Canada's first foreign oil company to sanction carbon capture project

Canada's first foreign oil company to sanction carbon capture project

If more government incentives become available, Reuters International Petroleum Corp, the first foreign oil company to sanction a project in Canada's oil sands in more than a decade, could add carbon capture and storage CCS to the plant, according to its CEO.

The Geneva-based IPC, part of Sweden's Lundin Group, sanctioned phase one of the 30,000 barrel-per day Blackrod thermal project in northern Alberta last month.

The company is joined by Canada's biggest oil producers in urging policymakers to boost public funding for the costly technology that is seen as the key to cutting emissions from the carbon-intensive oil sands.

Industry says that CCS projects need more government support to be financially viable, while Ottawa and the oil-rich province of Alberta are at odds over who should provide more funding.

If the right incentives come along, we're in a very good position to look at carbon capture down the line, CEO Mike Nicholson said in an interview in late February.

Nicholson said that the company will pay Canada's carbon tax, set to rise to C $170 a tonne by 2030.

IPC, a 50,000-bpd producer with assets in Canada, France and Malaysia, will spend $850 million developing phase one of Blackrod. The first oil is expected to be produced in 2026, and IPC has regulatory approval to produce up to 80,000 barrels per day.

The plant is the first greenfield oil sands project sanctioned by Imperial Oil Ltd since its Aspen plant was given the go-ahead in 2018, only to be shelved indefinite months later.

It comes after years of tepid foreign investment in the oil sands, with international firms deterred by high upfront capital costs, crippling export pipeline congestion and concerns about bitumen's high carbon intensity.

Nicholson said that IPC's decision was underpinned by new Canadian export pipeline capacity and IPC's strong financial position.

He said that the petroleum industry's recent focus on paying down debt and buying back shares has left global oil supplies extremely tight.

Our industry hasn't been invested in for more than a decade, and the recent investment has been very short-cycle, Nicholson said.

There's still a preference for shareholder returns. It is not how you build long-term sustainable businesses. The investment of IPC underscores the importance of Canada's vast bitumen deposits, the world's third-largest crude reserves, amid global concerns about energy security following Russia's invasion of Ukraine.

Blackrod, though relatively small, shows how growing production risks derailing Canadian Prime Minister Trudeau's emissions-cutting goals and cementing Canada's place as a climate laggard.

Canada's oil sands produced a record 3.15 million barrels per day in 2022 and are expected to hit 3.7 million barrels per day by the year 2030, according to S&P Global.

Between 2005 and 2021, emissions from the oil sands have jumped 137%, or 48 megatons, according to the Canadian Climate Institute.

The think-tank said that they are projected to rise another 23 megatons by 2030 if CCS projects take off and the federal government passes tougher climate legislation, including a controversial federal oil and gas emissions cap.

Although a wave of greenfield projects like Blackrod is unlikely, strong global crude prices mean that oil sands production will likely continue to climb through existing project expansions, analysts said.

Wood Mackenzie's analyst Scott Norlin said that the oil sands are long-life, low-decline assets. They just print money, especially when oil is above $70.