Tag Archives: ccus

As oil prices continue to skirt all-time highs, there’s been a gusher of coverage about how oil producers are turning to ever more costly technologies—from going to ultra deep, to mining tar sands—to eek more oil from the earth. Against this backdrop, I wondered if the case for using CO₂ for enhanced oil recovery (EOR) is gaining mind share, or maybe even market share?

To get a better understanding on the impact of sustained high oil prices I turned to Michael A. Levi, The David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations in New York City. A frequent author (his new book, The Power Surge, is due out this month) and a regular contributor to the CFR’s energy, security and climate blog, Levi is a prolific voice on energy issues, often quoted on the complex interplay between conventional energy, renewables, climate, and politics.

Levi first explored the linkages between high oil prices and EOR-CCS’ prospects last June, a time when oil prices were around 10 per cent lower than recent averages. In his post, Levi steps through a back-of-the-envelope assessment of the potential rewards of scaling up EOR-CCS.

In a 2010 study, Advanced Resources International estimated that a typical CO2-EOR project would require about one ton of CO2 for each 3.8 barrels of produced oil (assuming some recycling). Assuming CO₂ available at $15/ton and an oil price of $112 they figured that a typical project could make a profit of about $30/bbl after returning 25% on capital.

Alas capturing and delivering CO₂ from power plants costs a lot more than $15/ton. How much more? A lot depends on how much natural gas costs. A recent paper in Environmental Science & Technology uses a central estimate of $6.55/MMBtu and estimates that captured CO₂ could be delivered at $73/ton. If prices are instead $5/MMBtu, which is a reasonable expectation in the United States, this would drop by about ten percent, to around $65/ton.

The authors also look at the question probabilistically. They find that there’s a 70 percent chance of being able to deliver CO₂ for $100/ton or less. If you shift their natural gas price assumptions down a bit, it’s reasonable to drop this to about $90.

What would this mean for the economics of oil production? Estimated profits at $112/bbl oil would fall to about $18/bbl (part of the extra cost of CO₂ would be offset by lower taxes). Once again, though, this is profit in excess of a 25 percent return on capital. Excess profits would be wiped out if oil prices fell to about $75.

Notably, the study to which Levi refers is focused on the cost of CO₂ capture from natural gas processing plants—the largest industrial-scale sources of CO₂ currently available. Levi’s calculation holds for proposed CCS-from-coal facilities, where planners are aiming at a similar target of delivering CO₂ at less than US$100 per ton.

Back to oil prices, then. Given that crude has held steady at around US$100 per barrel in the past few years, Levi’s calculus makes CCS-EOR look like a pretty good proposition. Levi’s bottom line: “I wouldn’t count on high oil prices rescuing power plant CCS. But I wouldn’t write it off entirely either – and, even if there’s only limited deployment, the impact on technological progress could be large”.

In short, the longer the price of crude remains high, and the higher it goes the stronger the case for EOR-CCS. While it may be perilous to speculate on oil prices, the balance of indicators point towards high prices over the long term. Energy-hungry emerging markets such as China and India increasingly drive long-term demand. A recent OECD report speculated that prices could rise as high as US$270 a barrel by 2020, due largely to demand growth in emerging markets.

To keep output rising, companies are already digging deeper—literally and financially—to lift each new barrel of oil. Exxon, for example, will spend a record US$41 billion in 2013 to buoy its long-term output of oil and gas, which it expects to fall by one per cent this year. As oil companies reach for more tools to eek out every last molecule of petrol, especially from wells they already control, it seems that the case for EOR-CCS is only improving.

I caught up with Levi in March to get his take. Here’s an edited version of our conversation.

In the years since the financial crisis hit, oil prices have remained stubbornly high, despite slow growth in much of the developed world. Do sustained high prices reinforce your take on the prospects for oil’s growing role in the future of CCS?

I’ll leave it to others to make predictions on future oil prices. But it is clear that high oil prices make it more attractive to use CCS in EOR. The higher oil prices go, and the longer they remain high, the more incentive there is to invest in CCS EOR.

