Alberta’s oil and gas industry should pay the full cost — estimated at $100 to $240 million — of upgrading pollution-control equipment at aging sour-gas plants across the province, government employees recommend.
A report to the regulatory Energy and Utilities Board (EUB) by staff at Alberta Natural Resources, Alberta Environment and the EUB rejects a public advisory group’s proposal that industry get a royalty break to help with upgrading so-called “grandfathered” sour-gas facilities.
Grandfathering allowed facilities built before 1988 to operate with more lenient pollution controls for sulphur emissions than those built under new regulations since that year.
Government and EUB staff recommend that grandfathering end by Sept. 30, 2005, for all plants that will maintain or increase their capacity. Those plants with declining capacity would continue to be exempt from the tougher standards.
“If the plant’s going to be around for a long time, fix it,” says Kim Eastlick, in charge of the issue for the EUB. “And if it’s going out of business, then we should continue to grandfather it.”
A total of 62 facilities, ranging from some of the world’s largest sour-gas processing plants to smaller acid gas-flaring plants, were exempted from the stricter standards in the grandfathering arrangement.
Together, the plants emit 221 tonnes of sulphur per day into Alberta’s air. Based on current production, they’d have to cut their emissions by 91 tonnes per day if they all had to follow the tougher standards.
But the association representing the oil and gas industry is angry over the rejection of cost sharing. A multi-stakeholder advisory process that included both industry and environmental groups backed this approach.
The industry contributed $8 billion to government coffers in the last year and the province should return some of that money to help cover the cost of plant upgrades, says David MacInnis of the Canadian Association of Petroleum Producers (CAPP).
Instead, the staff report “sends a signal that it’s not worth building consensus positions among multi-stakeholder groups to bring to government, as government’s going to do what it wants anyway,” he says.
All the grandfathered plants are meeting or surpassing their licensed emission requirements, and there’s no proof they’re causing health or environmental damage, MacInnis notes.
Eastlick says the staff report adopted many of the advisory group’s recommendations, including a call for more effective enforcement of regulations to prevent proliferation of smaller sour-gas facilities.
The decision to not support a royalty credit was led by the Resource Development department, although government and EUB staff agreed to it. “Royalty credits is not something the (EUB) or Alberta Environment have jurisdiction over,” Eastlick says.
Eastlick stresses that “there’s been no decision by the (EUB’s) board” on the staff report. Stakeholders are invited to comment by Feb. 15. It will likely take another few months to produce a final report for approval by both the EUB and government.
Alberta environmentalist Martha Kostuch was a member of the advisory group that recommended a royalty credit. Environmentalists were willing to give industry a break if that’s what it took to upgrade the plants, she says.
But with the high natural gas prices, “I don’t think the oil and gas companies are surprised that they didn’t get that one,” Kostuch adds.
Major Alberta petroleum companies reported record profits for last year. Annual net revenues from all the grandfathered plants total more than $1.1 billion, says the advisory group. Capital costs for upgrades at the facilities would total about $227 million, although the final figure will likely be less as some plants are consolidated and less productive ones phased out.
The Alberta Surface Rights Federation, which represents land-owners affected by gas-plant emissions, wants the pollution cleaned up as fast as possible. “If they had to clean it up tomorrow or be shut down, they’d clean it up,” says member Perry Nelson.
More and more of the bigger companies are selling their aging plants to smaller firms that often wind up going bankrupt, sticking taxpayers with the cleanup bill, Nelson says.
Consultant Phillip Hannemann, who has represented landowners at regulatory hearings, says stricter emission standards should apply to all facilities.
Plants with declining capacity and smaller facilities that are still exempt from any pollution control should also have to clean up, he says.
Kostuch says she’d still prefer to offer the industry an incentive, by allowing companies to bank credits in the form of tonnes of sulphur recovered above licensed requirements. This would give good operators more time to achieve full de-grandfathering and meet the tougher standards.
Shell Canada Limited spokeswoman Laurieanne Lynne says de-grandfathering would affect the firm’s huge sour-gas plants at Waterton near Pincher Creek, Jumping Pound west of Calgary and Burnt Timber north of the city. All three facilities are achieving sulphur recovery above their licensed requirements.
“We do accept that (de-grandfathering) is probably coming, and it’s just a question of how exactly it’s carried out,” Lynne says.
