Webinar - Transport and storage economics of CCS in The Netherlands

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From April 2012 – January 2013, a team from the Rotterdam Climate Initiative, CATO-2 (the Dutch national R&D programme on CCS) and the Clinton Climate Initiative, developed a financial model to assess …

From April 2012 – January 2013, a team from the Rotterdam Climate Initiative, CATO-2 (the Dutch national R&D programme on CCS) and the Clinton Climate Initiative, developed a financial model to assess the economics of alternative CO2 transport and storage options in the North Sea, based on common user infrastructure.

A steering group of major emitters with advanced plans for CCS in the Netherlands and Belgium guided the project and were the primary recipients of the analysis, aiming to support the necessary strategic dialogue between stakeholders developing CCS projects in the region.
Although the work was focused on potential projects in the Netherlands (Rotterdam and Eemshaven) and Belgium (Antwerp) in the short to medium term, the analysis and lessons could be useful to other regions considering CO2 network solutions.

In addition to the knowledge sharing report, a simple financial model based on public data has been made available for use elsewhere in the world.

The Global CCS Institute webinar that was held on Tuesday 4th June examined how the project was set up, the key lessons from the analysis and the steering group’s recommendations for near-term action to address the issues raised by this project. The webinar also provided practical advice for other regions looking to replicate the analysis.

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  • 1. Transport and storage economics ofCCS networks in The NetherlandsWebinar – 4 June 2013, 1730 AEST
  • 2. Ernst Menten Ernst is a Project Manager for Deltalinqs Energy Forum and has beeninvolved in the field of CCS since 2010. In this role, he has been the RCI’s project leader for this study on CO2Transport 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 storageoptions in the Dutch Continental Shelf. Ernst holds degrees in Environmental & Medical Biology and has had along career in the field of climate change mitigation.Rotterdam Climate Initiative / Deltalinqs
  • 3. Tatiana Zervos Tatiana is a Project Manager in the Clean Energy team at the ClintonClimate Initiative, focusing primarily on CCS in Europe and China. Under CCI’s Memorandum of Understanding with the Rotterdam ClimateInitiative, she has been advising the RCI and working closely with all majoremitters considering CCS projects in the Netherlands towards the planningof a CCS network and has led the financial modelling for this report. She is also involved in CCS and more general climate finance issuesincluding through the CCUS Action Group and the UK’s Capital MarketsClimate Initiative. Tatiana holds an MA in Economics and Management from the University ofOxford and prior to joining CCI in 2010, was an Associate in the InvestmentBanking division at BofA Merrill Lynch in London.Clean Energy, Clinton Climate Initiative
  • 4. Daniël Loeve Daniël is a Research Scientist for the Petroleum Geosciences team atTNO. He has been working in the E&P industry for five years and has a particularinterest in reservoir engineering, assisted history matching and CO2storage. He is involved in several European projects (e.g ECCO, COCATE,SITECHAR) and national studies (CATO2) related to CO2 storage andtransport. These studies include storage capacity estimation, CO2monitoring and related chemical and geo-mechanical analyses. Daniel was a member of the developer team of the ECCO tool, which is aneconomic evaluation tool of CO2 storage projects. Specifically, Daniel wasresponsible for the cost estimates and the modeling of the different CCSinfrastructure in the North Sea built into the ECCO tool.Petroleum Geosciences, TNO
  • 5. QUESTIONS We will collect questions duringthe presentation. Your MC will pose thesequestion to the panel ofpresenters after thepresentation. Please submit your questionsdirectly into the GoToWebinarcontrol panel.The webinar will start shortly.
