The nuclear optionJeff Sanford
From the August 7, 2007 issue of Canadian Business magazine
For Wayne Henuset, owner and operator of Willow Park Wines & Spirits, getting into nuclear power is an obvious opportunity. He was on vacation in Florida in 2004 when hurricane Ivan mowed a swath of destruction through the state. In the days after the storm, the talk among his neighbours was about the link between global warming and the odd weather. That got Henuset (pronounced Hennessy) thinking about a better way to power the world. Like most people, he considered nukes exotic. But when he struck up a conversation in an airport with a man who happened to be a nuclear physicist, his change of heart was complete. “This guy had spent 10 years on a nuclear sub, and he was talking about it like he was going for a cup of coffee,” says Henuset. “His point was that it’s safer than most people think and that the one place in the world that needs a nuke more than any other is the oilsands. I thought: ‘Why isn’t there one there?’”
That a man might move from the liquor business to the nuclear one hasn’t raised eyebrows in Alberta. The Wild Rose province is an entrepreneurial place, after all, and Henuset is a perfect example of its pioneering spirit. Along with his chain of liquor stores, he also ran three car dealerships, and early in his career he started up a few oil-services companies. It only seemed natural, then, to stop by Atomic Energy of Canada Ltd., negotiate an exclusivity agreement on the construction of a Candu reactor in the province, and form a privately held company, Energy Alberta Corp., to carry out the plan. “I took the idea to all the oil companies,” Henuset says. “They didn’t throw me out.”
Why would they? Processing the grainy, tar-like mixture of sand and oil used to make synthetic crude utilizes an amazing amount of energy. Today, that comes from burning natural gas, which takes place at the incredible rate of 0.6 billion cubic feet of gas per day—enough to heat 3.2 million homes. But with production in the sands expected to rise dramatically from current production levels of more than 1.25 million barrels a day to three million (or more) by 2015, and with natural gas from the western Canadian sedimentary basin now in decline, there is growing interest in finding an alternative. Throw in the possible introduction of carbon taxes, which would make non-CO2-emitting sources such as nuclear more cost effective, and the case for a nuke seems solid.
Not everyone is thrilled with the idea, however. Chris Severson-Baker, director of the energy watch program at the Pembina Institute, an environmental think-tank in Calgary, is a critic. “We think nuclear power is a failed technology,” he says. “That’s an opinion based on the Canadian experience.” Severson-Baker is referring, of course, to the example of Ontario, where taxpayers are still paying down debt on reactors that have had to be shut down for long periods of refurbishment. Fears about the risks of atom-splitting were revived in June when Greenpeace released a report that suggested hazardous amounts of radioactive tritium, a dangerous form of hydrogen, were coming off the Ontario reactors in sufficient amounts that it warned pregnant women against living within 10 kilometres of the power plants. “Discussing nuclear energy is a distraction,” says Severson-Baker. “It takes us away from dealing with the real issues, such as the rate of development of the oilsands and the impacts on the environment.”
Severson-Baker’s recommendation for controlling oilsands emissions is to get carbon sequestration up and running. “The real solutions are right in front of our nose,” he says. (See “Holey Smokes,” page 37.) “Capture greenhouse-gas emissions and bury them underground. It’s a process that needs to be incented through a price on carbon, but that’s where we need to go, not nuclear.”
As for the notion that we’re wasting precious natural gas by burning it to fuel oilsands operations, Severson-Baker says that although an enormous amount of gas is being used, that is slowly changing. Many operators are experimenting with synthetic gas made from byproducts created during the upgrading process instead of using natural gas. The latest operation, the OPTI Canada Inc./Nexen project at Long Lake, uses such technology, while others are working on getting it up and running. “There’s already a significant turn away from gas,” says Severson-Baker. “Using byproduct to make syn-gas is dirty, but if emissions can be captured, it’s a good plan.”
Severson-Baker’s real worry is that the nuclear play is an attempt to get electrical generation capacity installed so it can be sold to the United States. He points out that new U.S.-linked transmission lines—one of which is the large NorthernLights Transmission line that will stretch from the oilsands to the northwestern U.S.—have fuelled those concerns. “There is no shortage of electricity in Alberta at the moment,” he says. “There is lots of co-gen [natural gas power] around the oilsands. If they start using syn-gas, they’ll have even more spare electrical generation capacity they can sell.” Severson-Baker asks of the nuclear option: “Are we building it for our needs, or for the export market?”