Short-term variances in oil prices are fairly immaterial. What matters most is that prices have been sustained. This gives people more confidence that prices will remain high over a longer spread, over a longer period of time.

No one invests for the long term based on today’s prices, especially not oil companies, which plan on multi-decade time scales. Power companies also think on very long time scales. Both are capital-heavy industries—familiar with assessing risk, pricing and financing big projects. The difference is that oil companies are more likely to be comfortable taking risks.

Given anemic US growth, why have oil prices remained near their all time highs, when adjusted for inflation?

With the exception of the immediate aftermath of the financial crisis, when oil fell sharply, prices have been historically high. Prices also returned to high levels very soon after the global financial crisis.

When it comes to prices, the slow growth in the United States, following the recession, doesn’t matter in so far as we’re part of the world economy, taking a world price on oil. There’s a lot of growth in demand happening elsewhere, particularly in developing economies like China.

At the same time, even though there’s been a lot made of rising US oil output, in the global market the new sources add up to only modest supply growth. The net result is relatively high, sustained prices. Rising US oil output can help restrain prices at the margin, but it’s unlikely to crash prices on a sustained basis.

That’s partly because marginal North American oil production is fairly expensive. Whether it’s fracked oil in the Dakotas, or oil sands in Canada, these unconventional new sources are relatively costly to exploit, so require fairly high prices to be viable.

Some environmentalists have objected to the idea of CCS-EOR, maintaining that it’s perverse to pump anthropogenic CO₂ into the ground to lift out fossil CO₂ in the form of oil. For example Joe Romm—a former US DOE official and a leading voice on climate policy via Climate Progress—has argued that CCS-EOR will lead to more net CO₂ emissions. Here he is, writing in 2007:

Capturing CO₂ and injecting it into a well to squeeze more oil out of the ground is not real carbon sequestration. Why? When the recovered oil is burned, it releases at least as much CO₂ as was stored (and possibly much more). Therefore, CO₂ used for such enhanced oil recovery (EOR) does not reduce net carbon emissions and should not be sold to the public as a carbon offset… In short, the CO₂ used to recover the oil is less than the CO₂ released from that oil when you include the CO₂ released from 1) burning all the refined products and 2) the refining process itself.

How do you see this issue on the net GHG impact of EOR-CCS?

Focusing only on each CO₂ ton in the near term is short sighted. There are two things worth keeping in mind. The first is that at the margin, US oil production tends to primarily displace other oil production rather than supplement it. So if lifting the US barrel, in that case, leaves even a little more CO₂ in the ground than the alternative, then it’s a plus. That alone reduces the impact of this practice on net emissions of greenhouse gasses.

The other perhaps more important aspect is, in the short run, what you should be focused on when it comes to CCS and EOR is the opportunity to develop the technology. The goal is to bring down its cost, which will let you apply it on a much larger scale to other industries. If you don’t start somewhere, it’s very hard to get to the point where this technology is cost-effective.

So even if applying CCS to boost EOR doesn’t create a big carbon benefit in the short run, it’s a good bet to deliver a big payoff in the longer run. It’s perhaps the most economically viable path, to ready CCS for commercial use in the electric power sector around the world.

The point is that technologies need niches to scale up, and to bring down costs. If you only focus on technologies that can solve all our problems right now at low cost, it turns out that you don’t have any.

Don’t get me wrong. It’s obviously critical that we reduce net greenhouse gas emissions. But I’m more interested in being able to make huge reductions ten years from now than in the micro-level changes that might happen before this technology is scaled up.

We’ve touched on high priced oil already. The other bogeyman in global energy markets these days is cheap North American natural gas. In early March, a Canadian coal-to-syngas project that was slated to deploy advanced CCS was mothballed in part because of low natural gas prices. Does cheap natural gas alter the calculus on CCS-EOR in any way?

If we’re talking about CCS for synthetic liquid fuels, which you asked about, those require relatively high prices to be viable. Without massive over-investment in that space, I don’t see a stampede toward synfuels. So no, even if we see more synfuels, the shift will not crash the price of oil.

