Tag Archives: EOR

Global CCS Institute

Could expensive oil rescue CCS? A talk with energy expert Michael Levi | Global CCS Institute

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.

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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

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

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.

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With key contracts signed, Summit Power’s Texas CCUS project on track for July groundbreaking | Global CCS Institute

The Texas Clean Energy Project, a 400-megawatt, coal-fired plant designed to perform carbon capture, use and storage recently cleared two key milestones and is moving towards a July groundbreaking.

In February, TCEP inked a deal securing supplies of water and, on Valentine’s Day, the project announced agreements for engineering, construction and maintenance services for the new plant outside Odessa, Texas.

I’ve been keeping an eye on TCEP since last autumn when, on behalf of the Global CCS Institute I spoke with Laura Miller, the charismatic ex-mayor of Dallas who, after leaving public office moved to the Summit Power Group to help advance CCS solutions by becoming TCEP’s project manager.

TCEP is on track to be the world’s first integrated gasification combined cycle (IGCC) poly-generation facility, as well as one of the world’s cleanest coal-fueled power plants.

Summit Power’s Texas facility is designed to snare 90 per cent of the CO2 it generates, as well as 99 per cent of sulfur dioxide, 90 per cent of nitrogen oxide, and 99 per cent of mercury. Of the roughly 2.5 million standard tons of CO2 the plant will capture annually, about four-fifths will flow via pipeline to West Texas, where it will be shot into the ground to enhance oil recovery. TCEP’s remaining CO2 will be fed to a chemicals production facility to make urea, a feedstock for fertilizer.

Miller explained via email that of its 400-mw gross electric output, TCEP will sell 200 mw to a local utility (more on that below), about 85 mw will power commercial operations to make urea and compress CO2, and another 100 mw will be used internally to run project components.

Sited in Penwell, Texas, about 15 miles west of Odessa, TCEP is scheduled to come on line in 2015. If it can hit that deadline, the project will likely be the second US commercial CCUS facility to be sending CO2 to the oil patch: Southern Co’s 582-mw Plant Ratcliffe Project is currently under construction in Mississippi and is scheduled to fire up in 2014.

With a price tag of US$2.4 billion, TCEP is being financed mostly by private sources and has also been granted US$450 million from the Department of Energy’s Clean Coal Power Initiative.

The recent news: On 14 February, TCEP announced that it had signed engineering, procurement, and construction (EPC) contracts, as well as a 15-year operations and maintenance (O&M) contract for the new complex. According to a company press release:

The two, firm-price, turnkey EPC contracts that guarantee price, schedule and performance for the integrated coal gasification combined cycle (IGCC) project were finalized in December by the project’s three EPC contractors: Siemens Energy Inc.; Selas Fluid Processing Corp., a subsidiary of The Linde Group; and SK Engineering & Construction, a major Korean contractor. The total value of the EPC contracts is approximately $2 billion.

Selas Fluid Processing and SK E&C will supply a complete chemical block capable of producing syngas by gasifying Powder River Basin coal. A portion of the syngas fuels a Siemens power block, and the balance is used for the production of granulated urea. The chemical block captures 90% of the CO2 from the syngas and compresses the CO2 for sale to the mature, enhanced oil recovery (EOR) market in West Texas. The chemical block EPC contract also includes coal handling, coal gasification based on two Siemens SFG-500 gasifiers, gas cleanup, mercury removal, ammonia and urea production facilities, sulfuric acid plant, water treatment, CO2 compression, site preparation, plant buildings and other goods and services.

In the second EPC contract, Siemens Energy will supply a nominally rated 400MW combined cycle power plant capable of operating on syngas and natural gas. The power block is comprised of an SGT6-5000F gas turbine capable of operating on high-hydrogen syngas or natural gas. The power block includes an air-cooled condenser for plant cooling, which greatly reduces the water needed for the project, and a high-voltage switchyard.

A separate, 15-year O&M contract was also signed for the complete, turnkey operation and maintenance of the entire 600-acre facility, including day-to-day operation, and short term and long term maintenance. The contract, signed by Linde’s Gases Division, includes guarantees of performance and availability by Linde’s Gases Division and Siemens for the full 15-year contract period.

TCEP has cleared most of the other major milestones necessary to begin construction. It has signed a 25-year power purchase agreement to supply 200 megawatts of electric power to the municipal utility of San Antonio, CPS Energy. Whiting Petroleum Corp has agreed to a 15-year deal to buy the plant’s CO2 stream. And Summit has also signed a long-term deal with an un-named company to purchase the plant’s urea output.

Until recently, water supplies were an open question. Texas has been hammered by a millennial drought over the past few years. While the facility is designed to operate using minimal net amounts of water, securing water rights was a lingering challenge. TCEP tied up that loose end in February as well, Miller wrote, with a contract to buy “brackish underground Capitan Reef water” from a landowner west of the project. TCEP will pipe in the water and desalinate it on site.

