Project: ACT Acorn Feasibility Study Acorn...Platform, 2015). In this respect, CO 2 development organisations (CDO’s), in the form of state backed/owned companies, may offer the

Project: ACT Acorn Feasibility Study

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The ACT Acorn Consortium partners reserve all rights in this material and retain full copyright. Any reference to this material

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authors. The material contains third party IP, used in accordance with those third party’s terms and credited as such where

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Pale Blue Dot Energy reserve all rights over the use of the material in connection with the development of the Acorn Project.

In the event of any questions over the use of this material please contact [email protected].

mailto:[email protected]

D10 Policy Options 10196ACTC-Rep-15-01

May 2018

www.actacorn.eu

ACT Acorn, project 271500, has received funding from BEIS (UK), RCN (NO) and RVO (NL), and is co-funded by the European Commission under the ERA-Net instrument of the Horizon 2020 programme. ACT Grant number 691712.

Acorn

D10 Policy Options Contents

ACT Acorn Consortium Page 3 of 71

Contents

Document Summary

Client Research Council of Norway & Department of Business, Energy & Industrial Strategy

Project Title Accelerating CCS Technologies: Acorn Project

Title: D10 Policy Options

Distribution: Client & Public Domain

Date of Issue: 31/05/18

Prepared by: Marko Maver, Gøril Tjetland (both Bellona)

Approved by: Steve Murphy, ACT Acorn Project Director

Disclaimer:

While the authors consider that the data and opinions contained in this report are sound, all parties must rely upon their own skill and judgement when using it. The authors do not make

any representation or warranty, expressed or implied, as to the accuracy or completeness of the report. The authors assume no liability for any loss or damage arising from decisions

made on the basis of this report. The views and judgements expressed here are the opinions of the authors and do not reflect those of the client or any of the stakeholders consulted

during the course of this project.

The ACT Acorn consortium is led by Pale Blue Dot Energy and includes Bellona Foundation, Heriot-Watt University, Radboud University, Scottish Carbon Capture and Storage (SCCS),

University of Aberdeen, University of Edinburgh and University of Liverpool.

Amendment Record

Rev Date Description Issued By Checked By Approved By

1 31/05/2018 1st issue Marko Maver Tim Dumenil Steve Murphy



Table of Contents

CONTENTS ................................................................................................................................................................................................................................................... 3

1.0 EXECUTIVE SUMMARY .................................................................................................................................................................................................................. 10

2.0 INTRODUCTION TO ACT ACORN .................................................................................................................................................................................................. 12

3.0 SCOPE ............................................................................................................................................................................................................................................. 17

4.0 REUSING EXISTING OFFSHORE INFRASTRUCTURE FOR CO2 TRANSPORT AND STORAGE ............................................................................................ 18

5.0 FUTURE CONSIDERATIONS .......................................................................................................................................................................................................... 26

6.0 OPTIONS FOR CO2 TRANSPORT/STORAGE OPERATOR OWNERSHIP .................................................................................................................................. 34

7.0 LIABILITY MANAGEMENT IN CO2 TRANSPORT AND STORAGE NETWORKS ........................................................................................................................ 36

8.0 CONCLUSIONS ............................................................................................................................................................................................................................... 38

9.0 REFERENCES ................................................................................................................................................................................................................................. 39

10.0 ANNEX 1: OPTIONS FOR CO2 TRANSPORT ................................................................................................................................................................................ 42

11.0 ANNEX 2: OWNERSHIP MODELS FOR INFRASTRUCTURE PRESERVATION ......................................................................................................................... 60

12.0 ANNEX 3: LIABILITY MANAGEMENT IN CO2 TRANSPORT & STORAGE NETWORKS ........................................................................................................... 62

13.0 ANNEX 4: PIPELINE DATABASE ................................................................................................................................................................................................... 71



CONTENTS ................................................................................................................................................................................................................................................... 3

TABLE OF CONTENTS .................................................................................................................................................................................................................................... 4

FIGURES ...................................................................................................................................................................................................................................................... 8

TABLES ........................................................................................................................................................................................................................................................ 9

1.0 EXECUTIVE SUMMARY .................................................................................................................................................................................................................. 10

2.0 INTRODUCTION TO ACT ACORN .................................................................................................................................................................................................. 12

2.1 ACT ACORN OVERVIEW................................................................................................................................................................................................................... 12

2.2 ACORN DEVELOPMENT CONCEPT ..................................................................................................................................................................................................... 15

3.0 SCOPE ............................................................................................................................................................................................................................................. 17

3.1 PURPOSE ........................................................................................................................................................................................................................................ 17

3.2 SCOPE ............................................................................................................................................................................................................................................ 17

3.3 ASSUMPTIONS ................................................................................................................................................................................................................................. 17

4.0 REUSING EXISTING OFFSHORE INFRASTRUCTURE FOR CO2 TRANSPORT AND STORAGE ............................................................................................ 18

4.1 POTENTIAL AND RATIONALE FOR RE-USE OF EXISTING INFRASTRUCTURE........................................................................................................................................... 18

4.1.1 Facilities re-use ...................................................................................................................................................................................................................... 18

4.1.2 Well re-use ............................................................................................................................................................................................................................. 18

4.1.3 Pipeline re-use ....................................................................................................................................................................................................................... 19

4.2 RISKS OF INFRASTRUCTURE RE-USE ................................................................................................................................................................................................ 19

4.2.1 Administrative, political and legal risks .................................................................................................................................................................................. 20

4.2.3 Additional technical risks and considerations ........................................................................................................................................................................ 21

4.3 ECONOMICS AND MANAGEMENT / ORGANISATION OF RE-USE ............................................................................................................................................................ 21

4.3.1 Facilities and wells ................................................................................................................................................................................................................. 21

4.3.2 Pipelines ................................................................................................................................................................................................................................. 22

4.3.3 Decommissioning and the break-even point .......................................................................................................................................................................... 22

4.3.4 Development costs, timelines and (re)permitting................................................................................................................................................................... 23



4.4 VALUING EXISTING AND/OR TO BE DECOMMISSIONED OFFSHORE INFRASTRUCTURE ........................................................................................................................... 24

5.0 FUTURE CONSIDERATIONS .......................................................................................................................................................................................................... 26

5.1 PRESERVATION AND BUILD-OUT OPTIONS ........................................................................................................................................................................................ 26

5.1.1 The UK ................................................................................................................................................................................................................................... 26

5.1.2 The Netherlands .................................................................................................................................................................................................................... 28

5.1.3 Norway ................................................................................................................................................................................................................................... 31

5.2 FURTHER WORK/NEXT STEPS .......................................................................................................................................................................................................... 32

6.0 OPTIONS FOR CO2 TRANSPORT/STORAGE OPERATOR OWNERSHIP .................................................................................................................................. 34

6.1 OWNERSHIP SUMMARY .................................................................................................................................................................................................................... 34

6.2 OWNERSHIP CONCLUSIONS ............................................................................................................................................................................................................. 34

6.2.1 Retention and re-use of existing infrastructure ...................................................................................................................................................................... 35

7.0 LIABILITY MANAGEMENT IN CO2 TRANSPORT AND STORAGE NETWORKS ........................................................................................................................ 36

7.1 LIABILITY MANAGEMENT SUMMARY ................................................................................................................................................................................................... 36

7.2 LIABILITY MANAGEMENT CONCLUSIONS ............................................................................................................................................................................................ 36

8.0 CONCLUSIONS ............................................................................................................................................................................................................................... 38

9.0 REFERENCES ................................................................................................................................................................................................................................. 39

10.0 ANNEX 1: OPTIONS FOR CO2 TRANSPORT ................................................................................................................................................................................ 42

10.1 EXECUTIVE SUMMARY...................................................................................................................................................................................................................... 42

10.2 SCOPE ............................................................................................................................................................................................................................................ 44

10.2.1 Purpose .................................................................................................................................................................................................................................. 44

10.2.2 Scope ..................................................................................................................................................................................................................................... 44

10.2.3 Assumptions........................................................................................................................................................................................................................... 44

10.3 BUSINESS MODELS TO ENABLE INDUSTRIAL CCS ............................................................................................................................................................................. 44

10.3.1 Different models for different regions/countries ..................................................................................................................................................................... 45



10.3.2 Next steps .............................................................................................................................................................................................................................. 46

10.4 CO2 DEVELOPMENT ORGANISATIONS ............................................................................................................................................................................................... 46

10.4.1 What are CO2 Development Organisations? ......................................................................................................................................................................... 46

10.4.1.1 Roles and objectives ............................................................................................................................................................................................................................. 46

10.4.1.2 Diverse structures .................................................................................................................................................................................................................................. 47

10.4.1.3 Funding the CO2 development organisations ........................................................................................................................................................................................ 48

10.4.1.4 Creating the CO2 development organisations ........................................................................................................................................................................................ 49

10.5 ASSESSMENT OF STRUCTURES ........................................................................................................................................................................................................ 49

10.5.1 Review of Potential Regional and National Solutions ............................................................................................................................................................ 49

10.5.1.1 The Netherlands .................................................................................................................................................................................................................................... 49

10.5.1.2 The UK .................................................................................................................................................................................................................................................. 51

10.5.1.3 Norway .................................................................................................................................................................................................................................................. 52

10.5.2 The Role of the State and State Aid Rules ............................................................................................................................................................................ 53

10.5.2.1 The role of the state ............................................................................................................................................................................................................................... 54

10.5.2.2 State-aid rules ....................................................................................................................................................................................................................................... 54

10.5.3 Practical Steps to the Formation of CO2 Development Organisations .................................................................................................................................. 54

10.5.3.1 Capital requirements ............................................................................................................................................................................................................................. 55

10.5.4 Managing Retention and Re-use of Existing Infrastructure ................................................................................................................................................... 55

10.5.4.1 Timing is key.......................................................................................................................................................................................................................................... 56

10.5.5 Preferred Structure ................................................................................................................................................................................................................ 57

10.6 CONCLUSIONS ................................................................................................................................................................................................................................. 58

11.0 ANNEX 2: OWNERSHIP MODELS FOR INFRASTRUCTURE PRESERVATION ......................................................................................................................... 60

12.0 ANNEX 3: LIABILITY MANAGEMENT IN CO2 TRANSPORT & STORAGE NETWORKS ........................................................................................................... 62

12.1 OBJECTIVES .................................................................................................................................................................................................................................... 62

12.2 SOURCES OF RISK AND LIABILITY ..................................................................................................................................................................................................... 62

12.3 EXAMPLES OF RISK EVENTS ............................................................................................................................................................................................................. 63

12.4 PARTICIPANTS IN CO2 TRANSPORT AND STORAGE PROJECTS ........................................................................................................................................................... 66

12.5 KEY RISKS ....................................................................................................................................................................................................................................... 66



12.6 CO2 LEAKAGE LIABILITIES ................................................................................................................................................................................................................ 68

12.7 CONCLUSIONS ................................................................................................................................................................................................................................. 70

13.0 ANNEX 4: PIPELINE DATABASE ................................................................................................................................................................................................... 71

Figures

FIGURE 2-1: ACT ACORN CONSORTIUM PARTNERS .......................................................................................................................................................................................... 12

FIGURE 2-2: KEY AREAS OF INNOVATION ......................................................................................................................................................................................................... 13

FIGURE 2-3: ACT ACORN WORK BREAKDOWN STRUCTURE .............................................................................................................................................................................. 13

FIGURE 2-4: ACORN OUTLINE MINIMUM VIABLE DEVELOPMENT PLAN ............................................................................................................................................................... 15

FIGURE 2-5: ACORN BUILD OUT SCENARIO FROM THE 2017 PCI APPLICATION ................................................................................................................................................... 16

FIGURE 4-1: WELL SIDETRACK, (AAPG, 2010) ................................................................................................................................................................................................ 18

FIGURE 5-1: UKCS OFF-SHORE INFRASTRUCTURE, (OGA, 2018) .................................................................................................................................................................... 27

FIGURE 5-2: MAJOR DUTCH OFFSHORE INFRASTRUCTURE, (JANSSEN, 2016) ................................................................................................................................................... 28

FIGURE 5-3: P18 AND P15 FIELDS WITH EXISTING PIPELINES, (OGA, 2018) ...................................................................................................................................................... 29

FIGURE 5-4: K AND L10 FIELDS WITH CONNECTED PIPELINES, (NLOG, 2018) ................................................................................................................................................... 30

FIGURE 5-5: P6 AND P12 FIELDS WITH CONNECTED PIPELINES, (NLOG, 2018) ................................................................................................................................................. 31

FIGURE 5-6: EXISTING AND PLANNED PIPELINES IN THE NORTH AND NORWEGIAN SEA, (NPD, 2018) ................................................................................................................. 31

FIGURE 12-1: CO2 TRANSPORT AND STORAGE ACTIVITY (SOURCE: CO2DEEPSTORE) ...................................................................................................................................... 63

FIGURE 12-2: KEY ACTIVITIES THROUGH THE PROJECT LIFECYCLE (SOURCE: GD1) .......................................................................................................................................... 65

FIGURE 12-3: CO2 STORAGE STAKEHOLDERS ................................................................................................................................................................................................. 66

FIGURE 12-4: CASH FLOW TIMELINES FOR CO2 CAPTURE, TRANSPORT AND STORAGE (SOURCE: ZEP) .............................................................................................................. 66



Tables

TABLE 2-1: ACT ACORN MILESTONES AND DELIVERABLES .............................................................................................................................................................................. 14

TABLE 4-1: CAPEX FOR PIPELINE RE-USE ........................................................................................................................................................................................................ 24

TABLE 4-2: SCALARS FOR CAPEX CALCULATIONS ............................................................................................................................................................................................. 24

TABLE 4-3: PIPELINE RE-USE ANNUAL OPEX ..................................................................................................................................................................................................... 24

TABLE 5-1: SPECIFICATIONS OF KEY UK TO-BE-DECOMMISSIONED PIPELINES .................................................................................................................................................... 26

TABLE 5-2: POTENTIAL PIPELINES FOR RE-USE IN NCS .................................................................................................................................................................................... 33

TABLE 12-1: EXAMPLES OF RISKS DURING THE PROJECT LIFECYCLE ................................................................................................................................................................ 64

TABLE 12-2: FINANCIAL SECURITY FOR CO2 STORAGE .................................................................................................................................................................................... 70

D10 Policy Options Executive Summary


1.0 Executive Summary

There is wide agreement among stakeholders that access to CO2 transport

and storage infrastructure is a key enabler for deep industrial

decarbonisation and development of CCS (Gross, 2015), (CCC, 2018).

Substantial cost reductions are associated with the strategic development

of a CO2 pipeline and storage system that allows shared CO2 infrastructure,

minimises societal costs and maximises decarbonisation impact. Such

infrastructure needs to be developed in Europe during the early 2020s in

order to realise the full potential of CCS technology.

Recent carbon capture and storage (CCS) developments in Europe

demonstrate that the Netherlands, Norway and the UK are actively taking

steps towards decarbonising industrial clusters and developing key CO2

transport and storage hubs for the North Sea.

Development of strategic infrastructure in a cost-effective manner requires

close cooperation between governments and industry (Zero Emissions

Platform, 2015). In this respect, CO2 development organisations (CDO’s), in

the form of state backed/owned companies, may offer the best way to

remove counter party risks that have previously impeded CCS development

in Europe.

It is believed that, at least in the first incidents, the CO2 transport and storage

infrastructure should and will be delivered by a coalition of state backed

companies that have an interest in the provision, planning and re-use of

existing suitable infrastructure. A good example of such a structure can be

seen in the development of the Rotterdam CCS Project, where the Port of

Rotterdam is leading the overall development, with Energie Beheer

Nederland (EBN) as the national offshore licensing authority coordinating

A shared transport and storage (T&S) infrastructure facilitates the

development of CCS by lowering initial investment costs and providing

investor confidence. This enables smaller industrial players, who might

otherwise be unable to justify stand-alone projects, to take up CCS.

Preserving existing and/or to be decommissioned offshore

infrastructure, particularly pipelines, offers the lowest cost opportunity

to derive additional value from those assets and significantly lower the

initial capital expenditure of a CCS project.

Key technical risks of infrastructure re-use include corrosion, horizontal

ductile fracture and free-spans. Other important risks include the timing

of future use and liability transfer.

Once pipelines are no longer in use, without appropriate

compensation, it is unlikely that the owners would mothball their assets

for a period longer than 10 years. Thus, strategically significant

pipelines should be prioritised for preservation, with the governments,

or state-backed entities (i.e. CDO’s) to cover the costs of preservation,

and/or take over the liabilities from the asset owners.

While existing wells, topsides/platforms, and pipelines all have

potential re-use value in a CO2 value chain, pipelines offer the highest

long-term preservation value. Re-use must be assessed on a case by

case basis.

D10 Policy Options Executive Summary


the offshore CO2 storage development, and Gasunie, as the national gas

network operator, developing and expanding CO2 transport onshore.

Similarly, in Norway, a state-owned company (Gassnova), is tasked with

realising the government's ambition for the full-scale CCS project and is to take

responsibility for the development of shared CO2 transport and storage

infrastructure. This is to occur along with industry participation from three major

oil and gas firms: Equinor, a majority state owned company, Shell and Total.

