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

The Energy White Paper, Our Energy Future - Creating a Low Carbon Economy, put the UK on a path to a 60% reduction in carbon dioxide (CO2) emissions by 2050. Central to this policy was an enhanced drive for greater efficiency in all areas of energy supply and consumption together with an expansion of low to zero emissions supply options, in particular renewable energy sources. CO2 capture and storage (CCS), in which CO2 from fossil fuel combustion plant is separated and committed to long-term storage, was also recognised to be strategically important. CCS would enable the continued use of fossil fuels, thereby giving a longer timeframe to achieve a transition to a fully sustainable energy system. It would also facilitate the use of a greater diversity of energy sources, thus enhancing security of supply.

At the time of the Energy White Paper a review of CCS was underway, and preliminary results were showing that CO2 storage in depleted oil fields was a potentially important option for near-term action. This prompted inclusion in the Energy White Paper of a commitment to “set up an urgent detailed implementation plan with developers, generators and the oil producers to establish what needs to be done to get a demonstration [of EOR] project off the ground”.

The Energy White Paper’s commitment was concerned with getting a demonstration of CO2-based EOR off the ground, and did not explicitly consider the source of CO2 to be used. However, the commitment also acknowledged “the potentially significant strategic role that might be played by CCS in longer-term energy security”. Therefore, at the outset of the project, the aim was to look for opportunities to demonstrate the full chain of CCS technologies, including capture from a large combustion plant and bulk transportation, as well as EOR itself. Nonetheless it was recognised that a pragmatic approach was needed since cost and logistic considerations would determine both the size of the scheme and the source of CO2 to be used.

The main action for examining implementation options was to canvas the views of individual stakeholder organisations through a series of one-to-one meetings. These meetings involved oil producers (some also operated refinery plant), power generation companies, equipment suppliers and one broker of a CO2 delivery system. The consultations were based on a standard set of questions, which sought to gauge the value of an EOR demonstration project and the interest of the stakeholder in becoming involved. These questions were:

• What are the barriers (technical, economic, contractual, regulatory, etc) in the way of CO2-based EOR in the UK North Sea?
• Would a demonstration project help give a better understanding of these barriers and uncertainties and how they can be reduced?
• What needs to be done to define the most appropriate UK-based CCS demonstration project?
• Under what conditions would your company be prepared to host an EOR demonstration scheme in the UK North Sea?
• Under what conditions would your company be prepared to take a stake in, and operate, a demonstration electricity generation plant incorporating CO2 capture?
• Could CO2 emission credits enhance the prospects for EOR?
• Which international funding sources should be contacted to seek support for a UK EOR demonstration?
• What can government do to reduce investment uncertainties?
• What can government do to bring stakeholders together?

This process showed that oil producers regarded CO2 based EOR as a proven technique from experience with onshore applications, and that they knew how to apply it in the North Sea without need for a demonstration project. The consultation also confirmed the conclusion of the CCS Review that under current market conditions EOR using CO2 is not a commercial option for the UK North Sea.

The level of support needed to bridge the economic gap and encourage investment in EOR is uncertain, but stakeholders thought it unlikely that carbon emission credits from the European Union Emissions Trading Scheme (EU ETS) would be sufficient. Consequently, if EOR is to be deployed broadly in the UK North Sea additional market changes will be needed. The main approach available to government would be to adjust the tax system applying to oil production in the UK North Sea to reduce any barriers this presents to investment in EOR.

Schematic of North Sea Pipeline Infrastructure (CENS Project) Proposed by One of the Stakeholder Companies Consulted

The PILOT initiative has recently set up a “brown fields think tank”, to address the technical and commercial barriers to further development of mature oilfields. It is very likely that the application of EOR methods (including CO2 injection) will be included in the variety of techniques for increasing oil recovery evaluated by this group, and it is to be expected that the industry side will bring up the issue of taxation of this incremental activity. The “brown fields think tank” has only just started its work and its report is expected later in 2004.

