Carbon capture and storage to be tested by oil companies in Australia

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The idea that significant amounts of greenhouse gases can be buried underground will be tested soon at a remote island off northwest Australia, where oil companies led by Chevron Corp. are poised to inject pollutants two kilometres into the Earth's crust.

The $2-billion carbon capture and storage (CCS) project at Barrow Island about 60 kilometres off the coast will be the biggest of its kind when it starts by next year. It's part of the gigantic Gorgon liquefied natural gas development, which began production last month after $54-billion (U.S.) of investment and will run for four decades.

CCS plants are seen by some as having the potential to hold back one-seventh of the emissions reductions the International Energy Agency says are needed to keep the planet from overheating. While the Barrow CCS project will be a milestone for the effort to sequester greenhouse gases, it also highlights the difficulties of the technology. It wouldn't have happened without the government pushing it, stepping in with $60-million (Australian) in funds and vowing to assume long-term liability should any of the gas escape.

"It doesn't happen without the government doing something," said Tony Wood, director of the energy program at the Grattan Institute research group in Melbourne and a former adviser to governments in the region on clean-energy technologies at the Clinton Foundation. "You can either put in place a carbon price, throw money at it as a government or you can regulate it. In this case, they effectively chose the third."

The Western Australian government insisted on Barrow CCS as a condition of approving Gorgon, whose developers also include oil majors Exxon Mobil Corp. and Royal Dutch Shell PLC. When the investment decision was made in 2009, the government was planning to introduce a carbon trading system that would have underpinned the economics of the project. The development will inject as much as 4 million tonnes of carbon dioxide a year into the Earth's crust at Barrow Island, reducing Gorgon's emissions by 40 per cent.

"It is still early days for these types of projects, and they are costly," John Watson, Chevron's chief executive, told reporters in Perth on April 12. "So the ultimate application of these technologies will be their competitiveness."

The number of large carbon capture facilities operating may rise to 22 by next year from 15, according to the Global CCS Institute, an industry group that seeks to encourage development of the technology. Another nine projects are in advanced stages of planning. New facilities are scheduled to begin in the United States, Canada and Abu Dhabi.

"As much as many may feel that it would be best to simply stop using fossil fuels, the fact is that it's not practical, it's not going to happen, and if you want to work in the real world you've got to deal with emissions," said Brad Page, chief executive officer of the CCS Institute.

Still, CCS is too expensive for widescale use without government support. New projects need a carbon price of at least $60 (U.S.) to work economically, Shell's CEO Ben van Beurden said last year.

That's more than five times the carbon price in Alberta, where Shell started a CCS project in November. The $1.35-billion (Canadian) Quest plant will extract and store about 1 million tonnes a year of carbon from Shell's Scotford refinery, a first in North America. About half of the cost was paid by Alberta.

In a setback for CCS, the U.K. government, which has been promoting the technology as an offset for North Sea oil and gas, scrapped a ($2-billion) competition last year.

It's hard to see many new projects in the future unless governments implement stronger climate policies, said Howard Herzog, a senior research engineer at the Massachusetts Institute of Technology's Energy Initiative.