The viability of a large carbon capture project in Alberta has been called into question with the Institute for Energy Economics and Financial Analysis (IEEFA) claiming operating costs are growing at twice the rate of CO2 captured volumes.
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.
Publicly available financial information on the Pathways project is scant. Companies listed on its website include Canadian Natural, Imperial, Cenovus Energy, ConocoPhillips Canada, MEG Energy and Suncor.
It is instructive, however, to analyse the experiences of two existing commercial carbon capture facilities in Alberta – the Alberta Carbon Trunk (ACTL) line facility and Shell’s Quest facility.
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,” IEEFA states.
“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,” IEEFA adds. “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.”
Even under optimal conditions, the Pathways project may struggle to break even, and real-world operations are rarely optimal.
Pathways Alliance members propose a CCS network and pipeline that, when operational, would have the capacity to transport captured CO2 from multiple oil sands facilities to a hub in the Cold Lake area of Alberta for permanent underground storage.
Once operational, the CO2 transportation network and storage hub could be made available to other oil producers and industries in the region seeking CO2 emissions sequestration.
IEEFA believes that large-scale public investment in CCS is ‘misguided’ as 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.
“Government officials face a choice. Subsidise and perhaps over-subsidise the project, or invest in more tenable renewable energy alternatives. If the project goes forward, the primary emitters (polluters) should bear the financial burden and the risk for pollution prevention,” the paper concludes.
Canada enters 2025 on an uncertain policy footing, following the resignation of Prime Minister Justin Trudeau, and prospect of tariffs from the new US Republican administration. President-Elect Trump has pledged to impose a 25% tariff on all imports from Mexico and Canada as his first Executive Order on 20th January.
Read more: Energy opportunities amid policy challenges for Canada
