Transport and storage economics of CCS networks in The Netherlands

Webinar – 4 June 2013, 1730 AEST

Ernst Menten

Ernst is a Project Manager for Deltalinqs Energy Forum and has been involved in the field of CCS since 2010.

In this role, he has been the RCI’s project leader for this study on CO2 Transport and Storage Economics of CCS Networks in the Netherlands (2012) as well as for the Independent Storage Assessment (2010-2011), which identified the most appropriate short and long-term CO2 storage options in the Dutch Continental Shelf.

Ernst holds degrees in Environmental & Medical Biology and has had a long career in the field of climate change mitigation.

Rotterdam Climate Initiative / Deltalinqs

Tatiana Zervos

Tatiana is a Project Manager in the Clean Energy team at the Clinton Climate Initiative, focusing primarily on CCS in Europe and China.

Under CCI’s Memorandum of Understanding with the Rotterdam Climate Initiative, she has been advising the RCI and working closely with all major emitters considering CCS projects in the Netherlands towards the planning of a CCS network and has led the financial modelling for this report.

She is also involved in CCS and more general climate finance issues including through the CCUS Action Group and the UK’s Capital Markets Climate Initiative.

Tatiana holds an MA in Economics and Management from the University of Oxford and prior to joining CCI in 2010, was an Associate in the Investment Banking division at BofA Merrill Lynch in London.

Clean Energy, Clinton Climate Initiative

Daniël Loeve

Daniël is a Research Scientist for the Petroleum Geosciences team at TNO.

He has been working in the E&P industry for five years and has a particular interest in reservoir engineering, assisted history matching and CO2 storage.  

He is involved in several European projects (e.g ECCO, COCATE, SITECHAR) and national studies (CATO2) related to CO2 storage and transport. These studies include storage capacity estimation, CO2 monitoring and related chemical and geo-mechanical analyses.

Daniel was a member of the developer team of the ECCO tool, which is an economic evaluation tool of CO2 storage projects. Specifically, Daniel was responsible for the cost estimates and the modeling of the different CCS infrastructure in the North Sea built into the ECCO tool.

Petroleum Geosciences, TNO

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TRANSPORT AND STORAGE ECONOMICS OF CCS NETWORKS

Global CCS Institute Webinar

4 June 2013

Contributors• Rotterdam Climate Initiative• CATO-2• Stichting Borg• Antwerp Portauthority• Shell• Global CCS Institute

Project Delivery Team• Rotterdam Climate Initiative - Ernst Menten (Deltalinqs)• Clinton Climate Initiative (CCI) - Tatiana Zervos• CATO-2

• TNO - Daniël Loeve, Filip Neele• ECOFYS - Chris Hendriks, Joris Koornneef

AGENDA

• OBJECTIVES AND ORGANISATION

• SCENARIOS, DATA COLLECTION AND COSTING

• FINANCIAL MODEL

• KEY TAKEAWAYS

• Q&A

7

OBJECTIVES AND ORGANISATION

8

TRANSPORT AND STORAGE ECONOMICS OF CCS NETWORKS IN THE NETHERLANDS AND ANTWERP

Objectives & Organisation

9

• We saw that a number of industry-led initiatives were planning for large scale demonstration projects

• Businesses developed a vision for commercial deployment of CO2-transport based on common-user networks, including other regions

• Second round NER 300 was in planning so companies needed to take short term and high level decisions on design and specifications of CO2 offtake infrastructure

• Opportunity to collectively evaluate alternative pathways because of the existence of the ISA Steering Group represents all major emitters most committed to exploring the potential of CCS on a commercial basis and is best placed to drive credible analysis

• Provide a “planning tool” (excel-based), allowing Steering Group members, and CCS developers in general, to form a common view of the costs and risks drivers of CO2 transport and storage options on a shared basis

• Identify near-term actions to enhance the feasibility of CCS projects and facilitate the necessary strategic and commercial discussions with one another and external parties, including government and transport and storage operators

RATIONALE for the PROJECT

OBJECTIVES

PROJECT ORGANISATIONObjectives & Organisation

10

1

• Developed based on offshore storage options most likely to support capture projects in the short (2015) and medium (2020+) term. Both ship and pipeline transport considered

• Phase 1: Dutch Continental Shelf (P18, P15, Q1) and EOR opportunity in Denmark – NL emitters• Phase 2: Q1, UK (CNS, Captain Sandstone) and Norway (Utsira) – NL & Antwerp emitters

DEFINITION of T&S SCENARIOS(SG, RCI/CCI)

