A C$16.5 billion ($12.27 billion) carbon capture and storage (CCS) project proposed by Canada's major oil producers will only move forward if the federal government sets up a contract to lock in future carbon prices, the Pathways Alliance said on Wednesday.
Pathways, a consortium of the six biggest oil sands companies, plans to build a CCS hub to store emissions from 14 projects in northern Alberta's oil sands by 2030.
Ottawa has promised a 50% investment tax credit to support the project and the Alberta government is developing incentives to help defray capital costs, but Pathways President Kendall Dilling said a financial contract to help offset operating costs is also essential.
The so-called contract for difference would guarantee a minimum price for the carbon captured by the Pathways project, helping assure future revenues.
Canada has been in talks with heavy emitters about developing the contract for over a year, but this month it emerged the government is struggling to get the key tool in place.
"Over the life of the project we'll spend 60% on operating costs versus 40% on capital," Dilling said in an interview on the sidelines of the World Petroleum Congress in Calgary.
"The contract for difference...is absolutely critical in allowing this project to proceed."
Dilling said Ottawa is working hard on setting up the contract, but it would not be through the Canada Growth Fund - a body set up last year by the Finance Ministry to help attract private investment in clean tech by mitigating financing risks.
Negotiations with the Alberta government over a provincial investment tax credit are progressing well, Dilling added, though he warned incentives need to be finalised by year end or early next year if the project is to start operating in 2030.
"You start doing the math on the schedule and 2024 is when you have to start with some of your long lead items from a procurement perspective," Dilling said. "That's creating some positive urgency."
The Pathways CCS project will need 400 kilometres of pipeline with specific metallurgy to transport carbon, that only a limited number of steel mills can make, he added.
Alberta is developing CCS tax credits similar to its existing petrochemical incentive program, which issues companies grants worth 12% of a project's eligible capital costs.
"We have not been provided a number for what they're thinking about for CCS but I think a logical starting point is that it would probably be in that exact same magnitude," Dilling said.
($1 = 1.3442 Canadian dollars)
