Converting liabilities into assets via Carbon Capture and Storage (CCS) can enable oil companies not only to mitigate manmade climate change, but also to turn a tidy profit in the process.
Oil conglomerates already have the geological know-how to pump millions of tonnes of unwanted carbon dioxide gas deep underground into former gas and oil reservoirs, as well as into other geological formations. What they may not realise is that they can make money from CCS. The key to this is to set a real price (cost) for carbon that is both stable and reliable well into the future.
The United Kingdom today needs to kick-start CCS if we are to stay on track towards the 2050 emissions reduction goal required by law. The UK’s Crown Estate anticipates that by 2030 around 100 million tonnes of CO2 per annum needs to be – and can be – stored under the North Sea’s inland waters. So the political will is certainly there.
If oil companies operating in UK coastal waters have the political blessing as well as the technology and sufficient, suitably located storage capacity for CCS, then what’s holding them back? The price of carbon is, of course. At around €5/tonneCO2, the EU Emissions Trading Scheme is nothing short of a disincentive to CCS. The UK simply cannot wait for the EU ETS to be reformed and, in any case, it is not certain what will happen as a result of the Brexit negotiations.
To play a winning hand now, oil companies need an evidence-based, robust and future-proof system for pricing the damage from emitting a tonne of CO2 that is essential to justify CCS and to see if it makes sense. This has been achieved by PAL’s carbon pricing innovation. We have scientifically determined the price of carbon based on the cost of the loss and damage attributable to manmade climate change triggered by burning fossil fuels. PAL’s unique methodology is described in our book Predicting The Price Of Carbon: How to crack the climate change code for good, by my colleague Richard Clarke, PAL’s Director (Research). PAL today calculates that the price (i.e. the cost) of emitting one tonne of CO2 is around $20.
This putative carbon tax of $20/tonneCO2 is PAL’s benchmark when used for carbon auditing big-ticket projects. Post-Brexit an independent UK, more than ever before, needs secure, ‘despatchable power’ i.e. power on demand – power at the flick of a switch. Wind and solar alone cannot provide this. Unless or until short-term and long-term energy storage technology rises to the challenge, we must re-evaluate nuclear power alongside gas (or even coal) plants with total-capture CCS. These long-life, high cost undertakings must be carbon audited in monetary terms to assess their global impact on the planet.
Last year PAL published a supplement to Richard’s book, Supplement 1 Hinkley Point C Nuclear Power Station – Enhanced Carbon Audit LCA Case Study. Its headline result was the comparison of costs reproduced in the bar chart in Fig. 1 below. By pricing-in the damage caused by a suite of conventional, modern CCGT (Combined Cycle Gas Turbine) gas plants we see the ominous black column of carbon that shows the Hinkley Point C nuclear plant to be very much cheaper than the gas alternative. Additionally, for the offshore wind option to match the Hinkley price tag, it cannot have more than a mere 12% of unabated gas-backup.
Fig. 1 Comparing the lifetime costs of power-equivalent nuclear, gas and wind plants.
What if in Fig. 1 the black column for the CCGT option could be cut down so that the gas option became Hinkley-sized? Could the carbon emissions from the CCGT option be abated with CCS? Help may be at hand. Right now, a 50MW prototype ‘Allam Cycle’ plant in Houston, Texas, is being tested by NET Power, to prove that it is possible to achieve a 60% efficient gas-fired power plant with 100% carbon capture, co-producing high pressure, pipeline quality CO2 for no more cost than the conventional CCGT plant. For the CCGT option to come in at the same lifetime price tag as Hinkley, PAL estimates that the cost of the CCS process has to be less than around $25/tonneCO2 captured (corresponding to the speckled area, Fig. 2). This is close to PAL’s benchmark carbon audit price of $20/tonneCO2, and so a detailed feasibility study including the Oxy-fuel+CCS option is well worthwhile. Imagine that the feasibility study were to show the cost of CCS was mostly or even totally offset by the savings to the planet. In my previous blog: ‘PAL’s Universal Carbon Price will foot the bill for climate change – and is fair to Joe Bloggses the world over’, I argued the case for adopting PAL’s spectrum of country-specific prices as a universal, fair and affordable carbon taxation system. Were this to be adopted, even partially, the Oxy-fuel+CCS option becomes the proverbial ‘no-brainer’.
At present in the UK, CCGT plants are subject to the Carbon Price Floor which is a tax set at £18($25)/tonneCO2. This is the Joker in the pack. If, as seems unlikely, it were to survive the UK General Election or indeed the Brexit negotiations, the cost of CCS in the Oxy-fuel+CCS option is again offset by tax saving in the short term.
Fig. 2 For gas to cost the same as Hinkley, an integrated OxyFuel + CCS process is required.
There are even more tricks to be made from this potentially winning hand: such a technological leap finally gives the UK a valid reason to pursue shale gas with vigour and thus avoid the costs (monetary and geo-political) of imported gas. The UK appears to have so much CCS potential it could even bury some European CO2 too. Now here’s the real trump card: high pressure CO2 is the near-perfect fluid for teasing out the remaining oil resources in the UK North Sea sector. This process is called EOR: Enhanced Oil Recovery. You can bet the UK’s Chancellor of the Exchequer and Scotland’s First Minister could do with that right now.
So the oil companies should need no second bidding to embrace CCS. Backed by the political will, they have the expertise, the resources, and the potential new technology that turns a gas plant into a 21st Century power source, delivering high quality CO2 for EOR, so that dormant wells start producing again. Additionally, they can sell their North Sea storage capacity to the Europeans on the back of their burnished green credentials. Now that’s what I call a winning hand.
Bruce Menzies, Chairman, Predict Ability Ltd (PAL)
© Copyright Predict Ability Ltd, May 2017. All rights reserved.
Author: Bruce Menzies
Bruce Menzies is Chairman and co-founder of PAL. He founded Global Digital Systems Ltd that won the Queen’s Award For Enterprise 2011. Bruce is co-author of six books on geotechnics and geology, one of which won the British Geotechnical Association Prize 2002. He holds doctorates from the Universities of London and Auckland, and is a Fellow of the Institution of Civil Engineers.