• Existing publicly available information, as well as direct input from project developers• Detailed injection profiles developed for all storage options (exc. EOR)• Technical parameters (e.g.: routes, dimensions, pressure requirements) and cost inputs integrated into

ECCO tool to produce detailed cost timeseries

DATA COLLECTION & COSTING (CATO-2)

• Fully dynamic, excel-based discounted cash flow (DCF) model• Integrates CAPEX and OPEX timeseries produced by the ECCO tool for each scenario• Determines overall cost and risk/reward profile of each scenario, given certain changeable assumptions

CONFIDENTIALFINANCIAL MODEL (CCI)

• Aim to identify the most important cost drivers• Base case results (total and per unit costs to the user emitters, cash flows and resulting rates of return for

operators) and sensitivities on isolated cost drivers (e.g.: capture scenarios, financing mix/cost)RESULTS & CONCLUSIONS (ALL)

• Knowledge sharing report and public model for the benefit of other regions considering CCS networks• Engagement with key stakeholders (e.g.: government and potential operators) on the conclusions,

implications and strategic questions raised by the analysis

KNOWLEDGE SHARING & ENGAGEMENT (ALL)

2

3

4

5

SCENARIOS, DATA COLLECTION AND COSTING

11

OVERVIEW OF TRANSPORT AND STORAGE SCENARIOS

12

[ ] Storage Option Type & Capacity Off. Transport CO2 Sources Rationale

P18 / P15 (NL)Dep. Gas Field

~79MtCO2Pipeline Rotterdam

Under consideration by the ROAD and Green Hydrogen projects in the Netherlands

Dan Oilfield EOR (D)

Dep. Oil Field ShippingRotterdam FS

Eemshaven FSUnder consideration by the Green Hydrogen project in the Netherlands

Q1 (NL)Aquifer

~200MtCO2PipelineShipping

Rotterdam FSEemshaven

Antwerp

Most promising medium term site in the Dutch Continental Shelf as per ISA Phase 3 and EBN/ Gasunie

Bunter Aquifer (South. North Sea, UK)

Aquifer[>2,000MtCO2]

PipelineShipping

Rotterdam FSAntwerp

UK

Likely storage option for future CCS projects in the Yorkshire and Humber area

Captain Sandstone Aquifer (UK)

Aquifer[>360MtCO2]

ShippingPipeline

Rotterdam FSAntwerp

Eemshaven FSUK

Identified as one of the most promising CO2 storage sites in the Northern North Sea by CCS stakeholders in Scotland

Utsira Sandstone (NO)

Aquifer[>20Gt]

ShippingEemshaven FSOther North Sea

Currently used for storage of CO2 separated from natural gas produced at the Sleipner field

Phas

e 1

Phas

e 2

Scenarios, Data Collection & Costing

MODE OF TRANSPORT AND ROUTE SELECTIONScenarios, Data Collection &

Costing

13

YH Hub

UK SNS Aquifer

Selby

Pipeline from Rotterdam and Antwerp

Bunter (Southern North Sea)

• What is the most efficient type of transport to the UK?

• In defining the scenarios we had to find an answer to these type of questions. This was done with the help of the ECCO Tool

SHIPPING VS. PIPELINE COSTSScenarios, Data Collection &

Costing

14

Shipping is especially cost effective for longer distances

Shipping is also more cost effective for shorter distances, given smaller CO2 volumes transported

• Once the design of each scenario was set, the next step was to break down the transport and storage infrastructure into segments, determine the technical parameters, identify and collect any missing data and calculate the costs

(Onshore ~82km; 1MtCO2/yr)

Shipping (~256km)

Q1 Aquifer(200MtCO2)

New offshore pipeline (~110km, 10MtCO2/yr)

Shipping in demo phase and pipeline in full scale (~219km, 5MtCO2/yr)

RTM Hub

(1km; 4.5MtCO2/yr)

(1km; 4.5MtCO2/yr)

Onshore RTM Collection Network

(~33km)ANTWERP Demos High

ShipTerminal

ROTTERDAM

EEMSHAVEN

A

B

AN EXAMPLE SCENARIO – INTRODUCING CHAIN UNITSScenarios, Data Collection &

Costing

15

Rotterdam FS #1

Rotterdam FS #2

North Netherlands #1Demo & FS

North Netherlands #2Demo & FS

DATA COLLECTION AND COST PREPARATIONScenarios, Data Collection &

Costing

16

• The CATO team collected and reviewed all relevant existing data from public sources and confidential reports available to the SG (e.g. ISA I, II, III ). The team also held one-on-one meetings with certain SG members and other participants to clarify questions.

