Fate of giant carbon capture project still uncertain, but Pathways Alliance hopeful for deal with feds

Despite growing frustrations and prolonged negotiations with the federal government, a consortium of Canada's largest oilsands companies is optimistic about having a "line of sight" in securing the certainty it needs from Ottawa to advance its proposed $16.5-billion carbon capture pipeline project.

The Pathways Alliance is not expecting any new commitments in the upcoming federal budget, but is instead working through the details of what's already been announced to support the development of carbon capture and storage projects.

The prolonged talks are drawing criticism for too much partisanship and dithering by both sides and not enough action toward decarbonizing the oilsands and helping the country reach its climate targets.

The companies have yet to make a firm investment to advance the project over a lack of certainty from Ottawa.

The oilpatch represents the largest share of greenhouse gas emissions in the country and the Pathways project would be one of the largest carbon capture projects in the world. The oilsands companies are aiming for a 32 per cent reduction from 2019 emissions levels by 2030 which is only possible if the Pathways project goes forward on time.

In an interview, Pathways president Kendall Dilling maintained the project is on track to be operational by 2030 as long as talks with the federal government wrap up by the end of the year.

"There is a degree of frustration on both sides that this conversation has been taking a long time. We all want to just put it to bed and say 'We're there. Let's move forward and do this,' said Dilling.

"All the pieces are on the table. It's a question of just running them to the ground" to understand the exact financial details, he said.

WATCH|There are frustrations, says Pathways president, but no one is leaving the table:

'Line of sight' on agreement with Ottawa to develop massive oilsands carbon capture project

4 months ago

Duration 1:38

Talks continue, but no new supports needed, says Pathways president Kendall Dilling.

Uncertainty is hindering investment

The federal government has proposed an investment tax credit, although Parliament has yet to pass the legislation.

The federal government also offers carbon contracts for difference, supported by taxpayers, which help guarantee a carbon tax for heavy emitting industries.

That's key because right now, there's a risk that a change in government or shift political attitude could result in the price of carbon being reduced or wiped out altogether. With certaintyon the future price of carbon, project developers can know ifit makesfinancial sense to invest in facilities that will reduce emissions in order to lower their carbon tax bill.

So far, only one such contract has been signed, with Calgary carbon-capture company Entropy.

"We see a line of sight with all the instruments that have been proposed to a package that will work and it's really just a question now of taking the uncertainty away from several of those elements that are still fairly nascent in development," Dilling said.

Passing the tax credit legislation is critical for all types of heavy-polluting industrial companies throughout the country to take action and commit large amounts of money to build these projects, said Claude Ltourneau, president of Svante, a Vancouver-based carbon capture company.

"Unless it is under law, it does not exist," he said, which is one reason "it's a challenge to get [industrial companies] to make a decision to invest."

Ottawa wants to see 'continued steps forward'

Two years of talks without consensus has recently led to both sides airing their frustrations and criticism.

Federal Natural Resources Minister Jonathan Wilkinson has demanded more action and less advertising from the oilsands sector, while Cenovus Energy chief sustainability officer Rhona DelFrari has warned Ottawa to step upor else the country risks being left out as large-scale emissions reduction investments are developed and deployed elsewhere in the world.

In recent weeks, Pathways began the regulatory process by submitting an application to receive permits for a carbon dioxide pipeline and a sequestration facility to store the emissions several kilometres underground in Northern Alberta. In the meantime, engineering work and Indigenous consultation continues.

"Certainly, the regulatory filing was a big step," said Wilkinson, in an interview. "That's an important step and an important signal of their seriousness of the overall endeavour."

Now, Pathways needs to invest more money to the project such as ordering all the required steel pipe, he said, to demonstrate the group's long term commitment.

There is mutual respect between the government and Pathways, said Wilkinson, and talks are both positive and productive.

The investment tax credit is going before a parliamentary committee and could be passed in the next few months, the minister said, while discussions about carbon contracts for difference are a bit more complicated because they involve the Alberta government as well.

Still, talks are progressing and the 2030 timeline remains a realistic target, he said.

"We are still on track for that, but obviously we need to see continued steps forward," Wilkinson said.

Risk of falling behind

Oilsands companies need to start acting quickly because developing carbon capture facilities at this scale will take time and the world is increasingly focused on low-carbon sources of energy, said Raoul LeBlanc, a vice president with S&P Global Commodity Insights.

"It's got a real advantage versus the Permian Basin in Texas which has around 60,000 Individual oil well sites spread over a large area. The oilsands sector has a lot of emissions, but they're very concentrated," he said.

The Alberta government has announced its own program to cover a portion of costs to build carbon capture facilities.

The proposed Pathways carbon capture project is relatively expensive per tonne of carbon emissions in part because of the remoteness of the oilsands, according to a recent analysis of the project by Wood Mackenzie, a global energy consultancy.

Still, without the project, Canada will fall further behind its peers in both decarbonization and productivity, the report highlights, especially considering the country has failed to materially reduce its emissions since 2005.

Canada's carbon capture incentives are some of the most attractive in the world, but are focused on the construction of the facilities as opposed to financial support for how much carbon emissions is actually sequestered every year when operational, said Peter Findlay, director of CCS economics globally with Wood Mackenzie. Companies have to decide whether the existing incentives are enough to proceed.

Partisanship, dithering and delays, from governments and producers alike, are unhelpful, said Findlay, and instead there needs to be open collaboration.

"It's not necessarily insurmountable that there couldn't be government mechanisms both at the federal and provincial level to account for that uncertainty and to help build a fiscal regime that can actually make projects investable," he said, in an interview.

Oilsands to decide next year whether to proceed

A separate report by Clean Prosperity and Navius Researchfocused on the critical need for contracts for difference. Without the certainty fromthose carbon contracts, it is unlikely the oilpatch and other industrial sectors will be able to reduce emissions enough for the country to reach its climate targets.

For instance, a cement plant is allowed to produce a certain amount of emissions, but can generate credits if it pollutes less. Those credits can be sold to other companies.

Carbon markets are uncertain though as governments can change.

"What carbon contracts for difference does is it guarantees that value. So that these companies and these facilities can put the figures in their spreadsheet, take it to a loan officer at a bank, they can count on that revenue. It's bankable. Right now, it's not," said Brendan Frank, policy director at Clean Prosperity.

The oilsands group whose membership consists of Suncor Energy, Canadian Natural Resources, Cenovus, Imperial Oil, MEG Energy and ConocoPhillips Canada anticipates making an investment decision on whether to proceed with the project next year.

"We appreciate that we're in a bit of a show-me stage with the public. We need to demonstrate that commitment through action," said Dilling.

The initial goal is to capture and sequester 8.5 million tonnes of carbon emissions every year beginning in 2030. The gases would be collected from eight different oilsands facilities in northeastern Alberta, transported south through a pipeline and pumped deep underground in the Cold Lake region, located about 300 km northeast of Edmonton.

Eventually, more than 20 facilities could be included in the plan and store 40 million tonnes of emissions per year. The oilsands produces about 68 million tonnes of emissions annually.