ALBERTA CANCELS FUNDING FOR SWAN HILLS CCS PROJECT

Project on Hold Until Gas Prices Increase, Developer Says 

Tamar Hallerman
GHG Monitor
3/1/13

The Alberta Government announced Feb. 25 that it is discontinuing its $285 million funding agreement for its Swan Hills project, putting the brakes on the second carbon capture and storage project in the province this year. In a joint statement with the $1.5 billion project’s developer, Swan Hills Synfuels, the provincial government said low gas prices have made the production of synthetic gas uneconomic. Until those prices increase, the project is on hold, Swan Hills Synfuels CEO Martin Lambert said. “At present, it’s more economical to purchase natural gas than it is to manufacture synthetic gas,” he said. “It’s a market reality that has led to significant delays on the CCS side of the project.” The project delays caused by the low gas prices meant that Swan Hills Synfuels had to give up its public funding because it could not reach the project benchmarks set out by the province as conditions for its CCS grant, the company said.

Swan Hills Synfuels said it will resume the project when gas prices rise. “Natural gas prices in Alberta are currently at around $3 per MMBtu. We would need that price to increase to about $5 per MMBtu for the project to become economically attractive,” President of Swan Hills Synfuels Douglas Shaigec told GHG Monitor in an interview. The project aims to use in-situ coal gasification technology to produce synthetic natural gas from deep unmineable coal seams while also capturing 1.3 million tonnes of CO2 annually for nearby enhanced oil recovery operations in central Alberta. In the meantime, Shaigec said the company will continue to operate its nearby demonstration project, which has been running on and off since 2009. “We’re going to be continuing with that operation in order to gain further experience with synthetic gas manufacturing,” he said. “That will help better position us to move quickly on implementation when the economics warrant the large-scale facility.”

Second Stalled Project this Year

The Swan Hills announcement marks the second large-scale CCS project funded by the province to stall operations this year. TransAlta Corp. abandoned plans for its $1.4 billion post-combustion capture retrofit, Project Pioneer, in April, saying that it could not secure economic contracts for the project’s captured CO2 from EOR operators. Chris Severson-Baker, managing director of the Canadian think tank the Pembina Institute, said the back-to-back failures underscore the need for Alberta to raise its carbon price in order to make CCS more economically attractive. The province currently has a $15 per metric ton price, widely considered to be too low to incentivize most low-carbon investments. “Alberta absolutely needs to beef up the economic signal one way or another for companies to adopt CCS,” he said in an interview. “In Alberta, $15 price per ton is simply not doing it.”

The failure of Project Pioneer and Swan Hills’ to move forward now leaves two of the original four large-scale projects funded by a $2 billion provincial CCS fund still standing, both of which are linked to Alberta’s oil sands. Shell Canada continues to move forward on early construction work on its $1.35 billion Quest project, which saw financial close in September. The fourth project, Enhance Energy’s Alberta Carbon Trunk Line, is also moving forward. The project aims to build a pipeline connecting several CO2 capture operations in Alberta’s ‘Industrial Heartland’ to mature oil fields 150 miles south, but is not tied to a single capture project. At full capacity, the Trunk Line is slated to carry up to 14.6 million tons of CO2 annually.

How Will Gov’t Reallocate Funding?

But now left unanswered is what the provincial government plans to do with the more than $700 million in unspent funds initially allocated to Project Pioneer and Swan Hills. An Alberta Energy spokesperson told GHG Monitor that the ministry has not yet decided how to reallocate the money, but underscored that the funding has been earmarked for CCS. “We’re still committed to CCS,” the spokesperson said. But some remain doubtful. “Certainly it’s not the right kind of climate for the Premier to be making announcements about giving away money, especially to industry,” Severson-Baker said. “So we’re not expecting any of that money to be reallocated to other CCS projects at this point in time. But at the same time, the clear message that we’re getting from the Department of Energy in Alberta is that they remain committed to CCS in the long term and they see the two projects that are going ahead as critical.”

Provincial officials, though, underscored Alberta’s commitment to CCS following the Swan Hills announcement. “CCS remains a key part of Alberta’s commitment to reducing greenhouse gas emissions and the responsible development of our energy resources,” Energy Minister Ken Hughes said in a statement. He touted the $1.3 billion in provincial funding still allocated to the two remaining CCS projects. “Alberta’s unprecedented commitment of $1.3 billion for these projects speaks to how serious we are about climate change and reducing our impact,” he added.

The Swan Hills announcement comes as the Alberta government steps up efforts to lobby the White House to approve TransCanada Corp.’s Keystone XL pipeline extension from Alberta’s oil sands to refineries near the Gulf of Mexico. Alberta Premier Alison Redford was in Washington last weekend meeting with governors about the project. The province has been facing pressure from many in the environmental community to clean up emissions from its carbon footprint-heavy oil sands, and many have looked to CCS projects like Quest as a public relations solution. But some green activists have come after the project for “greenwashing” what they say is ultimately a dirty industry.