Whitecap to buy CO2 from SaskPower until 2035, providing market for SaskPower’s BD3

By Brian Zinchuk

CALGARY, WEYBURN, REGINA – What’s the future of coal-fired power generation in Saskatchewan? At least another 11 years.

That’s according to the announcement of carbon dioxide purchase agreement Whitecap Resources Inc. and SaskPower, announced by Whitecap on Aug. 31.

Whitecap Resources Inc, said in a press release, “As operator and 65.3 per cent working interest owner of the Weyburn Project, we have signed a CO2 purchase and sale extension agreement to December 31, 2034 with SaskPower for the purchase of CO2 that is captured at the Boundary Dam Power Station, Unit 3 in Estevan, Saskatchewan. The Weyburn Project has safely sequestered over 40 million tonnes of CO2 since first receiving captured CO2 emissions. This project demonstrates the commitment that the Saskatchewan Government continues to provide leadership on, moving the province to a lower carbon economy while providing long term reliable and affordable power to its constituents.”

The continued supply of carbon dioxide means another decade of carbon dioxide-enhanced oil recovery (CO2-EOR) at the Weyburn Unit, one of the province’s oldest and most prolific oilfields.

SaskPower has been providing high pressure carbon dioxide to the Weyburn Unit since the fall of 2014, when the Boundary Dam Unit 3 Carbon Capture and Storage Project went online. It was the secondary source of CO2 for the Weyburn Unit.

The Weyburn Unit could take more than four times more CO2 than it is now. Photo by Brian Zinchuk

Boundary Dam Unit 3 turbine and generator. Photo by Brian Zinchuk

Future of coal-fired power

The future of coal-fired power generation in Saskatchewan has been a major issue of late, as federal regulations require all conventional coal-fired power generation to cease by Dec. 31, 2029. Coal with carbon capture can continue, at least until Jan. 1, 2035, when recently announced federal draft Clean Electricity Regulations (CER) kick in, should they be adopted. If they are adopted in the current form, even the carbon capture facility on Boundary Dam Unit 3 (BD3) would not be sufficient. While its capture performance has improved over the past nine years of operation, it still has not fully met its design spec of capturing 90 per cent of the CO2 emitted. That spec would mean approximately 140 tonnes of CO2 would be emitted per gigawatt-hour of power generated. But the CER would only allow 30 tonnes of CO2 emitted per gigawatt-hour – about a fifth of the optimum design spec for BD3.

This purchase agreement goes right up to the CER deadline. That provides some security for SaskPower and its workers, but only to a point. The question remains whether SaskPower would continue to operate Boundary Dam Power Station for just one mid-sized unit, and whether the coal mines would remain in operation to supply just that one unit, should Boundary Dam Units 5, 6 and Shand Power Station shut down by 2030.

Big issue

The draft Clean Electricity Regulations are one of the largest issues facing the Saskatchewan government, owner of SaskPower, today. That’s because on any given day, up to 87 per cent of SaskPower’s power generation comes from coal- and natural gas-fired power, with 84 per cent being a common number on days when wind power generation is minimal. (Grid-scale solar power, at 30 megawatts, is still negligible in Saskatchewan at this time.)

The Clean Electricity Regulations, along with the spring 2023 federal budget, suggest that the Canadian electrical grid demand will increase by approximately 2.5x by 2050, just 26 years, four months and 21 days from the announcement of those draft regulations. In that time, those regulations would require any remaining fossil-fuel powered generation to shut down by 2035 unless it had extremely efficient carbon capture plants installed, plants that would use roughly one quarter (or more) of the power produced to run, something known as “parasitic loss.”

The CER would allow natural gas- fired plants in operation before 2025, such as SaskPower’s Chinook and Great Plains Power Stations at Swift Current and Moose Jaw to remain operating for 20 years, but by 2030, they would be carbon taxed at a rate of $170 per tonne of CO2 emitted.

So not only would SaskPower have to shut down its coal-fired power (41 per cent of generation on Aug. 28), by 2035, and its natural gas in stages by 2045 (or put on carbon capture), it must also replace this power generation and multiply it by roughly 2.5x, all by 2050.

Needing CO2

It’s a big issue, too, for the Weyburn Unit’s continued CO2 operations.