  • 6. TRANSPORT AND STORAGE ECONOMICS OF CCS NETWORKSGlobal CCS Institute Webinar4 June 2013Contributors• Rotterdam Climate Initiative• CATO-2• Stichting Borg• Antwerp Portauthority• Shell• Global CCS InstituteProject 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
  • 7. AGENDA• OBJECTIVES AND ORGANISATION• SCENARIOS, DATA COLLECTION AND COSTING• FINANCIAL MODEL• KEY TAKEAWAYS• Q&A7
  • 8. OBJECTIVES AND ORGANISATION8
  • 9. TRANSPORT AND STORAGE ECONOMICS OF CCSNETWORKS IN THE NETHERLANDS AND ANTWERPObjectives & Organisation9• 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-usernetworks, including other regions• Second round NER 300 was in planning so companies needed to take short term and high leveldecisions on design and specifications of CO2 offtake infrastructure• Opportunity to collectively evaluate alternative pathways because of the existence of the ISA SteeringGroup represents all major emitters most committed to exploring the potential of CCS on a commercialbasis and is best placed to drive credible analysis• Provide a “planning tool” (excel-based), allowing Steering Group members, and CCS developers ingeneral, to form a common view of the costs and risks drivers of CO2 transport and storage options on ashared basis• Identify near-term actions to enhance the feasibility of CCS projects and facilitate the necessarystrategic and commercial discussions with one another and external parties, including governmentand transport and storage operatorsRATIONALEfor thePROJECTOBJECTIVES
  • 10. PROJECT ORGANISATIONObjectives & Organisation101• Developed based on offshore storage options most likely to support capture projects in the short (2015) andmedium (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 emittersDEFINITION of T&SSCENARIOS(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 intoECCO tool to produce detailed cost timeseriesDATA 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 assumptionsCONFIDENTIALFINANCIAL 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 foroperators) 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 analysisKNOWLEDGESHARING &ENGAGEMENT (ALL)2345
  • 11. SCENARIOS, DATA COLLECTION AND COSTING11
  • 12. OVERVIEW OF TRANSPORT AND STORAGE SCENARIOS12[ ] Storage Option Type & Capacity Off. Transport CO2 Sources RationaleP18 / P15 (NL)Dep. Gas Field~79MtCO2Pipeline RotterdamUnder consideration by the ROAD and Green Hydrogenprojects in the NetherlandsDan Oilfield EOR(D)Dep. Oil Field ShippingRotterdam FSEemshaven FSUnder consideration by the Green Hydrogen project inthe NetherlandsQ1 (NL)Aquifer~200MtCO2PipelineShippingRotterdam FSEemshavenAntwerpMost promising medium term site in the DutchContinental Shelf as per ISA Phase 3 and EBN/GasunieBunter Aquifer(South. NorthSea, UK)Aquifer[>2,000MtCO2]PipelineShippingRotterdam FSAntwerpUKLikely storage option for future CCS projects in theYorkshire and Humber areaCaptainSandstoneAquifer (UK)Aquifer[>360MtCO2]ShippingPipelineRotterdam FSAntwerpEemshaven FSUKIdentified as one of the most promising CO2 storagesites in the Northern North Sea by CCS stakeholders inScotlandUtsira Sandstone(NO)Aquifer[>20Gt]ShippingEemshaven FSOther North SeaCurrently used for storage of CO2 separated fromnatural gas produced at the Sleipner fieldPhase1Phase2Scenarios, Data Collection &Costing
  • 13. MODE OF TRANSPORT AND ROUTE SELECTIONScenarios, Data Collection &Costing13YH HubUK SNS AquiferSelbyPipeline fromRotterdamand AntwerpBunter(SouthernNorth 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 ofthe ECCO Tool
  • 14. SHIPPING VS. PIPELINE COSTSScenarios, Data Collection &Costing14Shipping is especiallycost effective forlonger distancesShipping is also morecost effective forshorter distances,given smaller CO2volumes transported
