Alberta rejects carbon capture skepticism

Globe and Mail: NORVAL SCOTT - September 15, 2008

CALGARY Alberta's plans to reduce emissions from the oil sands will work, Energy Minister Mel Knight said Monday, countering claims from U.K.-based investors that the technology is unproven.

On Tuesday, a group of institutional investors led by Co-operative Asset Management, a U.K-based fund worth 2.9-billion ($5.58-billion), will call BP PLC and Royal Dutch Shell PLC to restrict their operations in the oil sands. The demand is made on the grounds that the companies haven't correctly assessed the potential financial and reputational risks resulting from developing the region.

BP and Shell are placing a huge burden of expectations on the ability of carbon capture and storage (CCS) technology, whereby carbon dioxide from plants are stored underground, to limit future emissions, said Niall O'Shea, an analyst with the fund. While CCS could have an impact, it isn't proven and won't be available for around 15 years, he said.

We are not on the rampage looking to get everything stopped, Mr. O'Shea said. But it's not clear how [BP and Shell] are going to manage their risks there's so many uncertainties. We're asking for a dialogue and to understand what their position is ... we want to protect our long-term investment.

Co-operative Asset Management the investment arm of the U.K.-based Co-operative Group, the world's largest consumers' co-operative owns around $150-million worth of shares in both BP and Shell, or less than 2 per cent of each company. It's expecting investors representing a few per cent of each company's equity holders to back its demand, Mr. O'Shea said.

Alberta is ramping up crude output from its oil sands, which hold vast reserves of bitumen. Extracting the oil takes more energy than conventional production, drawing the ire of environmentalists who decry the province's dirty oil.

Seeking to deflect the criticism, Alberta has invested heavily in CCS as it seeks to cut its actual greenhouse gas emissions by 14 per cent by 2050. But while the province and oil companies are plowing billions of dollars into developing the technology, it's expected to take at least 10 years for firms to have the ability to apply CCS economically to major oil sands projects.

Nevertheless, the technology is definitely the answer to reducing Alberta's emissions, Mr. Knight said. He pointed to the Weyburn conventional oil field in Saskatchewan, where carbon dioxide is injected into the reservoir, as evidence of CCS's viability.

These funds are taking a short-sighted view, he said in an interview. We know the technology works, it's a solid piece of business, and we're about to embark on applying it on a large scale.

While Shell is a long-term player in the oil sands, BP is a relative newcomer. Last December, the company inked a deal with Husky Energy Inc. to develop the Sunrise oil sands project, a move seen as a strategic shift by BP's new chief executive officer, Tony Heyward. Former BP CEO John Browne had positioned the company as beyond petroleum, and spurned the opportunity to develop oil sands projects.

BP spokeswoman Hejdi Feick said that while the company's investors are a very key audience ... we see the oil sands as important for energy security. It's important that development is done correctly, and we plan to take a proactive approach to ensuring that this is done in a responsible manner.

Shell spokeswoman Janet Annesley said the company is in full compliance with existing and emerging environmental regulation. She added that the company has made a voluntary commitment to halve emissions from its existing oil sands project by 2010.

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