On that note, keep in mind that the one thing that might change the calculus of CCS-EOR is if oil prices crash. But it’s very difficult to crash the price of oil from the supply side, especially when it’s already this expensive, unless you massively overinvest in oil production—which is very capital intensive to do—or develop a very large-scale supply of alternatives.

As far as natural gas-fuelled cars and trucks go, my answer is the same. Yes, natural gas is being used to fuel a growing—but still small—share of fleet vehicles, and yes EVs will consume more natural gas indirectly, in the form of electricity. But will the penetration of natural gas into the US transport sector fundamentally change the economics of oil? I don’t see that in the next 10 years, at least. I think it’s hard to make predictions further beyond that.

With the failure of many publicly backed CCS projects around the globe, do you see EOR as a best bet to push CCS technology ahead?

I think that may well be right. With EOR-CCS, it may not be possible to make money at a large scale without new policy, but it may at least be possible to imagine that one can, and to come closer to cover the costs of scaling up the technology in the process. Conversely, it is impossible for anyone to imagine that they can make money taking the CO₂ exhaust from a coal-fired power plant and burying it underground—unless there’s a policy incentive. It’s a pure additional cost.

Entrepreneurs who put money into EOR-CCS may be right, or they may be wrong, but at least a few may be willing to push ahead. In short, CCS-EOR provides short-term economic support for innovation. If you’re concerned about the long-term prospects of CCS, you should be thinking about EOR as the way to support innovation in the technology.

What are the key hurdles then to seeing EOR-CCS progress further, faster?

Will companies have the confidence to invest in this? Are there too many risks that are confusing? Is there too much uncertainty? Are there too many technological unknowns? I think those are bigger factors compared to whether oil prices might crash, or whether the global transport system might flip to natural gas.

There’s some evidence of progress out there. There’s interest in tweaking some tax credits that exist in order to support CCS-EOR. And in his State of the Union address, the president mentioned a US$25 million prize for the first combined cycle natural gas plant to implement CCS. It’ll be interesting to see whether that prize is defined to include projects that use the CO₂ for EOR.

Check out the original post here: http://www.globalccsinstitute.com/insights/authors/adamaston/2013/03/26/could-expensive-oil-rescue-ccs-talk-energy-expert-michael-levi

Global CCS Institute

Looking Ahead: CCS’ Prospects Under Ernest Moniz, Energy Secretary Nominee | Global CCS Institute

2013-03-19 Adam Aston

Ernest Moniz, President Obama’s newly nominated Energy Secretary, shares much with his predecessor, Steven Chu, outgoing head of the Department of Energy (DOE) and who is returning to an academic chair at Stanford University. Both men are prominent academic physicists, with long track records of advancing energy technology.

Chu proved to be a vocal advocate for clean energy technologies, especially in the realms of renewables and transportation, funneling billions in stimulus dollars into early stage R&D through DARPA-e and buoying mid-stage companies such as Tesla with federal loans. Under Chu’s watch, carbon capture and storage (CCS) remained a priority, with efforts to press ahead with FutureGen 2.0, but lacked the urgency that many stakeholders wanted to see.

Assuming a quick Senate approval—Moniz is widely regarded to face a relatively easy confirmation—so what’s in store for CCS under a Moniz-led DOE? On the downside, Moniz takes charge in a period of ever-tightening fiscal policy, so will all but certainly have less public money to deploy than did Chu.

If the conditions of the recent sequester hold, the budget for the DOE’s Fossil R&D program—under which FutureGen and other carbon capture programs are funded—will be cut by 5 per cent, or US$25 million.

On the upside, Moniz enters his new post with far more experience in rough-and-tumble Beltway tactics than did Chu. Moniz served in the second term of President Clinton’s cabinet, first as Under Secretary of Energy, and later as Associate Director for Science in the Office of Science and Technology. Moniz has frequently testified before Congress, as well.

In terms of CCS, if past is precedent, there’s reason to be hopeful, maybe even a little optimistic.

