Canada attaches stricter environmental rules to oilfield support funds

By Kait Bolongaro and Kevin Orland on 4/19/2020

OTTAWA (Bloomberg) --Canada’s plan to spend $1.2 billion to help clean up the country’s derelict oil wells comes with strings attached: tougher environmental rules for the energy-rich province of Alberta.

The province with most of the country’s oil reserves has agreed to tougher rules and enforcement to prevent a backlog of abandoned wells in the future, said a person familiar with the matter, who spoke on condition they not be identified because they aren’t authorized to speak publicly on the matter. There will also be more municipal, landowner and indigenous input, the person said.

Prime Minister Justin Trudeau announced the C$1.7 billion plan Friday and pitched it as a way to provide jobs for oilfield-service workers, who face layoffs as low oil prices prompt producers to curtail drilling activities. Alberta Premier Jason Kenney and environmental groups lauded the measure.

“Ultimately, the solution to this problem is not to continue to funnel money into cleaning up abandoned wells,” Josha MacNab, national director of policy and strategy at the Pembina Institute, an environmental think tank, said in an interview. “The solution is putting in place policies and regulations that prevent these wells from becoming orphan wells in the first place.”

Any new regulations should require oil and gas companies to post some kind of security, bond or insurance to ensure they can pay for the future cleanup of their wells, said Pembina’s Nikki Way.

Ever since global crude prices crashed in 2014, Canada has seen an increase in the number of wells that belong to defunct companies unable to pay for their cleanup. The so-called orphan wells present a variety of environmental dangers, including gas leaks and risks to water sources.

Alberta had a backlog of 2,983 orphan wells as of April 15, according to the industry-funded Orphan Well Association. The province also has 3,844 orphaned pipeline segments and 283 other kinds of facilities that need decommissioning, according to the group.

Canada’s funding will provide as much as C$1 billion to the government of Alberta, C$400 million to Saskatchewan, C$120 million to British Columbia and a C$200 million loan to the Orphan Well Association. That group also received a C$100 million loan from Alberta’s government earlier this year.

“We’ve been urging the Trudeau government to bail out people and not polluters, and today’s announcement is a step in that direction,” Greenpeace Canada Senior Energy Strategist Keith Stewart said in a statement.

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