Shell and Total have entered into a partnership agreement with Equinor to

further the CO2 transport and storage studies.

The retention and reuse of existing infrastructure that is ready for

decommissioning (in particular pipelines) could significantly decrease the

financial cost of CCS projects. Acorn, as well as other projects attached to the

network, have significant infrastructure reuse possibilities. Not preserving the

existing pipeline infrastructure, i.e. the Atlantic, Goldeneye and/or Miller Gas

System (MGS) pipelines, could increase the cost of CCS for Europe and

decrease the Acorn project’s financial net present value (FNPV) by €638 million

(Pale Blue Dot Energy, 2017).

Given the time bound/decommissioning nature of existing infrastructure, there

is now a risk that much of this useful infrastructure will be decommissioned,

precluding the lowest cost CO2 transport and storage developments. Not re-

using existing assets, particularly pipelines, would increase the initial hurdle for

CCS development and deployment in Europe by raising the capital cost of

replacement. In addition, the project timeline would become further extended to

allow sufficient time to complete the consent and construction of a new pipeline.

The use of state-led CO2 development organisations (CDOs) should enable the

lowest cost decarbonisation of the industrial sectors in Europe. CO2

development organisations essentially reduce the costs and risks of industrial

deep decarbonisation by addressing many of the structural market failures that

are currently hindering CO2 capture, transport and storage development.

There is no one size fits all business model for developing CO2 transport and

storage infrastructure in Europe. Different models are effective for different

stages of development and national/regional contexts. CO2 development

organisations can, and should, be established via initial capital support and

significant underwriting from the State. There is a wide agreement within

industry that counter-party risk in CSS projects is a significant obstacle and that

a publicly-owned/backed CO2 development organisation could be best suited to

take on the CCS value chain counter-party risks.

The purpose of this D10 Report is to provide a basis for valuing future use of

existing infrastructure vis-à-vis decommissioning, and to make national and

regional authorities aware of potentially valuable CO2 transport and storage

infrastructure in line for decommissioning.

To this end, the D10 Report first sets out to review the potential and rationale

for re-using the existing offshore infrastructure, including facilities, wells, and

pipelines. It then addresses the risks of infrastructure, administrative, political

and legal risks as well as technical risks, before contrasting the illustrative costs

of re-use versus new infrastructure. Lastly, a simple and selective mapping of

key infrastructure currently at risk is presented.

D10 Policy Options Introduction to ACT Acorn


2.0 Introduction to ACT Acorn

2.1 ACT Acorn Overview

ACT Acorn, project 271500, has received funding from BEIS (UK), RCN (NO)

and RVO (NL), and is co-funded by the European Commission under the ERA-

Net instrument of the Horizon 2020 programme. ACT grant number 691712.

ACT Acorn is a collaborative project between seven organisations across

Europe, led by Pale Blue Dot Energy in the UK, as shown in Figure 2-1.

Figure 2-1: ACT Acorn consortium partners

The research and innovation study addresses all thematic areas of the ACT Call

including ‘Chain Integration’. The project includes a mix of both technical and

non-technical innovation activities as well as leading edge scientific research.

Together these will enable the development of the technical specification for an

ultra-low cost, integrated CCS hub that can be scaled up at marginal cost. It will

move the Acorn development opportunity from proof-of-concept (TRL3) to the

pre-FEED stage (TRL5/6) including iterative engagement with relevant investors

in the private and public sectors.

Specific objectives of the project are to:

1. Produce a costed technical development plan for a full chain CCS

hub that will capture CO2 emissions from the St Fergus Gas

Terminal in north east Scotland and store the CO2 at an offshore

storage site (to be selected) under the North Sea

2. Identify technical options to increase the storage efficiency of the

selected storage site based on scientific evidence from

geomechanical experiments and dynamic CO2 flow modelling and

through this drive scientific advancement and innovation in these

areas.

3. Explore build-out options including interconnections to the nearby

Peterhead Port, other large sources of CO2 emissions in the UK

region and CO2 utilisation plants

4. Identify other potential locations for CCS hubs around the North Sea

regions and develop policy recommendations to protect relevant



infrastructure from premature decommissioning and for the future

ownership of potential CO2 stores.

5. Engage with CCS and low carbon economy stakeholders in Europe

and worldwide to disseminate the lessons from the project and

encourage replication.

CCS is an emerging industry. Maturity improvements are required in the

application of technology, the commercial structure of projects, the scope of

each development and the policy framework.

The key areas of innovation in which the project will seek insights are

summarised in Figure 2-2.

Figure 2-2: Key areas of innovation

The project activity has been organised into 6 work packages as illustrated in

Figure 2-3. Specific areas being addressed include; regional CO2 emissions; St

Fergus capture plant concept; CO2 storage site assessments and development

plans; reservoir CO2 flow modelling, geomechanics; CCS policy development;

infrastructure re-use; lifecycle analysis; environmental impact; economic

modelling; FEED and development plans; and build out growth assessment.

The project will be delivered over a 19-month period, concluding on the 28th

February 2019. During that time, it will create and publish 21 items known as

Deliverables. Collectively these will provide a platform for industry, local

partnerships and government to move the project forward in subsequent

phases. It will be driven by business case logic and inform the development of

UK and European policy around infrastructure preservation. The deliverables

are listed in Table 2-1.

Figure 2-3: ACT Acorn work breakdown structure



Milestone Deliverable

1) St Fergus Hub Design

D01 Kick-off Meeting Report

D02 CO2 Supply Options

D17 Feeder 10 Business Case

2) Site Screening & Selection

D03 Basis of Design for St Fergus Facilities

D04 Site Screening Methodology

D05 Site Selection Report

D13 Plan and Budget for FEED

3) Expansion Options D18 Expansion Options

4) Full Chain Business Case

D10 Policy Options Report

D11 Infrastructure Reuse Report

D14 Outline Environmental Impact Assessment

D15 Economic Model and Documentation

D16 Full Chain Development Plan and Budget

5) Geomechanics D06 Geomechanics Report

D07 Acorn Storage Site Storage Development Plan and Budget

6) Storage Development Plans D08 East Mey Storage Site Storage Development Plan and Budget

D09 Eclipse Model Files

7) Lifecycle Assessment D12 Carbon Lifecycle Analysis

8) Project Completion

D21 Societal Acceptance Report

D19 Material for Knowledge Dissemination Events

D20 Publishable Final Summary Report

Table 2-1: ACT Acorn Milestones and Deliverables



The Consortium includes a mix of industrial, scientific and CCS policy experts in

keeping with the multidisciplinary nature of the project. The project is led by Pale

Blue Dot Energy along with University of Aberdeen, University of Edinburgh,

University of Liverpool, Heriot Watt University, Scottish Carbon Capture &

Storage (SCCS), Radboud University and The Bellona Foundation. Pale Blue

Dot Energy affiliate CO2DeepStore are providing certain input material.

2.2 Acorn Development Concept

Many CCS projects have been burdened with achieving “economies of scale”

immediately to be deemed cost effective. This inevitably increases the initial cost

hurdle to achieve a lower lifecycle unit cost (be that £/MWh or £/T) which raises

the bar from the perspectives of initial capital requirement and overall project

risk.

The Acorn development concept uses a Minimum Viable Development (MVD)

approach. This takes the view of designing a full chain CCS development of

industrial scale (which minimises or eliminates the scale up risk) but at the

lowest capital cost possible, accepting that the unit cost for the initial project may

be high for the first small tranche of sequestered emissions.

Acorn will use the unique combination of legacy circumstances in North East

Scotland to engineer a minimum viable full chain carbon capture, transport and

offshore storage project to initiate CCS in the UK. The project is illustrated in

Figure 2-4 and seeks to re-purpose an existing gas sweetening plant (or build a

new capture facility if required) with existing offshore pipeline infrastructure

connected to a well understood offshore basin, rich in storage opportunities. All

the components are in place to create an industrial CCS development in North

East Scotland, leading to offshore CO2 storage by the early 2020s.

Figure 2-4: Acorn Outline Minimum Viable Development Plan



A successful project will provide the platform and improve confidence for further

low-cost growth and incremental development. This will accelerate CCS

deployment on a commercial basis and will provide a cost effective practical

stepping stone from which to grow a regional cluster and an international CO2

hub.

The seed infrastructure can be developed by adding additional CO2 capture

points such as from hydrogen manufacture for transport and heat, future CO2

shipping through Peterhead Port to and from Europe and connection to UK

national onshore transport infrastructure such as the Feeder 10 pipeline which

can bring additional CO2 from emissions sites in the industrial central belt of

Scotland including the proposed Caledonia Clean Energy Project, CCEP. A

build out scenario for Acorn used in the 2017 Projects of Common Interest (PCI)

application is included as Figure 2-5.

Pale Blue Dot Energy is exploring various ways and partners to develop the

Acorn project.

Figure 2-5: Acorn build out scenario from the 2017 PCI application

D10 Policy Options Scope


3.0 Scope

3.1 Purpose

The purpose of Deliverable 10 (D10) is to provide the national and regional

authorities a basis for valuing potential future use of existing infrastructure vis-

à-vie decommissioning and to make them aware of potentially valuable CO2

transport and storage infrastructure.

3.2 Scope

The scope of this work includes:

• Literature review;

• Developing a methodology for valuing existing or to be

decommissioned offshore (North Sea) infrastructure with potential

use in CO2 value chain, including existing wells, topsides, and

pipelines;

• Tabulating risks of infrastructure reuse, including technical reuse

specifications, mothballing requirements, timing of future use and

liability transfer;

• Contrast with illustrative costs of new infrastructure to replace

decommissioned infrastructure, including development costs,

timelines and permitting requirements;

• Provide broad recommendations on infrastructure type preservation;

• Simple and selective mapping of current at risk infrastructure and

estimated decommissioning timeline;

• Summary of options for CO2 transport / storage operator ownership

from Public Private Partnership (PPP) to State Contractor;

• Summary of liability management in CO2 transport and storage

networks;

• Interviews with and documentation of views/needs of key

stakeholders.

3.3 Assumptions

The assumptions detailed in this section apply to the Acorn Project under the

ACT ERA-NET funding package. For future Acorn project development, these

assumptions may be revised.

Data

• Specifications of infrastructure and assets were obtained from

publicly available sources. Where possible, more detailed

information, including cost, was obtained from interviews with

relevant stakeholders;

• All effort was made to obtain the most relevant and up to date data.

Exclusions

• The interest within this work was centred on the topsides, wells, and

pipelines. Given the findings from previous work, the D10 Report

focuses primarily on the pipelines, as topsides and wells are in large

part believed not to be practically available for re-use in the context

of CO2 transport and storage.

D10 Policy Options Reusing Existing Offshore Infrastructure for CO2 Transport

and Storage


4.0 Reusing Existing Offshore Infrastructure for CO2 Transport and Storage

4.1 Potential and Rationale for Re-use of Existing

Infrastructure

4.1.1 Facilities re-use

Previous research (see the D11 ACT Acorn Infrastructure Reuse report) has

shown that preservation of off-shore facilities, such as platforms, topsides, and

other subsea facilities is technically feasible, albeit given the number of

technical, commercial and regulatory factors, such potential is limited.

Nevertheless, the potential and rationale for re-use must be assessed on a case

by case basis.

The re-use potential of off-shore facilities is heavily dependent on the suitability

of the CO2 storage site, including the capacity, integrity and injectivity conditions.

In addition, age, condition and functionality of the physical infrastructure (i.e.

jacket, topsides, subsea equipment) are some of the key factors in assessing

suitability for re-use in a CCS project.

4.1.2 Well re-use

In theory, oil and gas wells could be repurposed for CO2 injection. Similar to the

offshore facilities, the potential for re-use is dependent on the suitability of the

subsurface reservoir.

The age and condition, including previous history of corrosion or integrity, of the

well are some key factors in assessing its technical suitability for re-use. Since

CO2 injection is different to oil and gas production, the basis for design is

different. This refers to the differences in the operating criteria (i.e. temperatures,

pressures, etc.). In other words, due to pressure rating, metallurgy and

equipment already in the well, existing wells are likely to be unsuitable for CO2

injection. Furthermore, re-use of existing wells may also require side-tracks (see

Figure 4-1 below), or well deepening, which, according to several interviewees

would significantly increase the risks.

Figure 4-1: Well sidetrack, (AAPG, 2010)

The costs of re-using an existing well are highly dependent on the specificities

of each well. Main costs would include assessing the wellbore, casing and

completion integrity, and some remedial and conversion work.

Nevertheless, those wells that could be considered suitable for re-use are likely

to carry a level of risk, which given the consequences of a potential adverse

event would not be considered acceptable. This belief was confirmed by several

stakeholders, including government and industry representatives, as well as

members of academic and research institutions. On the other hand, a


and Storage


representative from TAQA was of the view that despite the risks, wells (and

platforms) may have to be re-used in order to make CO2 storage affordable.

4.1.3 Pipeline re-use

Pipelines which are no longer in use for oil and gas production could be re-used

to transport CO2 as part of a CCS project. Those pipelines which have not been

exposed to hydrocarbon production for a long period of time are most likely to

be suitable for transporting dry CO2 in a dense phase. Feasibility of re-use,

however, would have to be assessed on a case by case basis.

When assessing suitability of pipelines for re-use, several technical

considerations need to be considered, including: phase behaviour of CO2,

engineering/material technology design choices, history of the use of the

pipeline for those in operation or mothballed, frequency and reliability of nearby

traffic that might collide or in some way damage the pipeline, availability of data

from internal and external surveys.

In large part there is wide agreement across the CCS industry that re-using

existing offshore pipelines is technically feasible, however, only prior to the point

at which the pipelines are to be decommissioned. Once decommissioned, the

technicality and economics of reuse are no longer considered feasible.

Re-use potential, however, also depends on regulatory considerations. In this

respect, research has shown that a key consideration for asset owners are the

liabilities associated with the holding of these assets under the Interim Pipeline

Regime (IPRs), and the removal thereof. One owner, for example, noted that

holding a pipeline under IPR is only a cost (of monitoring and maintenance) for

them. While the company was strongly supportive of the potential for re-use, it

was noted that “unless someone would come up with a concrete plan and timing

of when the pipeline was to be taken over and reused, the pipeline is likely to be

decommissioned at the end of the IPR, mainly to avoid ongoing preservation

costs and the fact that the company remains liable for any potential adverse

events during the IPR.”

Timing

The key issue with re-using pipelines for CO2 transport remains their timely

availability. Given their time-bound/decommissioning nature, if key pipelines are

decommissioned, it would preclude the lowest cost option for CO2 transport and

storage development, and consequently increase the initial hurdle for CCS

development and deployment in Europe by raising the capital cost of

replacement. In addition, the project timeline would become further extended to

allow sufficient time to complete the consent and construction of a new pipeline.

While the favourable geology of the North Sea is not going to change, the

opportunities for re-using infrastructure are time-limited in nature, and if not

taken, could set CCS back by five to ten years, (Carbon Capture & Storage

Association, 2016a).

4.2 Risks of Infrastructure Re-use

The largest risk associated with infrastructure re-use is that infrastructure

already in place will not be re-used. Not re-using suitable infrastructure would

increase the cost of implementing full chain CCS solutions and delay a full-scale

implementation of this crucial emission mitigation solution.

However, there are some practical risks, or challenges in re-using infrastructure

that will need to be overcome. Some infrastructure is not suitable for re-use,

most often due to preservation issues, technical requirements or timing issues,


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as mentioned above. Already existing infrastructure is not necessarily located

where it is needed to transport and store CO2. In particular, wellheads and

offshore platforms were built for-purpose. This means that material design and

fatigue often limit their re-use applicability.

Therefore, a decision to preserve existing infrastructure would have to consider:

• Logistics of the full chain CCS implementation and address how

existing infrastructure fits into that logistics; and

• Whether the existing infrastructure is technically suitable.

The latter requires information on both the CO2 that is to be transported and

stored and the state potential infrastructure is in (i.e. original design properties,

previous use, age and modifications, operational history etc.).

Preservation of infrastructure for re-use also has a time window. The suitability

of the infrastructure itself changes with time (i.e. material degradation and costs

of preservation). The timing of future use is therefore one of the risks that needs

to be addressed when evaluating infrastructure re-use.

4.2.1 Administrative, political and legal risks

When a decision is made to preserve or modify a pipeline some practical

administrative risks arise. The most overarching of these are the risk of a change

in policies. An industrial or political decision to preserve infrastructure might

change over time and thus shelve the premature preservation project. Other

more practical administrative risks are allocation of responsibility between

infrastructure owners, operators and users. Whereas owners of transport

infrastructure could initially be a governmental body or enterprise, an operator

most often will be engineering and process operators, while users could be any

provider of CO2. Both the variety of users and CO2-properties are risks that need

to be address. To address such risks and to enable third-party access to

infrastructure, requirements covering legal, economic and chemical aspects will

have to be established.

