Alberta Oil sands pollution, ESG, and share price

[SharperDingaan]

The marketing folks would like us to believe that ESG is a factor in a company's share price - perform well on the ESG front, and your shares should trade at a premium to your peers. Of course, as currently portrayed - it is utter rubbish! As many an oil sands CFO will gleefully tell you .....

Consider Suncor (SU) and Cenovus Energy (CVE) - top 3 Allberta oil sands producers. SU mines its deposits, whereas CVE uses SAGD with a materially much lower carbon footprint. The output receives the same price, whether it comes from SU or CVE. All else equal, if the cost/bbl for SU and CVE were the same, their profit/bbl would be identical. Point? Zero recognition for the lower carbon footprint, and zero incentive to reduce it. 

There is no value add until the producer has to pay for polluting. SU would have to buy carbon credits, reducing its net carbon footprint, and lowering its profit/bbl. CVE would sell carbon credits, raising its net carbon footprint, and raising its profit/bbl. Process stops when the 'carbon adjusted' cost/bbl of both companies is about the same, but the share price of SU falls and the share price of CVE rises. Point? Carbon tax is the investors friend, NOT his/her enemy.

Look for places where carbon tax is both low, and being strongly resisted. In those places, look at those with low carbon production, and those with high carbon production likely to strand. It's hard to 'resist', when for most participants - the costs of paying for pollution, are lower than the costs of ongoing political lobbying

You could do very well!

SD

Edited May 26, 2021 by SharperDingaan

[bizaro86]

Related to this topic: I've always been a SAGD guy, so I know an unreasonably large amount about that process. But very little about mining. What I don't understand is WHY the miners have such high greenhouse gas emissions? SAGD requires burning gas to heat water to make steam, and the giant steam generators produce a lot of CO2. 

Where are the emissions at the mines? Tailpipe emissions from their giant equipment? Or is it somewhere in the process part of the operation?

[SharperDingaan]

Ultimately the sand has to be heated up to get the oil out, and it is the CO2 from the fuel burnt. And all over and above the mining emmissions themselves. Nightmare. SU also has the optics problem of strip mining/dead wildlife everywhere, Shell's recent court order to reduce emmissions 40%, and the real possibility of stranded assets. With SAGD, maybe the ground rises 40ft when it heats up, melting the snow cover in winter.

In the near term, SU either gets into carbon capture in a big way, buys a lot of carbon credits, or buys in a lot of conventional production. Shuts in some oil sand production and replaces with conventional production to average down the carbon footprint. Really means that the industry needs to fuel with hydogen vs gas, and quickly.

SD

 

 

Edited May 26, 2021 by SharperDingaan

[Warner]

Reported emissions intensity between SAGD and mining is not much different.  Depends on the operator and the process used.

 

Actually, SAGD will be higher as they are not reporting the additional refining emissions with SAGD compared to refining emissions after upgrading. SAGD is heavy and sour so it needs to run through a Coker, or hydro-conversion and then hydro-treating. All these processes need a lot of natural gas.....

 

The newer mining projects using PFT have actually much lower emissions than SAGD and lower refining emmsions.

 

 

[SharperDingaan]

These numbers have been heavily manipulated. The numbers divide the C02 spent to maintain the infrastructure, by the throughput - hence 2020 C02/BOE trends up because throughput was reduced for part of the year (lack of pipeline egress, super-wide differentials)  

 

Industry arguing C02/BOE declines, IF you allow us to raise throughput further! all quite true as long as no new mines are opened. Environmentalists arguing bullshit as CO2/BOE is inherent to the extraction method, and has nothing to do with economies of scale. Hardly surprising there is grid-lock, and difficult for either side to admit they ain't playing fair.

 

Good news for investors is that new mines are impossible, and new capex can only go into efficiency improvements &/or CO2 sequester. FCF for buybacks, putting a minimum ROE under the share price. Environmentalists forcing the capital discipline that industry couldn't do itself.

 

The next time you see an environmentalist, give them a hug!

 

SD

 

[meiroy]

https://seekingalpha.com/article/4420032-esg-focused-oil-majors-are-underperforming

 

ESG-Focused Oil Majors Are Underperforming