Pathways Alliance Members Mindful Of Tight Timelines, Continued Need For Fiscal And Regulatory Certainty

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Executives from member companies of the Pathways Alliance say timelines continue to become increasingly tight as the group works toward a final investment decision on its proposed multibillion-dollar foundational carbon capture network and storage hub, a project the group hopes to have constructed by 2030.

And while progress has been made in recent months regarding pore space and other industry-government initiatives and dialogue, a lot of heavy lifting remains as the Alliance continues to progress pre-FID work.

“Are we satisfied with the pace of progress? I think there's a couple of critical timelines. There's a regulatory timeline, obviously, in terms of getting the pore space, getting it evaluated and getting that exploratory licence turned into a development licence. We're moving that … forward as quickly as we can,” Derek Evans, president and CEO of MEG Energy Corp., said in response to an analyst’s question during the company’s recent Q3 results conference call.

“We have a 2030 target for this pipeline to be up and running. I will tell you, it's a very challenging timeline without the sort of regulatory certainty or the financial incentive certainty that we're going to need to make an FID decision,” he added.

“But I guess I would parse this down into two things. We are progressing the engineering work, the survey work. We just led a contract for multiple millions of dollars to get the surveying done on the right-of-way. So we are moving forward sort of faster than you normally would in a company. You would wait typically until you had FID approval on some of the expenditures that we're moving forward on today with the assumption that we will be able to sort out the regulatory aspects of this as well as the financial incentives that we need to achieve FID.”

Evans said that talks with the federal and provincial governments continue in an effort to solidify the needed financial and regulatory schemes that will be required for the project to continue to progress and the Alliance partners to make an FID.

“I think it's easy to say we could be frustrated. But this is the first time something of this size has been done, I think, in the world and certainly in Canada. And we're breaking new ground with both the federal and the provincial government as we try and figure out just how to make this all work,” he said.

“So I don't think we're frustrated, but I think we're tired. I mean we've got over 200 engineers and support people working on this project and we are trying to move it forward as quickly as we possibly can,” Evans added.

“There's no lack of commitment. There's no lack of will. There's no lack of desire to make sure that this happens. But we do realize this is the first time it's happened and … we're creating the rules and regulations for future projects that will follow.”

While a lot of the financial and regulatory pieces still need to be ironed out and formalized, Tim McKay, president of Canadian Natural Resources Limited, said there have been some positive developments in recent months.

“Subsequent to the quarter end, on October 4 the Pathways Alliance reached an important milestone, securing the right to continue exploration work for our CO2 injection hub, allowing us to advance to the next stage of evaluation. As a result, we are continuing to progress our stakeholder engagement and detailed engineering work on our approximately 400-kilometre long trunk line that will carry captured CO2 from the oilsands to the storage hub,” he said.

“We'd like to thank the Alberta government for their continued support as we work together on this ambitious GHG emissions reduction project. Additionally, we appreciate the federal government's recent public statements in support of the Canadian oil and gas sector's role in global energy security, along with the commitment to be competitive on a fiscal framework for carbon capture,” McKay added.

“Both these developments are important steps to help Canada's oilsands industry meet its commitment of net zero GHG emissions by 2050, which will have the industry and governments investing approximately $24 billion between now and 2030 on the Pathways foundational carbon capture storage project and other emission reduction projects.”

Further government fiscal, regulatory clarity still needed: Pourbaix

During his company’s Q3 call, Cenovus Energy Inc.’s president and CEO Alex Pourbaix noted that the Pathways Alliance recently announced its decarbonization projects will require investments of more than $24 billion by 2030 alone, including the Alliance's foundational carbon capture and storage pipeline and hubs as well as energy efficiency, cogeneration and electrification projects.

“We are ready to move forward with more advanced investment decisions about the significant decarbonization projects once governments provide assurance that the necessary policy mechanisms and support are in place. Cenovus and our peers continue to work with government officials on these details so we can all continue to achieve the shared goal of emissions reductions,” Pourbaix said.

“We are committed to both investing in our business, including decarbonization projects, and providing strong returns to investors. These two things combined are what will support a strong oil and gas sector in this country and enable us to continue contributing in a significant way to the Canadian economy for a long time to come,” he added.

“Where we are now is we've had ongoing discussions with the federal government and the provincial government now for many, many months. Earlier this year one of the initial outcomes of that was the investment tax credit that the federal government put forward for CCUS.”

Pourbaix said the group viewed that announcement as a “strong commitment” from the federal government but the North American CCS landscape has changed in recent months as the U.S. government enhanced its incentives for deployment of the technology.

“That [investment tax credit] was something that was more reasonably equivalent to the U.S. 45Q support that they were giving to carbon capture. Since that time, the U.S. government has come out with the Inflation Reduction Act, which added significant support for industrial decarbonization — including CCUS — and that right now in the U.S., producers in the U.S. are getting support both for capital investment and for operating costs,” Pourbaix said.

