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Future-proofing the energy industry: Pathways Alliance president Kendall Dilling on getting Canada’s oil sands sector to net zero

Podcast & Video

The Hub is partnering with Pathways Alliance to promote greater awareness and discussion of the goal of decarbonizing Canada’s oil sands production to reach net zero emissions from operations by 2050. Through a six-part podcast series produced for Pathways, Hub readers and listeners will get the latest analysis and insights of industry experts and leaders who are acting on Pathways’ ambitious call to action. For more information on Pathways visit Are you leading an industry group with an important public policy message? If so be sure to check out The Hub’s new digital marketing platform here.  

This episode of Hub Dialogues features host Rudyard Griffiths in discussion with Pathways Alliance president Kendall Dilling about how Canada’s oil and gas sector can be a valuable partner in reducing the country’s greenhouse gas emissions, the current state of the various technologies helping to achieve that goal, and why decarbonizing energy will be an incredibly profitable opportunity in the long-term.

You can listen to this episode of Hub Dialogues on Acast, Amazon, Apple, Google, or Spotify.

RUDYARD GRIFFITHS: Kendall, welcome to the Hub Dialogues.

KENDALL DILLING: It’s a pleasure to be here. Thank you for having me.

RUDYARD GRIFFITHS: I’m really looking forward to this conversation. We’re all about public policy at The Hub, about big ambitious challenges and goals. Pathways is at the heart of that. You’ve got an ambitious goal, you’re trying to do something pretty important. Why don’t you just give a sense to our audience to begin with about what’s the strategic thing that you’re trying to solve? How big is this problem? I want you to begin this conversation by defining that for us.

KENDALL DILLING: Sure. At the highest level, the challenge is that we are on a path to a low-carbon future as a planet for obvious reasons. Of course, now using fossil fuels is a concern in that regard to the extent that they’re one of the largest contributors of greenhouse gas emissions. The oil sands sector is responsible for about 12 percent of Canada’s emissions. We realized we had to come to the table and be a big part of the solution. There will be a transition occurring globally, but for some period of time we’re going to continue to use fossil fuel.

Our thesis at Pathways is really that for as long as those fuels are needed—and by the way, and we can talk about this more later, heavy oil will probably be needed forever for, if nothing else, non-combustion end uses, which are things like asphalt and petrochemical feedstock, growing carbon fiber markets, and those kinds of things. The barrel of oil is still valuable in a lot of ways. We just need to use it in a low GSG, low carbon context. The most important thing we can do in the near term is decarbonize the production of our product here in Canada. That will help us provide that barrel to global markets in the most responsible way possible.

We actually think it can become a competitive advantage over time because not every oil base out there is going to be able or willing to decarbonize. The world will more and more require decarbonized barrels and decarbonized forms of energy writ large. We actually think this can become a competitive advantage for Canadian heavy oil as we provide the most responsibly produced barrel of oil to global markets.

RUDYARD GRIFFITHS: Let’s talk about net zero because this is really, again, core to your mission at Pathways. You want to get to a net zero emissions sector for these major oil sands producers. What does that mean to you? To the layperson who hears the term net zero, I think there’s some confusion, maybe some hype frankly, around it. Unpack that term and what it means to you in Pathways.

KENDALL DILLING: Sure. I take your point. Everybody’s got a net zero plan these days. It’s always become de rigeur to just say you have a net zero plan. In the case of oils sands, we actually worked at this hard for a couple of years before we ever went public with it because we’re in the industry with engineers and scientists for the most part who take very seriously those kinds of things. We want to make sure we actually had a credible technological pathway to say, yes, by 2050, we could be producing our products with no greenhouse gas emissions associated with the air operations. Luckily, we, in the oil sands are in a position where we can credibly say we can do that without a need for some future breakthrough technology that doesn’t exist today.

That said, we continue to work on lots of new technologies—or 70, in fact, are in our current funnel right now, in terms of technologies we’re looking at bringing to bear on this net zero journey. We have enough in our toolkit today, with existing game-day-ready technologies, that can get us to net zero. Carbon capture and storage, of course, being one of the most significant levers. There’ll be a role for hydrogen. There’ll be a role for fuel switching. There’ll be a role for biofuels. There’ll be roles for energy efficiency and potentially other technologies like small modular reactors, we’ve talked about, as another way to potentially decarbonize down the road.

