Heavy oil producer Canadian Natural Resources Ltd. (TSX:CNQ) is teaming with a smaller partner to build a technologically advanced upgrading plant near Edmonton aimed at reducing its carbon emissions.
The Calgary-based company said Thursday it will acquire 50 per cent of the assets of privately held North West Upgrading Inc. The pair will form a partnership to operate the refinery and have submitted a proposal to handle the Alberta government's royalty bitumen.
Canadian Natural Resources didn't release financial terms of the deal or the estimated cost of the project.
Ian MacGregor, North West Upgrading's chairman, estimated the project is "in the billions of dollars" and said it should start up in 2013, with 3,000 people working on its construction.
"We think we're going to set a new world standard for environmental performance," MacGregor said from Calgary.
The refinery will be built near Redwater, Alta., about 40 kilometres northeast of Edmonton.
It expects to be able to process 50,000 barrels per day of bitumen extracted from Alberta's oilsands. Canadian Natural Resources said it would supply 12,500 barrels per day of its own bitumen production to the refinery.
MacGregor said North West Upgrading will offer its expertise in refining heavy oil with technology that reduces the volume of carbon dioxide produced during the refinement process and produces CO2 that is pure.
Hydrogen is added to heavy oil during the process and that results in large quantities of carbon dioxide, he added.
"In the past, that really hasn't been front and centre like it is today," MacGregor said.
"With the steps that we are taking to mitigate CO2, ours is a relatively modest scale refinery, it's the equivalent of taking 300,000 cars off the road," he said of the proposed refinery.
The CO2 will end up in the ground through an arrangement with another Alberta-based company, Enhance Energy Inc., where it will be used to get more oil out of old reservoirs and then be stored permanently, MacGregor said.
Canadian Natural Resources president and CEO Steve Laut noted that North West has both built and operated similar facilities in the past.
Laut added the project also extends his company's three-pronged heavy-oil marketing strategy by increasing the company's conversion capacity.
"We are also supporting the Alberta Government's efforts to build upgrading and refining capacity in Alberta, creating additional employment and wealth opportunities for Albertans," Laut said in a statement.
Macquarie Research analyst Chris Feltin said Canadian Natural Resources is trying to lower carbon dioxide emissions from bitumen.
"I think it's an opportunity for them to benefit from the work North West Upgrading has already done and maybe stay ahead of the curve with some expected cap-and-trade and CO2 taxes that might be implemented," Feltin said from Calgary.
"This will give them a bit of a head start to figure out ways to mitigate CO2 emissions."
Pembina Institute spokeswoman Clare Demerse said there's no shortage of technology, but a lack of government willpower to make polluters pay.
"The No. 1 thing that can drive real reduction in greenhouse gas pollution, is putting a price on greenhouse gas pollution," she said.
The Pembina Institute is a non-profit think tank that focuses on clean and renewable energy policies.
Demerse also said the benefits of storing CO2 in the ground and using it for enhanced oil recovery aren't certain.
"We just don't have any clarity around the net environmental benefits, whether at the end of the day, that is actually capable of reducing greenhouse gas emissions."
Recently, Total SA (NYSE:TOT) and ConocoPhillips (NYSE:COP) said they would press ahead with the second phase of their Surmont oilsands project, quadrupling current production of 27,000 barrels per day to 110,000 barrels per day by 2015.
Shares in Canadian Natural Resources closed down 83 cents, more than one per cent, at $69.06 on Thursday on the Toronto Stock Exchange.