I spent some time conducting some research to map out Moniz’ work and statements on CCS. Here’s what I found. If you have other examples, please comment and add more in the comments.

As Tamar Hallerman notes at GHG Monitor, Moniz has co-authored several high-profile works on energy technology and policy in which carbon is a central issue. In The Future of Coal (2007, MIT Energy Initiative) CCS is addressed front and center, vital to extending coal’s tenure in an environmentally tolerable way. The report formally recommends both a carbon price and that the Energy Dept. alter practices in its Fossil R&D regime to accelerate the development of CCS. Retrofitting of Coal-Fired Power Plants for CO₂ Emissions Reductions (2009, MIT Energy Initiative) offers far more detail on these issues. In the Summary for Policy Makers section which Moniz co-authored, he makes a detailed case for increased federal emphasis on CCS. A few quotes (emphasis added):

“The US Government must move expeditiously to large-scale, properly instrumented, sustained demonstration of CO₂ sequestration, with the goal of providing a stable regulatory framework for commercial operation.”

“Real world” retrofit decisions will be taken only after evaluation of numerous site-specific factors.

CO₂ capture cost reduction is important.

A robust US post-combustion capture/oxy-combustion/ultra-supercritical plant R&D effort requires about US$1 [billion per] year for the next decade.

The Federal Government should dramatically expand the scale and scope for utility-scale commercial viability demonstration of advanced coal conversion plants with CO₂ capture.

The program should specifically include demonstration of retrofit and rebuild options for existing coal power plants. New government management approaches with greater flexibility and new government funding approaches with greater certainty are a prerequisite for an effective program.

Time is of the essence.

About a year ago, Moniz sat down with The Energy Switch Project to document his views across the full range of conventional and renewable energies, and related technologies. I’ve pasted below two out-takes, where he comments on coal, CCS and carbon pricing.

In the video above, Moniz makes the following statements (abridged transcript):“Coal of course is a very widely used fuel, particularly for the power sector, with the US China and India combined using about 60 per cent of the world’s coal. So if we’re going forward particularly with carbon control in the future, we simply have to figure out a way to employ coal.

The answer has to be then for a serious solution: the ability to capture CO₂ and sequester it underground. The problem right now is cost. Today we would probably be adding six, seven, eight cents per kilowatt-hour to electricity produced by coal… For a brand new coal plant, we’re probably talking that’s on top of six to seven cents. So let’s call it a doubling of the cost at the plant of the production of electricity.

We might or might not be willing to pay that in the United States, but it is very difficult to understand China and India being willing to pay this kind of a premium.

Do I believe today we can start safely injecting billions of tons into an appropriate reservoir? Absolutely. That’s a different statement however to do with 30, 40, or 50 years, however, and I think those things will work out as we do it.

The other near-term issue is that we really have very little idea as to how to regulate, how to assign liability [for CCS]. The EPA is in fact working on this, but certainly it cannot be based on the old types of regulatory structures put in place for water injection.”

From the same interview, he also comments on carbon pricing, saying:

“Certainly it will never be cheaper to capture and store CO₂ than it is to release it into the atmosphere so the reason we’re doing it in fact is because carbon will have a price and ultimately it has to be cheaper to capture and store it than to release it and pay a price.

If we start really squeezing down on carbon dioxide over the next two decades, that [price] could double, it could eventually triple.

I think inevitably if we squeeze down on carbon, we squeeze up on the cost, it brings along with it a push towards efficiency, it brings along with a push towards clean technologies in a conventional pollution sense. It brings along with it a push towards security. After all, the security issues revolve around carbon-bearing fuels.

Now, I think it is very important that any funds associated with that be recycled efficiently to productive uses and to address distributional questions because some of the poor may bet hit harder. There’s a lot of work to do, but in the end, if you take one simple thing, that’s the direction I think we need to go in.”

You can check out a continuous stream of Moniz’ full 22-minute interview on Vimeo, or pick and choose Moniz’ comments on a single topic, in short 1-2 minute segments, the interview is conveniently split into shorts by topic.

