From Science Matters

By Ron Clutz

Reality intrudes in National Post article Alberta and Ottawa tout a grand bargain on ‘decarbonized’ oil but some are skeptical.  Excerpts in italics with my bolds.

Carney said he’d consider fast-tracking a new oil pipeline
to the West Coast if it shipped ‘decarbonized barrels’

OTTAWA — “Grand bargain” was the phrase of the day on Parliament Hill after Prime Minister Mark Carney and his provincial counterparts found common ground on oil and gas development.  “If (the Conservatives) were listening to yesterday, there is a grand bargain,” Energy Minister Tim Hodgson boasted to the Opposition benches.

“There is a bargain that the Premier of Alberta has signed onto.”  Alberta Premier Danielle Smith left Monday’s first ministers’ meeting with a new deal exchanging oil sands access to coastal waters for massive investments in decarbonization technologies, but experts warn this could be a costly pipe dream. 

“I’m worried we’re seeing (the first ministers) fall into a trap of wanting to have their cake and eat it too,” said Tim McMillan, a partner at Garrison Strategy and the former head of the Canadian Association of Petroleum Producers.

“There’s real potential there (and), if further developed, the federal government will look to advance it,” said Carney.  But McMillan says the devil could be in the details.

“I don’t know exactly what they’re talking about with decarbonization, but… it may be linked to carbon capture, which does not increase our exports (or) investability,” said McMillan.  “If (carbon capture) becomes a long-term requirement for new projects, it will likely have a negative effect on future investments in Canada’s upstream oil and gas sector.”

The Calgary-based Pathways Alliance, a group of six major oil sands producers, has put forward a $16.5-billion decarbonization network that would reroute carbon emissions from nearly two dozen facilities to an underground hub near Cold Lake, Alta.  The big-ticket project has been at a standstill for years over government funding.

Smith said Monday that the financial windfall of a new West Coast bitumen pipeline serving markets in Asia could help make the economics of the Pathways project work.  “If we had a million barrel a day pipeline going to the northwest (British Columbia) coast, that would generate about $20 billion a year in revenues… that seems like a pretty good value proposition if both of those projects can proceed at once,” said Smith.

Carney and Hodgson have both paid lip service to the Pathways project in recent weeks, but the venture still faces an uphill battle.  A recent independent analysis found the project was likely to lose money due to the limited recyclability of captured carbon.

“Even under optimal conditions, the Pathways project may struggle to break even, and real-world operations are rarely optimal,” read the study, prepared by the Institute for Energy Economics and Financial Analysis.  “The Canadian federal government and the province of Alberta may be pressured to make up the likely shortfall,” it continued.

“An unprofitable carbon capture project will struggle to bring lasting positive economic benefits to host communities and become dependent on external financial subsidies to maintain operations.”

McMillan also noted that Canada’s two biggest competitors in the heavy oil industry, Mexico and Venezuela, are unlikely to follow suit with large-scale carbon capture projects of their own, giving each an edge over Canada on a per-barrel basis.

Footnote:  “Some are skeptical” understates the case.  “Decarbonized Oil” is a Ruinous Farce.

The Study is Financial risks of carbon capture and storage in Canada: Concerns about the Pathways Project and Public Energy Policy.  Highlights in italics with my bolds and added images.

Cost challenges threaten the ability of a large, planned carbon capture project to achieve financial sustainability. The Pathways Alliance plans to capture carbon dioxide (CO2) generated at 13 oil sand processing facilities, compress the gas and send it by pipeline to a storage hub near the Cold Lake region in Alberta. Publicly available financial information on the Pathways project is scant. It is instructive, however, to analyze the experiences of two existing commercial carbon capture facilities in Alberta—the Alberta Carbon Trunk (ACTL) line facility and Shell’s Quest facility.

The Institute for Energy Economics and Financial Analysis (IEEFA) examined the two currently operating CCS projects, together with current policy and provincial carbon market dynamics. The resulting report identified troubling cost implications for the Pathways CO2 transport and storage project and raises the concern that the Canadian federal government and the province of Alberta may be pressured to make up the likely shortfall.

• We find total costs including interest, insurance, depreciation and taxes for existing commercial-scale carbon capture plants in Alberta are approaching thresholds that threaten profitability.
• Rising project costs are not being offset by commensurate increases in CO2 capture volumes and associated revenue. Operating costs are growing at twice the rate of CO2 captured volumes.
• CCS operating revenue is uncertain. An effective cap on emission performance credit (EPC) pricing of CAD$170 per tonne limits project revenue potential, while a looming oversupply of carbon EPCs is an example of risks to project cash flows. The option to combine Clean Fuel Regulation credits with EPCs is available to ACTL, but this significant financial benefit is not available to the Pathways project.
• Performance risk is financial risk. Without substantial efficiency improvements, the cost per tonne of CO2 captured is likely to exceed the revenue that the project can generate for each tonne captured. 
• An unprofitable carbon capture project will struggle to bring lasting positive economic benefits to host communities and become dependent on external financial subsidies to maintain operations.

Even under optimal conditions, the Pathways project may struggle
to break even, and real-world operations are rarely optimal.

Large-scale public investment in CCS is misguided. The technology has struggled to achieve meaningful emissions reductions or prove its long-term viability. The lack of demonstrated success and heightened financial risks indicate public investments are unlikely to yield the desired environmental or economic benefits.