RPT COLUMN-Carbon capture faces scale dilemma: Gerard Wynn

Mon May 20, 2013 4:29am EDT

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(The author is a Reuters market analyst. The views expressed are his own.)

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By Gerard Wynn

LONDON, May 17 (Reuters) - European policymakers face a difficult decision on building carbon capture and storage (CCS) - saving money in the long run requires spending more upfront.

CCS captures carbon dioxide (CO2) emissions from a fossil fuel power plant and then pipes it to an underground storage site such as a depleted gas or oil reservoir.

In theory, CCS would allow energy producers to continue to burn fossil fuels and still meet carbon emission targets. In practice, the technology is expensive and unproven.

Clustering a number power plants at one end of a central pipeline and multiple storage sites at the other end would save money over the long term. More savings could from using CO2 to help produce oil from aging wells, which would generate revenue to help cover the costs.

Not only are starting costs higher but also these options entail a risk that the bigger and longer pipelines required would never be fully used if the technology fails to prove itself.

Britain's Department of Energy and Climate Change (DECC) published a report this week on the potential for reducing the costs of CCS, drafted by an advisory group it established a year. ("The Potential For Reducing The Costs of CCS in The UK", May 2013)

The report found two main options for near-term cost cuts. (See Chart 1) but concluded that even after these savings, CCS would require some kind of government subsidy through the 2020s.

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Chart 1: (page 15) goo.gl/Ui6r8

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CLUSTERS

One cost-cutting option would be to cluster CCS projects into hubs, which would allow the sharing of pipeline and storage infrastructure.

"Virtually all of the CCS projects proposed in the UK to date are based on isolated full-chain schemes in which a single power station is connected via a single dedicated CO2 pipeline to a storage site in the UK Continental Shelf," it said.

"Leveraging early CO2 infrastructure, if it is designed correctly, can reduce the incremental cost of transport and storage substantially for later projects."

The report estimated that clustering would reduce storage costs from around 25 pounds ($38.27) per megawatt-hour in early projects to 5 to 10 pounds/MWh. That compares with total CCS costs estimated at 161 pounds/MWh before any savings.

Transport costs could drop from 18 to 23 pounds/MWh for early projects carrying 1-2 million tonnes of CO2 per year to 5 to 10 pounds/MWh for large, full pipelines carrying 5-10 million tonnes, the report estimated.

A report published last year by consultants Mott MacDonald summed up the benefits and risks from investing more, earlier in outsized infrastructure. ("Potential cost reductions in CCS in the power sector", May 2012)

"In principle, additional sources can be added in the future, provided CO2 pipeline capacity is sized and designed accordingly. A coordinated network approach can then lower the barriers of entry for all participating CCS projects, including for emitters who subsequently do not have to develop their own separate transportation and storage solutions," it said.

"These benefits arising from economies of scale need to be weighed against the risk of being left with an underutilised or stranded asset. This means that the development of transport and storage clusters needs to be carefully coordinated with capture."

ENHANCED OIL RECOVERY

Another way to cut costs is to use the CO2 to force out the dregs of crude oil from nearly depleted fields, through the enhanced oil recovery process (EOR).

It would require greater upfront investment, by comparison with non-EOR CCS, to build longer pipelines to transport the CO2 to suitable oilfields. Such a project may need a cluster of at least 10 oilfields to be economic, according to an industry source.

But Britain last October dumped the only EOR proposal when it put together a short list of projects for CCS funding, presumably on the basis that it was too expensive.

The rejected Don Valley EOR project proposed to transport the CO2 400 km to two North Sea oil fields.

As for the two that made it to the short list, the Peterhead project in north-east Scotland would involve a 100 km pipeline to a depleted gas reservoir, and the White Rose project in eastern England a roughly 165 km line to a saline aquifer.

The advantage of EOR clearly is that it would generate oil revenue, which could pay for the entire CO2 storage and possibly some transport costs, Thursday's report estimated.

"(The) potential additional EOR benefit is in the range of 5-12 pounds/MWh for gas CCS and 10-26 pounds/MWh for coal CCS," it estimated.

It appears that Britain is still far from grasping the nettle of large, upfront costs, even though they would cut costs over the longer term.

The implication is that CCS development will remain piecemeal and more expensive, with a slower larger rollout, if at all. ($1 = 0.6533 British pounds) (editing by Jane Baird)

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