So what next? Miller wrote to me that TCEP is hoping to close financial terms in June, and to break ground in July.

Before then, only one substantial hurdle remains. TCEP faces a frustrating glitch in the federal tax code, requiring the partnership to pay about US$150 million on its US$450 million federal grant. Summit Power is working with lawmakers to get an exception passed for the quirk. The effort is being led by US Sen. John Cornyn (R., Tex.) and US Congressman Mike Conaway (R., Odessa, Tex.).

Recently, the stakes got higher for TCEP’s success. Delays have slowed a similar project, Hydrogen Energy California (HECA), being planned for a sitebetween San Francisco and Los Angeles. As originally conceived, partners BP and Rio Tinto were working with the DOE to develop an IGCC facility, fuelled by a 3:1 mix of coal and petroleum coke, with full CO2 capture for enhanced oil recovery.

Last May, SCS Energy took over the project, and subsequently tweaked the design to also produce urea, similar to TCEP’s approach. According to an Energy Dept. source involved in the project, the revisions improve HECA’s economic viability and the project is currently progressing through front-end engineering design.

Writing for the Institute, NRDC’s George Peridas recently summarized the obstacles HECA has navigated:

After years of development, the project as we knew it came to an end. The price of power that was required to make the project viable (reported to be in the region of $300/MWh) was, unsurprisingly, not one that tickles the interest of local utilities.

Subsequently, the project changed ownership and management (from Rio Tinto/BP to SCS Energy) and is now undergoing design changes before proceeding with the permitting process afresh. Reportedly, these entail the co-production of fertilizer at the plant, and the use of out-of-state coal for the majority of its fuel needs.

It is not yet clear if and how fast the new version of the project will proceed, but we will likely know more in the coming months.

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A recipe to jumpstart CCS in the US – the rewards of collaborating with China, 3 of 3 | Global CCS Institute

This is the third and final installment of a Q&A with John Thompson of the Clean Air Task Force. Previously we talked about Canada’s leadership in CCS and the problems posed by focusing on CCS liability in advance of scaling the technology. In this last part of the Q&A, Thompson outlines his vision of the benefits available to the American CCS agenda by collaborating with Chinese utilities and oil companies.

For context on how quickly China is emerging as a hothouse of CCS pilots, a recent report from Bloomberg New Energy Finance (BNEF) estimated that China is home to nearly one-third of active pilot-scale CCS projects globally, many of which are focused on carbon use. China, after all, coined the term carbon capture use and storage (CCUS), notes BNEF, adding that China offers US utilities a test bed with lower labor costs, lower regulatory hurdles, ultra-fast construction timelines, ample capital, and an appetite to learn from the West.

To spur EOR, how can we bring down carbon capture costs?

There’s where we think China comes in. China has very low‑cost capture technology, but they have no or little EOR experience. Texas and the Gulf states have lots of EOR experience, but to get more oil from their mature fields will require anthropogenic CO2. We see a huge opportunity to partner with China here, to bring lower‑cost Chinese CO2 capture technology to the US. A bigger supply of lower-cost CO2 will in turn help capture more of our oil. In turn, we can export EOR technology back to China.

CATF recently hired a new staff person in Texas to develop this vision, Dr. Frank Chou. He’s a 30-year veteran of various refining and chemical companies, most recently Shell. Our aim is to develop links between China and the Gulf states region as a way to promote carbon capture in both countries. China builds projects at twice the speed of the US, and at a fraction of cost. If we can harness these global synergies, we have the potential to really drive down costs globally.

How far has this collaboration gone?

We’ve already brought AEP into partnership with Huaneng, and linked Duke with Huaneng as well. I mentioned Southern Co’s Plant Radcliff earlier: the technology there is a TRIG gasifier, developed in Mobile, Ala., by KBR and Southern Co. That technology is being built in China first, in a small, 120‑megawatt power plant about two hours from Hong Kong. That operational data will help refine the design as Kemper is built.

How has China become a leader in low-cost carbon capture?

We’ve all heard that ‘China builds one coal plant a week’. That may or may not be quite true at the moment, but they’re building at an incredible rate (see chart below), and much of the capacity is at the cutting edge of coal technology. They’re building an advanced coal gasification plant about once a month, where the US has only a handful.

It’s no different than China’s experience with factory manufacturing: there are economies of scale taking place that lower the cost to build advanced coal plants. For example, there’s a plant called Shidonkou, outside of Shanghai. They’re capturing CO2 at about $30 a ton. That same project in the United States would probably be double or triple that cost.

And then there’s the potential appetite in China for EOR. We estimate they have the potential, easily, to build 30 gigawatts of CCS capacity to supply EOR in China. Yet right now, there’s maybe only one EOR project there. With more know-how from the US, there’s huge potential for that number to grow.

But why would China be better able to solve the problem of scaling up carbon capture than here?

The math suggests that China may be able to build CCS on power plants using EOR with little or no incentives. In China, they refer to EOR-CCS as ‘CCUS’ where the ‘U’ is for utilisation.

