Air Emissions Management - Husky Energy ESG Report 2018

Husky Tests Methane-Reduction Technology

We participate in a number of pilot projects to reduce GHG emissions (including methane), which will be deployed in mid-2018. At Ansell, conventional venting equipment at wellsites will be replaced with electric solar panel and fuel cell equivalents, which is expected to reduce net GHGs by more than 95 percent, with the fuel cell emitting a small amount of GHGs. We will also be testing an instrument air compressor at Ansell that is expected to eliminate most methane venting at a wellsite. At some cold heavy oil production with sand (CHOPS) operations we will install incinerators that are expected to emit fewer GHGs than venting or flaring.

Ansell Gas Plant

Husky Diluent Reduction Project

At the Sunrise Energy Project we are undertaking a pilot project involving Husky-patented diluent reduction technology, which is considered partial upgrading. It is expected to reduce the amount of diluent required, increase effective pipeline capacity and reduce CO₂ emissions, while increasing the quality and value of recovered bitumen. A 500 barrel-per-day pilot has received federal and provincial financial support.

Sunrise Energy Project

Husky Uses SmartWay to Choose Efficient Carriers

Husky and almost 20 percent of our light oil fuel carriers are currently registered with the federal SmartWay program. Those carriers represent more than 50 percent of the kilometres driven by our trucking companies and we continue to encourage others to join. The program helps freight carriers and shippers identify how to reduce fuel consumption and related emissions providing both economic and environmental benefits. Trucking companies input fuel use and other data while shippers, like us, enter kilometres and average payload. This data is used to calculate the trucking company‘s annual GHG emissions. We can use that information to choose efficient carriers and reduce our environmental impact.

Hardisty Terminal

Oil and gas production generates greenhouse gas (GHG) emissions and air pollutants, which can affect air quality. A key driver of emissions is the use of energy, such as natural gas and oil, in our own operations.

Husky‘s air quality and carbon management programs reduce emissions, achieve regulatory compliance and are supported by our Environmental Performance Reporting System, which provides transparency and consistency of data. We operate in tightly regulated jurisdictions, have rigorous emission controls in all our operations and produce ultra-low sulphur diesel at our U.S. and Canadian refineries.

Energy Use

Total energy use increased slightly over 2016, primarily because of increases in thermal oil production and throughput at the Lima Refinery. This increase was partially offset by reductions in conventional oil and gas production due to divestitures and a recorded decrease at Canadian refinery operations, which resulted from a change in methodology to remove energy associated with waste gas incineration, in alignment with Husky‘s upstream operations.

To improve the efficiency of our operations, we are always looking at the most effective way to use energy. In 2017 we reduced the steam-to-oil ratio at our Tucker thermal project by about 35 percent, using a new reservoir operating strategy. Using less steam lowers our energy use, which reduces both operating costs and air emissions, including GHGs. In 2017 Tucker was awarded emission performance credits for reducing emissions by more than 250,000 tonnes of CO₂e beyond 2016 requirements under the Specified Gas Emitters Regulation (SGER) in Alberta.

Greenhouse Gas Emissions

Husky‘s GHG emissions in 2017 are comparable to 2016.

The slight decrease in Scope 1 GHG emissions is due to divestitures, the decline in non-thermal heavy oil operations, vent-reduction programs in Western Canada, and refined emissions estimates based on improved engine fleet data. These reductions were offset by increases in Scope 1 GHG emissions from increased thermal production, the Superior Refinery acquisition and inclusion of fugitive emissions for additional facilities based on improved data quality.

Scope 2 GHG emissions increased slightly over 2016 primarily due to increased thermal production and throughput at the Lima Refinery, which were partially offset by reduced conventional oil and gas production due to divestitures.

Husky supports the global response to the threat of climate change, including national commitments under the Paris Climate Change Agreement to keep global temperature rise this century below 2 degrees Celsius. Our discussions with federal and provincial governments on proposed policies related to these commitments emphasize the importance of reducing emissions intensity while protecting competitiveness. Husky uses an internal price on carbon, testing long-range plans against various pricing scenarios. Husky‘s Carbon Management Critical Competency Network meets regularly to share knowledge and to develop corporate strategies to manage Husky‘s carbon-related risks and opportunities. Husky has implemented a number of carbon reduction offset projects and technologies.

Our carbon management approach and metrics are detailed in annual submissions to the CDP Climate Change Program, which are posted on huskyenergy.com. In 2017 we received a B grade, which exceeds the sector average and is based on our disclosure of: Emissions Management, Governance and Strategy, Risk and Opportunity Management and Verification.

Husky monitors the Task Force on Climate Related Financial Disclosures (TCFD), the Alberta Securities Commission and the Canadian Securities Administrators and addresses recommendations in financial disclosures. Through both voluntary and mandatory reporting mechanisms, we demonstrate our management of environmental, social and governance risks, including climate change. We continue to talk to our investors and other stakeholders on expectations related to climate change disclosure, and ensure we address their priorities.