Some of those technologies like SMRs are game-day-ready so we’ll use the ones we have in our toolkit to make a really good stab at this by 2030, something on the order of 25 percent of the way there. Because we do recognize you can’t say, “We have a net zero plan, and man, watch what we’re going to do in the late 2040s.” You’ll never get that runway from society, from government, from stakeholders. You do have to show and we will and are committed to showing significant progress by 2030.

Hopefully, that gives us the credibility for people to say, “Okay, they actually can and will do this,” and they’ll give us that additional time required to get all the way to net zero. Again, in our case, it’s technologically feasible. It’s expensive. We estimate for oil sands, it’ll be in the order of $70 to $80 billion of investment to fully mitigate all the emissions associated with our production.

Again, the value proposition is that as you do that, not only do you future-proof this industry so it can continue to provide economic benefits to the province for many decades to come, it also sets you up to be global leaders in these technologies. There’s a bit of a race on right now. Everybody’s seeing it, and you see it in spades with the Americans and what they’ve done with Inflation Reduction Act. It’s estimated they’re going to bring about a trillion dollars to their green tech sector through that IRA. Europe is, of course, aggressively working at these technologies too because what everybody knows is that globally, this is a $150 to $200 trillion dollar exercise to decarbonize global energy systems.

Those who learn how to use these technologies first, they apply them domestically, but then there’s also going to be this huge global market to go and sell our wares as leaders in these technologies to the rest of the world who will desperately need them.

RUDYARD GRIFFITHS: Let’s talk about the technology that seems to be getting most of the attention right now, and that’s carbon capture, carbon sequestration. What has you excited about this technology? Because as a layperson, I have a sense here that we’re still at the prototyping stage, but we’ve shown some proof of concept. Is it right, Kendall, that the challenge now is scaling this technology up to deal with the volumes of emissions that it effectively could mitigate once it’s up and running at scale?

KENDALL DILLING: Yes. I think you’ve captured that exactly right. This is not new or unproven technology. We’re doing CCS as we speak. There are multiple commercial projects in Canada and around the world. The Quest Project, which is in fact, majority owned by CNRL, one of the Pathways members, just outside of Edmonton, that has been operating a CCS project for seven years, very successful, injecting into the exact same reservoir that we would propose to inject into for our Pathways project. We don’t look at this as having technological risk, per se.

There’s some scale-up risk; nobody’s done it quite at the scale we’re talking about. Our project, if we’re able to get it executed on the timeline we’re hoping to, would be 10 times bigger than any existing CCS project in the world. Scale is real and it’s big. There are also issues just with execution in terms of the supply chain required for that level of investment. Our CCS project is about $16.5 billion and just finding the people to do the work in our project, we estimate will generate 25,000 to 35,000 direct jobs during the construction phase and then, of course, thousands more during operations, thousands of permanent jobs during operations.

That’s only for phase one. If we’re successful, phases two and three follow. Again, we’re only one project in one sector. You’ve got cement, you’ve got steel, you’ve got power generation, petrochemical, all these other sectors who are also pursuing similarly aggressive decarbonization plans. Just finding the manpower and the supply chain support to execute that volume of work because it’s going to be a challenge globally. It doesn’t help that the U.S. is right now sucking every dollar, every big brain, and every bit of supply and resource they can into their ecosystem. We’re going to be competing against that too. That’s probably where we see the risk is more—not technological risk. These are parts and plans and pipes and wells that we use all the time in our business.

The technology is very well understood and the geology, we are so fortunate in Alberta to sit on arguably the best, if not very close to the best CO2 storage geology in the world with massive capacity. It’s got all the right attributes you would want for permanent safe storage. It’s deep, it’s overlaid by multiple layers of cap rock and CO to ensure that the CO2 stays down there permanently. This is a global jam. Heavy industry around the world will give their eye teeth to be co-located with a resource like that.

In fact, you’ll see industry relocating here to access it. Right now in Alberta, there are a couple of big petrochemical plants on the verge of FIDU that you’d probably be aware of in the capital region from DOW and their products. We know that those projects are happening here because of access to CCS because they have their own net-zero plans and ambitions as a sector.

