05 pershad ee_ccsc_cambridge - Early careers winter school, 9-12th January 2012, University of Cambridge

CO2 Transport for CCS:

Global Potential &

Local Challenges

UKCCSC Winter School

10th January 2012

Harsh Pershad

Element Energy Limited

www.element-energy.co.uk

2

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.

Introducing Element Energy

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Element Energy is a leading low carbon energy

consultancy offering services spanning from strategy

development to high end engineering solutions

• CFD

• Software tools

• Prototyping

• Installations

We offer three main

services to our clients Engineering

Solutions

Engineering

Solutions

• Technology assessments

• Market assessments

• Financial modelling

• Commercialisation advice

Due

diligence

Due

diligence

• Scenario planning

• Techno-economic modelling

• Business planning

• Stakeholder engagement

Strategy

& Policy

Strategy

& Policy

• Carbon capture

and storage

• Renewables

• Microgeneration

• Techno-economics

• Feasibility studies

• Geographic data

We operate in three

main sectors

• EV scoping

• H2 vehicles

• Infrastructure modelling

• Business planning

Low carbon transport

• Master planning

• Building design

• Policy advice

• Regional strategy

Low carbon buildings

Low carbon

power

generation

4

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 CO2 Storage (Public/private)

CO2 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

Element Energy’s CCS expertise

5

• Global CO2 pipeline potential

• North Sea CO2 transport scenarios

• Case study – developing a network in the Tees Valley

Outline

6

6

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.

Study on CO2 pipeline infrastructure: analysis of

global challenges and opportunities

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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

How well are emitters and storage matched

globally?

8

8

Starting point was generating databases of sources

and storage sites.

9

9

For aquifers, there are no consistent global datasets,

therefore need to work with published data.

10

10

Also need estimates of CCS demand from global

economic, energy system, CO2 and climate

modelling.

N.B. These

models change

every year!

11

Pipeline costs depend primarily on diameters,

lengths, terrain, boosting requirements, location and

overall engineering cost indices.

12

12

It is possible to meet IEA’s

projection of US total CCS

demand of 500 Mt CO2/year

in 2030 using short pipelines

crossing straightforward

terrains.

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.

13

13

Towards 2050, it will

become increasingly

challenging to meet the

IEA’s projection of US total

CCS demand of 770 Mt

CO2/year.

Longer or integrated

pipelines crossing difficult

terrains would be

increasingly required.

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Africa High Low Low Low Low High

Australasia High Low Moderate Low High High

Central +

South AmericaHigh Low Moderate Low Low Moderate

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

Importance of

aquifer storage in

2030 wrt baseline

scenario

Importance of

aquifer storage in

2050 wrt baseline

scenarioRegion

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

Source-sink matching can check projections for CCS and

highlight where capture readiness policy and storage

appraisal should be prioritised.

15

15

Worldwide regions differ substantially in the cost

effectiveness of CO2 pipeline networks.

16

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

18

Comparison of shared rights-of-way and shipping

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).

20

If CCS is well planned, phased investment over two

decades can support rapid growth later when

conditions favour large CCS uptake.

21

• Global CO2 pipeline potential

• North Sea CO2 transport scenarios

• Case study – developing a network in the Tees Valley

Outline

22

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 2010.

‘One North Sea’ Report available at

www.element-energy.co.uk

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

CO2 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 ‘future-

proofing’ investments – there is no

‘unique’ answer as to what is the

‘right’ network.

24

24

Many alternative scenarios for CCS deployment

(examined through quantitative modelling

supplemented with lit. and stakeholder review)

Large uncertainties in the locations, timing,

capacity, designs and economics of CCS projects

challenge both policymakers and industry.

Capture uncertainties Transport uncertainties Storage uncertainties

CO2 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?

25

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

Tight CO2 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

Integrated

infrastructure

Cross-border pipelines

allowed

Unrestricted – all sinks

available for storage

Medium

Moderate CO2 caps

Moderate CCS cost reductions and

efficiency improvements

No increase in power demand

High renewables and nuclear

No industrial sources

Point-to point (up to

2030).

No cross-border

transport before 2050.

No onshore storage

permitted.

