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MONGSTAD, Norway (Reuters) - Industry refuses to invest in carbon capture and storage (CCS) projects without strong state support because of a lack of clarity on future emissions rules, Norway's StatoilHydro said on Friday.
Norway's biggest oil and gas producer StatoilHydro is one of the world's most active companies in CCS, with two field facilities offshore Norway, one in Algeria and an experimental CO2 capture project at its biggest oil refinery, Mongstad.
"CCS has to be part of the climate battle. What is the alternative?" Executive Vice President Jon Arnt Jacobsen told reporters on a visit to Mongstad on Norway's North Sea coast.
"But we don't know what the regulatory environment will be going forward -- that is why nobody (in industry) is doing CCS on their own. Governments have to take the lead to get this going and get a framework to make CCS realistic over time."
CCS involves capturing carbon dioxide (CO2) emissions and burying them.
Industry has been cool on CCS, whose technology is not yet tested and which is much more expensive than other sources of emissions cuts such as a switch to wind or solar energy.
Because of a lack of private investors, the European Union made an exception for CCS in its public finance rules to allow governments to pay for all of the struggling pilot projects.
Over time, CCS costs are expected to decrease.
Norway's government is also funding Mongstad's full-scale carbon capture plant, which sequesters CO2 post-combustion, or from would-be emissions at the refinery's power plant and a cracker unit. At its field CCS projects, StatoilHydro removes CO2 from natural gas flows and reinjects it below ground.
Some framework for regulations on CCS and other low-carbon projects aimed at minimizing man-made global warming could be drafted at the climate talks due in Copenhagen in late 2009.
Under the terms of the deal with the Norwegian government, which owns 67 percent of StatoilHydro shares, the oil and gas company will pay the market price for its carbon emissions from Mongstad while the government will build the full-scale capture plant for $3.9 billion and pay its operating costs.
"Norway wants to be first mover on CCS without placing an unreasonable burden on StatoilHydro," Jacobsen said.
According to initial estimates, the Mongstad project costs between 1,300 and 1,800 crowns ($203-281) per tonne of captured CO2, against a benchmark price of 14.96 euros ($20.93) per tonne of European carbon emissions purchased on the market.
And the Mongstad price estimates do not include the costs of transporting the CO2 offshore in pipelines, pumping the gas to a secure reservoir under the seabed and storing it there -- which analysts said could roughly double the price tag.
StatoilHydro said the CCS plant is more costly than rival projects because the sequestering will be done on natural gas, which has a lower CO2 content than coal, and because the plant will need to be integrated with existing facilities at Mongstad.
Due on stream in the middle of the next decade, the plant which will be proceeded by a pilot project in which StatoilHydro has 20 percent, as does Mongstad's other owner Royal Dutch Shell.
The full-scale plant will capture about 2 million tonnes of CO2 per year, or 4 percent of Norway's overall emissions.
"This is uncharted territory and there is no commercial entity that can take on this risk," Jakobsen said. "And there is a first-mover disadvantage, as the one who builds (later) will not make the same mistakes and learn from others."
Editing by Anthony Barker