Historically in the last decade when Canada had been losing lots of industries to other lower-cost jurisdictions around the world, this will actually bring them back because they know they can have access to reliable CCS infrastructure. It also spurns other technologies like hydrogen, as an example. Hydrogen we know is going to be an important part of this transition. At scale, at least in the near term the most economic way to produce hydrogen is what you call a blue hydrogen, where you split natural gas into hydrogen and CO2, which is what we do in our operations in oil and gas all the time, but once you have CCS infrastructure in place, now you’ve got a home for that CO2.

Instead of it being released into the atmosphere, it gets injected and this hydrogen becomes a clean source of energy. You’ll see a whole bunch of blue hydrogen spinoffs from having CCS infrastructure in place. Direct air capture is another one that you see. Lots of excitement around that in the world and Pathways is part of that technology work stream as well. That’s where you take CO2 directly out of the atmosphere. To date, it’s not hugely economic and it needs to be scaled, but there’s a good global foundation to that technology. But again, all contingent on having somewhere for the CO2 to go. If you get the CCS infrastructure in place, you could see a whole bunch of direct air captures bringing up as associated with gas. There are a lot of reasons to be excited about CCS and we really have a bonafide card to play as a global leader.

RUDYARD GRIFFITHS: That is so neat. That’s something I did not know about the geology of Alberta and parts of Western Canada that you’re ideally positioned to be that reservoir to safely and permanently sequester or store the carbon that is extracted through these different means. Fascinating stuff, Kendall. Is there a technology that you know because you’re so immersed in this, that you think the public maybe isn’t aware of that Pathways is excited about?

Carbon sequestration seems to command all of our attention when it comes to solutions around decarbonizing energy production and manufacturing. You’ve mentioned direct capture from air. I’m just wondering if there are some other emerging technologies or innovations that you’re seeing that you think could be promising and may well become better known in the years to come precisely because they could be highly effective.

KENDALL DILLING: Yes, for sure there’s a lot, Rudyard. CCS, I will be the first to admit, it’s a bit of a bridging technology in the sense in that in the long run you want to stop producing CO2 in the first place. Capturing it on the back end and storing it is great in that we can do it and it immediately reduces greenhouse gas emissions but, A) there is finite storage available now. We’re lucky again in Alberta we have literally hundreds of years worth of storage available so it’s not a short runway but it is finite. That’s not the solution for the rest of time. We continue to work on technologies that will prevent the creation of the CO2 in the first place. Those could be things like, instead of burning methane, you split it into hydrogen and CO2 and use the hydrogen. You can produce green hydrogen as well through other technologies. Hydrogen certainly is one of them. I mentioned small modular nuclear reactors. That’s potentially a very interesting technical fit in the oils sands because what we really need in the oil sands is heat to generate steam.

That’s what we put underground to mobilize the heavy oil. People think of nuclear as electricity plants, but small modular nuclear can also be configured to be primarily a thermal plant. That could work really, really well for us, where you have a small modular nuclear plant associated with several oil sands operations and it provides the heat for the steam in a GSG-free manner. We are working on other ways of not needing the steam in the first place. There are other extraction methods that are less energy intensive.

Those are generally referred to as solvent extraction where instead of putting steam underground, you could put in another light hydrocarbon like propane or butane, other types of hydrocarbon that go in and mobilize that heavy oil without the thermal input. Those would be just a few of the ones. Again, I think it’s good. Probably, we can think of it as CCS you put in, it has the immediate needle-moving ability of reducing absolute greenhouse gas emissions really quickly. That buys you time to work on a bunch of these other technologies such that eventually you’re not even producing the CO2 in the first place.

RUDYARD GRIFFITHS: I like this thinking. You’re not, as you say, going to wait until 2049 to come up with the big solution. The answer to the $64 trillion question. Instead, it’s about layering these technologies in doing what you can do now, innovating, iterating as you go. Let’s talk, Kendall, a little bit about the policy framework because that’s what The Hub really likes to share with our listeners is some insights into how public policy kind of wraps around these bigger, in your case, industry and environmental challenges.

You’ve mentioned the Inflation Reduction Act in the United States which is a huge play by the Biden administration across a whole bunch of different sectors from green tech to microprocessors. We can go on and on. What’s happening here in Canada? Do we have the basis for the policy planks, the policy pillars, to facilitate this transition? Is there more that could be done? What’s your feeling about the policy landscape in Canada right now?

