CO 2 Transport for CCS: Global Potential & Local Challenges

Transcription

1 CO 2 Transport for CCS: Global Potential & Local Challenges UKCCSC Winter School 10 th January 2012 Harsh Pershad Element Energy Limited

2 Introducing Element Energy Independent, impartial, UK-based low carbon energy technology consultancy. Mission is to help our clients make a successful transition to the low carbon economy. Clients include oil and gas majors, power companies, technology developers, national Governments, IEA, regional/local government, regulators, trade associations and NGOs. Use our expertise in appraising low carbon technologies, markets, business models, and regulations, to developing strategies for successful technology deployment. Majority (>75%) of work is repeat business from satisfied customers. Technologies covered include CCS, hydrogen, fuel cells, low carbon transport, low carbon buildings, energy masterplanning, energy efficiency, CHP, small scale renewables, microgeneration. 2

3 Element Energy is a leading low carbon energy consultancy offering services spanning from strategy development to high end engineering solutions We operate in three main sectors Low carbon transport Low carbon buildings Low carbon power generation EV scoping H 2 vehicles Infrastructure modelling Business planning Master planning Building design Policy advice Regional strategy Carbon capture and storage Renewables Microgeneration Techno-economics Feasibility studies Geographic data We offer three main services to our clients Due diligence Strategy & Policy Engineering Solutions Technology assessments Market assessments Financial modelling Commercialisation advice Scenario planning Techno-economic modelling Business planning Stakeholder engagement CFD Software tools Prototyping Installations 3

4 Element Energy s CCS expertise Element Energy helps organisations and consortia to develop and implement their CCS strategies based on: Quantitative asset-wide assessment of CCS potential. Understanding of technology requirements, cost and performance, policy and regulatory frameworks, and business models for capture, transport, and storage. Projects include: Asset-wide analysis and CCS strategy (Multinational oil and gas company) Financial Analysis of a CCS Network (Public/private) The Economics of CO 2 Storage (Public/private) CO 2 pipelines: An analysis of global opportunities and challenges (IEA) CCS in the gas-fired power and industrial sectors (CCC) Global economic potential for CCS in depleted gasfields (IEA) Regional infrastructure roadmap development 4

5 Outline Global CO 2 pipeline potential North Sea CO 2 transport scenarios Case study developing a network in the Tees Valley 5

6 Study on CO 2 pipeline infrastructure: analysis of global challenges and opportunities Review of engineering challenges, legal and regulatory issues. Experience from investment and regulation in the oil and gas pipeline industries. Quantitative modelling of global pipeline potential in 2030 and 2050, based on global databases of sources, sinks and CCS demand Funded by IEA Greenhouse Gas R&D Programme. 6 6

7 How well are emitters and storage matched globally? Inputs Global sinks database Global sources database Global CCS demand database Global terrain database Existing pipeline maps Pipeline cost database Sizing database Modelling Terrain weighting Source-sink matching and scoring algorithms Integrated network models Cost and sizing algorithms Outputs Maps of source sink matches Costs and capacities of point-to-point and integrated pipelines Sensitivity analysis 7 7

8 Starting point was generating databases of sources and storage sites. 8 8

9 For aquifers, there are no consistent global datasets, therefore need to work with published data. 9 9

10 Also need estimates of CCS demand from global economic, energy system, CO 2 and climate modelling. N.B. These models change every year! 10 10

11 Pipeline costs depend primarily on diameters, lengths, terrain, boosting requirements, location and overall engineering cost indices. 11

12 The scores for emitters store combinatins can then be calculated, and for each country the highest scoring projects (based on transport considerations) can be depicted. It is possible to meet IEA s projection of US total CCS demand of 500 Mt CO 2 /year in 2030 using short pipelines crossing straightforward terrains

13 Towards 2050, it will become increasingly challenging to meet the IEA s projection of US total CCS demand of 770 Mt CO 2 /year. Longer or integrated pipelines crossing difficult terrains would be increasingly required