Renewable & Low Carbon Production

Husky helped pioneer ethanol production for use in ethanol-blended gasoline, starting almost 30 years ago. We currently operate two ethanol plants, one in Minnedosa, Manitoba and the other in Lloydminster, Saskatchewan. With total production of up to 300 million litres per year, we are Western Canada‘s largest manufacturer and marketer of fuel-grade ethanol.

At the Lloydminster plant, we capture up to 250 tonnes a day of carbon dioxide (CO₂) to aid in enhanced oil recovery, which involves CO₂ being injected into reservoirs to increase oil production. The use of this carbon capture technology allows for the production of some of the lowest carbon intensity ethanol in Canada. From 2012 to 2017, we captured 362,000 tonnes of CO₂ at our Lloydminster Ethanol Plant.

We continue to evaluate additional carbon capture technologies, including at our Pikes Peak South Lloyd thermal project where we have been testing technology capturing CO₂ from a once-through steam generator. One pilot underway since 2015 is capturing up to 30 tonnes per day, and a third-party demonstration pilot using different technology has been capturing 0.5 tonnes per day, with plans to increase to a 30 tonnes per day capacity beginning in 2019. Husky believes these technologies have the potential to reduce carbon capture costs and could result in lower carbon thermal oil production.

Husky evaluates various ways to reduce the carbon intensity of our upstream and downstream operations, using a Marginal Abatement Cost Curve (MACC) to catalogue options, including the size of emissions reduction possible and economic performance. This allows us to prioritize resources and achieve reductions at the most efficient cost per tonne of CO₂e. The MACC also helps different areas of the company share information about emission reduction options.

Methane

In Alberta, Husky participated in a government-appointed multi-stakeholder committee to develop draft regulations to reduce methane emissions from oil and gas operations by
45 percent by 2025. We have started to reduce methane emissions through the conversion of pneumatic devices, gas conservation and incineration technology. In 2017 Husky was awarded 14,647 offset credits related to emissions avoided at our Alberta conventional operations in 2016.

Gas Conservation

We conserve solution gas at our operations and reduce venting and flaring. Since 2014, Husky has installed 100 compressors in our Saskatchewan and Alberta operations which are used to compress vented gas so it can be used on-site or sold as fuel. Additional sites are planned for 2018.

Husky‘s total volume of flared and vented gas in Alberta has declined by 65.5 percent since 2014, coinciding with a 65 percent reduction in Alberta oil production in the same time period. The reduction in flaring and venting can be attributed to the continued disposition of legacy assets, the decline in non-thermal heavy oil operations, and venting reduction projects in Western Canada. Data from the annual Alberta Energy Regulator‘s Upstream Petroleum Industry Flaring and Venting Report shows Husky‘s gas conservation remains comparable to or better than the industry average.

Criteria Air Contaminants

Husky measures and reports emissions of criteria air contaminants, such as sulphur dioxide (SO₂), nitrogen oxides (NO_X as NO₂ equivalent), volatile organic compounds (VOCs), particulate matter and others. This allows us to evaluate and manage emissions at the corporate and individual facility level, forecast emissions associated with future operations and achieve regulatory compliance.

Sulphur dioxide emissions declined in 2017 primarily due to the sale of the Ram River Gas Plant and a significant decrease at our Rush Lake Thermal Project with the installation of a sulphur recovery unit.

The increase in NO_X emissions in 2017 is due to a full year of production for several thermal facilities and the acquisition of the Superior Refinery, which is partially offset by divestitures in Western Canada.

Fugitive Emissions Management Program

Our Fugitive Emission Management Program detects and ensures the timely repair of leaking equipment to reduce emissions. It improves our operating efficiency by tracking where and when leaks occur, minimizing the release of GHGs and volatile organic compounds (VOCs).

Fugitive emissions are gas and vapour leaks, including methane and VOCs, from valves, piping connections, pumps and compressor seals, and other piping system components that occur as part of the normal operation of a facility or plant. Husky uses several techniques to detect a leaking component, including highly specialized infrared cameras that provide a view of normally inaccessible locations such as tank seals and overhead piping from a distance, and ultrasonic detection, which identifies leaking components using sound. These methods create an effective survey, repair and tracking system. Vapour analyzers and ultrasonic measurements can be used to quantify equipment leaks.

A third-party contractor completes a Leak Detection and Repair (LDAR) survey for the Downstream business annually, checking applicable components and testing with a vapour analyzer. We undertake maintenance where required. For the Upstream business, LDAR surveys are conducted by Husky personnel, as well as third-party contractors. The reports are shared with facility staff, and maintenance is undertaken as needed.