• The technical parameters (e.g.: routes and dimensions, pressure requirements etc.) and associated headline costs for each of the scenarios were then incorporated into the ECCO Tool to develop CAPEX and OPEX timeseries for each chain unit / infrastructure segment. Once available, the timeseries were integrated into the financial model.

Example of a typical ECCO Tool Input file for a pipeline chain unit.

Example of a typical ECCO Tool Output file for a pipeline chain unit, used by the financial model

Detailed output: Pipeline_1CAPEX Related Custom Output 2012-Jan 2012-Jul 2013-Jan 2013-Jul 2014-Jan 2014-Jul 2015-Jan 2015-Jul 2016-Jan 2016-JulTotal Capex - - - - (32.87) (33.42) - - - - Total costs for onshore pipelines - - - - - - - - - - Total costs for onshore pipelines + Additional costs for offshore part - - - - - - - - - - Default cost for pumping - - - - - - - - - - Costs for crossing (overhead) + Umbilical - - - - - - - - - -

OPEX Related Custom Output 2012-Jan 2012-Jul 2013-Jan 2013-Jul 2014-Jan 2014-Jul 2015-Jan 2015-Jul 2016-Jan 2016-JulTotal opex - - - - - - (0.11) (0.12) (0.12) (0.12)Fixed opex - - - - - - (0.11) (0.12) (0.12) (0.12)Variable opex - - - - - - - - - -

CO2 transported related output 2012-Jan 2012-Jul 2013-Jan 2013-Jul 2014-Jan 2014-Jul 2015-Jan 2015-Jul 2016-Jan 2016-JulCO2 transported in each period Mtonne in each period - - - - - - 0.55 0.55 0.55 0.55

Operational datesYear when the pipeline becomes operational 2015 - - - - - - - - - Year when the pipeline cease the operation 2020 - - - - - - - - -

CAPEX, OPEX, CO2 T/Put Timeseries & Key operational dates

Costings & indexation

Terrain (on/off shore), crossings, material

Size, length, pressure

Pipeline route

FINANCIAL MODEL

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CONFIDENTIAL FINANCIAL MODEL STRUCTUREFinancial Model

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CONFIDENTIAL FINANCIAL MODEL(Discounted Cash Flow)

Technical Parameters and

Cost Data(ECCO Tool Outputs)

UNIT AND TOTAL COSTS

OPERATOR FINANCIAL

STATEMENTS

INDICATIVE TARIFFS to EMITTERS

Aggregated intoProvide

Service to

Financing AssumptionsTariff Structures

Macro Assumptions

CO2 Volumes Timing of Operations

KEY INPUTS

INDIVIDUAL CHAIN UNITS T&S OPERATORS EMITTERS / CO2 SOURCES

KEY OUTPUTS

RTM Onshore CN

Pipelines

RTM-Q1 Offshore

Pipeline

NNL Onshore CN

Pipelines

NNL-Q1 Offshore

Pipeline

Total Throughput 121.50 MtCO2 121.50 MtCO2 67.00 MtCO2 60.00 MtCO2Summary Cash Flow Statement (Total EURm unless otherwise stated, 2011 Basis)Cash Flow from Operating Activities €9.1m €297.6m €22.5m €483.3m

Total CAPEX / Investing Cash Flow (€6.1m) (€181.3m) (€13.6m) (€290.0m)

Proceeds from Government Capital Grants - - - -Proceeds from Debt 3.7 126.9 9.5 203.0Proceeds from Equity Issuance 1.8 54.4 4.1 87.0

Cash Flow from Financing Activities €5.5m €181.3m €13.6m €290.0m

Cash Available for Debt Service €8.5m €297.6m €22.5m €483.3m

Debt Amortisation (3.0) (102.0) (7.6) (163.2)Interest Expense Paid (1.7) (59.8) (4.5) (95.6)Cash Available for Distribution to Equity €3.8m €135.8m €10.4m €224.4m

Cash Flows to Equity €2.0m €81.4m €6.3m €137.4mEquity IRR 10.0000% 10.0000% 10.0000% 10.0000%WACC 6.15% 6.15% 6.15% 6.15%

EXAMPLE MODEL OUTPUTSSEGMENT COSTS AND FINANCIAL STATEMENTS

Financial Model

19

IS2 Total Costs

(2011 Basis)

CAPEX OPEX

Pipelines (Target RoE 10%)

