ROYAL Dutch Shell yesterday unveiled groundbreaking plans to increase oil production while reducing greenhouse gas emissions.

The Anglo-Dutch company signed an agreement with Norwegian state-owned energy company Statoil to capture harmful carbon dioxide from a power station in Norway and use it to force more oil out the ground at two fields in the North Sea.

The companies said the proposed scheme - the largest of its kind in the world - addressed the problems of both climate change, by reducing CO2 emissions, and energy supply, by increasing oil production.

The scheme - which will start operating between 2010 and 2012 if it is successful - involves the capture of CO2 from Statoil's gas-fired power plant and methanol production facility at Tjeldbergodden, in Norway.

The CO2 will then be transported to Shell's Draugen oil and gas field and Statoil's Heidrun oil and gas field, which are both in the Norwegian North Sea. It will be pumped into the fields to build up internal pressure and force more crude oil out of the ground.

It is hoped that the process will extend the life of the two fields by seven to ten years and also increase daily production levels of oil, which have been dwindling in the North Sea in recent years.

The project could cost £690m to develop, with the Norwegian Government expected to provide some of the funding.