CSR Case Study: Syncrude Canada Ltd. Earning Its Social License to Operate
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CSR Case Study: Syncrude Canada Ltd. Earning its Social License to Operate FINAL Prepared for: Interdepartmental Working Group on Corporate Social Responsibility (CSR) Corporate Social Responsibility: Lessons Learned Final Syncrude Case Study 1 Corporate Overview Syncrude Canada Ltd is the world’s largest producer of crude oil from oil sands. In 2001, the company produced 81.4 million barrels of sweet crude oil—the equivalent of 223 000 barrels a day—and supplied Canada with 13 percent of its petroleum needs. Syncrude’s final refined product, Syncrude Sweet Blend, is sent south by pipeline to refineries in Edmonton, the USA and the rest of Canada, where it is further refined into gasoline, diesel fuel and other derivatives. The company’s revenues in 2001 were $3.2 billion. Syncrude’s operations are located on the Athabasca oil sands deposit near the First Nations community of Fort McKay in the Regional Municipality of Wood Buffalo of north-eastern Alberta. In 1983, Syncrude moved its headquarters from Edmonton to Fort McMurray, 435 kilometres to the north, in order to be closer to its operations. Fort McMurray is a one-industry town of 50 000 people, that until recently had only two players: Syncrude and Suncor. This has begun to change as new companies have entered the oil sands business. Large new comers include Shell/Albian, EnCana Corporation, Canadian Natural Resources, Petro-Canada, True North Energy, and Nexen, among others. Despite this, Syncrude remains a large presence situated in one of the most sparsely populated regions in Canada. Syncrude was established in 1964 as a joint venture whose initial objective was to investigate the feasibility of mining oil from the Athabasca oil sands. The company began production in 1978, and twenty years later, in 1998, shipped it billionth barrel of oil. Today, Syncrude has nine owners, the largest of which are Imperial Oil Resources (25 percent) and Canadian Oil Sands Investment Inc (21.7 percent). Syncrude is currently in the middle of a 10-year, multi-billion dollar expansion of its operations called Syncrude 21, one of the largest single investment projects in the country. When completed in 2009, the project will result in a doubling of Syncrude’s current production to 170 million barrels of crude oil per year, and will supply Canada with between 20 and 25 percent of its oil. Syncrude plays an important role in the local and provincial economies. It spends more than $1 billion annually on goods, services and salaries. The income effect of Syncrude’s spending is felt primarily in Alberta (about 40 per cent) with other provinces such as Ontario and Quebec sharing in the remaining 60 per cent. Notably, $452 million was spent locally in the Fort McMurray region. In 2001, Syncrude counted 3900 employees and employed a further 1500 indirectly as contract maintenance workers and specialist workers, making it one of the largest private sector employers in Alberta. The company is also Canada’s largest industrial employer of Aboriginal people, with 10 percent of its immediate workforce and 13 percent of its total extended workforce comprised of Aboriginal people. 2 / 25 Corporate Social Responsibility: Lessons Learned Final Syncrude Case Study 2 Business Context Fossil fuels underpin modern society, supplying 85 percent of the energy needed to power industry, heat homes, transport people, goods and the raw materials from which we derive many of the items of everyday use. The US Department of Energy estimates that that world primary energy demand will increase by 60 percent1 by 2020 and that reliance on fossil fuels to meet this demand will increase slightly to 88 percent. Of the conventional sources of energy, oil is expected to maintain its dominant position of 40 percent of world energy supply. While a greater proportion of future global demand for energy will shift to the developing world, as population and levels of consumption in these countries rise, the energy needs of the industrialized countries will continue to grow in absolute terms. A majority of this need will be met by imported fossil fuels. For a number of countries, this exposes their economies to serious risks of supply disruption, given ongoing tensions in the Middle East. To illustrate, the current gap between US domestic supply and demand is such that the USA must import 8 million barrels/day, a figure which is anticipated to rise to 14 million barrels/day by 2020. The Alberta oil sands are a great source of wealth for the province and country and are potentially strategically important to the USA as it looks to safeguard oil supplies. The Alberta Energy and Utilities Board estimates that the Alberta oil sands contain 2.5 trillion barrels of bitumen, making it the world’s single largest oil deposit. With current technologies and economic conditions, the oil sands contain 315 billion barrels of recoverable reserves, more than the proven oil reserves of Saudi Arabia and enough to meet all US oil imports for the next 60 years2. Crude