Keep in mind the value of CO2 for EOR purposes is set by the global price of oil. So whether you’re in Texas, Norway or Beijing, you’re basically paying the same global price for oil and that price establishes the same economic value of the CO2 used for EOR regardless of where you are doing it. On the other hand, capture costs do vary by region and country and in China they’re a fraction of the costs elsewhere.

So, if you buy CO2 for EOR at roughly the same price in China and Texas, but your China capture costs are a third or half what they are in Texas, you may be able to do EOR‑CCS in China on power plants without any extra economic incentives, without any need for a price on carbon.

That’s not true in Texas yet, given today’s cost of capture. To develop power plant CO2 sources, you’re either going to need some kind of incentive or deep reduction in the cost of capture technology.

But we can lower capture costs with China’s help. We can harness that global synergy to scale up 30 gigawatts worth of CCS for EOR in China in a matter of years. That scale of development lowers costs of capture technology globally. Building that much CCS first in the West would take decades. China is a really significant strategic opportunity that we’re trying to exploit.

So a lot of what we’re trying to do in China is break down the barriers between Chinese CO2 suppliers and Chinese oil companies, because the oil companies have the knowledge. They understand the geology but they don’t produce the CO2. If we can create US-Chinese business partnerships, the transfer of technology both ways could take years off the time when CCS is widely deployed.

At the outset, I mentioned that for me, CCS can also mean ‘Copy Canada’s Successes’. Someday, it could also mean ‘Copy China’s Successes’ too. China could be the key to creating global synergies that allow us to develop CCS technology with little or no subsidies, and no price on carbon.

Global CCS Institute

Can big oil jump-start CCS? Expanding enhanced oil recovery could absorb decades’ worth of U.S. coal-plant CO2 emissions | Global CCS Institute

Just how big is the potential to sequester power-plant CO2 emissions into the U.S. oil patch?

In a word, “vast,” says a recent report released last month by MIT and The University of Texas at Austin that evaluated the capacity of the oil sector to pump CO2 into ageing wells to boost oil recovery, a process known as enhanced oil recovery, or EOR.

Aligning oil-producing areas with potential supplies of power-plant CO2, the researchers identified a variety of geographies that could accept an estimated 15 years or more of current, total CO2 output from U.S. coal plants, or approximately 3,500 gigawatt-years-equivalent of CO2.

That’s a potentially huge wedge to remove from the country’s climate challenge, given that coal plants account for about 30% of total US CO2 emissions.

(Jump to the bottom for links to the report and related resources.)

What’s more, domestic U.S. oil output would surge. The report estimates that, using the full CO2 output of coal-fired power plants to drive more petroleum from oil reservoirs, an additional 3 million barrels per day could be produced by 2030. That would be a 50 per cent increase over current domestic output.

The promise of scaling up CCS to expand EOR is nothing short of tantalizing. Near term, there is no larger potential source of commercial demand for CO2. The U.S. needs more domestic oil and the resulting economics could substantially subsidize the scaling up of CCS technology.

To be sure, widespread adoption of combining EOR-CCS faces major hurdles. The report names: a lack of CO2 transport and injection infrastructure; regulations remain underdeveloped at best; and there are scant and inconsistent incentives to match up supply and demand of CO2. Each of these shortcomings, the authors conclude, could be overcome with better government coordination.

There’s a long way to go. To get to the levels imagined by the report – that EOR could absorb a full year’s worth of coal plant CO2 output for 15 years – the industry has a long way to go. At its current scale, the industry could only handle 3 percent of that amount.

Here’s how the industry looks today, by that measure:

  • Demand for CO2, from current EOR operations – EOR uses about 115 million metric tons (MT) of CO2 per year currently.  Of this, 65 million MT are “new”,  rather than recycled CO2 being re-injected. This “new” CO2 comes mostly from natural geological CO2 reservoirs, and is pumped to oil wells via a network of pipelines.
  • Supply of CO2, from coal-fired power plants – Coal-fired power plants in the U.S. produce about 2,000 million MT of CO2. As a share of the total, EOR’s current demand (65 million MT of CO2) amounts to 3 per cent. Put another way, EOR’s appetite for CO2 could be met today with the emissions from approximately 10 gigawatt electric (GWe) of high-efficiency (supercritical) baseload coal power plants capacity, according to the report.

For a deeper dive into the MIT Univ. of Texas study, along with the research papers underlying the report, and other related material, follow the links below:

  • The report, summarizing the findings of a conference held in June last year, was published in May 2011 and can be downloaded from the Univ. of Texas here. You can view the individual academic presentations given at the July 2010 meeting at the homepage of MIT Energy Initiative, here.

Check out the original post at:
http://www.globalccsinstitute.com/community/blogs/authors/adamaston/2011/07/13/can-big-oil-jump-start-ccs-expanding-enhanced-oil-recov