“And I think from our perspective, this goal of decarbonizing not just the oil and gas industry, but every major heavy industrial industry in Canada, is a massive task. It is a huge lift. Industry is going to spend many billions of dollars on it ourselves. But pretty much every jurisdiction in the world that is proceeding on carbon capture and storage is really doing that with significant involvement from multiple levels of government. You've heard me talk about the U.S., [but] Norway is in a similar position.

“So I think Canada needs to be focused on competitiveness. This is an incredibly important business for the Canadian economy and Canadians. And as I said, we're going to do our part, and we are doing our part. But there's more discussions needed with both levels of government.”

Rhona DelFrari, chief sustainability officer and senior vice-president, stakeholder engagement, agreed that the focus has to be on both the capital cost side as well as operating costs.

“And that's what we've seen in examples around the world where significantly large CCS projects have gone forward — there's been anywhere from two-thirds to getting close to full support from governments across the project. These are multi-decade projects and so the capital is great. That's the first thing that you talked about. But you also have to look at balancing the operating costs over the life of these projects because that's the most significant part of them,” she said.

“But CCS is the focus right now because that's a proven technology. And anywhere in the world right now — there's CCS everywhere — our companies’ have experience with CCS when it's linked to enhanced oil recovery because then it makes sense to go ahead without having to partner with government,” DelFrari added.

“But we’re looking at the CCS projects that we're talking about where they are not the oilsands partnered up with enhanced oil recovery. These are joint projects that [Pathways Alliance members] want to do with the government. This is infrastructure that's for the Canadian good. And it's infrastructure that is going to result in tens of thousands of jobs that will be a real next construction boom in Alberta. So there are so many levels of benefit to these projects going ahead.”

When asked by an analyst, Pourbaix offered a very loose timeframe for the Alliance to get more of this fiscal and regulatory clarity it is seeking.

“My kind of guess on this is there's a lot of discussion that is ongoing with government. And just given the complexity of this issue and the need to make sure it is done right and we deliver what is needed, I would suspect that this will ultimately extend into the new year,” he said.

Other technologies are part of the Pathways’ Plan

On Nov. 10, the Pathways Alliance released additional details on plans to progress innovative technologies to reduce emissions, as part of its unprecedented multi-phased plan to achieve the goal of net zero by 2050.

The list of technologies underscores the Alliance’s collaborative work to help Canada achieve its climate commitments, which is being showcased as part of the official Canadian delegation to the United Nations Climate Change Conference (COP27) in Sharm El-Sheikh, Egypt.

“Oilsands companies are advancing new and existing technologies with a range of leading national and international research and development organizations, unlocking new approaches to significantly reduce CO2 emissions,” said Kendall Dilling, president of the Pathways Alliance.

“Leading-edge technology is one of the most important tools we possess to reduce emissions on a global scale and Pathways Alliance companies have a long track record of world-class research and development (R&D) investments to build on. We look forward to a healthy exchange of ideas with delegates from around the world at COP27.”

Pathways Alliance has pooled scientists, engineers, and other experts from the member companies to execute its plan to reduce absolute CO2 emissions by 22 million tonnes by 2030 and to net zero by 2050.

Over and above the construction of a carbon capture network and storage hub by 2030, these industry experts are focused on developing the next generation of GHG-reducing technologies.

Technologies prioritized for Pathways Alliance collaboration and acceleration are:

  • Carbon capture and storage (CCS). Pathways said it is currently “advancing several” CCS technology development projects, including piloting next generation technologies, such as those developed by Svante Inc. and the use of Molten Carbonate Fuel Cells.
  • Natural gas decarbonization and hydrogen use to remove a high percentage of carbon from natural gas streams prior to combustion in oilsands facilities. Pathways members are currently undertaking feasibility studies for deploying hydrogen as a substitute fuel to displace natural gas use. The group is also evaluating technology options for converting carbon in natural gas and flue gas into economically useful products.
  • Steam reduction technologies to reduce the need for steam in bitumen production. Plans call for a pilot of next generation high-concentration solvent technology developed in Imperial Oil Limited’s ’soil and gas research center as well as solvent-assisted SAGD optimization.
  • The Pathways technology development plan also includes work on several other key technologies needed to achieve net zero by 2050, including switching fuel and electrification of mine haul trucks, use of geothermal energy to produce hot water and steam to reduce emissions and advancing approaches to better manage fugitive emissions.

“With anticipated co-funding support from Canadian governments, Pathways Alliance recently announced plans to invest $24.1 billion before 2030 in the first phase of its plan. Approximately $16.5 billion will support a proposed carbon capture and storage network in northeastern Alberta that, when constructed, will be among the largest facilities in the world,” the Alliance said in a press release.

“Another $7.6 billion investment is planned on major emissions reduction projects and technologies. Between 2012 and 2021, Pathways Alliance’s six member companies invested more than $10 billion on R&D on various technologies. Some of these have helped the industry reduce per barrel CO2emissions by about 20 per cent between 2009 and 2020, according to S&P Global.”

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