The Whitecap-operated Weyburn Unit first started its CO2 flood with carbon dioxide from the Beulah, North Dakota-based Dakota Gasification Company plant. The Great Plains Synfuels Plant still provides the majority of the CO2 to the Weyburn Unit. However, the supply agreement with Dakota Gasification is just about up. While the price of CO2 to this date has been a closely guarded secret, Pipeline Online understands it was in the range of around $30 per tonne. And developments in the United States have put a floor price for CO2 from that nation.

An American initiative known as 45Q meant that American firms could get a US$30 tax credit for CO2 used in enhanced oil recovery (such as what’s being done at the Weyburn Unit), and US$45 per tonne if it was simply injected into the ground as permanent geological storage (like the SaskPower Aquistore Project). But the Inflation Reduction Act, put into law in 2022, greatly expanded those tax credits. The International Energy Agency noted on Nov. 17, 2022, “The US government, in the framework of its Inflation reduction Act, implemented changes to 45Q providing up to US$85 per tonne of CO2 permanently stored and US$60 per tonne of CO2 used for enhanced oil recovery (EOR) or other industrial uses of CO2, provided emissions reductions can be clearly demonstrated.”

In addition to that, the ever-increasing federal carbon tax in Canada, currently C$65 per tonne of carbon dioxide, is legislated to increase to C$170 per tonne by 2030, assuming any change in government between then and now does not alter or eliminate the carbon tax.

This is a tax that SaskPower must pay on its emissions, so any CO2 sold would reduce the tax on said emissions.

If that’s not enough, Whitecap is in the process of developing its Regina-area carbon hub, which will collect carbon dioxide from Federate Co-op’s Consumers Refinery Complex and Belle Plaine ethanol plant, K+S, Yara, Mosaic (Belle Plaine), Evraz in Regina. And Whitecap CEO Grant Fagerheim told Pipeline Online in June of 2022 they were in conversations with Gibsons’ (Moose Jaw refinery).

And this all would have made for an interesting negotiations between SaskPower and Whitecap, and Whitecap and Dakota Gasification, and Whitecap and its Regina hub partners. Every tonne of CO2 Whitecap takes off SaskPower’s hand reduces its ever-growing carbon tax liability, just as it will for the carbon hub participants. But if Whitecap wants CO2 from Dakota Gasification, it essentially needs to pay more than US$85 per tonne, otherwise it would make more sense for Dakota Gasification to simply drill an Aquistore-type well, or wells, and pump it into the ground there.

SaskPower told Pipeline Online that Whitecap is, indeed, purchasing the CO2, but the contract is confidential, and thus, so is the price.

Whitecap did not mention the price per tonne of CO2 in the agreement.

In its release, Whitecap said:

The Weyburn Project has world-class attributes that provide significant benefits to Whitecap as well as many different stakeholder groups:

• Acquisition Payout. The Weyburn Project currently produces approximately 15,000 boepd (net to Whitecap) of 30-degree API crude oil and generates an annual operating netback of over $200 million at US$75/bbl WTI. By the end of 2023, we forecast that the asset will have generated over $800 million of cumulative operating free funds flow to Whitecap, leading to a forecasted full payout1 of the $940 million purchase price in 2024 at current strip prices5 which is less than 7 years after acquiring the asset.

• Long Life Reserves. A reliable source of CO2 supply is integral to the Weyburn Project maintaining a decline rate of below 5 per cent as well as increasing the recovery factor of an asset that was first discovered in the early 1950’s. To date, the asset has recovered over 500 million barrels of oil, with our year-end 2022 independent reserve evaluation indicating the asset is expected to produce for the next 50 years and recover a total of over 700 million barrels of oil. By utilizing CO2 to enhance the recovery factor of the Weyburn oil pool, we are minimizing the surface impact required to replace production declines of a product that continues to see an increase in global demand.

• Carbon Sequestration. Since first injection in the year 2000, the Weyburn project has safely sequestered over 40 million tonnes of CO2. Our internal modelling suggests that the ultimate CO2 storage capacity of this partially depleted oil reservoir is 115 million tonnes, which at our current injection rate of approximately 2 million tonnes per year, provides for over 35 more years of CO2 injection capability.

• Project Benefits. The Weyburn Project provides significant economic benefits to the Province of Saskatchewan with a direct impact of 120 jobs and annual economic benefits of approximately $350 million. Whitecap is proud to be associated with a project that has led the way for carbon capture, utilization and storage (CCUS) projects, and we expect that knowledge gained from this project will provide significant benefits to future CCUS projects both in Canada and around the world.