Cases of CCS Projects on Economics and Financing, 5 May 2016

The leading enterprises in CCUS project development presented their CCS project economics and financing case in the workshop on May 5th. Mr Tim Yeo, Expert on climate change policies, Former Minister of Department of Environment and Climate Change, former Chairman of Energy and Climate Change Committee of the House of Commons presides the session and suggests on the pathways of establishing business models for low carbon building.

Mr. Tim Yeo believes that the world needs CCUS technologies more than any other technology as it allows us to responsibly consume our large proven fossil fuel reserves. Mr. Yeo identified CCUS, along with electricity storage and carbon trading mechanisms as main tools to combat climate change. He congratulated NDRC for becoming, alongside the UK, a global leader in developing trading mechanisms and enhancing CCUS technologies. Mr. Yeo explained 3 ways the UK is helping establish CCUS: 1) through joint regulation with the European partners, 2) Money leveraging; governments spend directly on research on low carbon technologies including CCS through competitions for building pilot schemes in the country, and 3) through market interventions, e.g. via the contracts for difference mechanism (CfD). CfDs guarantee specific prices for low-carbon technologies, but the UK is considering the incorporation of CCS within the scheme to bring the technology to a competitive level.

According to Dr Tao Hongsheng, Vice President of the Research Institute, Shaanxi Yanchang Petroleum (Group) Co. Ltd., the company developed CCS projects to capture carbon dioxide and utilise it enhance oil recovery in mature fields in the Ordos Basin. Mr. Hongsheng stated that, in 2015, the company had injected more than 60,000 tonnes and that in 2016, it would have 16 wells with a total injection capacity of 200,000 tonnes. The project was included in the Sino-US Joint Statement on Climate Change heads of bilateral cooperation. In terms of carbon dioxide capture the company would extend its applications to the use of petroleum CERI technology, with the target of achieving near-zero emissions. Yanchang Oilfield is now planning to launch 300,000 tons / year of carbon capture devices.

Dr Liang Xi, Secretary General of UK-China (Guangdong) CCUS Centre, Senior Lecturer at University of Edinburgh, addressed the financial business of the offshore CCUS project in Guangdong and its financial model. He introduced all partners and collaborators in the project, including CRP, the University of Edinburgh, and the Scottish CCS institute (SCCS). He acknowledged that the UK-China (Guangdong) CCUS Centre was established after 6 years of research and collaborations with the UK Government (DECC) and Australia, with support from other governments. Dr. Liang Xi emphasised the need for governmental policy and financial support in the absence of a CCUS-specific policy framework before describing the evolution of the Centre establishment. He further introduced the CCUS project in Haifeng power plant, noting that capture technologies are currently being tested in order to decide on the most ideal technology to be adopted while CNOOC oil refinery in Huizhou seeks to capture high concentration CO2. The Centre is working closely alongside CNOOC’s research institute and its Guangdong branch to promote the integrated demonstration project.

Dr. Liang Xi stated that, as there is no potential for onshore storage in Guangdong, offshore storage would play an increasing role in mitigating Chinese emissions and playing a role on the global frontier (China accounts for 20-25% of global emissions, and Guangdong’s region alone contributes 5-8% of Chinese emissions). Dr Liang pinpointed the advantages of offshore storage as follows: 1) lack of (complex) requirements for land acquisitions, 2) absence of public opposition, and 3) the enhancement of offshore engineering technologies, particularly CO2-EOR. Dr. Liang with GDDRC views the pilot project as a future platform for testing international and national CCUS projects. He described the progress of the current pilot project as it is still in its first phase, with feasibility studies completed for retrofitting units 3 and 4 of the plant. He also highlighted 3 potential storage sites with focus on site HZ-211B in Huizhou and the need for a hurdle rate of 12% for an IRR and minimum subsidies of 6-10% towards IRR. Dr. Liang Xi identified the carbon market, the feed-in tariff mechanism, the utilisation hour, science and technology funds, international funds, and other external schemes as potential routes to leverage financial support to CCUS projects.

He noted that the power tariff is 60-70% (30-35$/MWh or 0.2CNY/kWh) higher with CCS than without CCS and the current cost of emissions abatement is around 800CNY/MWh that no carbon market could match. He lastly categorised business models as belonging to two groups, one at the corporate level and another on the policy-making frontier.