  • 15. • Once the design of each scenario was set, the next step was to break down the transport and storage infrastructure intosegments, 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)RTMHub(1km; 4.5MtCO2/yr)(1km; 4.5MtCO2/yr)Onshore RTMCollection Network(~33km)ANTWERPDemos HighShipTerminalROTTERDAMEEMSHAVENABAN EXAMPLE SCENARIO – INTRODUCING CHAIN UNITSScenarios, Data Collection &Costing15Rotterdam FS #1Rotterdam FS #2North Netherlands #1Demo & FSNorth Netherlands #2Demo & FS
  • 16. DATA COLLECTION AND COST PREPARATIONScenarios, Data Collection &Costing16• The CATO team collected and reviewed all relevant existing data from public sources and confidential reportsavailable to the SG (e.g. ISA I, II, III ). The team also held one-on-one meetings with certain SG members and otherparticipants to clarify questions.• The technical parameters (e.g.: routes and dimensions, pressure requirements etc.) and associated headline costs for eachof the scenarios were then incorporated into the ECCO Tool to develop CAPEX and OPEX timeseries for each chainunit / 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 apipeline chain unit, used by the financial modelDetailed 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 0.55Operational datesYear when the pipeline becomes operational 2015 - - - - - - - - -Year when the pipeline cease the operation 2020 - - - - - - - - -CAPEX, OPEX, CO2T/Put Timeseries & Keyoperational datesCostings &indexationTerrain (on/off shore), crossings, materialSize, length, pressurePipeline route
  • 17. FINANCIAL MODEL17
  • 18. CONFIDENTIAL FINANCIAL MODEL STRUCTUREFinancial Model18CONFIDENTIAL FINANCIAL MODEL(Discounted Cash Flow)Technical ParametersandCost Data(ECCO Tool Outputs)UNIT AND TOTALCOSTSOPERATORFINANCIALSTATEMENTSINDICATIVE TARIFFSto EMITTERSAggregated intoProvideService toFinancing AssumptionsTariff StructuresMacro AssumptionsCO2 VolumesTiming of OperationsKEYINPUTSINDIVIDUAL CHAIN UNITS T&S OPERATORS EMITTERS / CO2 SOURCESKEYOUTPUTS
  • 19. RTM Onshore CNPipelinesRTM-Q1 OffshorePipelineNNL Onshore CNPipelinesNNL-Q1 OffshorePipelineTotal 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 €483.3mTotal 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 87.0Cash Flow from Financing Activities €5.5m €181.3m €13.6m €290.0mCash Available for Debt Service €8.5m €297.6m €22.5m €483.3mDebt 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 €224.4mCash 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 STATEMENTSFinancial Model19IS2 Total Costs(2011 Basis)CAPEX OPEXPipelines (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 /tCO2RTM-Q1 Offshore Pipe 2 110 km 10.0 MtCO2/yr 7.6 MtCO2/yr 122 MtCO2 16 €181m €11m €2.8 /tCO2NNL Onshore CN Pipes 4 14 km 6.0 MtCO2/yr 4.5 MtCO2/yr 67 MtCO2 15 €14m €7m €0.5 /tCO2NNL-Q1 Offshore Pipe 2 218 km 6.0 MtCO2/yr 6.0 MtCO2/yr 60 MtCO2 10 €290m €10m €9.0 /tCO2Storage (Target RoE 13%)Q1 Storage 7 200 MtCO2 12.4 MtCO2/yr 199 MtCO2 16 €52m €467m €2.8 /tCO2Ships (Target RoE 10%)NNL-Q1 Ship 3 219 km 4.5 MtCO2/yr 1.4 MtCO2/yr 7 MtCO2 5 €109m €79m €35.8 /tCO2ANT-Q1 NL Ship 1 256 km 4.5 MtCO2/yr 1.0 MtCO2/yr 10 MtCO2 10 €109m €157m €33.3 /tCO2IS2 #Users Dist.Max. InfraCapacityIS2 AvgAnnual T/PutIS2 TotalT/PutIS2 OpsLifeIS2 Cost pertCO2 T/Put Key parameters and costs oftransport and storageinfrastructure (operator level, i.e.:aggregated chain units)Detailed and summary financialstatements (profit and loss /income statement and cash flow)for each operator
  • 20. Financial Model20€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 /tCO2S1 S2 S3 S4 S5 S6 S7 S8 S9 S10 S11 S12 S13 S14Range of Emitter Tariffs - Phase 2 T&S Scenarios21.5 21.020.6 20.1 19.6 19.123.421.820.018.116.214.1-€5 /tCO2€10 /tCO2€15 /tCO2€20 /tCO2€25 /tCO2€30 /tCO20% 10% 20% 30% 40% 50%Gov. Capital Grant % Total CAPEXTotal InfrastructureCostper tCO2at Increasing Gov.CapitalFinancingIS7IS813.917.121.526.632.210.115.723.432.946.2-€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 OperatorWACCTotal Infrastructure Cost per tCO2 at Incremental Changes to WACCIS7IS8Base CaseWACC6.15%EXAMPLE MODEL OUTPUTSINDICATIVE TARIFFS AND SENSITIVITIESIndicative €/tCO2 cost to emittersby scenario or by infrastructurecomponent, given assumptionson CO2 volumes and timingSensitivities on financing mix andcost of capitalFinancing mix and cost of capitalsensitivities and impact on tariffs
