Abby L. Harvey
GHG Monitor
10/30/2015
A $12 million (CAD) penalty paid to Alberta-based Cenovus for the failure of Saskatchewan-based SaskPower’s Boundary Dam Unit 3 carbon capture and storage project to provide the oil company with an agreed-upon amount of CO2 in 2014 has the province’s New Democratic Party (NDP) up in arms. The NDP, which has been cold to the development of CCS, announced the discovery of the payment early this week, saying the conservative Saskatchewan Party has not been forthcoming about the performance of the plant, which it supports. “This money belongs to Saskatchewan families, but it seems the Sask. Party has forgotten that because this $12-million secret payment is disturbing,” said NDP lawmaker Cathy Sproule in a party press release.
SaskPower, the Crown utility, had negotiated an agreement with Cenovus to sell CO2 captured at the Boundary Dam project for use in enhanced oil recovery (EOR). However, the plant started up a few months later than anticipated, officially opening in October 2014 instead of April of that year. The facility has yet to reach full capacity, and was run at a lower capacity after it became operational in part because Cenovus did not need the CO2 that would be produced by the site at full capacity.
“The government’s own documents show that Cenovus didn’t need the CO2, and that’s why the carbon capture facility wasn’t run at full capacity, but the Sask. Party still cut a $12-million cheque to Cenovus as part of a supposed penalty just six weeks later? That makes no sense.” Sproule said.
According to a September 2014 briefing note from Mike Monea, president of SaskPower’s carbon capture and storage initiatives, released to the media by the NDP this week, the delay in the completion of the Boundary Dam project, which caused the shortage of CO2, was due to contracted engineering company SNC-Lavalin. The briefing note alleges that SNC is responsible for “serious design issues” at the plant. “SNC has delayed our project six months,” the document says. “These delays have put in jeopardy a Cenovus contract to have 2192 tonnes of CO2 delivered before midnight Sept. 29. 2014 with penalty value of 92 million dollars. SaskPower is working with Cenovus to amend this penalty value. The late delivery of CO2 to Cenovus will cost 7 million dollars in penalties.”
SaskPower has begun legal proceedings against SNC-Lavalin, in hopes of restoring some of the lost funds. The briefing note also accuses SNC of being responsible for “serious design issues with [the] plant,” and having “neither the will or the ability to fix some of these fundamental design issues.” Furthermore, the document says, “SNC has been very slow to address basic design problems.”
After a year of operation, the plant is still not operating at full capacity, indicating SaskPower will again have to pay a penalty for undersupplying CO2 to Cenovus. “In 2015, there is a loss of approximately 5-6 million in terms of the sale of CO2 to Cenovus,” Saskatchewan Energy Minister Bill Boyd, a member of the Saskatchewan Party, said at a press conference this week. “We still believe this facility is a good facility, we still believe that it will meet its targets going forward. Obviously, there was some startup problems with respect to it,” Boyd said.
While the company will be on the hook for further penalties this year, that total will be offset by the sale of the CO2 it did provide, Mike Marsh, president and CEO of SaskPower, told GHG Monitor this week by e-mail. “In 2015, we anticipate making money from that contract. We still have paid some penalties for shortfalls, but we’ve also sold about 400,000 tonnes of carbon dioxide to Cenovus,” he said. “We are fixing some mechanical issues right now and fully anticipate to produce more carbon dioxide in the coming year.”
Marsh also asserted that SaskPower’s current situation is not uncommon. “Our contract with Cenovus is a typical ‘take-or-pay’ contract that protects both parties. These are some of the start-up challenges we’re dealing with as we fine-tune the system. We are seeking restitution in court to recoup these and other funds caused by start-up delays. This is not uncommon on large-scale projects,” he said.
The NDP has railed against the project throughout the week, making a motion on Thursday to allow the provincial legislature’s Crown and Central Agencies Committee to examine the project. The Saskatchewan Party opposed the motion, which did not pass. “The Sask. Party hasn’t been honest with people on this project, and they got caught,” said Sproule. “It’s time to come clean, put all the facts on the table, and start working urgently on a go-forward plan to salvage as much as we can. It’s shocking to me that the Sask. Party refused to do that. Billions in costs and millions in penalties are piling up and this thing still isn’t working properly.”
