A general view shows a Syncrude oil sands mining facility near Fort McKay, Alberta, on Sept. 6, 2022.ED JONES/Getty Images
A federal financing agency has for the first time put forward a specific proposal to back a multibillion-dollar investment in carbon-capture technology by the Pathways Alliance, a group of the country’s largest oil-sands companies.
Three sources familiar with the matter told The Globe and Mail that the offer to back capital costs for the industry group’s six members – who collectively represent approximately 95 per cent of oil-sands production – was recently made by the Canada Growth Fund.
The Globe is not identifying the sources, because they were not authorized to speak publicly about the negotiations.
The Canada Growth Fund (CGF) is a $15-billion entity created last year by Ottawa to support carbon capture, storage and utilization (CCUS), along with other forms of clean technology, but its previous discussions with Pathways fizzled out before anything substantive was put on paper.
The resumption of talks and tabling of the new proposal took place after the CGF separately reached a deal in July to partner with Strathcona Resources Ltd. SCR-T, which is the fifth-largest oil-sands producer but not part of Pathways, the sources said.
The CGF is citing that partnership – which involves the agency putting up to $1-billion toward the capital costs of Strathcona’s $2-billion carbon-capture and storage investment – as proof of its ability to get deals done with the industry and as a model for the Pathways proposal.
The renewed engagement between the CGF and Pathways could mark long-awaited progress toward the $16.5-billion shared investment in carbon capture which Pathways – whose members include Cenovus Energy Inc. CVE-T, Suncor Energy Inc. SU-T, Imperial Oil Ltd. IMO-A, Canadian Natural Resources Ltd. CNQ-T, MEG Energy Corp. MEG-T and ConocoPhillips Canada – has long touted as the centrepiece of its plans to reduce greenhouse gas emissions from oil-sands production.
Ottawa is already providing other support for those ambitions, most notably a new tax credit covering up to 50 per cent of carbon capture, storage and utilization investment costs, and Alberta’s provincial government has layered on an additional 12 per cent in similar backing. But Pathways has said that’s still not enough to make its projects financially viable.
With oil-and-gas production the single biggest source of Canada’s total greenhouse gas emissions, and the largest obstacle toward hitting national climate targets, Pathways and the CGF are now under political pressure to get something done.
Heading into a meeting with Pathways earlier this month, which Finance Minister Chrystia Freeland also attended but at which the CGF was not present, Energy and Natural Resources Minister Jonathan Wilkinson told The Calgary Herald that he was “very hopeful that we’re going to be able to move this ahead in the not-too-distant future.”
The CGF’s proposal is likely to serve as a starting point for more advanced negotiations, however, and any deal is likely still at least months away. Far from being at the stage of hammering out fine print, the two sides are still some distance apart on the fundamentals, all three sources indicated.
While the CGF is pitching something akin to the Strathcona deal, which would involve financing a portion of projects’ capital costs, Pathways’ circumstances and demands are considerably different from that company’s.
That includes more complex needs around what do with carbon after it’s captured at oil-extraction sites. Unlike Strathcona, whose facilities are situated above potential carbon storage reservoirs, Pathways members would largely need to transport the carbon to other sites, creating greater infrastructure costs.
A bigger sticking point may be that, more than just asking for help with capital investments, Pathways has been citing carbon capture’s operational costs to seek greater revenue certainty.
That would require something along the lines of carbon contracts for difference (CCfDs), which essentially guarantee the value of carbon credits under Canada’s industrial pricing system, even if political change causes that system to be scrapped or the credit market otherwise does not prove robust.
CCfDs are within the CGF’s mandate, and it has already struck smaller deals involving variations of that approach, such as a commitment to purchase hundreds of millions of dollars in credits from carbon-capture developer Entropy Inc. But the agency has previously balked at the level of price guarantee that Pathways is seeking, and the amount of its total budget that would be consumed by meeting that demand.
Complicating efforts to find common ground on such matters is the diverse nature of Pathways’ membership. The alliance is in negotiations with the CGF around both infrastructure that the companies would share to transport and store carbon, and capture facilities that each would have to build separately. The latter could involve different financial considerations for each project, and the companies also vary in their enthusiasm for taking on risk related to emissions reduction.
Leadership on both sides struck cautious but optimistic tones in statements provided to The Globe.
“CGF’s experience to date shows it can provide industrial emitters with investment structures that hedge their compliance costs and align partners to unlock substantial, cost-efficient emissions reductions over time,” said Growth Fund president and chief executive officer Patrick Charbonneau. “We are creative, engaged and active in the Canadian market, and look forward to unlocking more deals in the months to come.”
Pathways president Kendall Dilling said that it’s “encouraging to see Ottawa taking steps to de-risk industry investments in large-scale carbon capture projects,” and that his organization looks forward to further engagement with the CGF. He also called the recent meeting with Ms. Freeland and Mr. Wilkinson “a very constructive conversation.”
For the government’s part, a spokesperson for Ms. Freeland, Katherine Cuplinskas, stressed that the CGF is responsible for negotiations around financing for potential partners such as Pathways, and that the agency operates at arm’s length.
Meanwhile, against the backdrop of both an approaching federal election that could shift climate policy, and looming emissions-reductions targets that Canada is not currently on pace to meet, oil-and-gas decarbonization advocates are pointing to the new talks as a window that needs to urgently be capitalized on.
“I’m ultimately confident, because we have a moment in which everybody’s at the table,” said Adam Sweet, the climate-policy organization Clean Prosperity’ director for Western Canada. “If everybody can realize just how good an opportunity this is right now, then we can move.”
