Swan Hills Synfuels and the province announced Monday that they will discontinue a $285-million funding agreement that would have seen underground coal converted to gas and then burned to generate electricity. The carbon dioxide would have been stripped out and sold to nearby oilfields to boost production.
The announcement comes as the Alberta government is trying to convince U.S. officials of the worth of its environmental and climate change policies.
Alberta Premier Alison Redford said the province's carbon capture and storage plans came up over the weekend as she met with 22 Democrat and Republican state governors in Washington to lobby for the Keystone XL pipeline. Redford said she emphasized Alberta still has $1.3 billion invested in its two surviving projects.
"I think people are impressed that we've put that much money in," she said.
The governors were further impressed, she said, by Alberta's research spending on how to make the oilsands more sustainable. She tallied that spending at $3.5 billion.
"I think Americans were very impressed with that."
U.S. environmentalist Bill McKibben said in a conference call with colleagues and scientists from both sides of the border that Redford's visit is unlikely to have made any difference to the Keystone decision.
"There's kind of ham-handed and desperate quality to Canadian PR efforts at this point," he said. "They've got this huge pig and they're frantically smearing lipstick around the snout."
For the Synfuels project, natural gas prices are too low for the plan to make economic sense at this time, said CEO Martin Lambert.
"At present, it's more economical to purchase natural gas than it is to manufacture synthetic gas," he said in a release.
Waiting until natural gas prices rise enough to make the project viable would push the project's timelines beyond the funding agreement, he added.
The Synfuels project would have sequestered about 1.3 million tonnes of carbon dioxide every year starting in 2015 by injecting it into oil wells. The operation was expected to generate between 80 million and 100 million barrels of oil that wouldn't have otherwise been recovered.
Swan Hills president Douglas Shaigec said the company still wants to build the project — just not now.
"The project scope remains unchanged," he said. "There's nothing different about the project other than the implementation time frame."
He said gas prices need to be above $5 a gigajoule for the plan to work. Current prices have fluctuated around the $3 mark.
A demonstration project of the company's technology in Swan Hills will remain operating, said Shaigec.
Energy Minister Ken Hughes said Synfuels had not received any payments under the original deal. No decisions on reallocating the money have been made.
Synfuels was one of four carbon capture and storage projects the provincial government was funding out of a $2-billion pot. Those projects have been a major part of government responses to criticism of the province's environmental record.
Two of them remain on the books.
Enhance Energy's $600-million plan to transport CO2 from refineries in Redwater, Alta., to aging oilfields near Clive through the Alberta carbon trunk pipeline is expected to begin later this year.
As well, Royal Dutch Shell is moving ahead with plans to capture one million tonnes of CO2 annually from its Scotford oilsands upgrader northeast of Edmonton.The Alberta and federal governments are kicking in a collective $865 million toward that project, which is expected to start in 2015.
Hughes said the two projects will eventually remove 2.76 million tonnes of carbon a year.
However, TransAlta backed out of a $1.4-billion carbon capture deal last spring.
CEO Dawn Farrell said the costs of injecting CO2 into old oil wells to enhance production no longer made economic sense.
The province had hoped to have five or six working projects by 2015 that would inject up to 10 million tonnes of CO2 a year into the ground.
Even if that had happened, it wouldn't have reduced Alberta's overall greenhouse gas emissions. Those are expected to climb until 2020.
McKibben made a similar point, pointing out that Ottawa's own figures say Canada won't meet even its modest goals for greenhouse gas reduction. He said the Keystone XL pipeline, which would transport bitumen from the oilsands to southern markets, would lock the U.S. into high-carbon energy infrastructure for decades to come.
He acknowledged that coal, commonly burned in the U.S. to generate power, generates more greenhouse gases than oilsands crude. But he said environmentalists are also fighting large-scale coal projects around the globe.
"At this point it's no longer a case of choosing a villain to fight and ignoring other ones. We're so far in the hole that we've got to fight everything that's going to pour huge amounts of carbon into the atmosphere and we've got to do it fast."