RTM Onshore CN Pipes 2 2 km 10.0 MtCO2/yr 7.6 MtCO2/yr 122 MtCO2 16 €6m €7m €0.2 /tCO2

RTM-Q1 Offshore Pipe 2 110 km 10.0 MtCO2/yr 7.6 MtCO2/yr 122 MtCO2 16 €181m €11m €2.8 /tCO2

NNL Onshore CN Pipes 4 14 km 6.0 MtCO2/yr 4.5 MtCO2/yr 67 MtCO2 15 €14m €7m €0.5 /tCO2

NNL-Q1 Offshore Pipe 2 218 km 6.0 MtCO2/yr 6.0 MtCO2/yr 60 MtCO2 10 €290m €10m €9.0 /tCO2

Storage (Target RoE 13%)

Q1 Storage 7 200 MtCO2 12.4 MtCO2/yr 199 MtCO2 16 €52m €467m €2.8 /tCO2

Ships (Target RoE 10%)

NNL-Q1 Ship 3 219 km 4.5 MtCO2/yr 1.4 MtCO2/yr 7 MtCO2 5 €109m €79m €35.8 /tCO2

ANT-Q1 NL Ship 1 256 km 4.5 MtCO2/yr 1.0 MtCO2/yr 10 MtCO2 10 €109m €157m €33.3 /tCO2

IS2 #

Users Dist.

Max. Infra

Capacity

IS2 Avg

Annual T/Put

IS2 Total

T/Put

IS2 Ops

Life

IS2 Cost per

tCO2 T/Put Key parameters and costs of transport and storage infrastructure (operator level, i.e.: aggregated chain units)

Detailed and summary financial statements (profit and loss / income statement and cash flow) for each operator

Financial Model

20

€6.4 €5.6 €4.5 €4.5 €4.4

€9.4€7.5 €7.9

€10.1 €9.2€7.6 €7.3

€10.2

€3.8

€46.4 €46.4

€9.1

€31.7

€20.6

€34.1

€22.7

€32.2 €31.0

€20.7

€16.2

€27.3

€18.3

€11.9

-

€5 /tCO2

€10 /tCO2

€15 /tCO2

€20 /tCO2

€25 /tCO2

€30 /tCO2

€35 /tCO2

€40 /tCO2

€45 /tCO2

€50 /tCO2

S1 S2 S3 S4 S5 S6 S7 S8 S9 S10 S11 S12 S13 S14

Range of Emitter Tariffs - Phase 2 T&S Scenarios

21.5 21.0

20.6 20.1 19.6 19.1

23.421.8

20.018.1

16.214.1

-

€5 /tCO2

€10 /tCO2

€15 /tCO2

€20 /tCO2

€25 /tCO2

€30 /tCO2

0% 10% 20% 30% 40% 50%

Gov. Capital Grant % Total CAPEX

Total Infrastructure Cost per tCO2 at Increasing Gov.Capital Financing

IS7

IS8

13.917.1

21.5

26.6

32.2

10.1

15.7

23.4

32.9

46.2

-

€5 /tCO2

€10 /tCO2

€15 /tCO2

€20 /tCO2

€25 /tCO2

€30 /tCO2

€35 /tCO2

€40 /tCO2

€45 /tCO2

€50 /tCO2

(2.00%) (1.00%) - +1.00% +2.00% ∆ to Operator WACC

Total Infrastructure Cost per tCO2 at Incremental Changes to WACC

IS7

IS8

Base CaseWACC 6.15%

EXAMPLE MODEL OUTPUTSINDICATIVE TARIFFS AND SENSITIVITIES

Indicative €/tCO2 cost to emitters by scenario or by infrastructure component, given assumptions on CO2 volumes and timing

Sensitivities on financing mix and cost of capitalFinancing mix and cost of capital sensitivities and impact on tariffs

THE PUBLIC MODELFinancial Model

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• Aim was to replicate the structure of the planning tool to develop a simple financial model to allow others to calculate the costs and tariffs associated with CO2 transport and storage given different CO2 volumes

• The model is pre-set with readily available, non-confidential cost data and example scenarios, based on the reference case outlined in the Institute Economic Assessment reports of 2009 and 2011

• The generic cost inputs can be adapted by users to reflect specific project data• Calculates total T&S costs to emitters and examines impact of different commercial and financing structures• Step by step user manual available on the Global CCS Institute website

• Model solves for tariffs payable (by emitters) to the transport and storage operators based on the operator’s targeted return over life of the project (set in Financing Assumptions)

