Federal tax credit not enough to get carbon capture projects built, says Cenovus CEO

The investment tax credit unveiled by the federal government earlier this month is not enough to convince Canada’s major oil sands producers to begin construction of a massive capture and carbon storage, the chief executive of Cenovus Energy Inc.

On a conference call with analysts, Alex Pourbaix said the industry will need “more help” from the federal government and the Alberta government to move forward with catch and release projects. large-scale carbon storage such as that offered by Oil Sands Pathways. to the Net Zero Consortium.

This group – of which Cenovus is a member, along with Canadian Natural Resources Ltd., ConocoPhillips, Imperial Oil Ltd., MEG Energy Corp. and Suncor Energy Inc. – has proposed working together on a project that would capture CO2 from oil sands facilities and transport it to a storage facility near Cold Lake, Alberta, delivering approximately 10 million tonnes of emissions reductions per year from oil sands production.

But while Pourbaix said the recently unveiled federal tax credit for companies investing in carbon capture projects is a good start, companies need to be sure there will be additional long-term government funding to help. to build and operate expensive technology.

“These are multi-billion dollar projects. And we need to be confident that they are investable and that we can manage those investments through the full commodity price cycle,” Pourbaix said.

“I suspect that in the long term, as we have seen in other jurisdictions, we will need real collaboration. »

Proponents say large-scale deployment of carbon capture and storage technology will be necessary if Canada is to meet its climate goals. According to environmental think tank Pembina Institute, capturing and storing CO2 from oil sands facilities, refineries and gasworks could reduce Canada’s emissions by 15 million tonnes by 2030.

There are currently only a handful of carbon capture projects underway in Canada, but the federal government is trying to incentivize oil producers to take action with a tax credit incentive announced in the last federal budget.

Starting this year, companies will be able to claim a tax credit of up to 60% for direct air capture projects and 50% for all other eligible carbon capture projects. A 37.5% tax credit is available for investments in carbon transport, storage and utilization equipment.

But Pourbaix said that in some parts of the world, governments have provided up to 60 or 70% of the capital costs of new carbon capture projects, in addition to providing operational support. He said the Pathways alliance will need more details on what kind of additional support to expect before they can make a final investment decision.

Pourbaix made the comments on the same day Cenovus reported first-quarter earnings of $1.6 billion, or 81 cents per share, compared to earnings of $220 million, or 10 cents per share in the first quarter of 2021. Revenues totaled $16.2 billion, up from $9.3 billion in the same quarter last year.

Cenovus also announced the tripling of its quarterly dividend, to 42 cents per share per year, from 14 cents per share per year.

Canadian oil sands producers have recorded huge profits and record cash flow amid the war in Ukraine, post-pandemic economic recovery and global energy demand.

But Pourbaix pointed out that oil prices are cyclical and the industry has only recently emerged from years of depressed prices. He said that when it comes to the construction of the proposed carbon capture and storage transmission line, one should not rely on current oil prices.

“Oil prices right now are obviously very attractive, but we probably know that before this project comes on stream, we’ll probably test the bottom of those prices again,” he said. “So we really have to look at this in the long term. »

Cenovus’ total upstream production for the quarter was 798,600 barrels of oil equivalent per day, compared to 769,300 a year earlier, while downstream throughput was 501,800 barrels per day, compared to 469,100 in the first quarter. 2021.

In its guidance, the company increased its planned 2022 capital expenditures by $300 million to a range of $2.9 billion to $3.3 billion due to increased reconstruction costs from its upper refinery.

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