Liability is often mentioned as a cloudy, not entirely quantifiable risk. The

potential liability of operators involved in the CCS chain is not only limited to their

compliance with the EU ETS (Emissions Trading Scheme). The operator is also

liable for damage to the local environment under the Environmental Liability

Directive 2004/35/EC (ELD). The operator can also be liable under national

legislation for aspects not covered by the ELD. In practice, this could

conceivably mean the decontamination of land and water in the case of leakage

from a CO2 storage site. For closure of CO2 storage activities under the ETS

Directive, the Storage Directive provides that the transfer of liability to the State

occurs a minimum of 20 years after site closure and/or when the CO2 condition

is stable. A recommended way to address liability risks is to establish under

which conditions the government can act as a liability guarantor (for more on

liability management see Section 7).

When considering preservation, various mothballing requirements, i.e.

monitoring and remedial work, are also likely to be applied so as to preserve the

infrastructure before it is re-used. In respect to off-shore pipelines, requirements

under the Interim Pipeline Regime (IPR) are applicable.


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4.2.3 Additional technical risks and considerations

Pipelines

The physical properties of a CO2 stream, which is defined by its individual

chemical components, will have implications on both the design and operation

of the pipeline. As such, limits on the composition of the CO2 and extent of

allowed impurities will have to be aligned throughout the CO2 chain, from

capture, to transport and storage. See (Det Norske Veritas, 2017) for more on

issues related to components and impurities in a CO2 stream and their impact

on the design and operation of pipelines.

One of the main issues/considerations with re-using existing infrastructure has

to do with its integrity, which relates to identifying and managing risks.

A pipeline’s technical risk (i.e., risk of a break, burst, leak or other failure event

or process), is driven by:

• Engineering/material technology design choices, as they

comply/satisfy/mitigate the planned use, including conditions of

o fluid compositions transported inside the pipe,

o pressures both inside and outside the pipe,

o temperatures both inside and outside the pipe and

o mechanical/thermal loads from streaming water, wind, start-

up from cold state, etc.

• History of the use of the pipeline for those in operation or mothballed.

• Frequency and reliability of nearby traffic that might collide or in

some way damage the pipeline.

Technical risks for pipelines are managed using recognized industry standards

and work processes. The risk management specialist DNV GL maintains a

library of relevant open-source ‘Recommended Practices’ for managing subsea

pipeline risks (Det Norske Veritas, 2017), which form a reference for the entire

industry. The most directly useful for re-use of existing or mothballed pipelines

for CO2 service are:

• DNVGL-RP-F104 – Design and operation of carbon dioxide

pipelines: Recommended practice.

• DNVGL-ST-F101 – Submarine pipeline systems.

• RP-F107 – Risk Assessment of Pipeline Protection.

4.3 Economics and Management / Organisation of

Re-use

4.3.1 Facilities and wells

When it comes to considerations for re-use of offshore facilities, it is not so much

the technical issues that are of primary concern, but rather the commercial

considerations. These, for example, include:

• Operating costs: £2m/yr (€3.4m/yr) for a southern North Sea

platform with five wells, and £30m-40m/yr (€36m-€48m) for a

northern North Sea platform; range varies extensively.

• Capital costs: £50m/€60m for a new satellite or a large central

platform; £10.8m/€13m or £17.5m/€21m for re-use of a satellite or

central platform respectively; re-use includes any necessary

modifications (i.e. removal of unwanted facilities and addition of any

CO2 processing and injection equipment and leak detection and

evacuation systems).

• Economic benefits via deferral of decommissioning dependent on

timing and commercial/regulatory arrangements.


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Furthermore, workover cost to re-use an existing well for CO2 injection are

estimated around £6.7m/€8m per well, with operating costs around £1.7m/€2m

per year. It is important to note that the above are estimates, and that the actual

price, of a platform or a well, depends on a number of parameters and is highly

variable.

4.3.2 Pipelines

Estimating the costs for offshore pipelines is difficult given the characteristics of

each specific pipeline. It is also difficult to develop reliable, generic models as

assumptions related to the characteristics of each pipeline may vary

significantly.

Decommissioning of strategically significant pipelines risks losing a larger future

value arising from infrastructure re-use. Not preserving some of the existing

pipeline infrastructure (Atlantic, Goldeneye, MGS) could increase the cost of

CCS for Europe and decrease the Acorn project’s financial net present value

(FNPV) by €638 million, (Pale Blue Dot Energy, 2017). Similarly, re-use of

pipelines can offer significant opportunity and costs savings to CCS project

developers, potentially delivering in some cases up to 75% lower capital

expenditure (capex) costs associated with the transport of CO2.

Key commercial considerations for pipeline re-use are essentially the risk-

weighted costs of re-certifying, verifying, comprehensive inspection and any

repairs or modifications required for the new service. A formal decision analysis

would compare these risk-weighted costs of re-use with risk-weighted costs of

a new build. Use cases for these two alternatives could conceivably differ and

be within the scope of the decision analysis. The main example of this is

planning a new-build pipeline to connect with a minimum path length compared

to an existing, mothballed pipeline which may require some additional

connections and pipeline lengths.

4.3.3 Decommissioning and the break-even point

As previous work (ACT Acorn D11) has shown, the cost of planned

decommissioning of some 580 pipelines in the central and northern North Sea

is estimated at £847m (€947m), which amounts to £1.46m (€1.63m) per pipeline

(including associated infrastructure such as umbilical’s & infield lines), or £225k

(€251k) per km. If decommissioning is deferred, the operational costs of

monitoring and maintenance are low, at approximately £100k (€113.5k) per

pipeline per year. These costs depend on the length and condition of each

pipeline. In addition, operational expenditure (opex) costs during the deferral

period are likely to be higher in cases where the pipelines are connected to a

platform. Deferral, however, cannot be held in perpetuity, as with each passing

year, the design life of the pipeline decreases.

Preservation is warranted if the value of preservation is greater than the cost of

deferring the decommissioning of the pipeline. If decommissioning (costs) can

be avoided, small opex costs would warrant preservation for some time (even

when taking into account inflation and discounting). Detailed assessments,

however, would have to be performed on a case by case basis given the specific

characteristics and situations of each pipeline.

Nevertheless, a simple assessment can be made to indicate a point in time when

mothballing does not make economic sense anymore. That is, when do costs of

maintenance outweigh the benefits of deferral of the decommissioning cost?

Even when using a rough estimated decommissioning cost of a typical pipeline

in the North Sea, of £17.5m (€21m), at 2.5% inflation rate, and fixed operating

costs estimated at the high end, of £0.5m (€0.6m) per year, the break-even point


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occurs after more than 30 years. In other words, given the low operational and

maintenance/monitoring costs, pipelines could and should be preserved. This

assessment, however, is based on the notion that the integrity of the pipeline is

not affected, which could significantly increase the operational and re-purposing

costs when the pipeline is eventually re-used. It also does not consider the re-

purposing costs of a pipeline, which would not occur if a pipeline is

decommissioned. Furthermore, the current analysis excludes the commercial

liabilities associated with maintaining the pipeline, the value on which is difficult

to place. However, it can be concluded that the value of preservation of a

pipeline that is feasible for re-use in a CCS project still outweighs the costs

associated with maintenance and re-purposing. Yet, the point in time at which

that occurs is dependent on the specificities of each particular pipeline.

4.3.4 Development costs, timelines and (re)permitting

One of the advantages of re-using a pipeline is the reduced development cost

and construction period. When considering new installations, for example, the

total time from first identification of the need for a new offshore pipeline to its

actual first use post-installation could be circa 4.5-6.5 years. Also, for pipelines

of larger length, i.e. +300km, delays can occur if construction is distributed over

more than one season or multiple vessels are needed. For example, in the

northern North Sea, installation of new pipelines is performed between April and

September due to weather conditions, (Zero Emissions Platform, 2015).

Although the extent of re-purposing will be specific to each particular pipeline, it

can be assumed that given the change from the originally intended use,

pipelines will have to be re-permitted. In addition, a new environmental impact

assessment (EIA) is likely to be required as part of the re-permitting process.

This will also require an internal survey to be performed to check the integrity of

the pipeline.

Logically, re-using a pipeline for CO2 transport and storage will involve pipeline

flow in the opposite direction (than originally intended). This will require a full

engineering study and changes to be made to the pigging facilities, slug catching

(if there is a risk of a two-phase flow), as well as potentially cathodic protection.

In addition, an interviewee from TAQA pointed out, the legislation/regulation,

when it comes to the re-use of pipelines for CO2 transport, is limited. Depending

on the jurisdiction in question, this has the potential to cause delays in project

development with consequential increase in cost.

Development costs

Establishing development costs for both new and re-used pipeline will be

bespoke to each situation / project. Nevertheless, as in-house research by Pale

Blue Dot Energy has shown, acquisition and re-purposing of the 76km Atlantic

pipeline would amount to approximately £17m (€20.4m) (see Table 4-1). Activity

and costs associated with crossing the near shore and beach zone to the St.

Fergus gas terminal, “beachhead”, would amount to £20m (€24m), while laying

umbilicals (cables and tubes used to convey information and control signals to

a subsea well/manifold) would cost £90m (€108m). It is important to note that

new umbilicals would be required in both re-use and new build cases. The re-

purposing costs include running an intelligent pig through the pipeline and an

estimate of the costs for modifying the decommissioning programme to ensure

that the pipeline can be re-used.


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Capital investments €m £m Source

Atlantic Pipeline Acquisition 12 10 PBDE Estimate

Atlantic Pipeline Re-purposing 8.4 7 PBDE Estimate

Atlantic Pipeline Beachhead 24 20 ETI, 2015

Atlantic Pipeline - Umbilical 108 90 ETI, 2015

Goldeneye Pipeline Acquisition 12 10 PBDE Estimate

Goldeneye Pipeline Re-purposing

8.4 7 PBDE Estimate

Goldeneye Pipeline Beachhead 24 20 ETI, 2015

Goldeneye Pipeline - Umbilical 132 110 PBDE Estimate, based on analysis of ETI, 2015

Miller Gas System Pipeline Acquisition

24 20 PBDE Estimate

Miller Gas System Pipeline Re-purposing

25.2 21 PBDE Estimate

Miller Gas System Pipeline Beachhead

24 20 ETI, 2015

Miller Gas System Pipeline - Umbilical

396 330 Pro-rata ETI, 2015

Table 4-1: Capex for pipeline re-use

On the other hand, capex for laying a new pipeline from St. Fergus to the Atlantic

Manifold was estimated at £101.7m (€113.7m), (Pale Blue Dot Energy & Axis

Well Technology, 2016). Table 4-1 shows the development costs for the three

existing redundant pipelines from St. Fergus in North East Scotland, that are

being considered for re-use as part of the ACT Acorn project.

Scalars Note

Exchange Rate 1.2 €/£

Atlantic Pipeline Value for Opex Calculation

115 €m

PBDE Estimate based on ETI Strategic UK CO2 Storage Appraisal Project pipeline norms

Goldeneye Pipeline Value for Opex Calculation

144 €m


Miller Gas System Pipeline Value for Opex Calculation

347 €m


Annual Hours 8760 Hrs

Table 4-2: Scalars for capex calculations

Scalars

Annual Operating Expenditure

Pipeline (% of pipeline value) 0.01

Subsea Infrastructure (% capex) 0.02

Table 4-3: Pipeline re-use annual opex

4.4 Valuing Existing and/or to be Decommissioned

Offshore Infrastructure

There are a significant number of pipelines, and other infrastructure, available

for re-use in the North Sea, most of which has not yet been assessed for CO2

re-use. In the context of this D10 Report, methodology refers to a set of

advisable considerations and practices which can lead to identifying potential

infrastructure that could be preserved for re-use.


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Valorisation of existing or to be decommissioned offshore infrastructure that can

be used in the CO2 value chain is to be done on a case by case basis and include

both technical and in particular practical considerations (i.e. proximity to a

storage site, future build-out options). The remaining field resources and oil and

gas prices are additional important factors impacting the availability for re-use

of this infrastructure. Nevertheless, the criteria used for consideration, based on

technical issues, include:

• Availability: will a pipeline/platform still be in use at the point in time

when the CO2 project progresses;

• Lifespan: does the infrastructure still have sufficient remaining

lifetime?

• Integrity: what are acceptable internal/external corrosion rates,

defects, risks?

• Maximum operating pressure

• Capacity: what is a pipeline’s capacity? What is a platform’s

acceptable weight load?

• Materials: what are acceptable CO2 stream compositions? Does a

higher level of impurities in the stream deter a re-use option?

• Cost: until what point is preservation warranted vis-à-vie

decommissioning? Who pays for the preservation/

decommissioning?

Following are some of the technical considerations which can be included when

looking to identify potentially valuable CO2 transport and storage infrastructure:

length, water depth, profile, throughput history, date installed, diameter, wall

thickness, steel quality, coatings, buried, trenched, rock dump, pipeline and

cable crossings, pigging and survey history, remaining corrosion allowance,

suitability for use with new fluid, recalculated corrosion allowance, pressure

rating and history, installed valves and tees, subsea flanges and connections,

suitability of risers and coastal landings for reverse flow, impact of temperature

change when transporting new fluid.

The chosen preservation hierarchy has been placed on the pipelines and as

such the methodology and work developed within this D10 Report is focused on

CO2 transportation pipelines.

Given the availability of data, the following simple technical criteria can be used

to make an initial selection of available pipeline infrastructure for further

consideration for preservation:

• pipeline diameter

• pressure rating

• date installed and remaining life

• status (active, abandoned, mothballed).

Once initial selection of pipelines is complete, risk-weighted discounted cash

flow analysis can be undertaken. As part of this Report (Annex 4), an initial

pipeline asset register covering offshore pipelines in the UK, Netherlands and

Norway was put together using open source available data as of April 2018.

D10 Policy Options Future Considerations


5.0 Future Considerations

The re-use of existing infrastructure, including offshore pipelines, platforms and

subsea installations and wells could both reduce the cost of transport and

storage, and thereby accelerate deployment of CCS. Selection of potential

infrastructure that could be preserved for use in CO2 transport and storage,

however, is not only dependent on the technical specifications and suitability,

but also on their practicality. This includes proximity to an onshore hub and to

offshore storage locations. In many cases, as discussed in Section 4.3 of this

report, the cost of re-use may not justify the expenditure. Nevertheless, for

offshore pipelines in particular, the status of existing pipelines is often unknown,

and specificities that would determine re-use potential would have to be

assessed on a case by case basis. This section therefore discusses some of the

opportunities and options to consider for future preservation with respect to

future CCS development scenarios in the North Sea.

5.1 Preservation and Build-out Options

5.1.1 The UK

CCS has the potential to not only store 15% of current UK CO2 emissions by

2030, and up to 40% by 2050, but also to provide job and economic

opportunities (Parliamentary Advisory Group, 2016b). For climate targets to be

met at lowest possible cost, the re-use of several key pieces of existing

infrastructure combined with initial support from the UK Government, would

enable the lowest cost decarbonisation and deployment of large scale industrial

emission reduction.

Currently, the three most suited pipelines for reuse in the North Sea include: the

Atlantic pipeline, the Goldeneye pipeline, and the Miller Gas System (MGS)

pipeline. All three pipelines have been preserved in-situ and are awaiting

decommissioning. See Table 5-1 for more detail. The Atlantic pipeline is well

placed for preservation given its technical and operational specifications,

particularly its large wall thickness, which gives it a high-pressure rating and

therefore a better tolerance to the pressures needed for CO2 transport.

Previous studies on the Goldeneye pipeline have shown the pipeline is suitable

for dense phase CO2 transportation, within its operational parameters. The

platform at the Goldeneye field has already been decommissioned. The pipeline,

however, is still re-usable and offers good build-out options into the Norwegian

Continental Shelf (NCS).

Name Length

(km) Diameter

(m)

Design Pressure

(barg)

Capacity (up to: MT/yr)

Remaining Age

(years)

Atlantic 79.2 0.46 (18”) 170 5 ~6-10

Goldeneye 101 0.51 (20”) 125 4 ~8-10

MGS 240 0.76 (30”) 174 13 ~10

Table 5-1: Specifications of key UK to-be-decommissioned pipelines

The MGS pipeline offers potential for future high-volume CO2 transport. It is in

good condition and although other infrastructure (i.e. platforms, topsides, wells)

of the Miller field are not considered for reuse, the pipeline is re-usable. Similarly,



to the Goldeneye pipeline, MGS offers significant opportunity for CO2 storage

build-out potential into the NCS.

While the three to be decommissioned pipelines are currently considered the

most prominent for re-use, given that they are no longer in use, several other

currently in-use pipelines should be kept in mind so as to avoid their premature

decommissioning and explore their potential re-use for CO2 transport and

storage in the North Sea. These include:

• PL762 (operated by Mobil)

• PL6 (operated by Total)

• PL7 (operated by Total)

• N0201 (operated by Shell)

The 24” Thames Gas Pipeline in the Southern North Sea (SNS) is another that

could potentially be re-used for CO2 transport in the future. The pipeline was

acquired for a nominal amount by IOG from Perenco UK Limited, Tullow Oil SK

Limited and Centrica Resources Limited in 2017 and will be recommissioned for

direct export of the company’s gas from its Blythe and Vulcan Satellites hubs in

the SNS to the Bacton Gas Terminal in the UK (IOG, 2017). After submitting a

field development plan in July of 2017, the Blythe Hub is expected to provide the

first gas for IOG in the middle of 2019 via the recommissioned Thames Pipeline

(Offshore Energy, 2018).