14 Source-sink matching can check projections for CCS and highlight where capture readiness policy and storage appraisal should be prioritised. Ability to meet Blue Map Demand in 2030 under baseline scenario Ability to meet Blue Map Demand in 2050 under baseline scenario Cost effectiveness of new pipelines required for 2030 Cost effectiveness of new pipelines required for 2050 Importance of aquifer storage in 2030 wrt baseline scenario Importance of aquifer storage in 2050 wrt baseline scenario Region Africa High Low Low Low Low High Australasia High Low Moderate Low High High Central + High Low Moderate Low Low Moderate South America China Moderate Low High Moderate High Very High Eastern Europe Low Very Low Moderate Low High Very High CIS High Moderate Moderate Moderate Very Low Very Low India High Very Low High Low High Very High Japan Moderate Very Low Moderate Low Very High Very High Middle East Very High Low Moderate Moderate Very Low Low Other Dev Asia Very High Very Low Moderate Low Low Moderate USA Very High Moderate Very High Very High High Very High Western Europe Very High Low Very High Moderate Low Very High 14

15 Worldwide regions differ substantially in the cost effectiveness of CO 2 pipeline networks

16 Where there are multiple sources (and/or sinks) options for integrated infrastructure may provide multiple benefits

17 Comparison of point-to-point and shared pipelines 17

18 Comparison of shared rights-of-way and shipping 18

19 Permitting transport links is high risk and timescales can last more than a decade, so integrated pipelines minimise the need to for multiple large projects. Also, 1000 km gas pipelines (e.g. Nordstream) have taken 14 years from concept to commissioning). 19

20 If CCS is well planned, phased investment over two decades can support rapid growth later when conditions favour large CCS uptake. 20

21 Outline Global CO 2 pipeline potential North Sea CO 2 transport scenarios Case study developing a network in the Tees Valley 21

22 Industry and countries around the North Sea have made efforts to develop CCS, providing a useful case study of issues for basin-scale networks. Element Energy led a quantitative analysis of capture, transport and storage scenarios Included engagement with more than 60 stakeholders. Started in September 2009, completed March One North Sea Report available at Funded by UK Foreign and Commonwealth Office and Norwegian Ministry of Petroleum and Energy, on behalf of the North Sea Basin Task Force

23 Numerous transport networks have been proposed CO 2 networks for the North Sea region to take advantage of the clustering of sources and sinks. Different countries and industries have different priorities (and time horizons) which influence the level to which they optimise by futureproofing investments there is no unique answer as to what is the right network. 23

24 Large uncertainties in the locations, timing, capacity, designs and economics of CCS projects challenge both policymakers and industry. Capture uncertainties Transport uncertainties Storage uncertainties CO 2 caps? Renewables/nuclear contribution? Commodity prices? CCS cost reduction? Industrial sources (carbon leakage)? Power demand? Efficiency improvements? Site-specific issues? Point-to-point or integrated infrastructure? Cross-border projects? Pipeline reuse? Shipping? Site-specific issues? Aquifer viability? Hydrocarbon field storage? Onshore storage? Enhanced oil recovery? Site-specific issues? Many alternative scenarios for CCS deployment (examined through quantitative modelling supplemented with lit. and stakeholder review) 24 24

25 To understand the requirements for North Sea CCS infrastructure in 2030, we developed a number of CCS scenarios. Scenario CCS demand drivers Transport drivers Storage drivers Very High Medium Low Tight CO 2 caps Substantial CCS cost reductions CCS efficiency improvements High power demand CCS mandatory for new build Moderate renewables Limited new nuclear Low gas prices CCS from industrial sources Moderate CO 2 caps Moderate CCS cost reductions and efficiency improvements No increase in power demand High renewables and nuclear No industrial sources Unfavourable e.g. Combination of weak CO 2 caps, CCS cost increases, no CCS policies. Integrated infrastructure Cross-border pipelines allowed Point-to point (up to 2030). No cross-border transport before Transport investment restricted Unrestricted all sinks available for storage No onshore storage permitted. Aquifer storage limited Very low availability 25 25

26 Three scenarios encapsulate extremes and most likely CCS development scenarios for the North Sea region. Mt CO 2 stored/year in the North Sea region 450 Mt/yr in 2050 Very High Opportunity? Leadership, co-operation and investment by Governments, EU, industry and others, to stimulate CCS demonstration and deployment. 273 Mt/yr in 2030 Medium More likely? Fragmented CCS activity. Limited support beyond demonstration (except CO 2 price). Restricted transport and storage Mt/yr in 2020 ca. 46 Mt/yr in Low Year Possible worst case? Unsuccessful demonstration. Failure to support deployment. Poor economic conditions and regulations Higher costs for CCS. 26