Check out the original post here:

http://www.globalccsinstitute.com/insights/authors/adamaston/2013/03/19/ccs%E2%80%99-prospects-under-energy-secretary-nominee-ernest-moniz

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Innovative funding for a groundbreaking CCUS plant: The financing behind TCEP’s polygen CCUS facility | Global CCS Institute

2012-09-12 Adam Aston

Over the past year, the Texas Clean Energy Project (TCEP) has emerged at the front of a small pack of US projects that aim to sell their CO₂ to oil drillers. By doing so, TCEP may just re-write the rules of CCS, shifting the focus from government-backed sequestration efforts, to commercially-funded projects to capture and sell CO₂ to recover oil and other industrial uses. This approach shifts CCS to CCUS (carbon capture utilisation and sequestration).

This reorientation was on display at the annual meeting of the Electric Power Research Institute (EPRI), the R&D arm of the US utility industry, in Pittsburgh in May, where for the first time petroleum engineers were present in tellingly large numbers. Testament to CCUS’ rise, the event was the stage for a major push on national policy to formally tie enhanced oil recovery (EOR) together with the goal of carbon capture. (Find details of the National Enhanced Oil Recovery Initiative (NEORI) at this post with two of the principles behind the initiative: Part I here, and Part II here).

TCEP emerged as another standout at the conference as a pioneering project that’s fully funded and on track to build a first-of-its-kind ‘poly-gen’ power plant, which converts coal into three saleable outputs: power, CO₂ and industrial chemicals. I’ve written about TCEP previously here at the Global CCS Institute: first here in a Q&A with Laura Miller, former Mayor of Dallas, who has joined the team developing the project, and again in an update on the project’s progress.

At the May EPRI meeting, I got the chance to learn more about the innovative financing and business model that’s bringing TCEP to life. W. Harrison Wellford, chief executive of Wellford Energy, offered the perspective of the investment community on the project. As a financial advisor to the project, Wellford sees TCEP as a game changer in the way power generation has been conventionally developed and financed. Power plants aren’t just about electricity anymore. Think of it this way, he said: “We will pay about US$45 million for coal at mine mouth for this plant. That will produce at the end of day US$750 million in sales” of a mix of products. “You’re taking a very cheap fuel resource, and creating a valuable product through the alchemy of a plant like this.”

TCEP is drawing attention from beyond US shores. On 13 August, a group of Chinese investors including China Petrochemical Corp. (or Sinopec, China’s national oil company), announced it was in late-stage talks to invest US$1 billion to acquire an equity stake in the project. If completed, the deal would be the largest investment by China in the US power market to date, according to The Wall Street Journal. The move would advance a growing movement to link China’s rapidly expanding power sector with US advanced coal technologies. See this post for background on US-China joint efforts in CCS.

Sales outlook

To understand TCEP’s current financing, it’s necessary to first have a clear view on what the plant will produce. In his slides, Wellford explained that the project would yield three major streams of revenue: power, CO₂ and urea. The following details are adapted from slides that Wellford presented.

Power – The plant will produce electrical output of 400 MW gross, with 160 MW net available for sale to the grid. The balance is consumed to drive CO₂ and chemical manufacturing operations at the facility. Discussions for terms of the power off-take arrangements are set at 30-year, fixed price, as a base load generator in the Electric Reliability Council of Texas (ERCOT) and per volume terms set out in a power purchase agreement. ERCOT operates the regional grid, encompassing the state of Texas and a few bordering regions. At peak demand, ERCOT consumes over 65,000 MW.