  • 21. THE PUBLIC MODELFinancial Model21• Aim was to replicate the structure of the planning tool to develop a simple financial model to allow others to calculate thecosts 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 caseoutlined 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 andstorage operators based on the operator’s targeted return over life ofthe project (set in Financing Assumptions)• Availability and Throughput tariff structureEMITTERTARIFFS• Separate detailed, annual statements for the transport and storageoperator for the active model scenario showing the achieved rate ofreturn and total tariff revenues per tCO2 (payable by CO2 emitters)OPERATORFINANCIALSTATEMENTSQUICK CONTROLASSUMPTIONSCOST SCHEDULESKey Components Outputs
  • 22. KEY TAKEAWAYS22
  • 23. • 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 someconfidence 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 maximuminjectivity rates and therefore minimizing the operating period• MMV costs during injection and for 20 years after closing the location can contribute between 4-13% tothe tariff, depending on the project timeframe.• Assuming no existing infrastructure in place and a given project lifetime, the choice between a pipelineand 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 totalcostKEY TAKEAWAYS FROM THE ANALYSISKey Takeaways23
  • 24. 1. STIMULATE INVESTMENT CLIMATE• CO2 allowances currently at historical low price point and therefore the investment signals forCCS are extremely weak• Scope for Government to:• Ensure the transition from demonstration phase to commercial phase projects withappropriate (master)planning to provoke initial investments and oversized infrastructure• Provide early mover projects with appropriate incentives to ensure the first projects arealigned to the future vision on CCS networks• Mobilise other CCS stakeholders in the Netherlands, such as EBN and Gasunie, in order tocontribute to a common user transport and storage systemSTEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways24
  • 25. 2. GOVERNMENT TO ENSURE CO2 STORAGE OPTIONS• If CCS is going to fly storage space is a valuable asset which should be governed. Thereforegovernment should work with industry to:• Work on CO2 storage characterisation and feasibility studies for saline formations on theDutch 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 termCO2 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-privatepartnerships and service-based modelsSTEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways25
  • 26. 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 byappropriate 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 ProtocolSTEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways26
  • 27. 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 andresolve 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 supportdiscussion with the European UnionSTEERING GROUP RECOMMENDATIONS FOR ACTIONKey Takeaways27
  • 28. PRACTICAL ADVICE FOR OTHER REGIONSKey Takeaways28• 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 andcosts• Early alignment of project objectives is critical• Decisions on the issues to be raised and questions to be answered have an impact on the overalldesign 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 storageoptions• 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 ormost 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
  • 29. QUESTIONS AND ANSWERS29
  • 30. QUESTIONS / DISCUSSIONPlease submit your questions inEnglish directly into theGoToWebinar control panel.The webinar will start shortly.
  • 31. Full report and financial model available from: http://www.globalccsinstitute.com/publications/transport-and-storage-economics-Please submit any feedback to: webinar@globalccsinstitute.com