EU Drops ‘Polluting’ Tag for Canada’s Oil Sands

Published at 04:10PM - 09/10/14

After years of Canadian opposition, the EU has agreed to drop the ‘highly polluting’ tag for Canada’s oil sands, opening up the route for EU imports of the crude oil. Previously, the European Union had categorised Canadian oil-sands oils as polluting because of the country’s stance against climate change.

This week’s proposed change of wording potentially has a powerful effect, taking away potential obstacles to shipping in the crude product and coming at a timely point when tensions with Russia are particularly high.

European Commission sources spoke anonymously on the ongoing difficulty with Moscow, saying that a primary driver for the removal of the ‘dirty oil’ categorisation was to enter into oil trading with Canada. Europe has been working with Canada for some years on a trade deal, and officials have said that a final agreement is expected next year, which will come into effect in 2016.

Canada has also been lobbying Brussels heavily to remove the damaging tag and putting pressure on its allies, particularly the UK, to support the signing of a trade deal. Europe is seen as being a major potential market for Canada’s increased oil production, which comes from Northern Alberta’s controversial oil-sands reserve, the third biggest in the world.

Connie Hedegaard, the European Union’s climate commissioner, said that it was ‘no secret’ that the first trade proposal with Canada was blocked due to resistance from a number of member states concerned about climate change. The Commission proposed the usage of the new Fuel Quality Directive (FQD) instead of singling out the oil-sands crude is being especially polluting.

Canada’s Natural Resources Minister, Greg Rickford, said that he supported the intention of the EU’s Fuel Quality Directive but believed that it needed to be predicated on facts and science. He explained that extracting the bitumen from the oil sands fields required steam-blasting or open-pit mining. Both approaches used greater amounts of energy and water than typical crude production methods and also emitted greater amounts of C02.

Currently, Canada only exports a small amount of crude to the European Union. However, this could change, with TransCanada Co. proposing a new Energy East pipeline costing 12 billion Canadian dollars. If successful, it would transport over one million barrels daily of West Canadian crude oil to ports for EU refinery shipping, and all by 2018.

Canada’s oil firms have made initial steps to enter the EU market. In September, Suncor Energy, the country’s biggest producer of oil-sands crude, shipped its first tanker to Europe.

Analysts believe that the EU market for the oil-sands heavy crude would be relatively small at just 485,000 barrels daily. This compares to an overall refining market that processes more than 10 million barrels every day, with the heavy crude market predominantly being supplied by Venezuela and Mexico. However, analysts point out that the market does exist and that it could be more economical to ship from Canada.

Environmentalists argue that a move to oil-sands crude would be a backward step, but with concerns about energy security in the light of the Ukraine crisis, Europe may be convinced to open its borders to a new and secure oil source from a motivated trading partner.