As can be seen from Figure 5-1, a significant number of the UK’s offshore

pipelines originate from North East Scotland and the area around St. Fergus,

other key beachheads are Bacton in Norfolk and Point of Ayr in Cheshire. For

an interactive map of North Sea pipelines see (OGA, 2018).

Figure 5-1: UKCS off-shore infrastructure, (OGA, 2018)



5.1.2 The Netherlands

The Dutch offshore has an extensive network of oil and gas infrastructure,

including platforms, subsea installations, wellbores and pipelines, most of which,

however, has not been assessed for re-use. While the technical suitability (as

built) of platforms and pipelines may be known, their availability (i.e. remaining

lifetime) at the time of future need may not. In other words, the final date of

present use may depend on factors such as oil and gas prices and remaining

field resources.

There are nearly 4,000km of pipelines, including four major trunklines (see

Figure 5-2 below), transporting gas from offshore platforms. Three of them

(WGT-West Gas Transport; Local; and NOGAT (Northern Gas Transport) are

connected from offshore fields and land at the Den Helder gas plant. One more

trunk line, the NGT system lands in Uithuizen and has its own dedicated

treatment installation (Janssen, 2016).

Although a good amount of this infrastructure is still in-use today, given the

timeline for transport and field developments, it is important to look at what

infrastructure could be preserved in the future. Currently EBN and Gasunie are

reviewing the existing Dutch North Sea offshore infrastructure for how it can be

reused for CO2 transport and storage and when.

Figure 5-2: Major Dutch offshore infrastructure, (Janssen, 2016)

In the Netherlands, the P15 and P18 offshore gas fields may represent the most

promising options for CO2 storage over the coming decades as production

ceases. Production infrastructure in these fields, owned and operated by TAQA,

appear to be good options for re-use for CO2 transport and storage.

First elements of the Rotterdam CCS project look to develop the transport and

storage infrastructure connecting Rotterdam to the P18 and P15 gas fields (see

Figure 5-3 below). These fields are estimated to offer sufficient storage capacity

until 2030, after which the K block would be made available. However, given the

timeline of field development of five to six years, development of K block needs

to start at the latest by 2024. Potential future expansion options are likely to

including connecting the initial pipelines further north to the Q1 block saline

aquifer, and the PQ1-FA field in the UKCS. The selection of potential pipelines,



and other infrastructure, needs to be in the relative proximity of these fields, in

order to maximize the economic efficiency and value of preservation.

The P15 and P18c areas comprise of four main blocks: P15a, P15b, P15c, and

P18c, and currently have seven platforms (three main and four satellites) and

three subsea completions. The technical potential for re-use of this

infrastructure, however, would have to be assessed in future work as it is beyond

the scope of this D10 Report.

Figure 5-3: P18 and P15 fields with existing pipelines, (OGA, 2018)

Developing an offshore CO2 storage grid requires as a starting point an enabling

infrastructure to be in place, from onshore CO2 sources to offshore storage sites.

Practicality might require new enabling pipeline infrastructure (i.e. trunklines) to

be constructed.

All of the gas from the P18 and P15 fields comes from so called satellite

platforms and is processed at a main P15 platform, then transferred via a 26”

pipeline onshore to Maasvlakte. Currently, the natural gas produced at P18 first

travels north about 20km to P15 and then another 40km south.

In respect to developing the P18 fields for CO2 storage, a representative from

TAQA, pointed out, that to start injection of CO2 into the P18 fields, it would be

more rational to build a short direct new pipeline from Maasvlakte, to the P18

field, rather than wait for existing gas pipelines to be empty and re-purposed.

The interviewee explained that re-using the current pipelines would require three

times greater distance travelled and present a longer and unpredictable waiting

period. In respect to the latter, if the fields are not yet depleted, it is expected

that the operator would be reimbursed for the value of the remaining gas in the

field, as noted by the interviewee.

On the other hand, platforms in fields P15-E, P15-F and P15-G could potentially

be re-used for CO2 injection and storage. There would also be no re-use of

subsea wells given the new layers of risk that would be introduced if re-used.

Further opportunities and build out options

Several opportunities exist to re-use some of the existing infrastructure in the

Dutch North Sea. These include pipelines in the NGT, WGT and NOGAT gas

pipeline transport systems.

A potential re-use/re-purposing opportunity could also be seen in both the NGT

and WGT pipeline systems, which are currently running on less than 50 percent

capacity. A representative from TAQA pointed out that one could be converted



to transport and distribute CO2 to depleted fields and aquifer structures, while

the other would collect natural gas from all remaining producing fields in the

area. This would present an opportunity to have immediate access to large

empty storage fields.

With respect to future CCS development scenarios, another question is which

pipelines could be extended further north onto P6, P12 or L10 fields (see Images

9 and 10 below), to enable the connection of other hubs? When placing a new

pipeline to P18, for example, one option would be to do a dual-pipeline lay, using

one for CO2 transport, while leaving the other available for use (for expansion)

when ready to do so.

Pipelines connected to these fields need to be studied to preserve the options

to have a system that can be upgraded quickly and sensibly and not risk losing

significant value if they are decommissioned.

Figure 5-4: K and L10 fields with connected pipelines, (NLOG, 2018)



Figure 5-5: P6 and P12 fields with connected pipelines, (NLOG, 2018)

5.1.3 Norway

Norway’s gas exports are expected to fall in the next 5-10 years as several major

oil and gas fields with associated gas will deplete rapidly.

The natural gas and oil pipeline network on the Norwegian Continental Shelf

(NCS) is extensive and includes both smaller transfer pipelines and very large

export pipelines. This is a significant difference to the infrastructure on the

offshore shelves of the UK and The Netherlands. The following section

describes the current situation and projection for the natural gas export pipelines

from Norway to Northern Europe.

Figure 5-6: Existing and planned pipelines in the North and Norwegian Sea, (NPD, 2018)



Norway has five large capacity gas export pipelines to Northern Europe. At least

one of these is likely to experience significant underutilisation in the next 10-15

years. According to the Norwegian Petroleum Directorate’s (NPD) latest

projections, output of natural gas from the Norwegian shelf is expected to be

stable at 121-123 billion cubic meters (bcm) annually from 2018 to 2022,

followed by a gradual decline to about 90bcm annually between 2030 and 2035

(NPD, The Shelf 2017, 2017).

Given the age of Norway’s fields and their connection to the gas export pipeline

system, one of the export pipelines will likely be underutilised earlier than the

other four. Europipe II came onstream in 1999. It connects directly from the

export terminal at Kårstø to the receiving terminal at Dornum, Germany, and has

no other pipeline or field connections between its export and import terminals.

Most of the gas exported by Europipe II comes from the Åsgard, Sleipner

East/West, Gullfaks and Statfjord fields, which are connected to the Kårstø

terminal. The latter three fields are depleting rapidly with only a few years of

production left. This indicates that Europipe II is likely to be the first of the five

gas export pipelines to become redundant. This could happen in the period

2025-2030.

Europipe II has an expected lifetime of 50 years and is therefore a candidate for

re-purposing in the next decade (NPD, 2002). We propose an innovative

combination of converting it to export CO2 from Northern Germany to Kårstø. It

can also be suitable to simultaneously serve as a conduit for a new high voltage

electric cable between Norway and Northern Germany. In other words, electrons

flowing mostly from Norway to Germany, whilst at the same time and in the same

pipe, CO2 flows from Northern Germany to Norway. The CO2 would then be sent

from Kårstø (which is a candidate for conversion to a CO2 hub) for permanent

storage in an offshore geological formation deep below the Norwegian seabed

in well characterised reservoirs. One candidate for this is to extend the operation

of the Sleipner CO2 storage project. A new CO2 injection well can target several

different depleted oil and gas reservoirs in the Sleipner license area.

To our knowledge a subsea gas pipeline has never been repurposed for use as

an HVDC (High Voltage Direct Current) cable conduit. This concept will require

some innovation on the installation procedure and enhanced corrosion

management of the pipeline. However, the costs of these adaptations are

expected to present cost savings versus the costs of cable installation and

protection on the seabed and in the near shore slope and landfall sections,

which re-use of the pipeline already accommodates.

5.2 Further Work/Next Steps

The section above provided some current and future re-use and build out

options for consideration. The methodology and assessments on the re-use of

offshore infrastructure were intended to provide the starting point for future work

on the subject. This should focus on developing a more in-depth methodology,

which would include economic assessment and analysis of the specific pipelines

in question.



Pipeline Name

Operator From To Start up (year)

Capacity (mill.Sm3/d)

Diameter (inches)

Length

(km)

Europipe Gassco AS Draupner E Emden (Germany) 1995 46 40 620

Europipe II Gassco AS Kårstø Dornum (Germany) 1999 71 42 660

Franpipe Gassco AS Draupner E Dunkerque (France) 1998 55 42 840

Zeepipe Gassco AS Sleipner Zeebrugge (Belgium)

1993 42 40 808

Norpipe Gassco AS Ekofisk Norsea Gas

Terminal (Germany) 1977 32 36 440

Table 5-2: Potential pipelines for re-use in NCS

D10 Policy Options Options for CO2 Transport/Storage Operator Ownership


6.0 Options for CO2 Transport/Storage Operator Ownership

6.1 Ownership Summary

One of the key requirements for deploying CCS at scale is access to CO2

transport and storage infrastructure. Enabling the development of such

infrastructure will require addressing the following key challenges within the

CCS value chain: CO2 supply certainty, cross-chain performance, leakage

liability and allocation of risk, (Pale Blue Dot Energy, 2018). In addressing these

challenges, a lot will depend on the chosen business models for transport and

storage infrastructure development. However, there is no one-size-fits-all

business model for developing CO2 transport and storage infrastructure in

Europe. Different models are effective for different stages of development and

national/regional contexts. It remains clear that any model will require significant

state underwriting, and retaining of existing infrastructure, in particular pipelines.

Given the interconnected nature of the process, and the different owners and

operators of the infrastructure, removing counter party risks and addressing

structural market failures currently hindering CO2 capture, transport and storage

development requires regional coordination bodies to deliver each segment of

the value chain in a timely and strategic manner, (Parliamentary Advisory Group,

2016b), (Pale Blue Dot Energy, 2018).

In this respect, so-called CO2 development organisations (CDO’s) have become

increasingly recognised as highly beneficial in delinking the cross

dependencies, lowering overall development risk and managing the planned

shared transport infrastructure and CO2 storage development. These CDO’s can

take many different forms or structures, depending on the national or regional

circumstances, and can either be an existing entity (i.e. Energie Beheer

Nederland (EBN)) or can also be newly formed (i.e. UK CCS Development

Company). Its main objective is twofold: i) manage development of primary CCS

transport and storage infrastructure (including retention and re-use of existing

infrastructure); and ii) take up the captured CO2 and ensure availability of CO2

storage. In this way, its goal is the decoupling of capture, transport and storage,

removal of cross-chain risks, and managing of existing, and newly created

infrastructure, thereby lowering overall development risk and encouraging

investment in CCS.

6.2 Ownership Conclusions

CO2 development organisations essentially reduce the costs and risks of

industrial deep decarbonisation by addressing many of the structural market

failures that are currently hindering CO2 capture, transport and storage

development. In particular they:

• address the coordination barrier in developing CO2 storage and CO2

capture, through providing a platform for central planning, thereby

giving certainty to both CO2 transport and storage developers that

CO2 will be captured, and certainty of storage to an industrial CO2

capture operator;

• provide a degree of policy certainty to emitters of decarbonisation

requirements and timelines;

D10 Policy Options Options for CO2 Transport/Storage Operator Ownership


• provide foresight in planning and deployment of CO2 transport

infrastructure, and allow for network expansion in line with regional

industrial decarbonisation plans;

• can reduce some aspects of commercial risks of CO2 storage by

limiting liabilities for CO2 storage providers;

• can act to preserve useful retiring infrastructure (i.e. pipelines)

scheduled for decommissioning, and thereby reduce costs and

accelerate network capacity expansion.

Coordinated planning, through a CO2 development organisation, at least for

initial CO2 infrastructure, will provide the greatest utility to a broad set of

industrial users at the lowest societal cost. This would significantly reduce the

upfront cost of decarbonisation in the areas served, thus enabling the greatest

decarbonisation of existing sources and attracting new low carbon business.

While there is no one single business model that could be applied to the

development of CO2 transport and storage infrastructure in Europe, and different

models are effective for different stages of development, from a commercial

structure perspective, it is clear that a form of joint public-private arrangement is

required. In this case, a state-owned entity will hold the long term liability for the

CO2, at least for initial projects with significant buildout potential.

Furthermore, state-owned companies acting as CDO’s are also more easily

trusted by the civil society for developing such CCS infrastructure and will have

lower profitability requirements than a privately owned CDO would. Over time,

however, when the market develops, CDO’s could become privatised.

6.2.1 Retention and re-use of existing infrastructure

Preserving existing oil and gas infrastructure is essential as it offers significant

cost savings and value add to any CCS project. As such, managing and

retaining existing infrastructure, in particular offshore pipelines, is dependent on

addressing the issue of ongoing costs and risks associated with ownership of

those assets. In this respect CO2 development organisations can play a role by

taking over the ownership of the asset.

Governments should work with existing oil and gas transport and storage asset

owners to discourage rapid decommissioning of their infrastructure and provide

incentives to encourage the re-use of this infrastructure for CCS.


availability. As such, pipelines which are (soon) to be decommissioned should

be prioritised and efforts made for their preservation.

Further information on options for CO2 transport and storage operator

ownership can be found in Annex 1.

D10 Policy Options Liability Management in CO2 Transport and Storage Networks


7.0 Liability Management in CO2 Transport and Storage Networks

7.1 Liability Management Summary

Liability is the state of being legally responsible for something (Oxford University

Press, 2017). In general, the risk to a company arising from the possibility of

liability for damages resulting from the purchase, ownership, or use of a good or

service offered by that company is known as liability risk. In the context of CO2

storage activity, the liability arises in containing the CO2 within a defined

geological space.

The liability risk for CO2 transport and storage developments can be considered

to have two major temporal components, linked to the primary activity of the

project phase:

• Operational: the risks associated with the transport, injection and

storage of CO2.

• Post closure: the risks associated with the storage of CO2 once the

injection phase has finished. This phase has two sub-elements;

before and after transfer of responsibility to the Competent Authority

(CA).

During each of these phases five major categories of risk exist: toxicological,

environmental, induced seismicity, subsurface trespass, and climate, (M de

Figueiredo, 2006).

While the precise nature of the liability may vary according to jurisdiction, liability

risks can be identified and mitigated through careful site selection, development

design and operational monitoring, and may to an extent be inherent in the

nature of a particular geological site. In the European region, liabilities for CO2

storage are addressed in the CCS Directive (2009/31/EC) and the associated

four guidance documents.

Transport and storage activities have very different technical and economic

characteristics to capture activities, therefore, the risk appetite and balance

sheet capabilities of likely CO2 transport and storage operators will be markedly

different from those of capture operators.

These factors give rise to specific issues which must be addressed in the

development of CO2 transport and storage infrastructure and networks,

including consideration of the commercial model to support early and long term

costs and revenue flow that achieves best value for money. In this respect, six

common areas of risk which hinder development of CO2 transport and storage

infrastructure have been identified. These include: uncertainty of CO2 supply;

uncapped CO2 leakage liability; cross-chain performance; risk appetite

incompatibility; change of law; and policy uncertainty.

As there are many stakeholders and participants in a CO2 transport and storage

project, it can be implied that finding a mutually acceptable allocation of risk and

liability is likely to be complex.

7.2 Liability Management Conclusions

The liabilities associated with the geological storage of CO2 are well known but

poorly understood and can vary across different jurisdictions. In respect to

managing the liabilities associated with storage of the CO2, the CCS Directive,

and associated guidance documents, is believed to provide a robust enough

legal framework.

D10 Policy Options Liability Management in CO2 Transport and Storage Networks


The major liability for storage operations in Europe remains the release of CO2

from the storage site, in particular in light of the lack of clarity on the extent of

such liability, which is dependent on future European Union Allowance (EUA)

certificate prices, making it difficult for operators to effectively quantify the extent

of their liabilities. As such, it is expected that governments, or government-

owned entities are to actively work with the industry in order to clearly define the

extent of the liabilities (i.e. set a cap) before the industry makes significant

investments in developing the transport and storage infrastructure. This level of

negotiation would serve to increase confidence from the industry as to the

government’s commitment to CCS.

Furthermore, the risk and liabilities associated with the transportation of CO2,

including their impact/severity, are considered both well understood and

manageable. The requirements for appropriate monitoring and maintenance of

the infrastructure (i.e. pipelines) are also well understood.

Further information on liability management in CO2 transport and storage

networks can be found in Annex 3.

D10 Policy Options Conclusions


8.0 Conclusions

1. Preserving key pieces of infrastructure, in particular to be decommissioned

pipelines, can significantly lower initial investment costs and therefore offers

the lowest cost opportunity to provide additional value to the asset.

2. While existing wells, topsides/platforms and pipelines all have potential re-

use value in a CO2 value chain, pipelines offer the highest preservation

long term value. Any re-use has to be assessed on a case by case basis.

