Tougher oilsands regulations need higher oil price, Kent says

The ability of the oil and gas sector to absorb tough government controls on their greenhouse gas emissions depends on Canada getting a better price for its oil, Environment Minister Peter Kent says.

The extra revenue would allow companies to invest heavily in leading-edge technology that would curtail pollution, he said in an interview from London.

"What we have to do, one way or another, is get rid of the U.S. discount," Kent said. "That would certainly provide great latitude to invest in the technology....Keystone or not."

Government and industry have long eyed the proposed but not yet approved Keystone XL pipeline as a way to demand world prices for Canadian crude.

For now, Canadian crude is sold in the U.S. at a price that fluctuates but is substantially lower than in global markets. A new pipeline to the Texas coast, the theory goes, would give Alberta oil better market access, thereby reducing the Canadian price discount.

While some parts of the oil and gas industry could already afford the extra costs that would come with pending emissions regulations, that's not true across the board, Kent said.

But the Keystone XL pipeline is not a slam-dunk, since environmentalists eye the project as a growing source of greenhouse gas emissions from Canada.

Kent remains optimistic on Keystone XL

Reports this weekend suggested more delays in a final decision, which was initially expected this summer.

"It is a problem if it's unnecessarily delayed," Kent said, adding that he still respects the U.S. process.

"I still hope for a positive decision sooner rather than later."

TransCanada Corp. has said regulatory delays would substantially drive up costs and postpone startup until late 2015.

Ottawa, meanwhile, is pulling out all the stops to find better market access for Canadian crude. Natural Resources Minister Joe Oliver hasjust finished pleading Canada's case in Europe. Kent is following in his footsteps all this week. Prime Minister Stephen Harper is jetting down to New York on Thursday to make the case to Wall Street.

Key to their case is the argument that Canada is well advanced in its plans to reduce greenhouse gas emissions, and is developing oil and gas in a responsible manner. Buy-in for that argument would go a long way towards giving the oilsands the social license they need for pipeline approvals.

But Harper, Kent and Oliver are making the case with one hand tied behind their backs. That's because theactual regulations that will force the oil and gas sector to improve its emissions recordare gummed up in negotiations among Ottawa, industry players and the provinces.

"It would be nice to be able to pull it out of a hat and show it off....but we want to make sure it's right," Kent said. "It would certainly play well in meetings like that."

He said the negotiations are going well, but he would not give any details. After months and months of talks, a variety of complex proposals are on the table, most of which would cost oil producers less than 50 cents a barrel but may put a strain on refineries where profit margins are slim.

Instead, the Harper government's quest for social license is focusing on emissions rules already placed on the coal sector, as well as technological advances that companies are undertaking on their own accord in the oil patch.

Kent says he will be talking up Imperial Oil's Kearl project which promises emissions only slightly higher than conventional oil.

Kent hopes to 'keep temperature low'

Tempers have flared recently, however, with environmentalists and scientists raising loud alarms about Canada's emissions record, and the government responding aggressively, questioning the credibility and motivation of the critics.

Kent said he hopes to cool things off as he tours Europe in the coming days.

"I'm going to keep the temperature low, I'm going to keep the temperature friendly," he said, adding he plans to meet with some of his critics.

News on Friday thatcarbon dioxide in the world's atmosphere had reached the 400 parts per million milestonewill add pressure on all sides to find a global solution to climate change quickly, Kent added.

"It's a reminder that climate change is a global problem and it requires a global solution. There is a sense of urgency...for a pragmatic response to reduce absolute megatonnage."

On that front, Kent said major emitters are engaged in productive talks to craft a binding agreement by 2015, that would kick into force by 2020.

"There is reason for gentle optimism," he said. "This is the year to make some real progress towards a new treaty."