Professor Liu Zhaohui from Huangzhou University of Science and Technology stated that in the past 5 years, HUST has conducted some demonstrations and feasibility studies on two different projects (35MW and 200MW), using oxy-fuel combustion. He described the utilisation of oxy-fuel combustion process, describing it as an efficient, low-cost, and non-carbon intensive separation technique. He indicated that HUST has gone from a laboratory-scale pilot (300kW) to 35MW project and has concluded a feasibility study on a 200MW project last year supported by the Ministry of Science and Technology, Dongfang, and Tsinghua University. Professor Liu noted that the project cost around 100m RMB in investments, with the boiler accounting for 60% of costs and the ASU high voltage distribution accounting for the remaining 40%. He also stated that annual O&M costs amount to 38.63m RMB using air combustion and 68.25m RMB for oxy-fuel combustion; while if calculated as product of per ton of steam, the cost of stream production is 116m RMB for air combustion and 205m RMB with oxy-fuel combustion (higher cost for the latter due to electricity consumption and tariff). Around 10% of captured CO2 in HUST’s project could be used for EOR while 90% need to be transported for storage. There is an efficiency penalty of 8.3% to 10% between non-CCS and CCS retrofitted plants. The increase in costs between conventional plants (e.g. 1.09bn RMB) and CCS-retrofitted plant (e.g. 2.2b RMB) is more than 100%, while the breakeven tariff for oxy-fuel + CCS plant would be 170% higher than that of a conventional plant.

Mark Schweighauser, General Manager of Shell Cansolv, noted that a mix of fossil fuels and renewables is crucial in the foreseeable future. Shell intends to play its role in reducing CO2, with a wide range of available experience and capabilities. Cement and steel are the only realistic routes to reducing emissions in the industry, while without CCS, as the EIA claims, the cost of decarbonisation would be substantially higher. Shell is using two technologies: amine-based capture technologies and ADIPX.

Transport of CO2 has been practiced for a long time especially in the southwestern regions of the US. There are roughly 80 CO2 pipes around the world. All elements of CCS have been operating for a while but are not quite ready from a legal framework viewpoint. Mr. Mark introduced major CCS projects around the globe, focusing on Canada’s Quest project. Quest’s project extracts gas out of syngas using amine to capture the CO2. In Scotland, for instance, Peterhead CCS project was a gas-fired power plant and was injecting CO2 in a depleted reservoir but funding from the UK Government has been cut for the project. On the contrary, the Boundary Dam project is a coal-fired power plant with post-combustion technology, and the project is now performing quite well. Shell has a wide involvement in gas, coal, and syngas projects. Quest CCS project captures 1 million tonnes of CO2 per annum with CO2 stored 2km under the surface in a saline reservoir. The project is a joint venture, between Shell, Chevron and is operated by Shell. Partners were seeking an NPV=0 (not generating any financial profits) which was only possible through funding by the Canadian government, with a possible opportunity for EOR exploitation in the future. DNV issued the world’s first certificate of fitness for CO2 storage for Quest in 2011, when construction commenced and was completed in 2015. Commercial injection started in Autumn 2015 and half a million tonnes were injected by February 2016. A lot of work was done on communicating knowledge on CCS to get public approval. Mr. Mark lastly acknowledged that CCS will require a number of things including: 1) effective CO2 pricing mechanism 2) level plain field with alternative low carbon technologies, and 3) short-term demonstration support to drive costs down.

Dr Deng Ruijian, Deputy Chief Geologist, Sinopec Zhongyuan Oilfield branch, mentioned that he feels a lot more confident in CCUS technologies based on previous presentations during the workshop. However, he believes that a single storage technology would be very costly as there is a need to perform extensive geological surveys and assessments (one block costs 100s of million of RMB over a few years) and transportation costs remain very high. In order to achieve highly effective CCS, Dr. Deng emphasises the exploitation of EOR in oil fields in Eastern China. There exist 28 billion tonnes of storage capacity in China, with 15 billion tonnes capacity for permanent storage in oilfields. Sinopec has conducted 3D seismic research and there is enough information regarding the oilfields and they are deemed suitable for injections. The challenges that remain, Dr. Deng admits, are: 1) the old oilfields have a very high water content that it feels like oil would need to be extracted from water and 2) there is a big difference in formations of old oilfields that result in difficulties of managing and monitoring wells.

At the conclusion of the case studies, delegates and attendees discussed policies and business models needed to promote CCUS. Mr. Brad Page insisted CCS should receive equal policy and financial support as renewable energy technologies, while Dr. Ruijian Deng hoped oil prices would rise again as CCS business model efficiencies would increase with increased oil prices. The original plan was for CCS to be integrated into 19% of the energy mix, but as the target will be missed, the Government needs to increase its support to the technology in the near future. (UK-China (Guangdong) CCUS Centre)