3. The business case for preservation of infrastructure is expected to follow a

conventional investment decision process and adopt a discounted cash

flow model that captures all capital, operation and abandonment

expenditure to enable comparison of relevant cases.

4. Once under the Interim Pipeline Regime (IPR), or similar, it is unlikely that

pipelines would be mothballed for a period longer than 10 years. Key

considerations from the asset owner perspective include timing of future

use and liability transfer.

5. A state-owned entity (i.e. CDO) is best positioned not only to take the lead

in development of CO2 transport and storage infrastructure (i.e. via taking

and managing T&S risks), but consequently also to instil investor

confidence and encourage deployment of CCS.

6. Strategically significant pipelines should be prioritised for preservation,

with the governments, or state-owned entities (i.e. CDO’s) to cover the

costs of preservation, and/or take over the liabilities from the asset owners.

D10 Policy Options References


9.0 References

AAPG. (2010). Eventure Sidetrack. Retrieved from

https://www.youtube.com/watch?v=EFxLrJvEzes

Bellona. (2016a, September 30). Press Release: Norway breaks vicious cycle

of inaction on CCS deployment with concrete plans for industry.

Retrieved from http://bellona.org/news/climate-change/2016-09-

norway-breaks-vicious-cycle-of-inaction-on-ccs-deployment-with-

concrete-plans-for-industry

Bellona. (2016b). Manufacturing Our Future: Industries, European Regions and

Climate Action. . Bellona Europa.

BERR. (2007). Development of a CO2 Transport and Storage Network in the

North Sea: Report to the North Sea Basin Task Force. CCSa.

Capture Power Ltd. (2016). K.16 Financial Plan - Final.

Carbon Capture & Storage Association. (2016a). CCSA Policy Brief: Retention

of Opportunities to Develop CO2 Transport and Storage Infrastructure.

Carbon Capture & Storage Association. (2016c). Lessons Learned - Lessons

and Evidence Derived from UK CCS Programmes, 2008 – 2015.

CCC. (2018). An independent assessment of the UK’s Clean Growth Strategy:

From ambition to action. Retrieved from

https://www.theccc.org.uk/publication/independent-assessment-uks-

clean-growth-strategy-ambition-action/

CO2-CATO. (2017, October 11). New Dutch Government coalition commits to

CCS. Retrieved from CATO: https://www.co2-cato.org/news/news/new-

dutch-government-coalition-commits-to-ccs

Deloitte. (2016). A need unsatisfied: Blueprint for enabling investment in CO2

storage.

Det Norske Veritas. (2017). DNVGL-RP-F104 Design and operation of carbon

dioxide pipelines: Recommended practice. DNV. Retrieved from

https://www.dnvgl.com/oilgas/download/dnvgl-rp-f104-design-and-

operation-of-carbon-dioxide-pipelines.html

European Commission. (2009). Directive 2009/31/EC on Geological Storage of

CO2. Brussels: European Commission.

European Commission. (2011). Guidance Document 1 for Implemenation of

Directive 2009/31/EC on the Geological Storage of Carbon Dioxide:

CO2 Storage Life Cycle Risk Management Framework. Brussels.



Characterisation of the Storage Complex, CO2 Stream Compositon,

Monitoring & Corrective Measures. Brussels.



Criteria for Transfer of REsponsiblity to the Competent Authority.

Brussles.





Financial Security & Mechanism. Brussels.

European Commission. (2014). Communication from the Commission -

Guidelines on State aid for environmental protection and energy 2014-

2020.

European Commission. (2018). European Fund for Strategic Investments.

Retrieved from European Commission:

http://ec.europa.eu/growth/industry/innovation/funding/efsi_fr

Gassnova. (2018, March 14). Response via Twitter. Retrieved from Twitter:

https://twitter.com/Gassnova/status/973933401735614465

Goldthorpe, W., & Ahmad, S. (2016). Policy innovation for offshore CO2

transport and storage deployment. 13th International Conference on

Greenhouse Gas Control Technologies GHGT-13. Lausane.

Gross, R. (2015). Approaches to cost reduction in carbon capture and storage:

Advisory Group Report. London. Retrieved from

https://www.theccc.org.uk/wp-content/uploads/2015/06/Gross-2015-

Approaches-to-cost-reduction-in-carbon-capture-and-storage-and-

offshore-wind.pdf

IEAGHG. (2018). Enagling the deployment of industrial CCS clusters. IEA

Environmental Projects Ltd.

IOG. (2017). Independent Oil & Gas PLC. Retrieved from

http://www.independentoilandgas.com/news_detail.php?Title=Acquisiti

on-of-SNS-Pipeline

IPPC. (2005). Special Report on Carbon Dioxide Capture and Storage.

Intergovernmental Panel on Climate Change.

Janssen, H. (2016). Dutch Offshore infrastructure optimization Project. Loyens

& Loeff Oil & Gas seminar. Retrieved from

https://www.loyensloeff.com/media/7323/domino-presentation-ll.pdf

M de Figueiredo, D. R. (2006). The Liabiltiy for Carbon Dioxide Storage.

Greenhouse Gas Technologies 8.

NLOG. (2018). MAP: Boreholes. Retrieved from http://www.nlog.nl/en/map-

boreholes

NPD. (2002). Pipelines and land facilities. Norwegian Petroleum Directorate.

Retrieved from

https://www.regjeringen.no/globalassets/upload/kilde/oed/bro/2002/00

06/ddd/pdfv/152181-facts_17.pdf

NPD. (2017). The Shelf 2017. In B. Nyland (Ed.). Norwegian Petroleum

Directorate. Retrieved from

http://www.npd.no/en/Publications/Presentations/The-Shelf-2017/

NPD. (2018). The Oil and Gas Pipeline System. Retrieved from Norwegian

Petroleum Directorate: https://www.norskpetroleum.no/en/production-

and-exports/the-oil-and-gas-pipeline-system/

Offshore Energy. (2018). IOG targets Blythe gas field FDP approval for 2018.

Retrieved from https://www.offshoreenergytoday.com/iog-targets-

blythe-gas-field-fdp-for-2018/



OGA. (2018). Offshore Oil and Gas Activity. Retrieved from

https://ogauthority.maps.arcgis.com/apps/webappviewer/index.html?id

=adbe5a796f5c41c68fc762ea137a682e

OGA. (2018). UKCS Offshore Infrastructure. Retrieved from

https://itportal.ogauthority.co.uk/web_files/gis/ukcs_maps/UKCS_Offsh

ore_Infrastructure

Oxford University Press. (2017). Oxford English Dictionary. Oxford: Oxford

University Press.

Pale Blue Dot Energy & Axis Well Technology. (2016). Progressing

Development of the UK's Strategic Carbon Dioxide Storage Resource.

ETI.

Pale Blue Dot Energy. (2015). Industrial CCS on Teesside - The Business Case.

Teesside Collective.

Pale Blue Dot Energy. (2017). CO2 Transport Projects - Projects of Common

Interest. Application from the CO2 SAPLING Transport Infrastructure

Project.

Pale Blue Dot Energy. (2018). CO2 Transportation and Storage Business

Models Summary Report. UK Government: BEIS.

Pale Blue Dot Energy, Axis Well Technology, Costain. (2015). Captain X CO2

Storage Development Plan and Budget. Loughborough: Energy

Technologies Institute.

Parliamentary Advisory Group. (2016b). Lowest Cost Decarbonisation for the

UK: The Critical Role of CCS. CCSa.

Petoro. (2018, March 17). About Petoro. Retrieved from Petoro:

https://www.petoro.no/about-petoro/main-duties

Poyry. (2016). A Strategic Approach for Delivering CCS in the UK. Committee

on Climate Change.

Poyry. (2016). A Strategic Approach for Developing CCS in the UK. London:

Poyry.

Regjeringen. (2011). Fullska CO2-håndtering. Det Kongelige Olje-OG

Energidepartement.

ROAD. (2013). The Road Project - CCS Permitting Process, Maasvlakte CCS

Project.

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Europe. ZEP.

Zero Emissions Platform. (2016). Identifying and Developing European CCS

Hubs. ZEP.

D10 Policy Options Annex 1: Options for CO2 Transport


10.0 Annex 1: Options for CO2 Transport

10.1 Executive Summary

The use of state-led CO2 development organisations is essentially required to

enable the lowest cost decarbonisation of the industrial sectors in Europe. There

is no one size fits all business model for developing CO2 transport and storage

infrastructure in Europe. Different models are effective for different stages of

development and national/regional contexts. CO2 development organisations

can, and should, be established via initial capital support and significant

underwriting from the State. There’s a wide agreement within industry that

removing counter-party risk is necessary and that a publicly-owned/backed CO2

development organisation is best suited to take on the CCS value chain counter-

party risks.

CO2 development organisations (CDO’s) are ideal in particular for developing

required storage volumes during the pre-commercial phase. The concept is

already being picked up by policy makers in various parts of Europe.

A CO2 development organisation needs to ensure security of CO2 delivery and

for infrastructure to be in place. In terms of the latter, it can focus on retaining

and re-using existing infrastructure. Retention and re-use of existing

infrastructure (i.e. pipelines) can reduce aspects of commercial risks and

facilitate development of initial CO2 industrial clusters. CO2 development

organisations should cover the costs of retaining the infrastructure (i.e. costs of

monitoring and maintenance). The key issue with re-using pipelines for CO2

transport remains their timely availability. While the favourable geology of the

North Sea is not going to change, the opportunities for re-using infrastructure

are time-limited in nature, and if not taken, could set CCS back by five to ten

years.

State owned companies as CDO’s are more easily trusted by civil society for

developing such CCS infrastructure.

Europe’s energy-intensive industries account for nearly 25% of EU emissions,

and for many regions, CCS will be the only way to achieve deep

decarbonisation. While industrial CO2 capture is ready to be deployed at scale,

this is not taking place primarily because of lack of access to CO2 transport and

storage infrastructure. Such infrastructure includes onshore pipelines, coastal

terminals, offshore pipelines, shipping facilities, offshore facilities, wells and

storage reservoirs.

In addition, little progress on CCS in the EU can be attributed to the unfavourable

political and financial conditions. As such, deep and rapid decarbonisation of the

industrial sector in the EU will not only require significant new infrastructure, but

also greater co-ordination and funding, in order to achieve large scale

deployment of CCS and make the large impact on the set climate goals.

Key challenges for the development of CO2 transport and storage infrastructure

include: CO2 supply certainty, cross-chain performance, leakage liability and

allocation of risk, (Pale Blue Dot Energy, 2018). In addressing these challenges,

a lot will depend on the chosen business models for transport and storage

infrastructure development. So called CO2 development organisations (CDO’s)

have become increasingly recognised as highly beneficial in delinking the cross



dependencies, lowering overall development risk and managing the planned

shared transport infrastructure and CO2 storage development.

Through planned and strategic development of CO2 infrastructure, which

focuses on industrial hubs and clusters, as well as re-use of existing

infrastructure, significant cost savings, and thus a faster uptake of the

technology can be enabled.

A number of key considerations for each of the CCS value chain operators are

important to mention, which have to an extent been inhibiting CCS development

by making it more risky and costly:

• storage operators need a guarantee of income before they can

invest in exploration, appraisal and feasibility work,

• transport operators need to have confidence in income in order to

perform feasibility and routing studies, including public engagement,

while

• capture operators need to have a guaranteed CO2 storage solution,

at a known price, before they can gain finance.

Given the interconnected nature of the process, and the different owners and

operators of the infrastructure, removing counter party risks and addressing

structural market failures currently hindering CO2 capture, transport and storage

development requires regional coordination bodies to deliver each segment of

the value chain in a timely and strategic manner, (Parliamentary Advisory Group,

2016b) (Pale Blue Dot Energy, 2018).

In addressing the key challenges, this Report presents CO2 development

organisations (CDO’s) as a solution oriented approach and mechanism through

which current inertia in CCS development can be broken. A so called CO2

development organisation can take many different forms or structures,

depending on the national or regional circumstances, and can either be an

existing entity (i.e. Energie Beheer Nederland (EBN)) or can also be newly

formed (i.e. UK CCS Development Company). Its main objective is twofold: i)

manage development of primary CCS transport and storage infrastructure

(including retention and re-use of existing infrastructure); and ii) take up the

captured CO2 and ensure availability of CO2 storage. In this way, its goal is the

decoupling of capture, transport and storage, removal of cross-chain risks, and

managing of existing, and newly created infrastructure, thereby lowering overall

development risk and encouraging investment in CCS.

This report also builds on the study by Pale Blue Dot Energy on CO2

transportation and storage (T&S) business models, (Pale Blue Dot Energy,

2018), which documented a range of business models which could potentially

be used to finance, deliver and operate CO2 T&S infrastructure in the UK. This

report, however, is not a continuation of that study, nor serve as a follow on

study to test the models’ suitability and/or performance. Rather, the purpose

here is to present additional insights and perspectives from a plethora of actors

in order to broaden the debate.

Research has shown that there is no one single business model or structure that

could be applied across Europe, and different models will be effective for

different stages of CCS development (i.e. demonstration, pre-commercial and

mature). Nevertheless, it remains clear that any model will, at this stage at least,

comprise state support and managed competition. In this respect, significant

state underwriting will initially be required, and retaining existing infrastructure,

in particular pipelines, is not only encouraged but also essential.



10.2 Scope

10.2.1 Purpose

The purpose of developing the Options for CO2 Transport/Storage operator

ownership is to:

• Provide a comparison of advantages and disadvantages of “CO2

development organisation” structure. Including existing national and

regional structures, capital requirement, state aid rules and

pathways to fully commercial operation.

• Provide a detailed menu of practical steps to the formation of “CO2

development organisation” for both national and regional

government engagement.

10.2.2 Scope

The Deliverable Scope covers the following aspects:

• Investigation of the commercial structures and arrangements that

can be used to create “CO2 development organisations”. Structures

to include public private partnership (PPP) to direct state contracting,

• Review national and regional existing government institutions and

applicability to “CO2 development organisations”,

• Assess capital requirements for first development of “CO2

development organisations” based on cost data and the "real world"

Acorn development plan,

• Applicability of different “CO2 development organisations” to manage

retention and re-use of existing infrastructure,

• Literature review,

• Interviews with relevant stakeholders, including, but not limited to

representatives from the government, public authorities, academia,

and potential CO2 development organisations.

10.2.3 Assumptions

The assumptions detailed in this section apply to the Acorn Project under the

ACT ERA-NET funding package. For future Acorn project development, these

assumptions may be revised.

Data

• The data obtained for the purpose of this report relies primarily on

the available literature in the public domain, including papers,

articles, and other reports, including those produced in the context

of the Acorn project.

• To review the potential commercial structures and arrangements,

this report also relies on information obtained from direct interviews

with representatives from various institutions and companies.

Whereas information on stakeholder perceptions was for Norway

and the Netherlands cases obtained via interviews as well as desk-

based research, information on the UK relies primarily on desk-

based research.

• All effort was made to obtain the most relevant and up-to-date data.

10.3 Business Models to Enable Industrial CCS

Development of industrial CCS clusters is not only vital for Europe to meet its

climate targets, but also to prevent emission intensive industries from relocating

elsewhere, thereby inflicting additional social and economic implications to



regions. In order to provide a backdrop for a discussion on CO2 development

organisations in lowering overall development risk and managing planned

shared transport infrastructure and CO2 storage development, this section

briefly reviews the role of different business models for CO2 transport and

storage ownership and operation, and for the general development of industrial

CCS.

10.3.1 Different models for different regions/countries

Different elements of the CCS chain (capture, transport, storage) have different

risk profiles and appetites. Given the lack of a business case for CO2 storage in

Europe, these differences are exacerbated. As such, developing a business

case for industrial CCS in Europe is vital. It has, however, been shown,

(IEAGHG, 2018), (Pale Blue Dot Energy, 2018), that there is no one-size-fits-all

business model for the development of industrial CCS that could be applied to

countries and regions. Nevertheless, there are two key elements in all proposed

and existing models: i) Significant level of government support is required; and

ii) Guarantees on loans, CO2 volumes and storage are key prerequisites for

private investments.

In light of the failed CCS projects in the past, delinking cross-dependencies and

lowering overall development risk have been identified as crucial to breaking the

inertia in CCS development in Europe. In this respect, several options for CO2

transport and storage infrastructure ownership and business models for

enabling the deployment of industrial CCS, have been identified, (IEAGHG,

2018):

A public transport and storage company

• In this option, the government owns (i.e. via government-owned

entity) and/or funds the transport and storage infrastructure, which

at the same time takes on all, or majority, of the risks and liabilities.

At a later stage, once market develops, the company can be

privatised.

• The government-owned entity concludes CO2 off-take agreements

with CO2 capturers and established regulated transport and storage

fees.

• The government provides storage and loan guarantees and also

industry specific incentives and grants which cover 20% of the capex

of CCS cluster.

• Analysis shows that a public transport and storage company offers

the lower possible financial costs.

• The “public company model” broadly reflects the current activities in

Norway and Netherlands, and the intentions in the UK.

Transport and storage as a regulated asset

• This option involves a fully privatised delivery of a project, with

transport and storage operated through a regulated asset base

(RAB) model.

• Compared to the “public company model”, this option allows for

higher returns.

