Strathcona Plans $1.5 Billion Oil-Sands Carbon-Capture Projects

(Bloomberg) -- Canadian driller Strathcona Resources Ltd. is planning as much as C$2 billion ($1.5 billion) in projects to capture carbon dioxide emissions from its oil-sands operations, helped by backing from a Canadian public investment vehicle.

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While Strathcona will own and operate the assets, it will evenly split the upfront capital costs with the federal Canada Growth Fund and repay the government vehicle with cash flows from the carbon credits generated by the system, according to a statement Wednesday. The driller says the project will capture as much as 2 million metric tons of CO2 a year.

Strathcona Executive Chairman Adam Waterous said a successful carbon capture system could take his company’s oil-sands production from just under twice as carbon intensive as the average for global crude output, to about a fifth of that benchmark. If deployed more broadly by other producers, carbon capture could represent a “dramatic flipping of the script” by making Canada’s oil sands — currently a top target of environmentalists — into a more desirable source of crude, he said.

“I’m optimistic that community support will follow the data on carbon intensity,” Waterous said in an interview. “As carbon intensity comes down, the reputation will follow.”

Extracting the thick crude from Canada’s oil-sands deposits requires large amounts of steam that makes the oil among the world’s most carbon-intensive grades to produce. Strathcona’s systems would work by capturing the CO2 produced from burning natural gas at the company’s central steam-production facilities and storing it underground.

Critics’ View

Opponents of carbon capture say using the technology for crude production does little to help combat climate change because 80% or more of oil companies’ emissions come from the combustion of their products by end users. Carbon capture projects around the world also have a spotty record in living up to performance projections.

While Waterous says he doesn’t relish his company being among the pioneers of the “new and therefore risky” technology, he expects the system to work because Strathcona’s oil-sands production in Saskatchewan and Alberta is located on formations suitable for storing CO2.

The Canada Growth Fund will initially commit C$500 million to the projects with the total rising to as much as C$1 billion later on. Strathcona said its portion of the capital costs will be fully covered by federal carbon capture investment tax credits and other grants. The company expects a final investment decision on the first project in mid-2025, with operations commencing about a year later.

Strathcona has also agreed to guarantee the price of carbon for the partnership — in contrast to other proposals where companies are asking governments to guarantee the carbon price.

While the carbon tax implemented by Prime Minister Justin Trudeau is set to rise over time, his opponent in Canada’s next federal election — who’s leading in the polls — has vowed to scrap the tax, at least for consumer fuels. It’s not yet clear if the industrial carbon tax, which applies to oil-sands projects, would be canceled or changed under Conservative Leader Pierre Poilievre.

The level of that tax has a large influence on the value of the credits Strathcona’s system will generate, determining the project’s economic viability. Waterous said that’s a risk his company, which pays about C$65 million a year in carbon taxes, was willing to take, and he expects other industry players may eventually come around to his view.

“Over time, sequestered CO2 is going to be an important community good, and we think we’ll be economically rewarded for that,” he said.

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