• Availability and Throughput tariff structure

EMITTER TARIFFS

• Separate detailed, annual statements for the transport and storage operator for the active model scenario showing the achieved rate of return and total tariff revenues per tCO2 (payable by CO2 emitters)

OPERATOR FINANCIAL STATEMENTS

QUICK CONTROL

ASSUMPTIONS

COST SCHEDULES

Key Components Outputs

KEY TAKEAWAYS

22

• Steering group recognised our findings on the cost drivers including the tariffs we calculated

• Sharing transport and storage infrastructure is a cost effective approach for CCS

• Efficient utilisation of the infrastructure requires the coordination of early CCS projects and/or some confidence that a demo project can transition to full scale project

• Storage costs are significantly reduced when CO2 is injected close to the individual reservoir’s maximum injectivity rates and therefore minimizing the operating period

• MMV costs during injection and for 20 years after closing the location can contribute between 4-13% to the tariff, depending on the project timeframe.

• Assuming no existing infrastructure in place and a given project lifetime, the choice between a pipeline and a ship will depend on the required CO2 throughput volumes and the transport distance

• The higher the proportion of CAPEX in the overall costs, the larger is the effect of a grant on tariff or total cost

KEY TAKEAWAYS FROM THE ANALYSISKey Takeaways

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1. STIMULATE INVESTMENT CLIMATE

• CO2 allowances currently at historical low price point and therefore the investment signals for CCS are extremely weak

• Scope for Government to:

• Ensure the transition from demonstration phase to commercial phase projects with appropriate (master)planning to provoke initial investments and oversized infrastructure

• Provide early mover projects with appropriate incentives to ensure the first projects are aligned to the future vision on CCS networks

• Mobilise other CCS stakeholders in the Netherlands, such as EBN and Gasunie, in order to contribute to a common user transport and storage system

STEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways

24

2. GOVERNMENT TO ENSURE CO2 STORAGE OPTIONS

• If CCS is going to fly storage space is a valuable asset which should be governed. Therefore government should work with industry to:

• Work on CO2 storage characterisation and feasibility studies for saline formations on the Dutch Continental Shelf

• Better understand the storage capacity elsewhere in the North Sea

• Provide input into a review of the EU CCS Directive, particularly in relation to long term CO2 containment and liability issues

• Develop an appropriate regulatory framework that will treat storage as an “asset”, including end of life policies for producing hydrocarbon fields and “storage ready” certification

• Develop alternative business models for CO2 storage. For example public-private partnerships and service-based models

STEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways

25

3. GOVERNMENT TOGETHER WITH PIVATE PARTIES SHOULD ENABLE CO2 TRANSPORT

• Shared transport infrastructure and regional CCS networks can be very cost effective

• When oversizing: first mover face higher costs and risks than later joiners. Mitigated by appropriate incentives for early mover projects as well as private public partnerships

• Issue of CO2 specifications in shared transport networks

• Developing models for long term CO2 transport regulation (parallel: bridges and highways)

• Enabling transboundary transport of CO2, starting with the ratification of the London Protocol

STEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways

26

4. NATIONAL AND REGIONAL COOPERATION

• Discussion in the Netherlands is too focused on the pilot projects. Need for a broader view

• NL: Revive the National Taskforce on CCS (companies and government)

• NL+B: Emitters and Transport and Storage operators should work together to identify and resolve key issues

• EU: Steering Group sees value in them working together with ZEP and NSBTF

• EU: Dialogue on regional level in Rotterdam, Eemshaven and Antwerp to support discussion with the European Union

STEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways

27

PRACTICAL ADVICE FOR OTHER REGIONSKey Takeaways

28

• Stakeholder coordination and engagement is key• The emitter Steering Group provided strategic direction and input on a continuous basis• Transport and Storage operators also provided guidance, primarily on technical specifications and

costs

• Early alignment of project objectives is critical• Decisions on the issues to be raised and questions to be answered have an impact on the overall

design of the project, including scenario selection and potential for appropriate sensitivities• Challenge to meet objectives of different stakeholders at different stages of project planning

• Scenarios developed based on real or planned short and medium term CO2 transport and storage options

• Allowed the assessment of most realistic CCS network development pathways for the region• However, a more speculative approach could have answered questions such as what is the optimum or

most cost effective configuration?

• To the extent possible, the analysis leveraged existing relevant technical and commercial studies• Project team integrated existing technical and R&D expertise on CCS in the region

QUESTIONS AND ANSWERS

29

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