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CO2 EOR gives 7x returns

Friday, June 19, 2015

UK CO2 EOR gives '7x financial multiplier' back to the UK economy based on money invested by the UK [government] Treasury, according to a Scottish Carbon Capture and Storage study, which also looked at public perception, viability costs, benefits and transport

A study by Scottish Carbon Capture and Storage (SCCS), founded by Shell, Nexen and 2CO Energy, has calculated that any money provided by the UK government for carbon capture and storage (CCS) with the oil used for enhanced oil recovery (EOR) will lead to a return to the UK economy of 7.2 x the money invested.

This compares to a multiplier of 2.6 for carbon capture fitted to coal, and 3.3 for offshore wind, if it is calculated in the same way.

The calculations were made by Professor Karen Turner, director of the Centre For Energy Policy, Strathclyde Public Policy Institute, part of the University of Strathclyde, Glasgow.

The calculations are based on offshore wind being supported through government funding by Contracts for Difference (CfD); carbon capture and storage supported by CfDs in coal powered electricity generation, and CO2-EOR with the CfDs from pure CCS partly replaced.

The multiplier does not show the financial return to the government, but the return to the UK economy.

It might also be expected that the costs of building additional CCS / EOR infrastructure will go down after the initial construction. This was not factored into the multiplier calculation, Professor Turner said.

This means that CO2-EOR is 'the most cost-effective pathway to UK decarbonisation targets,' the report proposes.


Further benefits

Benefits to the wider UK economy come from extending the producing life of the North Sea, encouraging further development of existing fields, reducing imports of oil, employment, developing new capability (leading to UK exports) and of course tax revenues, the study said.

Also bear in mind that the UK North Sea oil and gas operations are currently under threat due to the low oil price, and adding CO2 EOR may enable them to be kept operating longer and avoid decommissioning costs over the short term.

It potentially reduces the amount of government subsidy required for wind and solar construction, since CO2 EOR is able to help the UK meet its low carbon targets.

This will also help get carbon capture moving in the UK faster.

Also, the UK could have additional business storing CO2 from other countries in Europe, particularly Germany, Denmark, Poland and the Netherlands, if they have not yet managed to develop CO2 storage themselves.

'The beauty of this new analysis is that it shows how to help develop big projects in the power industry, while also supporting a transition of the abilities and profits from offshore hydrocarbons into new, sustainable jobs,' says Professor Stuart Haszeldine, SCCS Director at the University of Edinburgh.


Transport

There have been questions about whether it is legal to move CO2 across boundaries in Europe - SCCS believes that it is, since CO2 is already moved across boundaries when it is used in food.

The CO2 could be delivered by ship, using the same type of vessel currently used to transport liquid petroleum gas (LPG) rather than build an expensive pipeline.

SCCS' calculations show that shipping is in fact cheaper than a pipeline for transporting carbon dioxide by sea over distances greater than 1000km, he says.


Financial structure

SCCS suggests that the financial aid would best be provided to UK oil companies in the form of a reduction of tax required to be paid from field developments, similar to existing brownfield and development allowances.

The calculation studied how much tax allowance the UK government would need to make to UK oil companies in order to make CO2 EOR viable, or get over the 'hurdle rate' of profitability.


Transfer price

The financial modelling was made on the basis of a transfer price (financial payment paid from the power station operator to the oil company, or the opposite) of zero, to keep it simpler.

But in practise, there would probably be some negotiated transfer price, said Emrah Durusut of Element Energy, who was involved in the study.

An oil company would want to be paid for accepting the CO2, and a power company would want to be paid for providing it.

But presumably the two would reach a negotiated price they could both work with.

Mr Durusut said he considered a price range of between -£20 to +£20 a ton to be realistic.



Getting it moving

Mr Haszeldine said that in his discussions with the UK Treasury, the first question people ask is, 'if it's so good, why isn't everybody doing it?'

'That's a fair question,' Mr Haszeldine says.

But the answer starts by pointing out that no CO2 supply is currently available for the North Sea, and for an oil company to create one by itself 'is a fairly expensive investment'.

Another common question is why the current CCS projects in the UK do not include EOR.

The answer is that the government wanted to make sure that the first projects were successful, and getting just CCS moving is a big step, without adding EOR as well, he said.

'Now we're within sight of grasping these two projects,' he said. 'The homework has been done. We're hoping we'll get gold stars [of final investment decision] in early 2016.

Already methane is being used in the North Sea for enhanced oil recovery in the same way that CO2 would be, by BP for its Magnus Field. The project was announced in 2000.


Injection patterns

The study also looked at the best possible injection patterns (water alternating gas, and continuous injection). It found that the best way to get the most oil production is to inject as much CO2 as possible - in other words to store the CO2 as fast as possible.


Oil company finances

A study of what financial incentives would make the projects viable from an oil company point of view was made by Element Energy, Dundas Consultancy and Professor Alex Kemp from the University of Aberdeen.

The study showed that if the Petroleum Revenue Tax (PRT) is put at its standard rate of 81 per cent, CO2 EOR isn't viable.

If PRT is reduced to 30 per cent, Co2 EOR adds value on all fields and oil companies make more profit - so this is perhaps too generous.

The study group suggested that the government could provide a variable field allowance, set to be high enough to make it economic.

Emrah Durusut of Element Energy suggested that if the government announced a tax incentive for CO2 EOR projects now, that would give a strong positive signal to oil companies that the government was willing to support this financially. 'They could be negotiated on a project by project basis,' he said.


Public perception

A study on public and stakeholder perceptions for CO2 EOR was made by Dr Leslie Mabon of Robert Gordon University, together with Chris Littlecott of Scottish Carbon Capture and Storage.

Groups being questioned included Non-Government Organisations (environmental groups), Aberdeen public, Edinburgh public, offshore stakeholders (people working in the offshore industry), energy / climate professionals, financial professionals and oil and gas professionals early in their careers.

They were asked what they thought about the North Sea recovery goals (how much oil would be produced from the North Sea) and the climate goals (whether carbon emission s would be reduced), both what they desired to sea, and what they expected to see.

Every group wanted to pursue climate goals and expected much less to actually happen than they wanted, Mr Littlecott said.

The 'offshore stakeholders' were highly sceptical about both the ability to reach North Sea recovery goals and the ability to reach climate goals, Mr Littlecott said. 'They thought decline was baked into the North Sea.'

The energy / climate professionals showed a lot of scepticism as to the financial viability of CO2 EOR, he said.

The respondents all seemed quite capable of coping with the idea of doing more than one thing at once (meeting climate goals and improving North Sea recovery), he said.

A number of respondents mentioned electoral timescale conundrums, people don't think politicians are willing to do anything which might take longer than 5 years to show results, he said.

People seemed to be much more persuaded about CO2 EOR if they could see it as part of a broader vision for the UK to improve its climate performance, he said.


Moving forward

What would be helpful to move forward is a full worked example about the finances from an oil company's point of view, Mr Haszeldine said.

There is some reluctance among oil companies to reveal their full financial calculations in public, but at the same time, the UK government needs reassurance that it won't be subsidising 'castles in the air' if it goes for this, he says.

Also, the UK oil and gas industry is yet to see the full impacts of the low oil price - it could lead to an even faster acceleration of decommissioning.

Currently, there is potential to use much of the offshore oil and gas infrastructure for CO2 storage, but if it is decommissioned, it would all need to be built again if needed for CO2, he said.

In other words, the CO2 disposal system is available right now for 'very low cost'.



The full report and further information about how the calculations were made is online - see llink below



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