Shell carbon plan wins Canadian government funding

Workers are seen behind a logo for oil company Shell at offices in London in this July 30, 2009 file photo.

CALGARY, Alberta (Reuters) - The Canadian and Alberta governments have promised C$865 million ($823 million) to help oil major Royal Dutch Shell Plc develop carbon capture and storage at its oil sands processing plant as they seek to meet goals to cut emissions and curb global warming.

The governments said in a letter of intent they would spend the money over 15 years on Shell's Quest carbon dioxide reduction project at its Scotford upgrader near Edmonton, which the company said has a total estimated cost of C$1.35 billion.

Alberta signaled it will contribute C$745 million and Ottawa will kick in C$120 million.

The funding for the fledgling technology comes as governments try to cut greenhouse gas (GHG) emissions from Canada's energy resources while preventing a drop in oil investment.

Shell, the world's No. 2 non-state oil company, is in the early stages of developing Quest, which would start storing emissions underground by the end of 2015, Shell Vice-President Graham Boje said.

"There's a couple of years of work ahead of us. There's a lot more technical work to do, and then there's also the regulatory application process and approval process, as well as consultation with people in the area," Boje told reporters.

Alberta is known for its vast oil sands, the largest source of crude outside the Middle East and a major target of investment for the world oil industry.

But developing and producing the tar-like oil is carbon-intensive and environmental groups have launched high-profile campaigns to warn of the developments' harm to the fight against global warming.

Greenpeace activists have staged occupations at three oil sands plants in the past month to hammer home their message.

Alberta has set aside C$2 billion to invest in carbon capture and storage, which has yet to be proven on a large scale. The federal government has C$650 million for CCS as it seeks to cut emissions by 20 percent from 2006 levels by 2020.

"Carbon capture and storage is an expensive, expensive mitigation device," Canadian Natural Resources Minister Lisa Raitt said. "That's why the government has to be involved in partnership with industry to demonstrate that, on a large scale, it can be commercial and it can utilizable, and it can reduce GHG emissions."

Shell, with partners Chevron Corp and Marathon Oil Corp, aim to capture 1.1 megatonnes of greenhouse gas emissions annually, representing a cut of about 40 percent of GHG emissions from the upgrader. That plant is being expanded to pump out 255,000 barrels of synthetic crude a day.

Under the plan, the CO2 would be captured from bitumen processing units then piped to a nearby injection site, where it would be stored in a geological formation 2,300 meters (7,500 feet) underground.

Simon Dyer, director of oil sands for the Pembina Institute, an environmental think tank, said such a large amount of government money should not be spent unless taxpayers get direct benefit, like some public ownership.

"Given the significant investments in these sorts of experimental technologies that could also be used to subsidize renewables and other strategies to achieve the deep reductions that we need, it's not appropriate to go down this road with taxpayers' money," Dyer said.

"If we're serious about driving CCS, we need to put the regulations in place that would require it."

The Quest project is among three that had made the short list for public funding. Alberta is also weighing proposals from groups including Epcor and Enbridge Inc as well as Enhance Energy and Northwest Upgrading.

(Reporting by Jeffrey Jones; editing by Rob Wilson)