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Canada launches carbon capture era Shell, Chevron, Marathon partnership embarks on project with heavy government financial backing to bury some CO2 from oil sands Gary Park For Petroleum News
Royal Dutch Shell has started construction on the first facility to capture and store carbon dioxide from an Alberta oil sands operation, creating what the company rates as a “flagship” project.
The C$1.35 billion Quest project, largely funded by the Canadian and Alberta governments, is expected to be running by 2015 when it will retrieve about 35 percent of the CO2 from Shell’s Scotford upgrader near Edmonton.
It will bury 1.1 million metric tons per year, reducing by an estimated 15 percent the emissions per barrel produced, but not refined, from Shell’s oil sands operations.
Shell, with Chevron and Marathon Oil holding a 20 percent stake each, received government approval in August and started work immediately.
“Shell Quest is a very important project for Canada, not only for what it will do directly for the environment but also for the learning and experience it will contribute to carbon capture and storage (CCS) technology,” said federal Natural Resources Minister Joe Oliver.
John Abbott, Shell’s outgoing executive vice president for heavy oil, said that as the oil sands continue to become an important part of the energy mix “it’s critically important that we do everything that we know how to reduce the environmental footprint.”
“This is one of the technologies that we believe can have the biggest impact in the shortest period of time and that’s why we’re doing it,” he said.
Huge government investment However, the huge government investment makes it clear at this stage that CCS is far from being able to stand on its own as a private sector undertaking.
Alberta has contributed C$750 million the Canadian government has added C$120 million to Quest which carries a capital cost of C$950 million, plus C$400 million to operate over 10 years.
Alberta has allowed a two-for-one carbon credit under its current C$15 per metric ton carbon regime by allowing the Quest partners to bring in C$30 per ton of carbon they sequester, or C$33 million a year.
Over 10 years, that means the three companies will be left with C$155 million, or just over 11 percent of the project’s costs. After that, the entire C$40 million in operating costs will be carried by the partnership.
Oliver said there is a “definitive” role for the government to support the application of technology in Canada’s energy development.
“We will provide the funding in certain startup situations where companies are hesitant to invest in CCS projects,” he said.
Alberta Energy Minister Ken Hughes said that in cases of government funding “several issues are raised about the intellectual property rights of carbon and the technology, the price of carbon in the global markets and the internal rates of return.”
“There certainly are challenges, but we feel the project economics are viable in Alberta.”
Hopes for 4 projects in 2009 The struggle to build on the single breakthrough venture is reflected in the Alberta government’s hopes in 2009 of funding four large-scale CCS projects to reduce emissions by 5 million metric tons per year by 2015, including: the Alberta Carbon Trunk Line facility by Enhance Energy and Northwest Upgrading; a carbon-capture power generation plant by Enbridge and Epcor to gasify coal; and Project Pioneer by TransAlta, Enbridge and Capital Power Corp., in addition to Shell Quest.
The Project Pioneer partners announced in April they had abandoned their plans because the economics of using CO2 for enhanced oil recovery were too uncertain. It is not clear whether the other two will proceed.
Ed Whittingham, executive director of the environmental think-tank Pembina Institute, have given credit to Shell Quest while noting it is “just one tool in the tool kit” of CCS.
“In isolation it is not enough, but it is important, so I’d like to recognize that Shell is doing the right thing in going ahead and recognize the contributions of the two levels of government.”
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