Oil & Gas - Maximising Recovery Programme (formerly SHARP) IOR Views

Support for UK Demonstration CCS Project

The pre-budget statement was made by the Chancellor in the House of Commons on 6 December 2006 and the full report can be found on the Treasury website.

In terms of support for CCS, the Government announced that the Department for Trade and Industry (DTI) will appoint consulting engineers to ensure that the Government’s understanding of the costs of a CCS plant based in the UK is robust. This will help the Government decide in 2007 whether supporting a UK-based demonstration plant through a challenge fund or other mechanism would provide value for money.

BP and its partner Scottish and Southern Electricity have advanced plans to build a power station with CO2 capture at Peterhead and use the CO2 for EOR and eventual storage in the Miller field 150 miles offshore. For this project to be sanctioned in a timely manner, they had requested a decision on a support framework by the end of 2006.  Steve Westhill, head of BP Alternative Energy, has expressed disappointment that the Government has delayed for a least a year any decision on providing financial support to the project.  He is quoted in Upstream, 26 January 2007, saying that BP has been in intense dialogue with the Government around the most appropriate policies, legal frameworks and incentives to make the carbon capture and storage project work.  As a result of the Government ‘s delay in coming to a decision over funding support, BP announced on 6 February 2007 that it is putting the Peterhead/Miller project on hold and delaying any decision on sanction until the end of 2007 or early 2008. Start-up would now be delayed until beyond 2010.

Jeff Chapman, Chief Executive of the Carbon Capture and Storage Association (CCSA), comments (Press Release, 6 December 2006) that there are eight proposed CCS projects in the UK (most of these were listed in the Talking Point last time, also see the Centrica announcement on 8 November 2006 for developments at Teesside) that are looking for support with the implication from the pre-budget statement that after a consultation exercise through 2007 only one of these projects will receive funding support leaving seven others disappointed.  This despite the findings in the Stern Review, which highlighted the importance of CCS in the global climate change agenda.  Dr Chapman concludes that “the UK has potential to show leadership in bringing large-scale CCS projects to market, … to ensure emerging economies such as China and India embrace CCS, … the UK must demonstrate (timely) action at home”.

Requirement for CCS in UK

In his interview with Upstream Steve Westhill goes on to say that CCS is a “must-do” in the UK not a “nice-to-have” option.  This is illustrated (Figure 1) by the prediction for the future fuel mix for electricity generation published in ‘A Strategy for Developing Carbon Abatement Technologies for Fossil Fuel Use’, DTI, June 2005.

Figure 1: Prediction of Fuel Mix for Electricity Production (From ‘A Strategy for Developing Carbon Abatement Technologies for Fossil Fuel Use’, DTI, June 2005)

This prediction assumes the target of a 60% reduction in CO2 emissions by 2050 (soon to be become a legal requirement) and that no new nuclear power stations will be built. Thus the Government’s own prediction shows a substantial requirement for CCS from 2020 with a requirement to store around 3.5 ±1 billion tonnes of CO2 in the period up to 2050.

In the view of the CCSA in its submission to the Government’s consultation on barriers to commercial deployment of CCS the timing of the introduction of CCS is unnecessarily pessimistic and does not recognise the February 2006 conclusion of the Science and Technology Committee “that there are no fundamental barriers to the development and deployment of CCS in the UK, apart from the lack of a suitable policy framework to provide industry with the incentives and confidence it requires to make the substantial investments entailed in CCS projects”.  Given a suitable policy framework, CCS has, therefore, the potential to be deployed in substantial quantities well before 2020.  The eight projects currently in planning with scheduled start dates from 2010-2016 will probably capture around 30 million tonnes of CO2 per year (around 20% of current CO2 emissions from electricity production), which if used for EOR could produce an additional 60-90 million barrels of oil per year.

In the view of the CCSA, the incentives required to enable the early adoption of CCS in the UK are the availability of 100% enhanced capital allowances and a firm CO2 credit price; both to remain in force for at least 15 years.

Note that since the publication of the prediction in Figure 1, the Government has indicated that it favours the building of some new nuclear power stations.  This would reduce the need for CCS somewhat, probably by about a third, but still leaves a substantial requirement.

Finally in this section, the Government’s emphasis on CCS and nuclear power was reiterated by Tony Blair only recently. Appearing before the liaison committee (made up of the 30 chairmen of Commons select committees) on 6 February 2007 he stated “The thing that will make the biggest difference (to CO2 emissions) is if you get the investment in the science and the technology that will allow us to develop, for example, you know fuel cell for the motor vehicle, carbon capture and storage which would mean that you deal with a lot of the problems that otherwise burning a lot of coal and oil give you.  I think nuclear energy - again you know this is controversial - but I am sure that is going to be part of the mix in the future."

UK-Norway North Sea Basin Task Force

The Government also announced in the pre-budget report that the UK-Norway North Sea Basin Task Force will undertake a joint study of the infrastructure needed to transport and store carbon dioxide below the North Sea and will work together on an analysis of the appropriate market framework and value chain which can help deliver this. The outcome of this and other collaborative work will be published by July 2007.  The study points are:

• To assess how a physical pipeline infrastructure for the transportation of CO2 could help enable CCS in the North Sea. This would include an assessment of the possible re-use of existing pipelines.
• To identify and evaluate the benefits and costs of such an infrastructure.
• To identify barriers to developing such an infrastructure and what action would be required to overcome these.
• To examine and compare the value chains for Norwegian and UK CCS projects.
• To examine alternative mechanisms for rewarding CO2 abatement and for delivering a positive NPV from CCS projects. This would include the way in which CCS would be included in the EU’s Emissions Trading Scheme (ETS).

Consultation Responses

The Government also published a summary of the responses to its consultation on barriers to commercial deployment of CCS.

44 responses were received including five from oil and gas operators (BP, Centrica, ConocoPhillips, Marathon and Shell). The non-confidential responses are downloadable.