Will the Fossil Fuel Industry Dine-and-Dash on its Clean Up Responsibilities in Alberta?
Alberta has a ton of oil and gas wells and other related infrastructure (like pipelines and facilities) that need to be cleaned up now or will need to be cleaned up soon.
The latest numbers from the Alberta Energy Regulator (AER) show that there are 470,673 licenses for oil and gas wells in the province of Alberta – which is about one well for every 10 Albertans. Of these well licenses more than 78,000 are inactive (meaning the well has not produced or been active for at least 6 to 12 months) and more than 99,000 are marginal (meaning the well produces less than 10 barrels of oil equivalent per day).
The “polluter-pays” principle underlies the licensing regime in Alberta for these oil and gas wells and infrastructure. The polluter-pays principle is simple. It is similar to what we learned as children – if you make a mess, you have to clean it up.
So those companies who are licensed to create oil and gas wells (and then financially benefit from the fossil fuel they produce) are responsible for fixing or paying for the damage this work causes to the natural environment. However, for decades there have been more and more inactive oil and gas infrastructure that industry has failed to clean-up.
Failing or delaying the clean-up, or proper closure, of this infrastructure poses massive threats to the environment, economy, and local communities.
As stated by the Auditor General of Alberta in March 2023:
“Inactive oil and gas infrastructure that isn’t properly closed can pose serious environmental, public health and economic risks to Albertans. Inappropriately abandoned wells, for example, can leak contaminants into the soil and into the air people breathe and the water they drink. Failure to ensure that operators and industry conduct and pay for the safe shut down of their infrastructure increases the risk that extensive closure costs could be shifted to the public.”
It is crucial that the government takes steps now to ensure that the companies who build and profit from fossil fuel infrastructure are cleaning up their mess. Industry cannot just dine and dash.
The danger is if the government waits too long to make companies take action, or pay, to clean up this mess, the taxpayers will be stuck with the bill – particularly as oil and gas demand declines and industry profits decrease.
First, tell me more about this oil and gas infrastructure
Conventional oil and gas infrastructure includes wells (production wells, as well as service wells used for injection, disposal and observation), pipelines and facilities. Wells are deep holes bored in the Earth that are designed to bring petroleum oil hydrocarbons to the surface. Production wells can be drilled down hundreds to thousands of meters deep below the Earth’s surface. (Of note, we are only discussing conventional oil and gas facilities here, which does NOT include the giant liabilities caused by oil sands mines, including the clean-up of tailings ponds).
Not only are wells deep, but their creation and use, along with associated equipment, can also disturb a sizable portion of land. A typical single well site has an area of 3.558 acres (i.e., almost the size of two soccer fields), and larger sites with multiple wells may take up 4 to 25 acres (that’s about 19 football fields!). Plus more area is needed for access roads or off-site pipeline right of ways.
The lifespan of a well infrastructure can vary, lasting from a few years to many decades. Wells typically go through different stages, from the initial set up (i.e., licensing, drilling, completion), to use (i.e., production) and then to the closure and clean up (for more information on Alberta infrastructure and the lifecycle of wells see the AER here).
Companies are responsible for closing and cleaning up wells
Legally, companies are responsible for closure and clean-up costs – they aren’t supposed to just make profits and run. These are environmental liabilities and are responsibilities that come with getting a well license.
It will cost billions of dollars to close and clean up the fossil fuel infrastructure in Alberta. The AER estimates the cost to close inactive wells at $11.3 billion and the total for inactive and active wells at $60 billion (with leading experts thinking the true number might be double that!).
Yet, the AER does not have even 1 per cent of security from fossil fuel companies to cover these closure and clean up costs. The AER has collected only $295 million (less than 0.5 percent) as a security. Put another way, despite record profits in the oil and gas industry, it’s been estimated that this would put each Alberta household on the hook for more than $36,000 in unfunded wellsite and pipeline liabilities.
Further, not all that infrastructure has a company that is responsible for closing and cleaning it up. “Orphan wells” are the oil and gas wells and infrastructure that no longer have a responsible owner — usually when the operating company who built them goes bankrupt. This leaves these wells without any party accountable for their maintenance or monitoring — or responsible for their clean-up. The Orphan Well Association was created to deal with orphan wells. It already has an inventory of about 1,600 wells that need closure and reclamation. It has been reported that this number may soon double with the recent bankruptcy of Sequoia Resources.
Inactive wells are a decades long problem that the energy regulator has not solved
The problem of inactive well closure goes back to the late 1980s when the energy regulator expressed concerns about the dramatic increase in the number of inactive wells and the related public and environmental safety risks. Looking at this history, the inactive wells closure problem has grown in Alberta since that time:
So, what needs to be done?
The AER, a government agency, needs to take steps to protect Albertans from the risks of well liabilities. Overall, the AER has too much discretion – with no set laws to force them to protect the health, safety and wallets of Albertans over those of industry!
- First and foremost — the AER could require bonds upfront as a type of security deposit. When an oil and gas company undertakes a new fossil fuel project that will eventually require expensive and extensive clean-up, you might think it’s common sense to ask them to pay bonds (i.e. “clean-up insurance”) upfront. Yet, the AER does not require fossil fuel companies to put up any bonds. Getting security is at the discretion of the AER – and they often fail to get that security deposit until after a company is already in financial trouble, which is far too late.
- There are no set timelines for clean-up of wells. Once wells are suspended (which means the well is temporarily plugged far below the surface and locked), they can remain on the land for decades without being properly addressed. Further worryingly, there are many suspended wells that are not in compliance with the basic suspension requirements. As of September 2024, based on data that we pulled from Petrinex (an online system used by the AER), 12,289 suspended wells in Alberta were not in compliance with the AER’s requirements. The AER’s well suspension requirements include things like regular inspections and pressure testing of suspended wells, i.e., things to ensure the sites are in a safe and secure condition.
- Any weak attempts the AER has made to hold the fossil fuel industry accountable for some of the clean-up have been filled with loopholes. When companies have been cleaning up oil and gas infrastructure, they are cleaning up the easiest sites — leaving the oldest, dirtiest wells (i.e. the wells most difficult and costly to reclaim) for “later”.
- Lastly, the AER fails to fully support landowners who have applied to have inactive wells on their property closed and cleaned up. The AER created a well closure nomination process where landowners, First Nations, Métis Settlements and the Minister can apply to prioritize the closure of certain wells. However, only wells who have been inactive for more than five years (that’s right, who have been sitting inactive on someone’s property for half a decade or more!) are eligible. That’s not even the worst of it. The AER allows the closure process to take over 10 years.
Since 2023, the AER has accepted over 1,300 nominations made by landowners, First Nations, Métis Settlements and the Minister asking to close well sites. Next steps from the AER are unclear. What is clear: property owners and communities can expect to wait years to see companies close and clean-up inactive wells. Fingers-crossed that in the meantime pollutants don’t leak from the wells, or the company doesn’t go bankrupt.
If the oil and gas companies aren’t paying, who’s on the hook?
Unfortunately, it is probably Albertans. That’s what the Alberta Energy Minister said in September 2024.
Research shows that even in with most favourable conditions for the oil and gas industry, 19 per cent of profits from these companies will be needed to cover the expected clean-up costs in Canada. Yet, the AER has collected only 0.5 per cent to protect Albertans.
The AER must require companies to pay for clean-up now. The financial risks to Albertan taxpayers are only amplified given that we are in the middle of an energy transition, and many of these companies may not be viable or profitable enough to pay if required to do so in the distant future.
For information on Ecojustice’s submission to the AER asking for such changes, click here.