KENDALL DILLING: Great question. It’s definitely coming along and maturing. We’ve got lots of really good foundational pieces in play. For whatever reason, our approach tends to be a more complicated one than what they’ve taken south of the border. They also have a bigger wallet than we did. [chuckles] They’ve taken the pure carrots approach, as we would call it. There’s very little regulatory backstop or compliance obligation on industry down there. They’re just saying, “Hey, we want you to make these transitions. We’re going to put a bunch of incentives in place. It’s a very, very clear, easy production tax credit for every time you abate, you’re going to get this amount of money for this number of years.”

Really easy for developers to get their heads around the economics and make those decisions on deploying capital. Canada has a more complicated mix of instruments. We do start with a price on carbon, which the Americans don’t have. We do have a carbon tax, for lack of a better word in Canada, a broad-based one. That actually gives us a leg up in that you’re starting from a basis of having already introduced that across the economy. It in and of itself it isn’t enough to incent this massive investment to occur or to compete with the Americans for that capital, or the Europeans for that matter. They’ve started layering on some extra pieces and the investment tax credits that you’ve seen come out in recent federal budgets, for CCS but also across a broad range of renewable and green tech areas, that’s another really, really important piece of the pie to help companies with that big upfront capital cost.

That’s the challenge with decarbonization is that that first wave of infrastructure is often very, very expensive and prohibitively expensive for industry to do that on their own. That’s why across the world we see governments coming in a partnership model to co-fund to get that first generation of technology in place and then trust that once that hurdle is over, you get over that hurdle, then the costs come down, typically coming down quickly, and a whole bunch of other ancillary economic benefits will incur as a result of that.

That first hurdle is the challenge. I would say Canada—and the province too, by the way, the province of Alberta in the last budget made some significant commitments through APIP. That’s the Alberta Petrochemical Incentive Program. They’re looking at expanding that to cover some of these green technologies like CCS, and because we have a mandatory price on carbon, there’s also this revenue-generating mechanism in the province. The tier regulation, which is that mandatory GHG compliance regime that heavy industry operates under.

That generates a lot of money that can be redeployed into these decarbonization efforts. Again, bits and pieces coming together. As we stand today, unfortunately, there’s still a gap between what is on offer certainly in the U.S. and a lot of places in Europe. The governments continue to be really, really open to working with us. We have fantastic dialogue in Edmonton and in Ottawa and lots of great conversations with all the right people trying to figure out how we can make a made-in-Canada solution that can be competitive, allow us to preserve the competitive advantage we have in some of these areas.

Canada has been an early mover overall on green tech and we’ve got a headstart on most of the world in a lot of these technologies. It’s now a question of how do we not lose that. I’ll share this, not that we’re here to talk about LNG, but I think it’s a really good example of where if we’re not careful, we can sit on the sidelines and watch these opportunities pass us by. I personally think it is a national tragedy that we don’t have multiple LNG export facilities on both coasts of this great country, but we got in our own way on that for various reasons, and have watched literally hundreds of billions of dollars in LNG get deployed around the world.

Canada had a great card to play. We’ve got massive low-cost natural gas resources and it could have been going and displacing coal and other heavier emitting forms of energy around the world and yet we largely sat on the sidelines and watched that opportunity pass us by. We’re just getting a few [chuckles] crumbs at the end here. I hope we do get those West Coast projects through but that’s an example of we can’t let that happen to us on this next wave of decarbonization infrastructure. But this is not our God-given right. We have to go and earn it and fight for our piece of the pie.

RUDYARD GRIFFITHS: It’s an important cautionary tale and one that we’ve written about a lot at The Hub. Again, unforeseen things happen in the world. Vladimir Putin invades Ukraine, suddenly Europe faces an energy crisis. Our export of natural gas could have not only been facilitating, as you say, less carbon-intensive fuel use around the world, it could be supporting our allies, supporting our NATO partners, at a moment of intense geopolitical stress and uncertainty. Look, I think that’s going to continue, unfortunately for years to come.

If there was one policy idea that isn’t maybe in the mix right now, Kendall, that you think could be really helpful to this ambitious call to action that Pathways is putting forward of net zero emissions from the oil sands by 2050, what would that be? What’s maybe not happening or hasn’t come to the fore yet that could be really helpful to the industry at this moment?