His concern taps into one of the growing issues in Alberta: that local concerns about the environment and the rapid pace of oilsands development are being trampled by global demand. News of a cluster of exotic cancers in the First Nations village of Fort Chipewyan, a settlement downstream of the oilsands and north of Fort McMurray, has made headlines and fed into the fear. “There are a lot of questions about what is getting into the soil and the air,” says Severson-Baker. “But there haven’t been any studies on what’s getting into the water and the traditional food supplies.”
The rapid build-out of the oilsands is having negative effects in other areas. Ross Freeman, a Calgary-based lawyer with Borden Ladner Gervais LLP and chair of the finance committee of the Small Explorers and Producers Association of Canada (SEPAC), says Alberta’s smaller independent oil and gas producers (those who operate outside the oilsands) are being slaughtered by inflation. “The cost structure is increasingly difficult,” says Freeman. “We’ve gone from being one of the cheapest basins to being one of the most expensive.” Freeman says SEPAC is going to try to determine if members are functionally insolvent in the current price environment. “I think the answer for many will be yes,” he says. “I think we’re going to see banks pulling loan agreements soon.”
But while Alberta suffers oilsands inflation, global pressures are building to develop the resource even faster. The Association for the Study of Peak Oil (ASPO-USA), an activist group that includes geologists dedicated to the study of declines in various fossil-fuel deposits, notes in its latest review that Chinese demand for crude rose an incredible 19.7% this June over last. Ongoing declines in mature basins are also having an impact. The Alaskan department of revenue reported in July that output from that state’s North Slope field dropped another 12.5% last year, more than expected. Increasingly, those declines have had to be made up through the oilsands, one of the last big deposits still accessible to western oil companies.
Can local needs ever be reconciled with global demand? Media reports earlier this year described a meeting in January 2006 between U.S. and Canadian government and oil execs who were said to have discussed increasing oilsands production “fivefold.” Officials said the discussions were routine and a necessary part of ensuring infrastructure, such as pipelines, between the two countries were properly co-ordinated. But when the news surfaced, some Albertans were alarmed. “I think there was a sense of ‘What is this about? Are deals being made before we’ve debated the issue here?’” says Severson-Baker.
Populist concerns have been compounded by news that negotiations over the so-called Security and Prosperity Partnership of North America (SPP), a sort of extended NAFTA between the U.S., Canada and Mexico, are moving rapidly ahead. “People seemed to be concerned that all this is happening without a debate either at the provincial level or the national level,” says Severson. Developing a government plan for the build-out of the province’s energy resources would do much to ease concerns that policy is happening by default. “One of the difficulties in all of this is that it hasn’t been put down on paper,” says Severson-Baker. “What’s missing here is a plan that demonstrates how the rate of oilsands production is truly in the best interests of Albertans, environmentally, socially and economically. So far, the provincial government doesn’t have a strategy, except to say to America: ‘We’re going to build it out as fast as possible.’”
As for Henuset, he’s having less luck than he might like. The original plan to drop a reactor into the centre of the oilsands to generate steam for the production of synthetic crude hasn’t taken off, and, in fact, has fallen through. A subsequent scheme to build a smaller reactor at a single “in situ” operation on the sands has also evaporated. The idea now seems to be to put up a reactor in either the Peace River or Whitecourt area to produce electrical supply for the provincial grid and for local oil projects. Despite the setbacks, Henuset says, “We’re happy with where we’re at.”
He’s also got some competitors nipping at his heels. Henuset’s exclusivity agreement only applies to the building of an AECL reactor. Competitors are free to pitch their own products, and, to that end, Areva Canada Inc., the Canadian subsidiary of the massive global French nuclear giant, has joined the hunt. Its new CEO, Armand Laferrère, has already travelled from the company’s head office in Pickering, Ont., to Alberta four times since taking up his position just 13 months ago. He’ll be back for a fifth trip this summer. “I think there is a serious case for nuclear in Alberta,” says Laferrère. “It’s the most economic decision. Demand for gas is growing so fast in the U.S. that it would be a net benefit to the industry to sell it rather than burning it.”
With heavyweights like Areva pushing for the idea, will the reservations of people like Severson-Baker get a hearing? What about the fate of alternatives such as syn-gas and carbon sequestration? Would those be rendered impractical by a nuke? How exactly do all these various parts fit together? Who knows? One thing is clear: As Alberta moves into an interesting new future of declining conventional oil, the need for an explicitly stated plan from the provincial government about how to deal with the expanding gap between local needs and global demand will only continue to grow.