Aquifer storage limited

Low

Unfavourable e.g. Combination of weak

CO2 caps, CCS cost increases, no CCS

policies.

Transport investment

restricted Very low availability

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Three scenarios encapsulate extremes and most likely

CCS development scenarios for the North Sea region.

Opportunity?

Leadership, co-operation and

investment by Governments,

EU, industry and others, to

stimulate CCS demonstration

and deployment.

2020 2030 2050 2040

Very

High

Medium

2010

Mt CO2

stored/year in the

North Sea region

Year

Low

More likely?

Fragmented CCS activity.

Limited support beyond

demonstration (except CO2

price).

Restricted transport and

storage.

Possible worst case?

Unsuccessful demonstration.

Failure to support

deployment.

Poor economic conditions

and regulations

Higher costs for CCS.

273 Mt/yr in

2030

ca. 46 Mt/yr

in 2030

450 Mt/yr in

2050

30 Mt/yr in

2020

27

With optimistic developments in technology,

policies, organisation, social acceptance, CCS could

provide ca. 10% of European abatement in 2030.

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273 Mt CO2/yr

28

However, with limited support and technology

development, CCS deployment in 2030 could be

limited to only a few simple projects.

28

46 Mt CO2/yr

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29

0

20

40

Number of sinks in 2030

0

50

100

Number of new sources in 2030

0

2500

5000

New pipeline km required in 2030

0

100

200

300

Total Mt CO2/year

required in 2030

Decisions on investment must be made in the context

of very large uncertainty as to eventual use.

30

Very high CCS deployment could bring significant

economies of scale in transport costs.

30

0

1

2

3

4

5

6

0 100 200 300

Pip

eli

ne

ne

t p

res

en

t c

os

t

€/t

CO

2

Mt CO2/year transported in 2030

Marginal transport cost curve for 'Medium' and 'Very High' scenarios

Very High (integrated)

Medium scenario

Cost represent the capital cost and operating costs (discounted at 10% over 30 years) for new pipelines constructed in 2030.

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).

32

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.

Overcoming the barriers to large scale CCS

deployment by 2030 requires leadership and co-

operation.

32

33

Actions at global level

Worldwide agreement on CO2 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.

Delivering large scale CCS infrastructure

requires action at global and European levels.

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34

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 re-

use 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 CO2 storage operators.

Delivering large scale transport and storage

infrastructure in the North Sea requires the co-

operation of regional stakeholders.

34

35

• Global CO2 pipeline potential

• North Sea CO2 transport scenarios

• Case study – developing a network in the Tees Valley

Outline

36

Case study of a CO2 transport network

37

The North East is the most carbon intensive region

of the UK economy.

767

63%54%

51%

31%

43%

44%

38%34% 46%

35%44%

35%

45%

0

100

200

300

400

500

600

700

800

900

0

10

20

30

40

50

60

70

North East

Wales Yorkshire &

Humber

N. Ireland

East Mids North West

West Mids

South West

Scotland East England

UK Average

South East

Greater London

Emis

sio

n p

er

GV

A (t

CO

2/£

mil

lio

n G

VA

)

CO

2Em

issi

on

s (M

tCO

2, 2

00

8)

UK Region

Other Emissions

Industry and power sector emissions

tCO2 per £M Gross Value Added (GVA)

Percent emissions from industry and power

X%

38

Industry is partly insulated against the carbon price,

until at least 2020, but competitiveness will be

increasingly eroded.

0

2

4

6

8

10

12

14

Power Iron & Steel Chemicals Others Biomass/Biofuels

Ann

ual e

mis

sion

s (M

tCO

2/yr

)

Sectors

Purchase - auction or market

Free allocation

Outside scope of EU ETS

£12 M/yr2 Installations

£7 M/yr13 Installations

£285 M/yr7 Installations

£0 M/yr6 Installations

£2 M/yr6 Installations

(1 Food & drink)(5 petroleum)

Total Annual Exposure to EU ETS: £306 M/yr

Total value at risk, EU ETS Phase III: (2012-20): £2.5 Bn

39

Vision of Tees Valley stakeholders – onshore cluster

connected by a transmission pipeline to an offshore

storage site.

