Statoil and Shell draw up biggest CO2 seabed strategy

Oslo: Energy groups Statoil and Shell plan the world's biggest scheme to bury industrial gases beneath the seabed in a $1.2-$1.5 billion project off Norway to raise oil output and curb global warming, the firms said on Wednesday.

It would be the world's first project to use carbon dioxide to boost oil recovery offshore, though the gas has been injected into onshore oilfields in Texas, company officials said.

Norway's Statoil and Anglo-Dutch Shell said the plan, due to start in 2010-12 and including construction of a gas-fired power plant in west Norway, would need "substantial government funding and involvement".

"If we succeed, this technology can be used at other fields off Norway and internationally," Statoil Chief Executive Helge Lund told a news conference.

Under the scheme, Statoil would capture CO2 from a huge, 860-megawatt gas-fired power plant to be built at the company's Tjeldbergodden methanol complex in mid-Norway.

The CO2 would then be piped to Shell's Draugen oilfield off Norway and later also to Statoil's Heidrun field and injected into subsea reservoirs, to force oil to the surface.

Lund estimated that the plan, which could bury 2-2.5 million tonnes of heat-trapping carbon dioxide a year, would cost 8-10 billion Norwegian crowns ($1.19-$1.49 billion).

Building the power plant alone would cost 4-4.5 billion crowns, and the CO2 capture system and pipe-line to the field would cost a similar amount, Lund said.

"And then we have to do much more work over the next year or so to understand the costs and associated revenues connected to increased oil recovery," Lund told Reuters.

He declined to say how much the government should pay, but said that without support the project would be uneconomical.

Many other firms have been put off by high costs of similar CO2 storage projects, which could help slow global warming.

Environment Minister Helen Bjoernoy welcomed the plan as a "showcase for Norway as an environmentally friendly technology nation." But she did not say how the government would help.

"This is an important milestone for Shell towards our vision for greener fossil fuels with part of the carbon dioxide captured and sequestrated underground," Chief Executive Jeroen van der Veer said in a statement.

If things go as planned, a final decision to invest could be made by the end of 2008, the power plant started in 2010-2011 and the first CO2 delivered to Draugen in 2011-2012, Lund said.