27 With optimistic developments in technology, policies, organisation, social acceptance, CCS could provide ca. 10% of European abatement in Mt CO 2 /yr 27 27

28 However, with limited support and technology development, CCS deployment in 2030 could be limited to only a few simple projects. 46 Mt CO 2 /yr 28 28

29 Decisions on investment must be made in the context of very large uncertainty as to eventual use. 100 Number of new sources in 2030 Number of sinks in 2030 New pipeline km required in 2030 Total Mt CO 2 /year required in

30 Very high CCS deployment could bring significant economies of scale in transport costs. Marginal transport cost curve for 'Medium' and 'Very High' scenarios 6 Pipeline net present cost /tco Very High (integrated) Medium scenario Mt CO 2 /year transported in 2030 Cost represent the capital cost and operating costs (discounted at 10% over 30 years) for new pipelines constructed in Costs exclude financing, capture, compression, boosting or storage

31 A combination of favourable drivers are required to meet the highest demands (e.g. IEA roadmap CCS demands). 31

32 Overcoming the barriers to large scale CCS deployment by 2030 requires leadership and cooperation. Major investment in low carbon energy technologies (e.g. renewables) has been achieved through a combination of : Robust, substantial and long term economic incentives Successful demonstration at intermediate scale Confirmation on (large) resource availability and locations Solving interdependencies within the value chain Clarity on regulations Some degree of standardisation to reduce transaction costs Political and public support

33 Delivering large scale CCS infrastructure requires action at global and European levels. Actions at global level Worldwide agreement on CO 2 emissions limits Operational experience with capture and storage at scale, through safe and timely demonstration projects. Reducing the costs of CCS through improving technologies, standardising, and efficient designs. Improved guidelines on capacity and suitability of storage. Engagement with the public and NGOs. Additional actions at European level Improve the quality of information on storage available. Introduce measures that promote CCS beyond first wave of demonstration. Set up supportive national regulatory structures for storage developers

34 Delivering large scale transport and storage infrastructure in the North Sea requires the cooperation of regional stakeholders. Actions for North Sea stakeholders A shared, transparent and independent storage assessment involving stakeholders to improve confidence in storage estimates. Reduce uncertainties through sharing information on technologies, policies, infrastructure, regulations, costs and challenges. Take advantages of no-regrets opportunities, such as capture readiness and reuse of existing data and infrastructure where possible. Improve stakeholder organisation to ensure infrastructure is efficiently designed, located and delivered. Develop frameworks for cross-border transport and storage to reduce the risks for individual countries. Determine how site stewardship should be transferred between hydrocarbon extraction, Government and CO 2 storage operators

35 Outline Global CO 2 pipeline potential North Sea CO 2 transport scenarios Case study developing a network in the Tees Valley 35

36 Case study of a CO 2 transport network 36

37 The North East is the most carbon intensive region of the UK economy. CO 2 Emissions (MtCO2, 2008) Emission per GVA (tco 2 / million GVA) 70 Other Emissions % 43% 44% X% 38% Industry and power sector emissions tco2 per M Gross Value Added (GVA) Percent emissions from industry and power 34% 46% 35% 44% 35% 45% % 54% % North East Wales Yorkshire & N. Ireland East Mids North West West Mids South West Scotland East England UK Average South East Greater London 0 37

38 Industry is partly insulated against the carbon price, until at least 2020, but competitiveness will be increasingly eroded. Annual emissions (MtCO2/yr) 14 Total value at risk, EU ETS Phase III: ( ): 2.5 Bn Total Annual Exposure to EU ETS: 306 M/yr M/yr 7 Installations Purchase - auction or market M/yr 2 Installations Free allocation Outside scope of EU ETS M/yr 13 Installations 2 M/yr 6 Installations (1 Food & drink) (5 petroleum) 0 M/yr 6 Installations 0 Power Iron & Steel Chemicals Others Biomass/Biofuels Sectors 38

39 Vision of Tees Valley stakeholders onshore cluster connected by a transmission pipeline to an offshore storage site. 39

40 Economic modelling of regional CCS network 40

41 Value / million Cashflow for pipeline developer NPV Expenditure Revenue Year Undiscounted cashflow profile for a large network 41