40

Economic modelling of regional CCS network

41

Cashflow for pipeline developer

-£300

-£250

-£200

-£150

-£100

-£50

£-

£50

£100

£150

£200

£250

2010 2015 2020 2025 2030 2035 2040 2045 2050

Val

ue

/£m

illio

n

Year

NPV Expenditure Revenue

Undiscounted cashflow profile for

a large network

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?

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.

44

Pipeline transport shows excellent economies

of scale.

45

The costs can be put in the context of the value of

businesses to the UK economy.

0

50

100

150

200

250

300

350

400

450

500

Power Iron & Steel Chemicals Others Biomass/Biofuels

Gro

ss v

alue

add

ed (

£M/y

r)

Sectors

Total Annual GVA at risk: £672 M/yr

Total GVA at risk, EU ETS Phase III (2012-20): £5.4 Bn

£21 M/yr170 Jobs

£121 M/yr2,000 Jobs

£433 M/yr3,885 Jobs

£38 M/yr535 Jobs

£59 M/yr330 Jobs

46

CO2 pipeline network designs can be compared on

multiple key performance indicators.

Need to make

assumptions as to

growth in utilisation

over time.

47

Illustrative dependence of project net present value

on the average charge to users of a network.

-£500

-£300

-£100

£100

£300

£500

£2.00 £4.00 £6.00 £8.00 £10.00 £12.00 £14.00

NP

V a

fte

r 2

0 y

ea

rs o

pe

rati

on

Cost of service (£/tCO2)

Large

Medium

Small

Anchor

48

Pipeline economics are sensitive to multiple factors.

Best and worse case can drive pipeline tariffs from £0/t to

>£100/t CO2. (N.B. current CO2 prices in the ETS are 7

Eur/t)

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.

50

Certainty on CCS adoption depends on source of

finance.

0%

2%

4%

6%

8%

10%

12%

14%

16%

0 5 10 15

Dis

co

un

t ra

te (

%)

Maximum years for other emitters to join after anchor

15% less than one

year acceptable

10% 4 years time possible

5% 11 years lag

possible

51

Additional KPIs for network planning are flexibility

and complexity.

52

Risk profile for future-proofed transport network

Co

mm

erc

ial ri

sk p

rofile

Project timeline

Design Construction Operation & Maintenance DecommissioningDevelopment

Regulatory and policy risks

Technical and operating risks

Economic and market risks

Permitting &

planning

Anchor closes out

financing

Contract negotiations

between parties

EOR revenues

FEED studies

Storage site assessments

Pipeline routes

Anchor project capture

plant

Offshore (over-sized)

pipeline

tariff revenues

Project returns

Investment in non-anchor

capture plant

Build onshore network

Liability transfer

Storage site monitoring

Storage site integrity

demonstrated

Selection for support

FID for anchor & oversized pipeline

Operational start-up from anchor project(s)

Site closure

Non-anchor sources connect

CCS chain demonstrated

Capture technology demonstrated

53

Possible organisation to deliver a future-proofed

transport network

EU support (NER 300)

UK Government support

Anchor project(s)

Offshore pipeline SPV

Lenders

Contractors

Equipment suppliers

Insurers

Additional capture sources

EOR operator(s) CO2 storage operator(s)

Lenders

Contractors

Equipment suppliers

Insurers

CCS demo support CCS Levy, CO2 price floors

CCS Levy CO2 price floors

CO2 supply and off-take agreements

Project selection and fund

disbursement

Loan agreements

Turnkey contract

agreements

REGULATORY ISSUES

Capture permits; pipeline RoW; storage & EOR

permits; long-term liability

Initial MoU agreements

Performance guarantees

Insurance policy

Equipment procurement

agreements

Equity & cost recovery

arrangements

Tariff arrangements

Technical entry specifications

Onshore network owner/operator

CO2 off-take agreements

Equity & cost recovery arrangements

Equipment procurement

agreements

Turnkey contract

agreements

Performance

guarantees

Insurance policy

Loan agreements

54

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 2030.

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.

Conclusions: A vicious circle of limited investment

and uncertainty could restrict the development of

CCS transport systems.

55

Thank you for your attention.

Feedback welcome to

Harsh.Pershad@element-energy.co.uk

01223 852 496