• Similar to the “public company model”, the government must provide

CO2 storage and loan guarantees and grants which cover 20% of the

capex towards the industrial cluster. The government also provides

capacity payment, grants to cover store characterization, volume

guarantees and a cap on long-term liability.



• CO2 off-take agreements and regulated transport and storage fees

are established.

CO2 –EOR

• Currently the most common option for operating projects in North

America is CO2-EOR.

• Captured CO2 is sold to an EOR operator.

• CO2-EOR is not the best long-term option; If demand for fossil fuels

decreases and/or the petroleum prices drop to a level where the

financial production margins do not justify purchase of captured CO2,

this model fails.

Comparing models

Commonalities exist between all models described above, however, the

applicability of each is different depending on the country/region in question,

presence of existing transport and storage infrastructure (i.e. pipelines,

platforms, wells), governments vision for CCS, storage opportunities, domestic

energy production, and a number of other factors. The most evident thread

between the models is that the government will be required to provide a high

level of support, in particular to initial projects. In this respect, the governments

can de-risk projects, and encourage industry’s participation/investment by

providing:

• Storage guarantees to emitters

• Volume guarantees to the transport and storage company

• Loan guarantees

• Capital agreements

However, a word of caution is necessary as too much emphasis should not be

placed on the extent for government involvement and the need for it to take up

all the risks, burdens and costs.

10.3.2 Next steps

As mentioned, there is no single business model that could be applied to a

particular national or regional situation for development of CO2 transport and

storage infrastructure. Nevertheless, further work in detailed risk assessments

for each case/model is needed. In this respect, given the significant level of

government involvement required, in any of these models, focus should be on

finding the right balance between the necessary and excessive government

guarantees. Furthermore, more work in developing regional industrial CCS

strategies is required, along with examining the wider benefits of industrial CCS.

10.4 CO2 Development Organisations

The following section briefly reviews the concept of CO2 development

organisations (CDO’s) and their role in developing CCS in Europe. An overview

of potential regional and national solutions is also provided.

10.4.1 What are CO2 Development Organisations?

In essence, a CO2 development organisation (n) is a regulated entity or a group

of entities (either state-owned or independent, either existing or newly created),

which manages the development of primary CCS infrastructure on behalf of the

state.

10.4.1.1 Roles and objectives

The key role of a CDO is to aid in removing counter party risk along the CCS

value chain and lower the system’s overall cost. Since different elements of the



CCS chain have different development timelines, the key role of a CDO is also

coordination and timing of investments decisions.

A CDO has a number of clear goals, including:

• promote development of CCS infrastructure,

• decouple cross-chain risk, and

• manage retention and re-use of existing infrastructure.

A CDO addresses many of the structural market failures that have inhibited CO2

storage, transport and capture developments, by:

• giving certainty, through providing a form of central planning, to the

CO2 storage developer that the CO2 will be captured, and vice versa

that the CO2 will be transported and stored;

• reducing investment and performance risks, by having a mandate to

develop a CO2 capture, use, transport and storage market;

• providing a degree of policy certainty to emitters of decarbonisation


• allowing for CO2 transport infrastructure expansion in line with

regional industrial decarbonisation plans;

• to an extent take up some of the liabilities for CO2 storage providers

and hence reduce some aspects of commercial risks;

• preserving some of the existing useful infrastructure, including

natural gas pipelines scheduled for decommissioning, and thereby

reducing the costs and timing of network capacity expansion.

To decouple the CO2 transport and storage from CO2 capture, a CDO can either

contract the CO2 storage development under commercial conditions, or directly

develop its own CO2 storage solution. Similarly, it can contract construction of

CO2 transport solutions or directly develop and operate CO2 transport solutions.

A CDO can also enable initial CO2 into a network through receipt of the CO2

from emitters near the hub infrastructure, covering a mix of CO2 sources to

encourage adoption, innovation and cost-reduction. In certain scenarios it could

also be relevant for a CDO to contract CO2 capture under commercial conditions

or to develop its own CO2 capture plant(s). The cooperating needed between an

emitter and a capturer is not that different to the cooperation needed between a

CO2 capturer and transporter.

Due to a lack of business models and a functioning market, developing CO2

transport and storage infrastructure is not yet a commercial activity. In this

respect, there is wide agreement within the CCS industry that it will ultimately

have to be the State, or a state-owned entity (i.e. development organisation)

which has underwriting from the State, that will have to take a significant amount

of risk and liabilities.

10.4.1.2 Diverse structures

Invariably, the structure of CO2 development organisations will differ depending

on the national and regional structures and/or decarbonisation goals, regional

circumstances, existing regulatory frameworks and institutions (see section

10.5.2).

At the national and regional level, governments have a spectrum of business

models available for developing and operating a CDO, ranging from a 100%

state owned entity, through to a number of public-private partnership structures,

including a regulated private entity with appropriate risk sharing and liability

underwriting.



Furthermore, the structure of a CDO is not fixed. It could begin as a state-owned

body and evolve into a regulated commercial organisation once the market

becomes suitably mature. Nevertheless, as a representative from the Port of

Rotterdam points out, “state owned companies like CDO’s are more easily

trusted with developing such [CO2 transport and storage] infrastructure.”

However, the representative also noted that “there could be a business model

in just operating and maintaining the infrastructure [10-15 years from now] and

doing some additional investment and expanding/building it out.”

Experience with such business models/structure already exists in Europe. For

example, the Netherlands in the 1960s, created a transport and distribution

business case for the Groningen gas network and thus a consumption market,

by building pipelines and owning equity in the gas fields. Similarly, the current

offshore wind network has also been developed by the State through a

mechanism where the government and the national electricity operator

(TenneT) work towards the lowest cost route to expansion of offshore wind

generation. In Norway on the other hand, in advancing three Norwegian

industrial decarbonisation projects, the government is to take responsibility for

the development of shared CO2 transport and storage infrastructure, thereby

simplifying the commercial and organisational complexities for each of the

prospective CO2 capture projects. One state owned enterprise (Gassnova SF)

is the coordinator and the liable entity for the capture and storage parts of the

Norwegian Full Scale CCS Project. Another state-owned enterprise, which

operates the integrated transport system for Norwegian gas (Gassco AS), has

been responsible for the Project’s transport solutions.

10.4.1.3 Funding the CO2 development organisations

In order to pursue CO2 network and storage development, CDO’s will require

capitalisation, which can be achieved through direct national or regional support,

supplemented with European funding, industrial participation and targeted use

of the European Union Emissions Trading System (EU ETS) revenues.

Support schemes

Various innovation support schemes, such as the SME Instrument and the Fast

Track to Innovation (FTI), under the Horizon 2020 programme, which are

underpinned by the idea of rolling out marketable innovation solutions with

ambitions to scale up, and by an uptake of new solutions respectively, are

unlikely to be applicable under their current form. Similarly, the European

Structural and Investment Fund is also unlikely to be applicable to CCS projects.

The European Fund for Strategic Investments (EFSI), which aims to overcome

current market failures by addressing market gaps and mobilising private

investment, appears to be the best option in the current framework, (European

Commission, 2018), for financing potential scalable projects such as Acorn.

Research also shows that it is expected that the EU Innovation Fund will, from

2020 be the most evident route for enabling the first CO2 infrastructure. In

particular, projects of common interest (PCI’s) will be preferred. As such, regions

and national governments should work with each other and with the European

Commission and the Parliament to make the modalities of the Innovation Fund

compatible with CO2 infrastructure deployment. Capitalising CDO’s with a

portion of the available funds would enable planned development of CO2

networks.

Furthermore, a funding scheme where a Member State could contribute to

projects in tax credits, capped at a certain amount that relates to the investment

costs of capture facilities could be helpful.



10.4.1.4 Creating the CO2 development organisations

Through regional CO2 transport and storage clusters the full potential of the CDO

can be exploited. As such, CDO’s will best function in key strategic CO2 capture

hubs and storage hubs/locations. In Europe this includes the following locations

in the North Sea region:

• The Ruhr region, Germany

• Rotterdam, Netherlands

• Scandinavia/Skagerrak (including south-eastern and mid-Norway,

western Sweden and Denmark)

• Northeast Scotland, UK

When asked how to go about creating so called CO2 development organisations,

a Port of Rotterdam representative offered an interesting perspective. He notes

that the group (Port of Rotterdam, Gasunie, EBN) involved in the Rotterdam

CCS project came together “in a way as a natural joint venture partnership, since

it involves the parties that can bring something to the table and have the relevant

knowledge and expertise. The partners in the transport and storage project do

not necessarily think in terms of the [CDO] concept itself, even though it is what

they are doing.” In other words, a CDO, or a group of CDO’s can come together

naturally when strategic interests and expertise of actors are identified and

aligned.

The following section briefly reviews the concept of CO2 development

organisations and their role in developing CCS in Europe. An overview of

potential regional and national solutions is also provided.

10.5 Assessment of Structures

10.5.1 Review of Potential Regional and National Solutions

The EU has a number of large CO2 emission clusters that are near large CO2

storage formations. Given that transport infrastructure is likely to cross national

boundaries, once more emitters tap in, collaborative approaches will be that

much more important, (Zero Emissions Platform, 2016). There are now

encouraging signs that the concept of CO2 development organisations, as well

as CO2 hubs and clusters concepts are being picked up by CCS policy makers

in various parts of Europe. While solutions will depend on the national and

regional circumstances, this section reviews some of the existing, and potential

future, regional and national CO2 development organisation structures.

10.5.1.1 The Netherlands

The Dutch hydrocarbon exploration and production licenses are granted under

the condition of 40% state participation through EBN, a state-owned company

which invests in the exploration, extraction and storage of oil and gas on behalf

of the State. The State is a non-operating partner that generally holds a 40%

stake in operation and is considered as the natural candidate to be one of the

main CDO’s in the Netherlands. Responsibility for transport of oil and gas, on

the other hand, lies with Gasunie, another state-owned company. In respect to

the structure of a Dutch CDO, Gasunie and EBN could provide the backbone for

CCS in transport and storage infrastructure.

The Port of Rotterdam Authority, on the other hand, is a 30% state, 70%

municipality owned organisation that manages the Rotterdam port and industrial

area. For the purpose of CO2 capture, the industry is essentially organised and

can be represented as a whole by the Port of Rotterdam.



As they are government owned, EBN, Gasunie and the Port of Rotterdam

Authority are natural partners. In October 2017, the newly formed Dutch

Government announced a range of measures to reduce the Netherland’s

greenhouse gas emissions by 49%, versus 1990 levels, by 2030. One measure

commits the Netherlands to capturing and storing 18 million tonnes of industrial

CO2 emissions annually by 2030. Thus, the Dutch government aspires to

develop CCS quickly and on a large scale. In addition, the city of Rotterdam, as

a partial owner of the Port of Rotterdam Authority has an interest in providing for

the decarbonisation of the local, high emitting industry.

Recently, a new authority (Nexstep) was also established through collaboration

between EBN and NOGEPA (Netherlands Oil & Gas Exploration & Production

Association), an organisation which represents the oil and gas field operators.

The focus of Nexstep will be on the re-use and decommissioning of oil and gas

infrastructure. It has been shown that by re-using infrastructure, costs can be

saved on new pipelines and decommissioning activities. As such, the new

authority is also expected to play a role in the development of CO2 transport and

storage infrastructure in the Netherlands.

By providing field operators with contracts for CO2 offtake per unit of CO2 to fill

up certain wells completely, similar to depletion contracts on gas and oil wells,

it is expected that EBN would initially shoulder the costs of CO2 storage, at least

until a market develops. The capture side, however, is more problematic due to

the associated capital requirements and the fact the State has a limited interest

in the Port industry.

The Rotterdam CCS project

The Rotterdam CCS project could be set up as a PCI, making use of the benefits

from streamlined regulation and access to additional subsidies from the EU.

In the Netherlands, CO2 for EOR is not an option as there are mainly gas fields

available. Without this, the only current source of revenue would be in the

avoided emission rights costs which are not sufficient to make a CCS project

economically viable.

In this context, it is envisaged that the EBN would serve as the main CDO, being

100% state-owned, and holding 40% interest in hydrocarbon exploration and

production. In this respect, it is expected that EBN:

• takes on legal liability for CO2 storage, but also for failure to accept

CO2 from industry or deliver to CO2 to field operators;

• tasks operators with storage, payment through contracts to fill up

wells;

• pays industry for CO2 offtake per unit of CO2, with total contract size

to be equal to storage contracts. Contracts should be large enough

to justify the major part of investments for industry, (taking into

account emission rights prices).

On the other hand, Gasunie, also 100% state-owned, who maintains and

operates the transport grid would:

• operate the transport as usual, considering specific demands for

CO2 storage;

• develop new and/or repurpose old pipelines to develop the required

CO2 gathering infrastructure / network spine.

Port of Rotterdam, 30% state-owned and 70% owned by the city of Rotterdam,

manages the industrial Rotterdam area, and would as a CDO:

• organise local capture/gathering network spine;

• coordinate industry partners for efficiency/scale advantage;



• provide the gathering network spine as a ‘service’ for local industry.

In the future, the policy landscape will likely include higher emission rights prices

and/or otherwise stricter emission regulations. This would allow the EBN to

transition from a subsidised CDO into an operator on the enabled market, where

it would still provide guarantees for offtake and delivery, while the industry would

pay EBN to take the CO2, offset by avoided emission rights or other policies.

Depending on how CO2 capture is organised in Rotterdam, it may cause

conflicts in competition. If there is a mandate to force the industry to participate,

this might create a disadvantage for industry in Rotterdam compared to other

locations. If the conditions for participation are too favourable it is an advantage,

while future stricter regulations and higher carbon prices may exacerbate this

problem. This could be resolved by providing a national transport backbone with

options to participate but could exclude small industry locations or raise costs

for state operators. This can also be seen as an opportunity for the Port of

Rotterdam, to draw in more industry members.

Stakeholder perspectives

A good example of a potentially successful structure can be seen in the

development of the Port of Rotterdam project, where the Port of Rotterdam,

along with Gasunie and EBN is developing a full-chain CCS project with the aim

to develop a regional hub that will deliver the CO2 to be stored in empty gas

fields in the North Sea. All three of the entities can be considered so called

CDO’s and are playing a particular role in the development of the project.

When asked about the key aspects of the project, a representative from the Port

of Rotterdam Authority pointed out that there has been “good collaboration

within the industry…with 20+ firms getting on board or supporting the project.”

However, while the project is currently still in the feasibility study stages, what is

needed now is “good government collaboration…which can be achieved

through the signing of intention agreements between the government and

industry partners.” The representative then also noted that the key in building

CO2 transport and storage infrastructure, is “not to start too big…[and] to allow

it to grow over time.”

Indeed, within the Rotterdam CCS project structure, the Port of Rotterdam

Authority is a facilitator and a semi-state body that helps all industries in the port

region to develop and sustain itself. On the other hand, EBN is expected to be

designated by the State to hold the long term liability for the CO2, while Gasunie,

with their wide distribution of gas networks, is to provide their expertise in

transport infrastructure. All three entities are natural partners for the State

because they are state owned parties, and are natural partners for the CO2

capturers, because they deal with them on a constant basis when it comes to

gas infrastructure and other related matters. It is, as an interviewee from the

Port of Rotterdam pointed out, “a natural joint venture partnership. That is how

it comes about. It is parties that can bring something to the table and have the

expertise to deliver [the project].” In this respect, the interviewee also pointed

out that it is “the government that needs to lobby to create a so called coalition

of the willing. It has to provide for open access and to show that it is serious

about the role of CCS in the Netherlands.”

10.5.1.2 The UK

The 2016 Lord Oxburgh UK Parliamentary report, commissioned by the UK

Secretary of State for Business, Energy and Industrial Strategy (BEIS) regards

the use of state led CO2 development organisation as essential to enable the

lower cost decarbonisation for the UK, (Parliamentary Advisory Group, 2016b).

It recommends, for example, that to ensure least cost CCS is developed, a CCS

Delivery Company (CCSDC) is established that will initially be government



owned but could subsequently be privatised. The CCSDC would have the

responsibility to manage the full-chain risk and for progressive development of

infrastructure focused on industrial hubs. It would be comprised of two

companies, one tasked with delivering the anchor power projects at CCS hubs

(Power Company), and one with delivering transport and storage infrastructure

for all sources of CO2 at such hubs (Transport and Storage Company),

(Parliamentary Advisory Group, 2016b). The latter would take on the long-term

CO2 storage liability.


Speaking to a number of CCS stakeholders has shown that while a solution such

as CCSDC is a welcome step forward for CCS deployment in the UK, some

doubt or uncertainty was exhibited in regard to the role of Brexit.

10.5.1.3 Norway

Norway`s leading expertise in transport and storage of CO2 is provided and

owned by players and companies associated with the oil and gas activities on

the Norwegian continental shelf (NCS). For the Norwegian government, industry

participation is seen as critical in the development of a model for ownership and

operation of CO2 transport and storage infrastructure, (Regjeringen, 2011). The

advancement in the three large scale industrial CO2 capture projects (for

cement, ammonia and waste incineration) currently under consideration for

development has been enabled by the Norwegian government taking

responsibility for the development of shared CO2 transport and storage

infrastructure. This simplifies the commercial and organisational complexities for

each of the prospective capture projects which are considered to not only add

immense value for the development of CO2 capture technologies in Norway and

throughout the EU, but also to the development of shared transport and storage

infrastructure. In this respect, ensuring an accessible storage for CO2 will help

remove much of the counterparty risk and make an EU project much more likely.