oil from oil sands is expected to take up the slack in the inevitable decline in conventional sources of oil. This optimistic outlook for fossil fuel producers is offset by the environmental and economic implications of global climate change. Production and combustion of fossil fuels release CO2 which is contributing to elevated concentrations of greenhouse gases in the atmosphere. The weight of scientific evidence indicates that these gases are causing global warming and climate change which could have disastrous consequences for the world economy and biosphere. To address this problem, industrialized countries have signed on to the Kyoto Protocol which commits them to reduce their greenhouse gas emissions by 6 percent below 1990 levels by the year 2012. Canada is expected to ratify the protocol this year, which could lead to policies and programs that significantly add to the costs of producing and consuming fossil fuels. While Kyoto-driven policies will likely increase production costs for the entire upstream petroleum industry, their impact will be considerably greater for oil sands producers. The reason 1 Energy Information Administration. March 2002. International Energy Outlook. US Department of Energy. http://www.eia.doe.gov/oiaf/ieo/index.html 2. Economic Outlook, May 2, 2002. p. 15 3 / 25 Corporate Social Responsibility: Lessons Learned Final Syncrude Case Study for this is that oil sands production is an energy-intensive enterprise, which emits as much as six 3 times more CO2 per barrel of oil than does conventional production . Any measures imposed to reduce CO2 emissions will add to what are already high costs of producing oil from oil sands. The upstream petroleum industry is faced with many of the same social and environmental issues faced by other players in the non-renewable natural resources sector. These include emissions to air and water, energy consumption, disturbance to land and wildlife, health and safety of employees and communities and the effects of development on the social and economic fabric of neighbouring communities, a large number of which are Aboriginal. Key external stakeholders of the industry include landowners, Aboriginal communities, environmental groups, municipalities, governments and other regulators. Due to a combination of the scale of operations in the industry and growing environmental concerns, the petroleum industry has come under greater public scrutiny and sooner than most other sectors. As a result, the industry has spent the last decade or so developing policies that emphasize transparency, accountability and stakeholder engagement and in many ways lead other sectors in addressing corporate social responsibility. In a recent benchmark of corporate sustainability reporting in Canada that assessed the quality and comprehensiveness of sustainability information in corporate reports, the oil and gas sector ranked second among nine surveyed4. Oil sands operators are faced with additional challenges to those that conventional oil and gas producers must deal with. These relate to the production methods of the industry which tend to resemble those of a mine operation. Unlike conventional production, where oil is pumped from reservoirs trapped deep within the earth’s crust, oil sand occurs as bitumen tightly mixed with thick deposits of sand that occur closer to the ground’s surface. Depending on the depth of the deposit, the bitumen is either extracted by surface mining or forced to the surface by injecting steam into the sand. Surface mining, which is the predominant method of extraction and most suitable for deposits that lie less than 50 metres below the surface, disturbs large tracts of land and produces tailings. Both methods of extraction consume large amounts of energy, and are therefore expensive relative to conventional sources. As a result, the economic feasibility of oil sands production is more vulnerable to price fluctuations than oil produced from conventional sources, due to the high cash costs of production, which, in 2001 averaged $11.50 (U.S.) per barrel5. 3 Aboriginal Relations 3 According to the National Energy Board,1 tonne of CO2 is emitted for every 50 barrels of oil produced using conventional methods (i.e., pumped from reservoirs deep beneath the surface of the earth). The same amount of CO2 is produced for just over eight barrels of oil produced from oil sands. Source: The Globe & Mail. September 16, 2002. P B1. 4 Stratos. 2001. Stepping Forward: Croporate Sustainability in Canada. 5 US Department of Energy. Energy Information Agency. 2002. Country Analysis Briefs . http://www.eia.doe.gov/emeu/cabs/. 4 / 25 Corporate Social Responsibility: Lessons Learned Final Syncrude Case Study Syncrude’s approach to corporate social responsibility (CSR) is perhaps best Box 1—Syncrude’s Commitment to a Way of Life illustrated by its work and success in Syncrude is committed to assisting Aboriginal ensuring that its Aboriginal neighbours communities of north-eastern Alberta to maximize their productive participation in the oil sands to the share in the economic opportunities benefit of all parties involved.