Yahoo Finance Experts slam carbon capture as clock ticks on Alberta's $16.5B mega project
Energy analysts are lobbing criticism at carbon capture and storage (CCS) technology as Canada’s oil and gas industry and the federal government point fingers over the massive $16.5 billion project taking shape in Alberta’s oilsands.
In the latest example, the Institute for Energy Economics and Financial Analysis (IEEFA) warned members of Australia’s Melbourne Petroleum Club that CCS “presents ongoing risks which may negate its benefits.”
“CCS may have a niche role in the transition, but not in combination with fossil fuels,” read slides from a presentation by IEEFA energy finance analyst Kevin Morrison dated March 3. “Australia needs to improve its regulation to ensure it is not liable for CCS failure.”
Carbon capture technology typically collects CO2 from large, industrial sources of emissions, and injects this material deep underground. Canada’s oil and gas sector is counting on the technology to abate emissions as the federal government prepares to impose a cap on pollution from fossil fuel production in 2026.
The Pathways Alliance was officially launched in June 2021, bringing together five of the largest oilsands producers — Suncor Energy (SU.TO)(SU), Cenovus Energy (CVE.TO)(CVE), Imperial Oil (IMO.TO)(IMO), Canadian Natural Resources (CNQ.TO)(CNQ, and MEG Energy (MEG.TO) ConocoPhillips Canada joined the following November.
The group collectively accounts for about 95 per cent of Canada oilsands production. Their “foundational project” is a 400-kilometre CO2 transportation line that could eventually link over 20 facilities with a carbon storage hub near Cold Lake, Alta.
Pathways aims to reduce net CO2 emissions from oilsands operations by up to 12 million tonnes annually by 2030, and as much as 40 million tonnes per year by 2050. If completed, the project would be one of the largest of its type in the world.
Ottawa offers tax credits covering about half of the capital costs for the project. The federal government also provides so-called "carbon contracts for difference" to spur private investment by essentially creating a floor for carbon prices. Alberta’s provincial government offers a 12 per cent subsidy.
Pathways is expected to submit regulatory applications for the pipeline and the “pour space” to store emissions within the next few months. Engineering and other preliminary work is in progress now. Pathways says it could begin injecting and storing CO2 by late 2026. However, a final investment decision for the project has not yet been made.
Federal Natural Resources Minister Jonathan Wilkinson recently called for less talk and more action in an interview with the Calgary Herald.
“It is time that we stop just advertising on television the great things we’re doing from an environmental perspective, and actually put shovels in the ground,” he told the newspaper in February, referencing Pathways’ advertising blitz.
Last week, Cenovus chief sustainability officer Rhona DelFrari fired back, accusing the government of falling short on financial support for the project. She added that U.S. government policies are “far more attractive for CCS projects.”
However, a recent Wood Mackenzie analysis found incentives in Canada are actually higher than in the U.S.
“The real challenge for Canadian CCUS then is not insufficient incentives — they are some of the most attractive in the world— but the uncertainty of their existence throughout project life,” Peter Findlay, director of CCUS economics for Wood Mackenzie, wrote last month.
“The overarching question is who between government and industry is willing to underwrite the political risk of that price over a project that will take three to five years to build after sanctioning, and need to operate for 20 to 30 years?”
The IEEFA’s Morrison warns of steeper-than-expected costs.
“Increases in estimated construction costs can be expected as project design and actual construction are completed,” his presentation stated. “Most of the costs associated are fixed, that must be paid regardless how little CO2 is captured.”
Morrison notes several projects among the world’s roughly 30 active carbon capture sites operating significantly below their intended capture capacity. However, Shell’s Quest facility northeast of Edmonton is listed as performing close to its capture capacity.
The IEEFA is an American non-profit think tank funded in part by climate organizations. Its carbon capture and storage analysis adds to a chorus of doubts about the technology’s potential on a large scale.
“The [oil and gas] industry needs to commit to genuinely helping the world meet its energy needs and climate goals, which means letting go of the illusion that implausibly large amounts of carbon capture are the solution,” International Energy Agency executive director Fatih Birol said ahead of the United Nations' COP 28 summit in November.
The agency has referred to “years of underperformance,” and a history of “unmet expectations” for carbon capture technology.
Last October, S&P Global Commodity Insights published research titled “CCUS – Too Little, Too Late, Too Slow – It’s No Panacea.”
“Despite the recent surge of policy incentives for carbon capture projects, the world is not on track to meet the CO2 reductions expected from this technology by 2050,” gas power and climate solutions analyst Paola Perez Pena wrote.
"Although [the] S&P outlook estimates a historical growth in capacity installations for the next three decades, the CCUS industry still needs significant improvement."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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