Setting aside wide scale deployment, CO2 based EOR offers an option for a one-off demonstration of the full chain of CCS technologies. EOR has the advantage of providing some financial return to partially offset costs, and the injection of CO2 into oil reservoirs underlying the North Sea is accepted to be permissible under the London and Ospar Treaties controlling the dumping of wastes in the North Sea.

Consultations with potential stakeholders have identified four options for implementing a one-off EOR demonstration. Three are full-scale demonstrations applying to offshore oil fields and are distinguished by the sources of CO2 to be used:

(a) CO2 produced through existing North Sea oil/gas production

(b) CO2 captured from high concentration sources

(c) CO2 captured from power plant.

The capital investments required for these options are likely to be in the order of £300-500 million. CO2 separated from “raw” natural gas is likely to be the cheapest option and CO2 capture from a power plant the most expensive.

The fourth option is a smaller-scale demonstration with an onshore oil field and will be the least expensive for implementation and subsequent monitoring. However, as the eventual intention is for offshore CCS there is some reservation that this would provide appropriate experience.

Drawing on the CCS Review the key requirements to be covered by an offshore demonstration are provision of:

• A practical base to gain experience in the regulation, authorisation and monitoring of CCS.
• A practical base for establishing how to include CCS in national greenhouse gas inventories.
• An additional site to research and establish the long-term integrity of geological storage of CO2.
• A showcase to help establish and increase public awareness and confidence in the technology.
• A showcase of full-scale CO2 capture from a power generation plant.

All four options would deliver all of these benefits, with the exception of a full scale demonstration of CO2 capture from a power generation plant, which is only covered by Option (c), and is also the most expensive.

Among the stakeholders the equipment suppliers were most keen for a demonstration to go ahead in the near term in order to showcase UK CCS capabilities (particularly capture) to the potentially large world market. However, they had differing views on which capture technology should be demonstrated. Power generators were also interested in a demonstration project including capture to enhance their position as “informed buyers”, but stressed that they were not considering investment in new UK plant at the present time. Oil producers were also interested in EOR and CCS, but through their global operations they had more options to gain experience.

Taking account of the above findings it has been concluded that it would be wrong to press ahead immediately with a full-scale demonstration of CO2-based EOR. Indeed, with the low level of interest shown by key stakeholders this may not be feasible. However, CO2-based EOR does have advantages as a base for demonstrating CCS, and therefore is worth further consideration over a longer time-scale. This should be done as part of an overall strategy for the development of near to zero emission fossil fuel technologies.

The strategy to develop near to zero emission fossil fuel combustion plant is being developed through DTI’s Carbon Abatement Technologies (CAT) programme. The Cleaner Fossil Fuels Unit of the DTI is currently reviewing and revising its strategy with substantial input from industry stakeholder groups. It is planned to finalise the new CAT strategy by summer 2004. This will address a number of strategic issues which need to be considered before making a decision on any demonstration of CCS.

These issues include:

• The timing of a CCS demonstration in relation to expected commercial deployment.
• Demonstrating the key elements of CCS. For example, demonstrating reliable storage is a long-term task and should be started as soon as possible. On the other hand capture and separation technologies probably need further development to reduce costs and increase efficiency before going to full-scale demonstration.
• The nature of the demonstration – should it cover the full chain of CCS technologies including CO2 from a large combustion plant or should R&D and demonstration be undertaken separately for the various elements of CCS?
• The type of capture technology that should be favoured for any such demonstration.
• How a UK CCS demonstration can add value to the global effort to demonstrate the long-term integrity of geological storage of CO2.
• How to develop verification and monitoring protocols acceptable to the European Commission to enable a CCS demonstration to qualify within the EU ETS.
• Engaging the UK agencies that will be responsible for regulating and authorising CCS in the UK.
• Examining possible funding mechanisms, including international sources, and their acceptability within the requirements of UK and EU policy frameworks.
• How best to increase the UK’s collaboration with other countries and in particular those bordering the North Sea that face similar issues and challenges.

Overall the potential value of a demonstration of CCS, whether it be simply for CO2 storage or CO2 EOR, has been recognised. Accordingly a set of interim actions has been identified and will be implemented to take the concept forward for possible inclusion in the overall CAT strategy. This programme of actions is listed in Annex II of the report.