By Gerard Wynn
LONDON, Sept 7 Royal Dutch Shell's
investment in a carbon capture plant at its tar sands facility
in Alberta shows the company recognises the threat of climate
policies targeting unconventional oil.
The project will help shield Shell against future penalties
on tar sands, as planned by California and the European Union,
while its commercial success will also depend on demand for the
CCS technology which it develops.
In other words, the investment shifts Shell towards the
environmental groups which have opposed tar sands development
and coal-fired power, on the basis of their CO2 emissions, and
could encourage policymakers on CO2 limits.
CCS traps CO2 from processing and burning fossil fuels but
has been slow to progress because of vast costs and a failure by
governments to charge for emissions whether through carbon taxes
or emissions trading schemes.
The first commercial scale power plant application is under
construction at the Boundary Dam coal-fired power plant in
Saskatchewan, Canada, while Shell's Quest project will be the
first to apply to unconventional oil.
The Quest plant will trap carbon dioxide from Shell's tar
sands upgrader at its Scotford facility in Alberta and inject
the greenhouse gas into porous rock 2 kilometres below ground.
Regional and federal Canadian governments will supply C$865
million ($881 million) towards an estimated cost of C$1.35
billion. Shell's investment, confirmed this
week, is undisclosed.
The project will also get two tradable carbon offsets for
every tonne of avoided CO2 emissions, currently worth up to C$15
each, implying up to C$30 million annually if the project meets
its minimum target of 1.08 million tonnes sequestered per year
by December 2015.
Production of liquid fuels from tar sands is generally more
carbon-intensive than conventional petroleum because of the
higher energy intensity of extraction and upgrading.
Tar sands are made of a mixture, in varying proportions, of
sand and other mineral matter (80-85 percent) water (5-10
percent) and bitumen (10-18 percent).
The bitumen is either extracted after mining from the
surface, as in Shell's case, or else extracted in situ
In the case of surface mining, the bitumen and sand is
removed using massive hydraulic shovels and transported to
processing facilities where it is mixed with hot water, screened
and the bitumen separated out.
Raw bitumen will not flow through a pipeline at ambient
temperatures and so it is either upgraded to synthetic crude oil
(SCO) or diluted with a light hydrocarbon.
Shell upgrades the bitumen at its Scotford facility in a
process which removes contaminants and adds hydrogen produced
from natural gas.
Such hydrogen production reacts steam with natural gas at
high temperatures, separating methane into hydrogen and CO2
which Shell will capture using an amine solvent to absorb the
greenhouse gas, under its Quest CCS project.
Shell estimates the project will capture up to 35 percent of
the total CO2 emissions from the upgrader.
Shell's investment makes sense in the context of greater
expected curbs on CO2 in Canada.
Canada has a national target to cut its emissions by 17
percent by 2020 compared with 2005 levels.
BP energy data show the country's CO2 emissions from burning
fossil fuels presently are just 3.4 percent below 2005 levels
and grew annually for the past two years, implying that the
target will require additional action to curb CO2 from its
expanding tar sands industry.
Canadian provinces have imposed additional targets.
Under 2007 regulation energy companies in Alberta have to
report their CO2 emissions per barrel of oil (carbon intensity)
and cut these by 12 per cent annually, with a phase-in of
several years for emitters established after 2000.
That carbon intensity approach puts no upper limit on
absolute emissions, and is made more flexible by allowing
companies instead to pay into a climate fund at the rate of C$15
($15.13) per tonne of exceeded CO2, or else buy carbon offsets
from Alberta-based projects which reduce their emissions below a
business as usual baseline.
But Alberta is reportedly planning to tighten that target,
as it expects CCS to account for 70 percent of the province's
carbon savings through 2050.
The Shell investment also makes sense in the context of
expected rising demand for CCS technology, to curb emissions
from coal-fired power plants.
Ottawa confirmed on Wednesday a limit on CO2 emissions from
new coal plants, following similar caps in Britain and the
United States, and which will force the use of CCS in new
coal-fired power generation.
LOW CARBON FUEL
Perhaps the most significant prospective policy threat to
unabated tar sand emissions will come from plans in California
and the European Union to take account of their higher CO2 under
existing low carbon fuel standards, and which could provide
The EU's executive Commission in February delayed until next
year a decision on whether to attribute higher CO2 emissions to
tar sands under its Fuel Quality Directive (FQD).
The law already requires fuel suppliers to cut the
life-cycle CO2 emissions of their fuels by 6 percent per barrel
by 2020 compared with 2010 levels.
The Commission has proposed to label tar sands CO2 emissions
as 22 percent above the average crude baseline, in a move which
would discourage refiners from using it under the FQD target.
The proposal ascribes to tar sands a value of 107 grams CO2
per megajoule of fuel, compared with average crude oil at 87.5
It remains to be seen whether Shell's Quest investment will
now see the company support such deliberate targeting of tar
sand CO2, policies it has previously been coy about.