23April 2008

Developing a commercial CCS transportation infrastructure

Alastair Rennie, Project Director- Renewables, AMEC. 23rd April 2008

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23April 2008

AMEC at a glance

We have annual revenues of over £2.3 billion

We employ 20,000 employees in over 30 countries

Our shares are traded on the London Stock Exchange where we are listed in the Oil Equipment and Services sector

We are a member of the FTSE* 100

*Financial Times Stock Exchange listing

Services focused on designing, managing the delivery of, and maintaining strategic and complex assets

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23April 2008

Where we areMain office locations

Our 20,000 employees operate from more than 30 countries

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23April 2008

CCS – US Activities are onshore and EOR led, doing commercial work

CO2 is Europe is environmentally led, with the CO2 as a cost burden and integrity of storage as the goal, with any EOR as a bonus. As such it is emitter led.

AMEC is an engineering company in doing transportation, flood and dehydration systems, pipeline design services, EOR Conceptual Design Services, PM and Engineering Services for new and existing pipelines.

The North American market is EOR led to increase revenue, with CO2 as a commodity feedstock. As such it is oil producer led. Re-cycling of the CO2 from the oil is simply good cost management.

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23April 2008

UK CO2 transport workare precursors to business cases

IEA GHG R&D studies – Mersey area– Distributed Collection and Transmission of

CO2 Study– Upgrade of CO2 Pipeline Cost Calculation

Programmes

Yorkshire Forward Regional study – Multiple source network and trunk line CO2

collection– Pipeline study to geological or EOR storage– Economic cost modelling of network

CASSEM -Academic/business consortium– Pipelines and network study for two proposed

CCS locations for potential saline aquifer storage sites

Teesside CCS project and others

BERR demonstration competition has spurred consideration of transport and storage options, including both pipeline and shipping concepts. A number of companies may be doing more specific work this year

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23April 2008

Will it happen?

Global political agreements EU financial and regulatory support – simple EUA value is not enough Government legislation and financial mechanisms Agree the regulatory regime, especially H&S of high pressure CO2 and long term storage

characterisation

Enabling, by EU or bilateral agreement, the storing of CO2 from another country

just to arrive at a position where Carbon Capture and Storage is a long term commercially viable proposition, enabling the

Commitment to capture (the major commercial cost and risk) Commitment to provide storage or EOR. Some storage has capacity to match sources-

mostly a multiple store strategy will be required to match timescales and sizes of sources.

– Before finally being able to commit to transport of the CO2

Requires a number of things to happen before we see CO2 transported and utilisation of North Sea and Irish Sea storage

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23April 2008

Factors helping implement transport in the EU

It is a relatively small but necessary part of CCS Identified potential for re-use of existing assets Good timing for use of low risk storage in the North Sea Can benefit from shared infrastructure with clustering of sources Source owners well aware of the low marginal cost in oversizing of

pipelines if there is a foreseen larger supply after the initial flow

Must stress that without decent volume from a number of sources then transport and storage become expensive

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23April 2008

Shipping and Pipelines – play to commercial strengths, not the distance versus cost diagram

Shipping Low capital cost to user High operating cost 3-10 year commitment Another commodity to a

competitive transport industry Practical issues around

acquisition dominate consenting Interim storage is an additional

constraint Flexible but more disruption risk

Pipeline High capital cost Low operating costs 10-15 year minimum to plant life

commitment Bespoke, improved by networking Slow approval processes Limited capacity variability Rigid asset between a source and

a store leads to fewer commercial options

High reliability

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23April 2008

Commercial options for a pipe network

This ignores single source to single store situations – covered by in-house or linear commercial agreements

Covers pipeline networks, including shipped CO2 inputs and

outputs

Focus is on earlier configurations of networks - other ownership and commercial arrangements may arise with well established assets and CO2 flows

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23April 2008

Network commercial demarcations

C

separation

D

dry/compress

measure

Each piped source

Node

P

Pumping, pipes, meters

Common network resources

PortShared port facilities,

export storage

T

Other system-

Transfer of all liabilities and

payment

Shipped CO2

ShipShips

Each final storage asset

S

Licensed storage

Injection, monitoring

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23April 2008

Network commercial demarcations

C

separation

D

dry/compress

measure

Each piped source

Node

P

Pumping, pipes, meters

Common network resources

PortShared port facilities,

export storage

T

Other system-

Transfer of all liabilities and

payment

Shipped CO2

ShipShips

Each final storage asset

S

Licensed storage

Injection, monitoring

Commitment to CCS

Revenue from CCS

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23April 2008

Commercial ranges

P C to S or T P plus options on D, Port, Ship (service)

C D P

Port T

Ship

S

For simplicity focus on ownership options for P, the shared network

1. Public or Regulated infrastructure- open access, no market exposure

2. Shared ownership by sources

3. Ownership by an independent transport company

4. Shared ownership by investment stakeholders- sources, transporters, store operators. Could include public bodies.

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23April 2008

Common issues facing establishment of a network

Ownership of the CO2 whilst transported

Commitment to CCS by source-

– Timing of initial flow, duration, risk of failure to provide CO2

– Peak versus average flow– Initial, stage flow rates, maximum flow

Take or pay contract is obviously a partial answer to cover initial capital spend Storage availability

– Timing (decommissioning, proving, work overs), risk of ability to inject at peak rates, total capacity

– Alternative storageAvoid liability for failure to store (either flow or retention of CO2) Transport availability

– Unplanned breakdowns and maintenance of the network Agree process for planned outages with sources and stores. Avoid consequential losses to store owner and sourcesAgree terms for loss of CO2 whilst within the network boundary

Discount rate for a long life asset

– Cost of the system is driven more by the cost of capital than capacity

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23April 2008

Relative comparisons of main issues

Ownership \

issue

Public/ regulated

Ownership by sources

Independent company

Stakeholder owned

Ownership of the CO2

Unlikely to own Owns the CO2 Option to own Option to own

Commitment by source

Highly risk averse

Potentially well aligned

Mutual commercial risks

Depends on scale & SPV terms

Storage availability

Mainly fixed fee, small rate/tonne

May enable capacity sharing

Back to back investments

Depends on scale & SPV terms

Transport availability

Seek to limit all exposure

Proportional exposure

Seek to limit exposure

Ideally equity proportional to exposure

Discount rate Lowest Internal to company

SPV- parent driven

SPV – project finance

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23April 2008

Relative comparisons of main issues

Ownership \

issue

Public/ regulated

Ownership by sources

Independent company

Stakeholder owned

Ownership of the CO2

Unlikely to own Owns the CO2 Option to own Option to own

Commitment by source

Highly risk averse

Potentially well aligned

Mutual commercial risks

Depends on scale & SPV terms

Storage availability

Mainly fixed fee, small rate/tonne

May enable capacity sharing

Back to back investments

Depends on scale & SPV terms

Transport availability

Seek to limit all exposure

Proportional exposure

Seek to limit exposure

Ideally equity proportional to exposure

Discount rate Lowest Internal to company

SPV- parent driven

SPV – project finance

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23April 2008

Conclusions

Public ownership is possible because it is a network rather than a single source solution. However this is otherwise unattractive, especially as the network must be developed.

The shared ownership by source interests is, on balance, probably the preferred option.

We would suggest that this may be enhanced by elements of other stakeholders, not least to engage with the public and enable increments of investment to reduce the life time costs of moving CO2 to storage.

We see the provision of the wider scope of CO2 services from source to sink as a good way for us to support emitters to minimise costs and for store owners to earn additional income from their oil & gas experience. It is possible to see how good engineering and good commercial design could build cost efficient networks in Northern Europe.