The storage project is part of the Norwegian authorities’ efforts to develop full-

scale carbon capture and storage in Norway. It will capture CO2 from three

onshore industrial facilities in Eastern Norway and transport CO2 by ship from

the industrial areas to a receiving port on the west coast of Norway. At the port

CO2 will be pumped from the ship to tanks onshore, prior to being sent through

pipelines on the seabed to several injection wells at the Smeaheia structures on

the NCS.

Currently, the state-owned enterprise Gassnova, which reports to the Ministry

of Petroleum and Energy and receives its funding via the fiscal budget, plays

one of the leading roles in CCS development in Norway. In addition to focusing

on funding CCS Research & Development, it studies the possibility of full-scale

CCS, and serves as a technical advisor for the authorities and Norwegian

climate policymakers. Gassnova also plays a role in overseeing the planning of

infrastructure and offshore storage sites. It is likely that the ownership of the CO2

will have to be taken on by the designated state oil company (i.e. Equinor) but

with the understanding that it is the states’ responsibility should anything happen

with the volumes stored underground.

Petoro AS is another state-owned company, which manages the Norwegian

states’ direct financial interest (SDFI’s) in the oil and gas sector on the NCS; or

a third of the States’ oil and gas reserves and associated facilities, including

platforms and pipelines. It is also the licensee for the largest holding in the

transport system for the NCS waters and is essentially tasked with identifying

opportunities for boosting value creation of its assets, (Petoro, 2018).



It is important to note that Petoro AS currently does not play any role in CCS

development in Norway and has been set up by the Norwegian government as

a type of oversight organisation for the oil and gas sector in the NCS. However,

the Norwegian government could use Petoro AS as an enabler for CO2 for EOR,

and in re-using the existing offshore infrastructure, as well as a potential partial

storage license holder.

Lastly, Gassco, a state-owned operator responsible for gas transportation from

the NCS, already has experience with CCS projects, and is likely to play a

leading role in managing the re-use of existing infrastructure, in particular

offshore pipelines.


Norway has a long and complex history with CCS, beginning with the idea of

applying the technology as a way to reduce CO2 emissions from offshore

petroleum activities. It is important to acknowledge the political context, and

interactions within, which have played an important role, and will continue to do

so in the future of CCS in Norway, noted an interviewee from Gassnova. The

story is similar today. What remains clear is that the key way to realise a CO2

transport and storage infrastructure is via engagement from the state.

10.5.2 The Role of the State and State Aid Rules

Given the lack of a mature market, the importance of CCS projects to the

decarbonisation of the local and regional economies and the estimated high

upfront capital costs it is clear that special state-aid funding will be required.

Consequently, various state-aid rules are likely to apply.

One of the questions that emerge is the extent to which the CDO has to be

state-owned. A state, semi-state or primarily state capitalised private entity best

organises the provision of CO2 transport and storage network to a selected or

tendered CO2 emitter. This view emerges from the perspective that such an

organisation is not competing with the CO2 emitters. In addition, it has to be a

reputable company that can be trusted to do the right thing. In other words, given

that public financing is essential in this phase of infrastructure development,

commercial companies should not be perceived as being subsidised or seen as

making a profit from reducing CO2 for the society. In this respect, a state owned

CDO also provides for openness and transparency of the investment process.

To allow for the disentanglement along the CO2 capture, transport and storage

value chain, the presence of infrastructure to take CO2 away from industrial

sources will significantly reduce the commercial and organisational obstacles for

CO2 capture at industrial sites. In this way, the planned and strategic

development of CO2 transport and storage infrastructure is key. Therefore, CO2

development organisations are best suited to progress CCS deployment in line

with European decarbonisation pathways. This report argues that the use of

state led CO2 development organisations is not only essential but required to

enable the lowest cost decarbonisation of the industrial sectors in Europe.

CO2 transport and storage infrastructure investment, however, is materially

different to infrastructure investment in other sectors, with key differences being

in the existence of subsurface risk, extended project duration, alignment with

CO2 supply and an essentially non-existent market, (Pale Blue Dot Energy,

2018). As such, because developing transport and storage infrastructure is not

yet a commercial activity, the key remaining challenges (i.e. certainty of CO2

supply, cross-chain performance, uncapped leakage liability, allocation of risk),

are best dealt with through state owned CO2 development organisations.



10.5.2.1 The role of the state

Sooner or later, elongated economics will have to show where and how the

public money is being used and what the returns on the investment are. This is

done primarily with state owned companies, and preferably in the first 5, 10 or

15 years before entering into a mature commercial market that would truly

deliver the large scale deployment.

As a representative from Port of Rotterdam notes, “this is all about public-private

partnerships (PPP’s) between the state and the industry. It is about kick starting,

accelerating, and enabling the first development of CCS infrastructure and

decoupling cross-chain risks. [CDO’s] must be the drivers of the full-chain

project, which include having contracts with the capture, and transport and

storage providers that are secured for the lifetime of the project.” In order to bring

in the private sector and encourage investment in CCS infrastructure, some

extent of government funding will be required, (Deloitte, 2016). Interviews with

various stakeholders show that such funding would best be directed towards a

public sector entity, at least in the pre-FID (Financial Investment Decision) stage.

The scale of government involvement will ultimately depend upon the business

model preferred by the government, which can also change over time, as the

CCS market matures, (Pale Blue Dot Energy, 2018). Research has also shown

that a state-owned entity (CDO) is likely to be initially required to take over

operational liabilities as well, since, as a representative from Port of Rotterdam

suggested, “an operator who can do the operations [for the state] is unlikely to

take the liabilities for the CO2 volumes that are being stored in the years of

operation”.

10.5.2.2 State-aid rules

Financing of CCS transport and storage infrastructure projects using state

resources must be in accordance with the current financing solutions in relation

to EU competition rules. To prevent delays, a dialogue with the European Free

Trade Association (EFTA), and the European Commission are not only useful

but essentially required, (European Commission, 2014).

In a question to a representative from the Port of Rotterdam as to whether state

aid rules inhibit CCS development and deployment in any way, the respondent

noted that this is true to an extent and added that “is also a reason why private

companies should not start as CO2 development organisations.”

10.5.3 Practical Steps to the Formation of CO2 Development

Organisations

One of the disadvantages of decoupling the capture from transport and storage

is that the dependence on one another is still there. As one interviewee from

Gassnova pointed out, “you still need to take the FID together. It makes no sense

for the FID on the transport infrastructure to be taken if there is not a FID on the

capture side as well.”

As pointed out by a number of interviewees in this research, one of the largest

advantages of a CDO is that “it takes away the worries from the emitters for the

transport and storage”. In addition, a state owned CDO is also seen as more

independent, with the transport and storage infrastructure opened to all emitters.

In this way, a network is created which is open to whoever wants to supply its

captured CO2. With that, as an interviewee from Gassnova pointed out, “comes

the advantage that the public money can be more easily spent on the

infrastructure as opposed to by a privately owned emitter, for example”. In other



words, it is not one company that would otherwise benefit from the public money

for CCS, but instead there are multiple ones. In this way, “one is putting the state

money into an infrastructure that can grow. It is not just a one-off project that

gets locked in.” As concluded in the Business Case for the Teesside Collective

Industrial CCS Project, state funded infrastructure can better enable future

proofing through the oversizing of the initial gathering network spine through

modest additional capital investment, (Pale Blue Dot Energy, 2015).

It is difficult to provide practical step to formation of CDO’s, given the differences

in national and regional structures. Current experience in Europe, where CDO’s

are playing a role in developing CO2 transport and storage infrastructure (i.e.

Norway and Netherlands), shows that these CDO’s are existing, primarily state-

owned entities, with significant experience and history in CCS/CO2 transport

and/or storage. In addition, given that state aid rules have, to an extent, been

identified as inhibiting CCS developments in Europe to date, private companies

should not be given the tasks of a CDO.

10.5.3.1 Capital requirements

It is difficult to assess the capital requirements for CDO’s, given that these will

largely depend on the scope and the size of the entire project itself, including

the estimated volumes of CO2, the number of emitters, and the project’s lifetime.

CCS is not expensive, as one interviewee from Gassnova pointed out, but rather

capital intensive, meaning, while it may require large capital expenditure initially

to put the infrastructure in place, on a unit basis, in terms of CO2 avoidance,

especially once scaled-up, is not expensive at all, and, for example, could be

more cost effective than offshore wind in respect to abating industrial carbon

emissions.

It is likely that the government will have to contribute a significant amount to the

CDO who will then deliver the necessary contracts both with the CO2 supplier

and the transport and storage operator, in cases where this will not be done by

the CDO itself.

10.5.4 Managing Retention and Re-use of Existing Infrastructure

Developing CO2 transport and storage infrastructure will inevitably require

development of new pipelines, shipping facilities, offshore facilities, wells and

storage reservoirs. Nevertheless, the retention and re-use of existing

infrastructure, in particular pipelines, that are no longer required for petroleum

use could significantly decrease the financial cost of the Acorn project, and other

projects attached to the network.

The cost efficiency potential of retaining and re-using existing pipeline

infrastructure has been demonstrated. Although complex and dependent on the

commercial arrangements and technical feasibility, not preserving the existing

pipeline infrastructure at St Fergus (Atlantic, Goldeneye, MGS) could increase

the cost of CCS for Europe and decrease the Acorn project’s financial net

present value (FNPV) by €638 million (Pale Blue Dot Energy, 2017). There is

now a risk that many of the existing pipeline assets, given their time

bound/decommissioning nature, will be decommissioned. Indeed, this would

preclude the lowest cost CO2 transport and storage development, and

consequently increase the initial hurdle for CCS development and deployment

in Europe by raising the capital cost of replacement, in addition to the time

required for obtaining consent and construction.

Given the expected cost savings, it is expected that any kind of CO2

development organisation will, in its efforts to develop CCS transportation and



storage infrastructure, focus on the retention and re-use of existing infrastructure

where possible.

One of the largest cost elements in the CCS transport and storage chain are

offshore platforms. While their re-use could significantly reduce the cost of CCS

networks, this is highly platform specific and in-depth assessments require

commercially sensitive data, (BERR, 2007). Nevertheless, previous research as

part of the Acorn project has shown that, in early phase development, focus

should rather be on the retention and re-use of pipelines. See (BERR, 2007) for

an assessment and cost model of offshore platforms.

10.5.4.1 Timing is key


availability. While the favourable geology of the North Sea is not going to

change, the opportunities for re-using infrastructure are time-limited in nature,

and if not taken, could set CCS back by five to ten years, (Carbon Capture &

Storage Association, 2016a).

Assets, such as pipelines, platforms and/or wells, cannot be maintained in

perpetuity. Their re-use potential largely depends on the previous use, age and

condition, as well as on the monitoring and maintenance done, for example,

once their originally intended use has ceased. It is clear, however, that in the

absence of a business case for CO2 storage and clear policy signals on the

future market for CCS, no private sector developer would be willing to make the

necessary anticipatory investments in CCS infrastructure or retain their existing

infrastructure.

Any hopes of retaining the existing pipeline infrastructure will require both

government intervention and some form of compensation (i.e. tax credits,

removal of liabilities, etc.) to the infrastructure owners, (Carbon Capture &

Storage Association, 2016a). Owners and operators of pipelines, whose use is

not envisaged in the future, are likely to want to decommission their assets so

as to minimise the ongoing risks and costs associated with ownership and

maintenance.

In this respect, owners of the MGS pipeline, for example, have indicated that

unless a firm agreement is reached that would specify the time of taking over of

the asset, as well as clarify liability arrangements, the pipeline is very likely to

be decommissioned at the end of its Interim Pipeline Regime, which runs out in

2021. Given the potential of the MGS pipeline in delivering a CCS network, not

only in Scotland but for Europe as well, it is critical that this pipeline is preserved.

The profile of existing pipelines should be raised by CO2 development

organisations, as well as other stakeholders, with the relevant national and

regional authorities. This will improve their likelihood for preservation, including

reaching timely agreements on ownership and liability, and consequently reduce

the capital cost requirements.

The window of opportunity for the retention and re-use of existing infrastructure

is dependent on the ownership model used. The 2016 CCSA Report considered

four different options for retaining existing infrastructure for CCS projects,

(Carbon Capture & Storage Association, 2016a). Given the desk studies and

interviews performed as part of this study, it is believed that a form of public-

private partnership is the best suited option for retaining and maintaining the

existing infrastructure. In this case assets are transferred onto a CO2

development organisation which is a publicly owned entity (i.e. EBN in the

Netherlands), with the Government taking on all, or a large part of the risks

associated with that asset. Maintenance and modifications would be paid for by

the private sector in return for an appropriate compensation (i.e. tax deductions).



This choice is based on the presumption that future CO2 storage liabilities would

be owned/shared by the Government. The advantages of this option on the other

hand include:

• limited public capital investment;

• confidence in the medium term availability of assets due to public

ownership;

• ensuring assets are not lost and necessary investments are made in

infrastructure preservation/modification;

• improved public perception given the increased role of the

government.

See Section 11.0 (Annex 2) for the different options and their

advantages/disadvantages.

From speaking with a number of existing pipeline owners whose assets have

been considered for decommissioning, knowing when someone will take over

the responsibilities and liability for the assets is the single most important factor

in their consideration for decommissioning versus preservation. In this respect,

it is recommended that:

1. Existing pipeline ownership, in cases where the owner is not part of

the CO2 development organisation, is transferred onto the state (i.e.

via tax credits to the owner), with monitoring and maintenance

contracted to the private sector or member of the CO2 development

organisation;

2. The UK government comes to an agreement on preservation with

the owners of the three pipelines (Atlantic, Goldeneye, MGS) being

considered for re-use as part of the Acorn project, in particular the

30in 241km MGS pipeline which routes to within 10km of the

Norwegian median line and major oilfields in the UK and Norway.

10.5.5 Preferred Structure

In an assessment of various models for organising ownership, development and

operation for transport and storage of CO2 by the Norwegian State enterprise

Gassnova, it was found that the country`s leading expertise in transport and

storage of CO2 was owned by players and companies associated with oil and

gas activities on the Norwegian continental shelf (i.e. Equinor). For the

Norwegian government, industry participation is an ambition in the development

of a model for ownership and operation, (Regjeringen, 2011). In 2017 a storage

license (to perform more detailed conceptual and pre-project studies for CO2

storage) was awarded a partnership consisting of Equinor, Total and Shell. The

onshore project planning (site preparation and marine structures) of a port and

infrastructure facility, is contracted by Equinor, but Gassnova has the overall

responsibility for realising the government's ambition for a full-scale

demonstration project.

In public private partnership (PPP) both the state (often represented by a state

owned enterprise) and one or several private companies carry the responsibility

for realising full-scale CO2 capture, transport and storage, but the parties' roles

and contributions to these are different. The government's contribution is mainly

to finance and quality control. The government has a supervisory responsibility,

while the private partners would be project conducts. A state owned entity would

exercise the rights of the state and fulfil the state’s obligations under an

agreement. Furthermore, CO2 development organisations, which are primarily

state owned, are best suited for the development of CO2 transport and storage

infrastructure, not only because of transparency reasons and requirements, but



also because of the state aid funding requirements, in light of high initial

necessary capital investment.

10.6 Conclusions

CO2 Development Organisation(s)

1. CO2 development organisations reduce the costs and risks of industrial

deep decarbonisation, by addressing many of the structural market failures

that are currently hindering CO2 capture, transport and storage

development. In particular they:

• Address the coordination barrier in developing CO2 storage and CO2

capture, through providing a platform for central planning, thereby

giving certainty to both CO2 transport and storage developers that

CO2 will be captured, and certainty of storage to an industrial CO2

capture operator;

• Provide a degree of policy certainty to emitters of decarbonisation


• Provide foresight in planning and deployment of CO2 transport

infrastructure, and allow for network expansion in line with regional

industrial decarbonisation plans;

• Can reduce some aspects of commercial risks of CO2 storage by

limiting liabilities for CO2 storage providers;

• Can act to preserve useful retiring infrastructure (i.e. pipelines)

scheduled for decommissioning, and thereby reduce costs and

accelerate network capacity expansion.

2. Coordinated planning, through a CO2 development organisation, at least for

initial CO2 infrastructure, will provide the greatest utility to a broad set of

industrial users at the lowest societal cost. This would significantly reduce

the upfront cost of decarbonisation in the areas served, thus enabling the

greatest decarbonisation of existing sources and attracting new low-carbon

business.

3. There is no one single business model that could be applied to development

of CO2 transport and storage infrastructure in Europe, and different models

are effective for different stages of development.

4. From a commercial structure perspective, it is clear that a form of joint public-

private arrangement is required, where a state-owned entity would hold the

long term liability for the CO2, at least for initial projects with significant

buildout potential. Such an arrangement is best suited for development of

CO2 transport and storage infrastructure.

5. State owned companies as CDO’s are more easily trusted by the civil society

for developing such CCS infrastructure.

