Varcoe: Shell, ATCO carbon hub proves 'economic business case' for emerging sector in Alberta

Shell Canada president Susannah Pierce said carbon capture, utilization and storage has the potential to be a ‘generational opportunity’ for Alberta

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As the federal and provincial governments point fingers at each other to ante up bigger incentives to secure a mammoth carbon capture project in the oilsands, other developments are advancing in Alberta.

On Monday, Shell Canada and its partner ATCO inked an agreement with the provincial government, giving the two companies the right to store carbon dioxide deep underground in pore space in Alberta.

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It’s the first such storage hub in Alberta to reach the milestone.

It comes two weeks after Shell confirmed it will build its new Polaris carbon capture project at the Scotford energy and chemicals plant near Edmonton, and advance the development of the Atlas Carbon Storage Hub with partner ATCO EnPower.

“This signing marks the next stage of hub development. Until now, projects were only evaluating the suitability of their locations to store carbon dioxide,” said Energy Minister Brian Jean.

“We’re going to see a number of projects be announced over the coming months.”

While the high-profile $16.5-billion Pathways Alliance CCUS project is still awaiting successful negotiations between major oilsands producers and the two levels of government — more than three years after the project was unveiled — the Shell and ATCO announcement demonstrates other initiatives are advancing.

Significantly, it underscores the essential fact that Alberta’s oil and gas sector will invest in large-scale carbon capture and storage projects because they know it can work.

“This is proof of what can happen with the incentives that we have right now,” said Brendan Cooke, vice-president of CCUS at consultancy Rystad Energy.

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“What it does prove is that there’s an economic business case for carbon capture from oil and gas assets within Alberta.”

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Shell Canada president Susannah Pierce said CCUS has the potential to be a “generational opportunity” for Alberta.

“From our perspective, we see it as an important part of our strategy to decarbonize,” she told reporters.

The province says that by 2035, carbon capture, utilization and storage (CCUS) could lead to $35 billion in capital investment and create more than 20,000 jobs in Alberta.

The Alberta government and energy industry view CCUS as a linchpin technology to lower emissions as the province and Canada have pledged to reach net-zero status by 2050.

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The UCP government announced in March 2022 that six proposed carbon storage hubs were being evaluated across the province, including the Atlas project, 45 kilometres east of Edmonton.

Today, 25 proposed hubs are under evaluation.

If the proponents demonstrate that their projects can safely store CO2 permanently, they can sign an agreement with the government giving them the right to inject the carbon dioxide underground. However, final regulatory applications must still be approved.

Shell’s Polaris development will capture 650,000 tonnes of CO2 each year from the Scotford refinery and chemicals complex. The Polaris and Atlas projects are expected to begin operating in 2028.

Alberta already has the Shell-operated Quest carbon capture project operating in the province. It has captured and stored more than nine million tonnes of CO2.

Carbon capture and storage
The Quest carbon capture and storage facility in Fort Saskatchewan. Photo by Jason Franson /Postmedia Network

The government points out that studies indicate Alberta has the ideal geology for permanent CO2 storage in underground formations.

Pierce also credited the federal and provincial tax credit and incentives programs now in place, saying they were “instrumental in our decision to invest.”

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Bob Myles, ATCO EnPower chief operating officer, said he doesn’t think all of the proposed hub projects will proceed.

“I am a huge believer that industry needs to work together. I think we need to probably build fewer, not as many as are being proposed,” he said.

“The economics do make a lot of sense for many projects — it doesn’t mean it makes sense for everybody.”

A number of carbon capture projects have been proposed across the province, including at Dow Inc.’s $8.9-billion net-zero petrochemical project being constructed near Fort Saskatchewan.

However, the future of the technology has been questioned after Capital Power announced in May it was discontinuing its plans for a large CCUS development.

Meanwhile, six of the country’s largest oilsands producers — part of the Pathways Alliance — are working together on decarbonization initiatives.

Its foundational CCUS project, expected to cost $16.5 billion to build, would connect more than 20 different oilsands facilities via a 400-kilometre pipeline to a hub near Cold Lake.

However, the producers — including Cenovus Energy, Canadian Natural Resources and Suncor Energy — have said the financial incentives being offered by the federal and provincial governments aren’t enough to give the project the green light.

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Pathways Alliance Cold Lake CCUS project
An employee with the Pathways Alliance explains how a proposed carbon capture and storage project based in Cold Lake works during the Oil Sands Trade Show at Shell Place on September 13, 2023. Vincent McDermott/Fort McMurray Today/Postmedia Network

The Trudeau government is providing an investment tax credit to cover up to half of the eligible capital costs for CCUS, while the province’s Alberta Carbon Capture Incentive Program is offering 12 per cent grants.

The federal government also has pledged to provide carbon contracts for difference to help proponents lock in the future carbon price for such initiatives.

“We continue to meet with provincial and federal governments to advance our shared goals for emissions reductions,” Pathways president Kendall Dilling said in a statement Monday.

Both levels of government are calling on the other side to provide more assistance to see the Pathways development progress.

“Let’s be fair. We have the lowest corporate income tax rate in the country, by a country mile,” Danielle Smith told reporters Monday at the premier’s annual Stampede breakfast.

“When you look at who takes the lion’s share of corporate taxes, it’s the federal government, so that’s why they should shoulder a higher amount.”

Susannah Pierce and Bob Myles
Susannah Pierce, president and country chair, Shell Canada and Bob Myles, chief operating officer, ATCO EnPower talk with media following the signing of a carbon sequestration agreement at the McDougall Centre in Calgary on Monday, July 8, 2024. Gavin Young/Postmedia

Federal Natural Resources Minister Jonathan Wilkinson said the province needs to offer more support.

“I would like to find ways to break the logjam,” he said in an interview last week.

“We are not the resource owner. We do not accrue the royalties from the resource. Alberta has contributed 12.5 per cent. We think that there’s probably more that Alberta needs to do,” Wilkinson said.

“But, ultimately, the Pathways folks are going to have to make the business decision about whether to move forward or not.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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