Prohibition in Ontario on Using Carbon Dioxide for Enhanced Oil and Gas Recovery

CO₂ Injection Prohibition

An unusual provision in ‎Ontario's Oil, Gas and Salt Resources Act (OGSRA) is Section 11, which, in Subsection 11(1.1), introduces a prohibition on the injection of carbon dioxide (CO₂) in connection with certain projects (the "CO₂ Injection Prohibition"). Section 11 reads as follows:

Permit Required for Injection Project

11.  (1)  No person shall, unless the person is the holder of a permit for the purpose, inject oil, gas, water or another substance into an area, including a geological formation, in connection with a project for,

(a) enhancing the recovery of oil, gas, formation water or another substance;
(b) injecting, storing or withdrawing oil, gas or another approved substance; or
(c) disposing of oil field fluid. 2010, c.16, Sched.10, s.3 (4).

Prohibition Re Carbon Dioxide

(1.1)  Despite subsection (1), no person shall inject carbon dioxide for the purposes of carbon sequestration into an area, including a geological formation, in connection with a project described in that subsection. 2010, c. 16, Sched. 10, s. 3 (4).

Other Canadian Support for CCS/EOR

In Alberta and Saskatchewan, the use of CO₂ for enhanced oil and gas recovery (EOR) is not uncommon. Where relatively pure streams of CO₂ are available (for example from fertilizer facilities) and the distance to "veteran" oil fields is not too great, injected CO₂ can provide ‎a valuable propellant and/or viscosity/friction reducer that, without subsidization by the government, makes economic sense as a result of the value of the increased production. The longest operating EOR facility is located near Weyburn, Saskatchewan, where CO₂ from a gasification plant located across the border in North Dakota is injected to stimulate oil production; only part of the Weyburn story is EOR with the other part being "carbon capture and storage" (CCS) which aims to sequester CO₂. The federal government is financially supporting CCS projects with hundreds of millions of dollars, including a project by Saskpower at Boundary Dam, which has an EOR objective, and Shell's Quest project in Alberta, which does not include EOR; additional federal funds were available to support other CCS projects that did not go ahead. Alberta and Saskatchewan have also provided CCS funding in large amounts to CCS projects, some of which include EOR.  There are expectations that CCS will be included in the long-promised federal greenhouse gas (GHG) offset system and that CCS may be supported by BC in connection with the extraction by hydraulic fracturing of BC's unusually high CO₂ rich natural gas in the Horn River basin.  Alberta has had two protocols for creating GHG offset credits from CCS/EOR in place for several years, protocols that are currently being revised.

Ontario Situation

In light of the strong support for CCS elsewhere in Canada, including CCS for EOR, it is surprising to find the CO₂ Injection Prohibition ‎in Subsection 11(1.1) of the OGSRA. In the absence of the CO₂ Injection Prohibition, Subsection 11(1) would have still required a permit for the injection of CO₂ so that conditions could be imposed on its injection, thereby dealing with any safety or other environmental concerns. 

It is worth noting that the CO₂ Injection Prohibition may not completely ban CO₂ injections. Only injections of CO₂ in connection with the projects referred to in Subsection 11 (1) are banned. That seems to clearly prohibit CO₂ injections for EOR as those projects would be of a type mentioned in Paragraph 11(1)(a), i.e., any project "for...enhancing the recovery of oil, gas,‎...". But it is not clear that injection into a geological formation solely for the purpose of sequestering CO₂ is prohibited; the only potentially relevant part of the CO₂ Injection Prohibition is in Subsection 11(1.1)(b), which identifies projects "for...injecting, storing or withdrawing oil, gas or another approved substance‎".  It does not appear that CO₂ is an approved substance and CO₂ would not be injected into a geological formation to store "another approved substance". Nevertheless, the economics of pure CO₂ sequestration are very challenging, particularly in the absence of a system that incents such as a cap and trade system or carbon tax arrangements, which impose a cost to force the internalization on CO₂ emitters of the "social cost of carbon".  Environment Canada recently estimated this cost as being at least $28/tonne, increasing over time to well over $40/tonne by 2035. with a current number of $111/tonne of CO₂ being worthy of consideration.[1]

Path Forward for Ontario in CO₂ Injection for EOR

Aside from the lack of a complete prohibition on CO₂ injection for storage purposes, it is difficult to find any silver lining in the ‎CO₂ Injection Prohibition. In 2008, three senior Ontario Ministry of Natural Resources (MNR) officials wrote a positive evaluation of the possibility of "Geological Sequestration in Ontario"[2], pointing to the existence of "several geologic options for CO₂ sequestration in Ontario" with "saline aquifers, oil and gas reservoirs, and solution-mined salt caverns, all located...in southern Ontario, having the best near-term potential...." and "longer-term potential for use of mineral carbonation reactions with ultramafic rocks in the extensive Canadian Shield rocks of northern Ontario". The paper indicated that the MNR was conducting an internal analysis and invited industry participation. What happened between then and the 2010 imposition of the CO₂ Injection Prohibition deserves examination[3] and the CO₂ Injection Prohibition itself probably deserves reversal.

About the Author

Gray Taylor, Barrister and Solicitor, Gray Taylor Law

[1] See the following from section 8.3.3 of the Regulatory Impact Analysis Statement prepared by Environment Canada in connection with a proposed order under the Canadian Environmental Protection Act, 1999 and published in the Canada Gazette, Part I, on June 28 at page 1735: "With the preliminary recommendations, based on current literature and in line with the approach adopted by the United States Interagency Working Group on the Social Cost of Carbon, (see footnote 19) it is reasonable to estimate SCC values at $28.15/tonne of CO2e in 2013, increasing each year with the expected growth in damages (see figure 4 below). (see footnote 20) Environment Canada’s review also concludes that a value of $111.55/tonne in 2013 should be considered, reflecting arguments raised by Weitzman (2011) (see footnote 21) and Pindyck (2011) (see footnote 22) regarding the treatment of right-skewed probability distributions of the SCC in cost-benefit analyses (see figure 4 below). (see footnote 23) Their argument calls for full consideration of low probability, high-cost climate damage scenarios in cost-benefit analyses to more accurately reflect risk. A value of $111.55/tonne does not, however, reflect the extreme end of SCC estimates, as some studies have produced values exceeding $1,000/tonne of carbon emitted."

[2] Terry Carter, Michael Lazorek and Andrew Hewitt in Ontario Oil and Gas Magazine, June 2008, page 6.

[3] One Ministry of Natural Resources official indicated orally that the Co₂ Injection Prohibition was intended to block any potential for a "clean coal" alternative to the Ontario government's prohibition on coal-fired electricity generation in Ontario.