Retention and re-use of existing infrastructure

1. Managing and retaining existing infrastructure, in particular offshore

pipelines, is dependent on addressing the issue of ongoing costs and risks

associated with ownership of those assets. In this respect CO2 development

organisations can play a role by taking over the ownership of the asset.

2. Governments should work with existing CO2 transport and storage asset

owners to discourage rapid decommissioning of the infrastructure and

provide incentives to encourage re-use for CCS.

3. Preserving existing oil and gas infrastructure is essential as it offers

significant cost savings and value add to any CCS project.



4. The key issue with re-using pipelines for CO2 transport remains their timely

availability. As such, pipelines which are (soon) to be decommissioned

should be prioritised and efforts made for their preservation.

5. Given its importance to the Acorn project, and development of a European

CCS transportation network, it is recommended that extensive efforts be

made to preserve the MGS pipeline. If no agreement is reached on its

preservation at the end of the IPR in 2021, the pipeline is likely to be

decommissioned by its owner.

D10 Policy Options Annex 2: Ownership Models for Infrastructure Preservation


11.0 Annex 2: Ownership Models for Infrastructure Preservation

Option 1 Public Ownership, Private Service Provider

Description

Government purchases assets and contracts a service provider to conduct any necessary works. In the short term this is likely to be maintenance and minor modifications but in the longer term this could extend to injection and operation of the store.

Advantages Disadvantages

• Infrastructure could be transferred into public ownership subject to the necessary commercial negotiations

• Projects have confidence in the medium term availability of assets due to public ownership

• Maintenance is assured through competitive procurement for service contracts

• Relatively simple public procurement exercise

• Requires public funding to cover maintenance

• Require Government taking on residual and ongoing risks associated with existing facilities

• Government purchase of offshore assets could constitute State aid and there is therefore a need to explore the full implications of this model.

Option 2 Continuation of Current Private Ownership with Public Funding

Description

Current owners of the infrastructure delay decommissioning of the wells and facilities and are compensated by Government for all maintenance and modification costs. Any cost increases between now and future decommissioning would necessarily be covered by Government.


• Helps to build/retain private sector interest in CO2 storage as a potential commercial proposition

• Current Owner/Operator is compensated appropriately and not commercially disadvantaged at all

• Requires public funding to cover maintenance and acceptance on the part of Government to take on board a limited amount of risk.

• Government investment in offshore assets could constitute State aid and, as above, there is therefore a need to assess whether this presents a barrier to this model.

• Would require a deeper analysis of any procurement/state aid issues

D10 Policy Options Annex 2: Ownership Models for Infrastructure Preservation


Option 3 Third Party Purchase

Description

A third party with strategic interest in CCS but not a commercial entity, e.g. the Green Investment Bank, purchases the assets and takes on all ongoing costs and liabilities with a view to the future CCS commercial opportunity.


• Would require no public funding

• Minimal Government intervention

• Relatively simple commercial transaction

• Would require longer term strategic thinking from the third party and a willingness to accept significant costs/risks without any foresight of future revenues.

• Likely to be major difficulties in attracting interest from third parties.

Source: CCSA, 2016.

Option 4 Public Private Partnership (Public Ownership, Private Investment)

Description

Assets are transferred into public ownership and Government takes on all risks associated with that. Any necessary investments in maintenance and minor modifications are paid for by the private sector in return for first refusal on operating the store in the future. Private investment would need to be incentivised, e.g. by making investments in Government owned stores tax deductible.


• Ensures assets are not lost and necessary investments are made in infrastructure preservation/modification.

• Current Owner/Operator is compensated appropriately and not commercially disadvantaged at all.

• Requires very limited public capital investment.

• Projects have confidence in the medium term availability of assets due to public ownership.

• Creates an incentive for private investment in assets.

• Requires all risks associated with ownership and decommissioning to be taken on by the Government.

• Presumption that future CO2 storage liabilities would also be owned/shared by Government.

• Could entail complex procurement process.

D10 Policy Options Annex 3: Liability Management in CO2 Transport & Storage Networks


12.0 Annex 3: Liability Management in CO2 Transport & Storage Networks

12.1 Objectives

The purpose of this research is to inform regional and national governments of

the liabilities and potential future costs that may be transferred to state

supported CO2 development organisations.

The scope includes the following aspects:

• Mapping of liabilities, probability and scale of costs in CO2 transport

and Storage networks (Captain X example)

• Assessment of the potential of CO2 development organisation to

reduce liabilities

12.2 Sources of Risk and Liability

In general, the risk to a company arising from the possibility of liability for

damages resulting from the purchase, ownership, or use of a good or service

offered by that company is known as liability risk. For CO2 storage projects,

liability risk can be identified and mitigated through careful site selection,

development design and operational monitoring, but may also be inherent in the

nature of the geological site to some extent.

Liability is the state of being legally responsible for something (Oxford University

Press, 2017). In the context of CO2 storage activity to reduce CO2 emissions,

the liability is to contain the CO2 within a defined geological space. The precise

nature of the liability may vary according to jurisdiction. Given that this ACT

Project is centred around the Acorn ICCS project in north east Scotland, this

paper is focused mostly upon the European region but will occasionally draw

examples from other jurisdictions. In the European region the liabilities for CO2

storage are specified in what is known as the CCS Directive and is more

formally, Directive 2009/31/EC on the Geological Storage of Carbon Dioxide

(European Commission, 2009). The four supporting guidance documents

provide additional detail as summarised below.

• GD1: Lifecycle Risk Management

• GC2: Site Characterisation

• GD3: Transfer of Responsibility

• GD4: Financial Security and Financial Mechanism

The liability risk for CO2 storage developments can be considered to have two

major temporal components, linked to the primary activity of the project phase:

• Operational: the risks associated with the transport, injection and

storage of CO2.

• Post closure: the risks associated with the storage of CO2 once the

injection phase has finished. This phase has two sub-elements;

before and after transfer of responsibility to the Competent Authority

(CA).

During each of these phases five major categories of risk have been identified

(M de Figueiredo, 2006) and the consequence of any risk event will be

dependent upon the specific circumstances. The five areas of risk are:

• Toxicological

• Environmental

• Induced Seismicity



• Subsurface Trespass

• Climate

The elements of a CO2 transport and storage project are illustrated in Figure

12-1.

Figure 12-1: CO2 Transport and Storage Activity (Source: CO2DeepStore)

12.3 Examples of Risk Events

There are risks in a CO2 transportation and storage project. Table 12-1 provides

some examples of the sort of event that could occur in each of the five risk

categories according to project phase and is not intended to be an exhaustive

list of risk events.



Risk Category Impact

Example Risk Events by Project Phase

Operational Post Closure

Toxicological Local Leak from part of the equipment system that results in a large, concentrated release of CO2 in close proximity to life

Leak from the geological store that results in a large, concentrated release of CO2 in close proximity to life

Environmental Local Contamination of ground water from a pipeline leak

Degradation of an ecosystem due to acidification due to CO2 mixing with groundwater

Leak from the geological store that reaches the seabed

Induced Seismicity

Local Injection of CO2 increases pore pressure to such an extent that it creates seismic activity that causes damage

As in the operational phase although much less likely in this phase

Subsurface Trespass

Local Movement of the CO2 plume into subsurface space licenced/owned/permitted by another party. This may just be an increase in pore pressure or could be an interaction of the injected CO2 with the insitu fluids

As in the operational phase

Climate Global Leak from equipment or the geological store that reaches the atmosphere Leak from the geological store that reaches the atmosphere

Table 12-1: Examples of Risks during the Project Lifecycle

The risks outlined in Table 12-1 are extremely low probability events. The

impacts related to the release of stored CO2 can be classed as either local or

global (IPPC, 2005), as highlighted in Table 12-1, and it is the latter class of risk

that leads to the greater liabilities, particularly within Europe.

Article 1 of the CCS Directive (European Commission, 2009) states that the

purpose of the directive is to provide a legal framework for the environmentally

safe geological storage of CO2 to contribute to the fight against climate change.

Article 1 also provides the following definition:

“The purpose of environmentally safe geological storage of CO2 is

permanent containment of CO2 in such a way as to prevent and, where this

is not possible, eliminate as far as possible negative effects and any risk

to the environment and human health.”

The risks and liabilities accruing to a CO2 store operator in Europe are therefore

very much focussed on the global impact of a release of stored CO2 and the rest

of this paper concentrates on those issues.

Figure 12-2 is extracted from Guidance Document 1 (European Commission,

2011) and illustrates the main activities associated with the six phases of a

project. For the purpose of this paper, Phases 1-4 are considered to be

Operational and Phase 5 and 6 are Post Closure.



Figure 12-2: Key activities through the Project Lifecycle (Source: GD1)



12.4 Participants in CO2 Transport and Storage

Projects

There may be many stakeholders and participants in a CO2 transport and

storage project. One illustration of these parties is provided as Figure 12-3 from

which it is can be implied that finding a mutually acceptable allocation of risk and

liability is likely to be complex.

Figure 12-3: CO2 Storage Stakeholders

12.5 Key risks

CO2 storage infrastructure has unique project lifetime attributes when compared

with capture and transport. This includes the need for potentially lengthy and

costly appraisal activity prior to final investment decision (FID) for the scheme,

and the need for post-injection monitoring of the store after CO2 injection (and

therefore income) has ceased. Figure 12-4 is adapted from earlier work (Zero

Emissions Platform, 2014), and shows the relative timeline and expenditure for

CO2 capture, transport and storage, highlighting the far greater duration of the

storage project lifetime.

Figure 12-4: Cash flow timelines for CO2 capture, transport and storage (Source: ZEP)

Transport and storage activities have very different technical and economic

characteristics to capture activities. The likely operators of capture plant may

also have markedly different, risk appetite and balance sheet capabilities to

likely CO2 transport and storage operators.

These factors give rise to specific issues which must be addressed in the

development of CO2 T&S infrastructure, including consideration of the

commercial model to support early and long-term costs and revenue flow, that

achieves best value for money. Six common areas of risk which hinder

development of CO2 T&S infrastructure are listed below.



1. Uncertainty of CO2 supply;

2. Uncapped CO2 leakage liability;

3. Cross-chain performance;

4. Risk appetite incompatibility;

5. Change of law; and

6. Policy uncertainty

Uncertainty of CO2 supply. This can also be referred to as “volume risk” or

“stranded asset risk”. The current absence of a CO2 supply for storage means

there is no clear service revenue for initial T&S operators. The risk that T&S

infrastructure would be built, with only some of the capacity being used and

resulting in a stranded asset, deters speculative investment and development.

This becomes more pronounced for larger capacity infrastructure schemes

(which offer greater potential economies of scale). This area of risk can become

a circular problem in that the investment decisions regarding T&S infrastructure

assets and the generation and capture assets are concurrent and

interdependent. It is an aspect of cross-chain risk and as such is not addressed

further in this paper.

Uncapped CO2 leakage liabilities. This risk occurs because currently there is

no cap on leakage liabilities under the CCS Directive. Any leakage from the store

at any future point in time would require repayment of EUAs (European Union

Allowance certificates), the future price of which is not known. Despite the

licencing process and permit conditions meaning leakage can be expected to

be very unlikely, the associated liability is potentially large. The risk is

characterised as low likelihood but large impact and is consequently difficult to

manage. The lifetime of the store and duration of the post-closure monitoring

required before this liability transfers to Government are unfixed. Being

uncapped and of unfixed duration, this risk is currently uninsurable and creates

difficulties in making projects financeable.

Cross-chain performance. Sometimes referred to as “cross-chain funding risk”

or “revenue flow risk”, this is the risk that during operation, the revenue for a CO2

T&S infrastructure provider could be reduced by interruptions to the CO2 supply

and that the T&S operator would be obliged to guarantee levels of performance

to the capture project(s) since capture project revenue is also dependent upon

the availability of T&S services. Given the high level of interaction between the

CO2 supplier and the CO2 Store Operator (during planning, development,

construction and operation) cross-chain risk is clearly a multi-faceted issue.

Cross-chain risk is very situation specific and consequently is not addressed

further in this paper.

Risk allocation. Early CCS developers may have the opportunity to agree risk

sharing arrangements with Government. The ability to allocate risk will be

affected by risk appetite and risk management capability of the developer, which

in turn will be driven by the risk appetite, risk management capability and rates

of return required by individual consortium members. This presents a risk that

risk-share terms sought by the developer and government are incompatible.

Change in law. Whilst not unique to CCS, a change in law would potentially

expose CCS projects to greater cost or reduced revenue. Whilst different

business models may address potential change in law in different ways, this risk

is not considered likely to initially drive the choice of business model, and as

such change in law risk is not addressed further in this paper.

Policy uncertainty. Whilst not unique to CCS, the industry considers policy

uncertainty in connection with CCS is a key risk. This was exacerbated by the

UK Government’s November 2015 decision to withdraw capital support to the



CCS Commercialisation Competition, which was interpreted by industry as

evidence that Government no longer viewed CCS as core to the UKs

decarbonisation programme (Capture Power Ltd., 2016). However, whilst a

clear and consistent CCS policy is required to enable CCS, this risk is not

considered to be affected by the nature of the business model and is therefore

not addressed further in this paper.

12.6 CO2 Leakage Liabilities

The major risk and resulting liability to be considered is that of CO2 leakage.

Guidance Document 4 (European Commission, 2011) of the CCS Directive is

key to understanding this issue.

By way of example, Table 12-2 shows the estimated cost of the financial

securities required for the Captain X Storage Development Plan and Budget

(SDP) prepared as part of the Strategic UK CO2 Storage Appraisal Project (Pale

Blue Dot Energy, Axis Well Technology, Costain, 2015). Guidance Document 4

commentary is included in Table 12-2 which also draws on a report published in

2013 on the permitting process for the Maasvlakte CCS project (ROAD, 2013).



Elements of CCS Directive Security (£m) Assumptions GD4 Commentary

Operations

1. Monitoring 12.8 25% contingency

Monitoring, updates of monitoring

plan, and required reports of

monitoring results

2. Update of corrective measures plan 2.0 £100K annually

Updates of corrective measures

plan, and implementing corrective

measures, including measures

related to the protection of human

health

3. Emissions allowances 4.5

£75/T penalty for exceeded

emissions, Assumed leak

0.1%/year of cumulative

quantity

Surrender of allowances for any

emissions from the site, including

leakages, pursuant to the EU ETS

(Emissions Trading System)

Directive

4. Update of post closure plan 2.0 £100K annually Update of provisional post closure

plan

5. Injection operation until new storage permit is issued 83.4 25% contingency of opex

Maintaining injection operations

by the Competent Authority (CA)-

-- until new storage permit is

issued, if storage permit is

withdrawn, including CO2

composition analysis, risk

assessment and registration, and

required reports of CO2 streams

delivered and injected.

Post Closure

6. Monitoring 0.0 25% contingency

Monitoring, updates of monitoring

plan, and required reports of

monitoring results



7. Update of corrective measures plan 2.0 £100K annually

Updates of corrective measures

plan, and implementing corrective

measures, including measures

related to the protection of human

health

8. Emissions allowances 22.5

£75/T penalty for exceeded

emissions, Assumed single

leak 1% of total

Surrender of allowances for any

emissions from the site, including

leakages, pursuant to ETS

Directive

9. Decommissioning 46.8 25% contingency Sealing the storage site and

removing injection facilities

10. Financial Contribution 31.5 10 times the annual cost of

monitoring

Making required financial

contribution (FC) available to the

CA

Total 207.5

Table 12-2: Financial Security for CO2 Storage

It is very clear from the CCS Directive and associated guidance documents that

the responsibility and liability for the environmentally safe geological storage of

CO2 resides with the Store Operator. The most significant items from a risk and

uncertainty are those numbered 3, 8 and 10 in Table 12-2 and in particular items

3 and 8.

Calculating the financial security requires an estimate of the size of a potential

release of CO2 from the geological store, the point in time at which this occurs

and the price of the EUAs at that point in time. None of these are knowable in

advance and give rise to the major concern in the private sector of the

unknowable and uncapped nature of this particular liability.

12.7 Conclusions

1. The liabilities associated with the geological storage of CO2 are well known

but poorly understood and can vary across different jurisdictions.

2. Within Europe, the CCS Directive and associated guidance documents

clearly define the purpose of CCS as being for climate mitigation through CO2

emission reduction and that the Directive is intended to ensure the

environmentally safe geological storage of CO2.

3. Within Europe, the major liability for Store Operators in this jurisdiction is a

release of CO2 from the store.

4. The scale and likelihood of this liability is unknowable and currently

uncapped.

D10 Policy Options Annex 4: Pipeline Database


13.0 Annex 4: Pipeline Database

A pipeline asset register covering offshore pipelines in the UK, Netherlands and

Norway has been compiled using open source available data as of April 2018.

This is an initial database and is not a complete list of all pipelines that may be

available for re-use now or in the future. The database is supplied separately as

a Microsoft Excel file titled “ACT Acorn Policy Options Report – Annex 4 Pipeline

Database.xls”

Documents

Project: ACT Acorn Feasibility Study Acorn...Platform, 2015). In this respect, CO 2 development organisations (CDO’s), in the form of state backed/owned companies, may offer the