Uncertainty about expected economic returns and the long-term availability of proposed government tax incentives could jeopardize a $12 billion plan by six major Alberta oil sands developers to build a capture and storage facility of carbon that will become the largest in the world, according to a new report from Energy. industry research firm Wood Mackenzie. The first phase of the project, with the final investment decision estimated in 2025, aims to reduce the sector’s carbon dioxide emissions by between 10 and 12 million tonnes per year.
Members of the Pathways Alliance consortium “will undertake capital cost commitments” for a proposed 400 kilometer carbon pipeline, storage facilities and injection and monitoring wells, the report says. “Their own transport and storage tolls paid to Pathways will give a return on that capital, but they are effectively robbing Peter to pay Paul; Oil sands producers must show a clear economic benefit beyond that” to approve the projects.
Oil giants Canadian Natural ResourcesCenovus Energy, Imperial Oil, Suncor Energy, ConocoPhillips Canada and MEG Energy form the consortium. The group’s carbon capture and storage network will transport around 1.1 billion liquid tonnes of CO22 from more than 20 oil sands facilities to an underground storage facility in northeastern Alberta.
Emissions from the oil sands sector account for about 12% of Canada’s total greenhouse gas emissions, with a goal of reaching net zero by 2050, primarily through carbon capture and storage.
The consortium says front-end design and engineering is underway for the hub, which is more than 1 kilometer underground. Pre-feed work was completed by Wood’s engineering firm’s Calgary operation. Subsoil assessment and environmental fieldwork have also been completed, with start-up of the first phase project estimated at the end of 2026, the alliance said.
Canada’s Carbon Capture Investment Tax Credit was announced in its 2021 federal budget, but is pending federal legislation. A spokesman for Finance Minister Chrystia Freeland said carbon capture and storage “is essential to reducing Canada’s emissions and we want to incentivize businesses to reduce their emissions as quickly as possible.”
Retroactive to 2022, it will offer a tax credit of between 28% and 44% for an investment in carbon capture, transportation, storage and use equipment in Alberta, Saskatchewan and British Columbia. Similar to credits offered in the US under the Inflation Reduction Act of 2022, it also has provisions requiring developers to pay prevailing wages to project workers and provide learning opportunities for maximum of credits
Peter Findlay, CCUS chief economist at Wood Mackenzie, says the length of government incentives is a key issue. “The real challenge of the Canadian CCUS is not the insufficient incentives, which are some of the most attractive in the world, but the uncertainty of their existence throughout the life of the project,” he says. whim at any point in the life of the project, even down to zero.”
Pathways Alliance President Kendall Dilling disagrees that Canada’s CCUS incentives are more favorable than in the US. “It’s also important to understand that Canadian oil producers already operate in a high carbon price environment. In the US, there is no corresponding federal carbon price.”
Continuing the project and the long-term capital and operational investments involved depend on “having critical regulatory policies and substantial co-investment commitments from governments that enable our industry to remain globally competitive while decarbonizing our production” , says Dilling. Wood Mackenzie agrees that if the federal and provincial governments cannot work together to support this uncertainty, few carbon capture projects will move forward and most will be delayed and potentially cancelled, as the industry has threatened.
Findlay says the long-term cost of oil is also a challenge for the project. “The overarching question is who between government and industry is willing to underwrite the political risk of that price on a project that will take three to five years to build afterwards. [its investment decision] and do you need to run for 20 or 30 years?”
The Pathways Alliance’s decarbonisation investment was about $1.3 billion from 2021 to November 2023.
Different opinions about the CCUS benefit
First Nations in the region slated for the planned center are concerned about the potential long-term impacts of injecting CO2 underground, with the project located about 100 km from their traditional territory, according to a CBC report. Environmental Defense, an advocacy group that opposes carbon capture and storage, calls it “a dangerous distraction that promotes the oil and gas industry to prolong business as usual” and is concerned about the cost to long term tax credits for taxpayers. Canada’s independent budget watchdog says the original estimate of the cost of borrowing of $3.4 billion between 2022 and 2028 is now $4.2 billion.
The International Energy Agency also says in a new report that companies should start “letting go of the illusion” that “implausibly large” amounts of carbon capture are the solution to the global climate crisis.
But the Quest carbon capture and storage project built by Fluor Corp. near Edmonton al Athabasca oil sands region in commercial operation since 2015, it has “captured and safely stored eight million tonnes of CO2,” says a Shell Canada Ltd. spokesperson.
Wood MacKenzie also predicts that the global carbon capture and storage pipeline will grow, with 119 projects targeted for final investment decisions by 2024, mostly in Europe and North America, representing the largest number to date. These projects collectively target 115 million tonnes per year of capture capacity and 240 million tonnes per year of storage capacity.
The research firm says this year’s estimated project capacity increase is more than double that of last year.