42 Tees Valley possesses a number of sources closely clustered. An onshore network is relatively straightforward to finance (<US$100m) but how should the offshore transmission pipeline be sized? 42

43 Because of economies of scale in pipelines, a single large offshore pipeline provides the least cost if all users connect, but requires upfront cost for over-sizing. 43

44 Pipeline transport shows excellent economies of scale. 44

45 Gross value added ( M/yr) The costs can be put in the context of the value of businesses to the UK economy Total GVA at risk, EU ETS Phase III ( ): 5.4 Bn Total Annual GVA at risk: 672 M/yr 433 M/yr 3,885 Jobs M/yr 2,000 Jobs M/yr 170 Jobs 38 M/yr 535 Jobs 59 M/yr 330 Jobs 0 Power Iron & Steel Chemicals Others Biomass/Biofuels Sectors 45

46 CO 2 pipeline network designs can be compared on multiple key performance indicators. Need to make assumptions as to growth in utilisation over time. 46

47 NPV after 20 years operation Illustrative dependence of project net present value on the average charge to users of a network. 500 Large Medium Small Anchor Cost of service ( /tco2) 47

48 Pipeline economics are sensitive to multiple factors. Best and worse case can drive pipeline tariffs from 0/t to > 100/t CO 2. (N.B. current CO2 prices in the ETS are 7 Eur/t) 48

49 Through discounted cashflow analysis it is possible to quantify the impacts of underutilisation over network or pipeline profitability. Government is well placed to determine policy certainty, which impacts relevance of different finance options. 49

50 Discount rate (%) Certainty on CCS adoption depends on source of finance. 16% 14% 15% less than one year acceptable 12% 10% 10% 4 years time possible 8% 6% 5% 11 years lag possible 4% 2% 0% Maximum years for other emitters to join after anchor 50

51 Additional KPIs for network planning are flexibility and complexity. 51

52 Commercial risk profile Risk profile for future-proofed transport network Regulatory and policy risks Technical and operating risks Economic and market risks Anchor closes out financing Contract negotiations between parties Investment in non-anchor capture plant Build onshore network Anchor project capture plant Offshore (over-sized) pipeline Operational start-up from anchor project(s) Project returns Capture technology demonstrated Non-anchor sources connect CCS chain demonstrated Storage site integrity demonstrated EOR revenues tariff revenues FEED studies Storage site assessments Pipeline routes Permitting & planning Selection for support FID for anchor & oversized pipeline Site closure Liability transfer Storage site monitoring Design Development Construction Operation & Maintenance Decommissioning Project timeline 52

53 Possible organisation to deliver a future-proofed transport network EU support (NER 300) Project selection and fund disbursement UK Government support CCS demo support CCS Levy, CO 2 price floors CCS Levy CO 2 price floors REGULATORY ISSUES Capture permits; pipeline RoW; storage & EOR permits; long-term liability Initial MoU agreements Lenders Loan agreements Anchor project(s) Onshore network owner/operator Additional capture sources Tariff arrangements Loan agreements Lenders Contractors Equipment procurement agreements Equipment suppliers Turnkey contract agreements Performance guarantees Equity & cost recovery arrangements Technical entry specifications Offshore pipeline SPV Equity & cost recovery arrangements CO 2 supply and off-take agreements Turnkey contract agreements Performance guarantees Contractors Equipment procurement agreements Equipment suppliers Insurers Insurance policy EOR operator(s) CO 2 off-take agreements CO 2 storage operator(s) Insurance policy Insurers 53

54 Conclusions: A vicious circle of limited investment and uncertainty could restrict the development of CCS transport systems. Limited operational experience and significant interdependencies for large scale CCS systems create significant uncertainties in the potential capacities, locations, timings and costs. Therefore policymakers and wider stakeholders are reluctant to provide now the support that would underpin large scale CCS deployment in But, optimised transport and storage infrastructure has long lead times and requires investment and the support and organisation of diverse stakeholders. Currently, insufficient economic or regulatory incentives to justify the additional costs of CCS, and uncertain legal and regulatory frameworks (particularly for storage) further limit commercial interest from potential first movers. Efficient and timely investment in transport infrastructure requires : much more certainty in the locations, capacities, timing and regulations for storage, and robust and sufficient economic and regulatory frameworks for capture. 54

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