There are currently five major CCUS projects underway or proposed in Canada: (i) Shell’s Quest project and the recently announced Polaris project, which could sequester up to 300 million tonnes of CO2 over the project’s lifecycle; (ii) the 240-kilometre Alberta Carbon Trunk Line, which collects CO2 and transports it to oil reservoirs around Alberta for enhanced oil recovery that could allow for recovery of up to one billion barrels of oil while sequestering emissions – the pipeline currently transports approximately 1.6 million tonnes of CO2 per year, but has the capacity to move 14.6 million tonnes per year; (iii) the Boundary Dam Carbon Capture Project, which captures nitrogen oxide, sulfur dioxide and CO2 emitted by the Boundary Dam coal plant in Saskatchewan, reducing CO2 emissions generated by the plant by approximately 90 percent; and (iv) the Fort Nelson Capture and Storage Feasibility Project, which is proposed to capture up to 2.2 million tonnes of CO2 from the Fort Nelson natural gas processing plant located in British Columbia.

These projects collectively have the potential to reduce emissions by 3 percent of the total needed to meet Canada’s 2030 targets and, with additional government support and a steadily increasing price on emissions, there is potential for CCUS to expand dramatically in western Canada.

Export

In addition to developing these technologies for use in western Canada, there are opportunities to export the technical know-how underwriting their feasibility and introduce that technology to other jurisdictions that may be able to incorporate geothermal and CCUS into their emissions reduction strategies.

Concluding comments

While Canada has traditionally relied on natural resources and its energy sector to fuel its economic growth, governments around the world, including in Canada, are increasingly looking to a future that does not rely so heavily on emissions-intensive sources of energy. As the global community continues further down this path, developing new energy sources and emissions abatement strategies is important to remain competitive. Western Canada’s oil & gas industry has the knowledge and ability to play a meaningful role in the development and implementation of these technologies and strategies and Canadian governments are starting to create the policies necessary to support their expansion.

Brendan Downey and Carly Baker are associates at Burnet, Duckworth & Palmer LLP. Mr Downey can be contacted on +1 (403) 260 0191 or by email: bdowney@bdplaw.com. Ms Baker can be contacted on +1 (403) 260 0140 or by email: cbaker@bdplaw.

Brendan Downey and Carly Baker

Burnet, Duckworth & Palmer LLP