March 19 (Reuters) – International Petroleum Corp ( IPCO.TO ), the first foreign oil company to sanction a project in Canada’s oil sands in more than a decade, could add carbon capture and storage (CCS) to the plant if more government incentives are becoming available, its chief executive told Reuters.
Geneva-based IPC, part of Sweden’s Lundin Group, approved the first phase of the 30,000 barrel per day (bpd) Blackrod thermal project in northern Alberta last month.
The company is joining Canada’s biggest oil producers in urging policymakers to increase public funding for the expensive technology seen as key to reducing emissions from the carbon-rich oil sands.
The industry says CCS projects need more government support to be financially viable, while Ottawa and the oil-rich province of Alberta disagree over who should provide more funding.
“There’s still an opportunity — if we can have some sensible government decisions about getting serious about climate targets — that if the right incentives come along, we’re in a very good position to look at carbon capture down the road,” chief executive Mike Nicholson said in an interview in late February .
Until then, the company will pay Canada’s carbon tax, which is expected to rise to C$170 per tonne by 2030, Nicholson said.
IPC, a 50,000 bpd producer with assets in Canada, France and Malaysia, will spend $850 million to develop the first phase of Blackrod. First oil is expected in 2026, and IPC has regulatory approval to produce up to 80,000 barrels per day.
The plant is the first greenfield oil sands project to be sanctioned since Imperial Oil Ltd ( IMO.TO ) gave the green light to its Aspen plant in 2018, only to shelve it indefinitely just months later.
It comes after years of weak foreign investment in the oil sands, with international firms deterred by high upfront capital costs, export pipeline congestion that has reduced output and concerns about the high carbon intensity of bitumen.
Nicholson said IPC’s decision is supported by new Canadian export pipeline capacity and IPC’s strong financial position.
The oil industry’s recent focus on debt repayment and share buybacks has also left global oil supplies extremely tight, he added.
“Our industry has not been invested in for over a decade, all recent investment has been very short cycle,” Nicholson said.
“There’s still definitely a preference for shareholder returns. But that’s not the way to build a long-term sustainable business.”
INCREASED PRODUCTION, EMISSIONS
IPC’s investment underscores the importance of Canada’s vast deposits of bitumen, the world’s third-largest crude oil reserves, amid global concerns about energy security following Russia’s invasion of Ukraine.
But Blackrod, while relatively small, also highlights how rising production risks derailing Canadian Prime Minister Trudeau’s emissions reduction goals and cementing Canada’s place as a climate laggard.
Canada’s oil sands produced a record 3.15 million bpd in 2022 and is forecast to reach 3.7 million bpd by 2030, according to S&P Global.
Meanwhile, emissions from the oil sands jumped 137%, or 48 megatons, between 2005 and 2021, according to the Canadian Climate Institute.
It is projected to rise by another 23 megatons by 2030 unless CCS projects get underway and the federal government passes tougher climate laws, including a controversial federal cap on oil and gas emissions, the think-tank said.
Strong global crude oil prices mean oil sands production is likely to continue rising through existing project expansion, analysts say, although a wave of greenfield projects like Blackrod is unlikely.
“Oil sands is a long-duration asset with little downside,” said Wood Mackenzie analyst Scott Norlin. “We use the term ‘cash flow machines.’ They just print money, especially when oil is above $70.”
Reporting by Nia Williams Editing by Denny Thomas and Marguerita Choy
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