March 8, 2004

Federal incentive program provides $15 million for carbon dioxide capture, storage development

The federal government last week announced a $15-million, two-year initiative to help develop a market for carbon dioxide (CO2) capture and storage in Canada and to demonstrate innovative new uses for CO2 from industrial emitters.

Developed in consultation with industry and provinces in western Canada, the CO2 Capture and Storage Incentive program complements provincial initiatives such as Alberta's CO2 Projects Royalty Credit program, and is designed to reduce duplication of effort for applicants in the Alberta program.

"Storing CO2 in an innovative way will bring us closer to meeting our goals for reducing greenhouse gas (GHG) emissions and contributing to climate change solutions," said Natural Resources Canada (NRCan) Minister John Efford. "These projects will also help us maximize the benefits from our fossil fuel resources," he added.

Alberta Energy Minister Murray Smith said the initiative "will lead to a greater role for CO2 capture and storage as part of Alberta's action plan on climate change and its energy innovation strategy, while enhancing the economic opportunities in our oil and gas sector. In addition, our co-operation with the government of Canada on this initiative will streamline the process for potential applicants and encourage greater participation."

The purpose of the CO2 Capture and Storage Incentive is to demonstrate CO2-based enhanced oil/gas recovery in small-scale commercial projects which are nearing economic viability, in order to help abate the higher costs of CO2 capture and storage and to facilitate the development of the CO2 capture and storage market.

The program offers significant long-term potential for addressing GHG emissions, while continuing the pursuit of Canada's industrial economic objectives. It builds on the unique expertise Canada has developed from the Weyburn CO2 monitoring project and will support knowledge, innovation and technology in the natural resources sectors.

Through its investment in this program, the government expects to achieve:

* increased investment in CO2-based oil and gas recovery;

* growing use of CO2 capture and storage as a tool for mitigating GHG emissions;

* an increase in the amount of CO2 stored;

* greater public awareness and acceptance of the concept of storing CO2;

* improved capacity to verify net emissions reductions; and

* long-term storage of CO2 by the end of the 2005-2006 fiscal year.

Incentive funding will be used to support projects that demonstrate CO2-based enhanced resource recovery in small-scale commercial settings, and to help abate the costs of CO2 capture and storage.

The process involves capturing CO2 from large single-point sources - typically industrial plants in which CO2 is a byproduct (such as a petrochemical or hydrogen plant) or is a flue gas from hydrocarbon production (such as a coal-burning power plant).

The CO2 is processed and compressed, then transported and injected into geological formations, such as oil or natural gas reservoirs, deep coal beds or deep saline aquifers. Capture from process gas sources is close to becoming commercially viable, especially where the injection of CO2 can be used to produce revenue.

The Western Canada Sedimentary Basin is believed to be the most promising location for CO2 capture and storage projects. Covering large portions of Alberta, Saskatchewan, Manitoba and the Northwest Territories, the basin contains several mature oil fields that may be candidates for CO2-based enhanced oil recovery.

In this technique, CO2 is injected under high pressure into a reservoir to push the oil to a producing well. The mixture of oil and CO2 is recovered, the two components are separated and the CO2 is re-injected in a cyclical process until the field reaches the end of its economic life. As a result, this technique sequesters large net quantities of CO2 and extends oil production.

To qualify for the program, a firm must operate a project that injects CO2 from a Canadian source into a geological formation for storage and/or disposal in Canada, and demonstrate reasonable economic need for the project (i.e. a rate of return below the industry standard of 10 to 15%).

Applicants must submit detailed economic data for the project. Eligible expenditures are defined as up to 50% of the cost of capital equipment and all other direct expenses required for capturing, compressing, transporting and injecting CO2 . Recipients will be required to sign contribution agreements with NRCan in order to receive incentive payments.

Proponents interested in participating in the CO2 Capture and Storage Incentive Program are invited to submit an application to NRCan no later than April 9, 2004. The level of funding available in each of the two years is $7.5-million. The maximum federal contribution to a single recipient is $5 million over the program period.

More information is available at www2.nrcan.gc.ca/es/erb/prb/english/View.asp?x=619.

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