KENDALL DILLING: Well, the one and this is really simple in that it would be just taking a page out of the Inflation Reduction Act playbook. Canada has got pretty good supports in place for the capital expenses through these investment tax credits but there’s very little in place for ongoing operation of costs. A lot of these technologies are not just expensive to build, there’s a substantial cost to operate them over time. A production tax credit, like the Americans have, where you just know with great predictability that you’ll be able to get a guaranteed revenue stream for what we would call carbon credits or the abated tons that you abate through whichever technology you’re applying, that would be the missing ingredient to level the playing field as something like a production tax credit to provide that operating cost for it.

RUDYARD GRIFFITHS: Just to put this all together, Kendall, what I’m sensing is that this is an opportunity for Canada. As you say, one, there’s a really important contribution that we can make to climate. We can pioneer technologies possibly that other people adopt around the world, but there’s also maybe the idea here, Kendall, that Canada can create a flywheel here, an economic flywheel, whereby we’re facilitating these public goods through innovation and through the development of these technologies at scale. Then the products that we’re producing themselves begin to capture market share precisely because they’re lower carbon in terms of the manufacturing of the energy itself.

Is that ultimately the goal here, that the ambition could be both to do good things for the climate, but also to, I don’t know, kick-start in Canada a bit of an innovation culture around this big challenge?

KENDALL DILLING: Yes, you articulated that so well, and I agree 100 percent. We need to actually start reframing this in terms of this is an investment opportunity as opposed to a cost or a subsidy or however people might frame it. The world economy is going to shift dramatically in the coming decades. We are going to have an industrial revolution all over again in a much-compressed timeframe. Whether we like to admit this to ourselves or not, Canada and the quality of life that we all enjoy and have enjoyed for many generations is largely built on us being a resource-rich country and producing and exporting those resources.

Those resources are going to continue to be in demand, but they have to be delivered in a low-carbon context in order to stay relevant. This is a massive investment, yes, but it is about investing so that we can continue to deliver those resources responsibly to the world, manage the carbon associated with that process. That not only preserves our existing economy—and this isn’t just about oil and gas. Steel, cement, petrochemical power generation, all these big heavy industries in Canada have a similar challenge. We want to, to your point, preserve those core contributors to the Canadian economy.

Just the oil and gas sector will contribute $50 billion in taxes and royalties in the last recorded year, and maybe a little bit lower this year because the prices have gone down a bit, but still directionally, incredibly material contributions to the economy as do all those other sectors. We need to preserve that and then build on the whole new green sector as well because that’s going to be, like I say, in huge demand globally. Canada, we have bona fide cards to play right now. For sure we’re a global leader in CCS. We can be a massive leader in hydrogen.

People just assume sometimes that technology is just a leapfrog over the oil and gas industry and we won’t need oil and gas anymore. Demand for oil and gas will decline over time as other forms of energy come online. There’s no question about that, but the oil and gas industry itself will transition too. We are the biggest engineering conglomeration on the planet, with incredible resources of the engineering minds and the technology and the know-how. You see that the whole industry is shifting right now. Hydrogen is a great example of that.

Everyone’s excited about hydrogen in the future. Guess what? The oil and gas industry is the biggest producer of hydrogen on the planet by far. We do molecules. That is our core business, and the green future is not just electrons. You need electrons and molecules. Electrons can’t satisfy every single energy need. Figuring out a way to do molecules without emissions like hydrogen biofuels, aviation fuels, all these different things that we’re working on for those industries that can’t be electrified. The oil and gas industry is by far the best-suited industry to pivot quickly and turn our resources to those new technologies and so you’ll see us doing that. Again, it’s not a question of we don’t need oil and gas anymore. It’s we have to stop the unabated combustion of fossil fuels as soon as we can. Those products used in different low-carbon ways will still be of incredible importance. Canada can continue to be a global player in all those areas if we do this right.

RUDYARD GRIFFITHS: Thank you, Kendall. One of the reasons I was excited to have this partnership with Pathways is that I really appreciate the spirit of your organization. It kind of reminds me a bit of the X Prizes. You got this big goal, 2050, net zero and you’re marshaling a lot of energy, a lot of creative ideas, and some great public policy around something that is ambitious. We need more ambition in Canada these days. There’s too much negativity often, too much throwing up our hands or stopping us from having the types of conversations we need to push the country forward. Thanks for coming on Hub Dialogues today, kicking off this series with Pathways. Really appreciate your time.

KENDALL DILLING: It was an absolute pleasure to be here. Thank you for the invitation.

This content was produced as part of a paid promotional partnership with Pathways Alliance.