UPDATE 2-StatoilHydro, Shell to drop Norway power plant

(Adds comments from StatoilHydro)

By Aasa Christine Stoltz

OSLO, Dec 20 (Reuters) - Energy groups StatoilHydro (STL.OL) and Shell (RDSa.L) said on Thursday they would scrap plans to build an environmentally friendly gas-fired power plant in Norway, but the Oslo government is now seeking alternatives.

The Norwegian unit of Royal Dutch Shell said the 860 megawatt (MW) plant that was planned at Tjeldbergodden in Norway and which had been intended to capture and store polluting gases, turned out to be too expensive.

Norway's Oil and Energy Minister, Aaslaug Haga, said she will now ask Shell to consider the possibility of building a gas-fired power plant at Aukra, also with capture and storage of carbon.

Central needs access to more power mainly due to high usage from gas field Ormen Lange and other large industry.

"I will ask Shell, which is the operator at Ormen Lange, to look into the possibility of a dedicated gas power plant at Aukra," Haga told a news conference.

StatoilHydro and Shell said Norwegian electricity prices are too low, while gas prices are too high to make the project at Tjeldbergodden economically viable.

"It is very demanding to make a gas power plant pay off when you have high costs and low revenues," StatoilHydro spokesman Kai Bjarne Lima said.

Shell also said the plant would require significant public financing of carbon capture, transport and storage.

The companies said they had no plans to pick up the project at Tjeldbergodden at a later date. "Not the way the situation in the market is now. We have evaluated this and found it not economically justifiable," Lima said.

WORLD'S BIGGEST

StatoilHydro and Shell announced plans in March 2006 to develop the world's biggest scheme to bury industrial gases beneath the seabed in a $1.2-$1.5 billion project designed simultaneously to curb global warming and raise oil output.

Under the scheme, StatoilHydro intended to capture greenhouse gas carbon dioxide (CO2) from the gas-fired power plant to be built at the company's Tjeldbergodden methanol complex.

The CO2 would then be piped to Shell's Draugen oilfield off Norway -- and later also to Statoil's Heidrun field -- and injected into subsea reservoirs, to force oil to the surface.

Norway's government at the time hailed the project as a "showcase for Norway as an environmentally friendly technology nation".

But in June 2007, Shell and StatoilHydro gave up the plans to inject CO2 as a means to push out more oil, saying it would be too expensive.

They then promised to continue analysing the possibility of a power plant that would capture and store CO2 -- plans that are now cancelled.

Last week, the Norwegian government and partners said it would postpone the capture and storage of carbon dioxide emissions at a planned power plant at Mongstad in Norway by about a year, also due to higher than foreseen costs. (Editing by Anthony Barker, Paul Bolding)