Project: ACT Acorn Feasibility Study
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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
PBDE Estimate based on ETI Strategic UK CO2 Storage Appraisal Project pipeline norms
Miller Gas System Pipeline Value for Opex Calculation
347 €m
PBDE Estimate based on ETI Strategic UK CO2 Storage Appraisal Project pipeline norms
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.
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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,
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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)
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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,
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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
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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)
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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)
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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.
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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
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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;
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• 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.
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.
Further information on options for CO2 transport and storage operator
ownership can be found in Annex 1.
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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.
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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.
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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
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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.
European Commission. (2011). Guidance Document 2 for Implemenation of
Directive 2009/31/EC on the Geological Storage of Carbon Dioxide:
Characterisation of the Storage Complex, CO2 Stream Compositon,
Monitoring & Corrective Measures. Brussels.
European Commission. (2011). Guidance Document 3 for Implemenation of
Directive 2009/31/EC on the Geological Storage of Carbon Dioxide:
Criteria for Transfer of REsponsiblity to the Competent Authority.
Brussles.
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European Commission. (2011). Guidance Document 4 for Implemenation of
Directive 2009/31/EC on the Geological Storage of Carbon Dioxide:
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/
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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.
Zero Emissions Platform. (2014). Business Models for Commercial CO2
Transport and Storage. Zero Emissions Platform.
Zero Emissions Platform. (2015). An Executable Plan for Enabling CCS in
Europe. ZEP.
Zero Emissions Platform. (2016). Identifying and Developing European CCS
Hubs. ZEP.
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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
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ACT Acorn Consortium Page 43 of 71
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.
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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
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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.
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• 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
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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
requirements and timelines;
• 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.
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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.
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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.
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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;
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• 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
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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.
Stakeholder perspectives
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).
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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.
Stakeholder perspectives
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.
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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
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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
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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
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, (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).
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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
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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
requirements and timelines;
• 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.
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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.
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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.
Advantages Disadvantages
• 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
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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.
Advantages Disadvantages
• 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.
Advantages Disadvantages
• 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.
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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
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• 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.
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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.
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Figure 12-2: Key activities through the Project Lifecycle (Source: GD1)
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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.
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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
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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).
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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
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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.
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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”