Varcoe: 'Excited to be the pioneer': Strathcona unveils $2B carbon capture partnership in oilsands

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In a precedent-setting deal in the oilsands, Strathcona Resources has reached an agreement with the Canada Growth Fund (CGF) that will see the Calgary-based petroleum producer move forward with a carbon capture partnership — one that could be worth up to $2 billion.

For Strathcona, Canada’s fifth-largest oil producer, it’s an opportunity to progress an ambitious plan as it prepares for a lower-carbon future and capture up to two million tonnes of CO2 a year.

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And for the oilsands, one of the fastest-growing sources of greenhouse gas emissions in the country, it highlights what’s possible as efforts to decarbonize the industry gain traction.

“For the first time in the Canadian oilsands industry, there has been an economic framework reached between industry, investors and governments, to be able to advance oilsands carbon capture and storage,” Adam Waterous, Strathcona’s executive chair, said in an interview.

“We are excited to be the pioneer, the first — the sharp end of the spear.”

Strathcona announced Wednesday it has reached a partnership with the CGF, the federal government’s cleantech financing agency, to build a series of carbon capture and sequestration (CCS) facilities at its thermal oilsands developments in Saskatchewan and Alberta.

The company produces about 185,000 barrels of oil equivalent (boe) per day, including 90,000 barrels of heavy oil and bitumen from properties in the Lloydminster heavy oil area and the Cold Lake oilsands region of Alberta.

Strathcona emits about three million tonnes of carbon dioxide per year, while the agreement seeks to store two million tonnes annually.

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Under the transaction, both sides will invest up to $1 billion each on the carbon capture infrastructure, with CGF initially committing $500 million.

The projects, which will still require a final investment decision, will capture CO2 from Strathcona’s oilsands operations and permanently sequester it underground.

The company has already been granted the right by Saskatchewan’s government to store CO2 in that province. Strathcona is also talking with Alberta about approval for pore space beneath its Cold Lake properties.

Carbon capture, utilization and storage (CCUS) is considered an essential way to help the global oil and gas sector lower its emissions, although it requires long-term technological investments.

With the federal and Alberta governments adopting net-zero targets by 2050, companies must plan for the future or face rising carbon-related costs.

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The two levels of government have offered incentives to see carbon capture projects move forward, including a federal investment tax credit covering up to half of a development’s capital expenses.

However, one daunting issue is the uncertainty surrounding the future price of carbon if there’s a change in the government or climate policy.

The Canada Growth Fund is the key federal entity that can issue carbon contracts for difference or other tools to help companies lock in their future price of carbon.

Yet, instead of CGF guaranteeing the price of carbon — as it did last year with a fixed-price carbon credit purchase agreement with Calgary-based Entropy Inc. — Strathcona will guarantee the future price of carbon to the partnership.

It will receive all investment tax credits tied to the project. The agreement will help hedge Strathcona’s future carbon tax obligations, which currently reach $65 million annually.

The cleantech public investment vehicle will earn a targeted rate of return over time and be repaid for its investment from cash flow from the projects.

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For every net tonne of emissions captured and stored, Strathcona will pay a fixed price to the project. It will own and operate the infrastructure and the associated carbon credits from the project.

The two sides will agree upon the fixed carbon price at the time of a final investment decision, with the first project expected to be announced by next summer.

Patrick Charbonneau, chief executive of CGF Investment Management, called the agreement a breakthrough as Canada seeks to decarbonize the oil and gas sector.

“The announcement today is a partnership with a heavy oil producer that wanted to decarbonize their production,” he said in an interview.

“That is a real precedent in the market, and our partnership is something that could be replicated (with) other oilsands producers.”

The oil and gas industry is Canada’s largest emitting sector, responsible for 31 per cent of emissions in 2022. While emissions per barrel in the oilsands have fallen in recent years, that overall figure has gone up as production has increased.

The Pathways Alliance, a group of six large oilsands producers working together to reach net zero, has unveiled plans to build a $16.5-billion carbon capture and storage network in northern Alberta.

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It has not made a final investment decision, although the group remains in discussions with governments over the issue of incentives.

Meanwhile, Shell Canada and ATCO signed a deal with the province this week that gives the companies the right to inject and store CO2 underground in Alberta, through their Atlas Carbon Storage Hub.

Shell also confirmed last month it will build a carbon capture project at the Scotford energy and chemicals plant.

These projects, along with Entropy’s innovative carbon capture and storage developments in northwest Alberta, underscore the industry is making tangible progress.

Waterous, who is CEO of private Calgary-based equity firm Waterous Energy Fund — which owns 91 per cent of Strathcona — said its agreement with CGF is a sign of the company’s confidence in the future of the oilsands.

He anticipates there’s an opportunity for Strathcona’s facilities to potentially reduce their carbon emissions per barrel by up to 90 per cent.

“Governments and industry have been working for a long time to untie the Gordian Knot of what is the right fiscal arrangement, economic arrangement, risk-sharing arrangement, to be able to make investments in carbon capture and storage,” he added.

“We think that there will always be value in sequestering carbon. And that belief is what has allowed us to reach this agreement.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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