CO₂ – Sales of CO₂ are expected to be set up as 15-year, rolling contracts. Wellford explained that the project has attracted interest from multiple parties in EOR markets, looking to draft contracts and sketch out term sheets. The revenue from these CO₂ sales is not dependent on carbon legislation, Wellford emphasized. Pricing will be linked to market rates for West Texas Intermediate (WTI), a benchmark indicator for US oil markets. When up and running, TCEP will operate at a 90 per cent capture rate, yielding some 2.7 million tons of CO₂ per year. The annual current demand for CO₂ in the region for EOR is estimated to be more than ten times that amount, at 33 million tons. The CO₂ will be qualified as Verified Emissions Reductions on the American Carbon Registry.
Urea – A major market participant has contracted to take urea produced by TCEP, and includes the plants full annual production. In this case, prices will be tied to actual secondary sales to downstream consumers, subject to a floor, on the downside, and on the upside, to price sharing mechanisms. Urea production is predicted to hit 720,000 tons per year at full operation. Currently the US market for urea, used primarily as a raw ingredient in fertilizer, is 8.5 million tons per year. Of that, some 5 million tons are imported.

Financing

Wellford emphasized that getting TCEP off the ground has been as much a financial challenge as an engineering feat, and perhaps more so. He commented:

“To finance a project like this, we would typically go to power markets. But they don’t know anything about EOR. To go around the world and try to make a case for an Integrated Gasification Combined Cycle (IGCC) plant for risk, but to educate them in two other industries – chemical fertilizers and oil and gas – that’s a lot harder… We’ve made a lot of progress educating people on how this will work. And I think we’ll succeed, but it hasn’t been easy.”

The TCEP Project is fully funded through project financial close, Wellford said. As of his talk, the bulk (US$1.3 billion, or 52 per cent) of project finance, is coming from debt in the form of bonds and bank loans. The next largest share (US$845 million or 31 per cent) is from equity and tax equity. The balance (US$415 million, 17 per cent) is from an Energy Department grant. He pegged total project costs at US$2.995 billion.

Wellford emphasized the importance that tax benefits have played in bringing TCEP to reality. The project has tapped three separate federal tax incentives, the combined long-term benefit of which totals roughly US$1.49 billion. Here’s how they break down, according to Wellford’s slide:

US$313 million: Advanced Coal Program investment tax credit (ITC) at or before COD, awarded in 2010 and contract signed with IRS;
US$253 million: carbon sequestration tax credits possible over first 10 years; and
US$925 million: MACRS accelerated depreciation tax benefits over first 5 years.

Long-term prospects for CCUS

Wellford made a case that, longer term, CO₂ demand in TCEP’s market will continue to rise, further improving TCEP’s financial performance. Responding to a question after his presentation, Wellford explained TCEP modelled its revenue projections at a price of around $20 per ton of CO₂, but that market prices since then have risen to over $30 per ton.

In the Permian Basin, which includes West Texas and a few bordering regions, using CO₂ for EOR has been going on for more than four decades. Currently, CO₂ is moved throughout the region in a network of pipelines operated by Kinder Morgan, Trinity Pipeline and others. The bulk of CO₂ transferred into the region comes from geological reservoirs in the Rockies or from CO₂ stripped from methane during refinery. Annually about 33 million tons of CO₂ is shipped into the region for injection; another 60 to 70 million tons is re-injected back into wells, from CO₂ that surfaces with oil and gas.

Each ton of CO₂ yields two to three barrels of oil. Some of the region’s drillers such as Occidental Petroleum produce all of their oil using EOR. Yet the market is short of CO₂, and apart from TCEP, there are no other viable sources of anthropogenic CO₂ in the region at such a late stage of development. Current geologic CO₂ sources are in decline, and while new geological sources have been identified, they are too distant to be economically delivered to the region.

Wellford Energy background

By way of background, Wellford Energy is a financial advisor to clean energy companies and projects in the US, Europe, China, and Latin America. The firm focuses on matching projects with private investment from domestic and international sources, and on non-dilutive public funding. The company focus on climate-friendly technologies, including CCUS, compressed air and other technologies to store renewable energy, and low-carbon transportation technologies. Its partners include Summit Power (which is developing TCEP), Kleiner Perkins Caufield & Byers, and Prometheus Capital Partners.

Check out the original post online here:

http://www.globalccsinstitute.com/insights/authors/adamaston/2012/09/12/innovative-funding-groundbreaking-ccus-plant-financing-behind

Adam Aston