Canada is taking a major step toward creating the world’s first oil refinery designed to capture the greenhouse gas carbon dioxide, using bitumen from Alberta’s oilsands.

The two companies behind the proposed refinery near Edmonton announced Thursday their boards of directors have given the $5.7 billion first phase of the project the go ahead.

"A lot of time and effort has been spent during the last eight years to get us here," said the partnership's president, Doug Quinn.

"It's the right time and what we are building will add significantly to the value that Alberta receives for its bitumen."

When that phase is completed, expected in about three years, North West Upgrading Inc. and Canadian Natural Resources, both of Calgary, plan to upgrade 50,000 barrels of bitumen a day.

Upgraders produce crude oil and refineries produce finished petroleum products such as diesel fuel.

When all three phases of the project are completed, the plan is to process 150,000 barrels per day of bitumen into products including ultra low-sulphur diesel fuel and capture 1.2 million tonnes the CO2 produced in upgrading.

That CO2 would be sold to oil companies, piped to older oil fields and injected into formations for use as a solvent to boost oil production.

CO2 could free up 1B barrels of oil

Alberta currently lacks sufficient CO2 pure enough to be used in the process, which is called enhanced oil recovery.

North West estimates that the gas could be used to produce a billion barrels of light oil that would have otherwise stayed in the ground.

The Alberta government has agreed to supply 75 per cent of the bitumen and Canadian Natural will supply the rest.

The province gets the bitumen as an in-kind royalty payment from oilsands producers.

“This project will demonstrate that Alberta has the lowest carbon footprint solutions for converting bitumen into diesel fuel,” North West chairman Ian MacGregor said in a release.

More than 300 people are currently working on the project, which expects to employ over 8,000 people during peak construction. Construction is due to start next spring.

Refineries south of the border in places like Chicago and Texas have also been configured to handle oilsands crude and an increasing number of pipelines are being built to connect that oil to those markets.

Oilsands giant Suncor Energy Inc. says the economic feasibility of the Voyageur upgrader it jointly owns with France's Total S.A. is "challenged" in the current environment. The companies are reviewing that project, and two oilsands mines, to see if they'll be profitable enough to move ahead.

Canadian Natural president and chief operating officer Steve Laut said investing to process heavy oil in Alberta is the right move for that company.

On a conference call Thursday, Laut told analysts the refinery "not only provides a reasonable return, but it will help the volatility on pricing for Canadian heavy oil."

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