Written evidence submitted by Shell International Ltd (CCS17)

Introduction

1.   In the UK, Shell produces 14% of the UK’s oil and gas, operates an infrastructure that carries 35% of gas in the UK and has committed to $2.35bn investments in the North Sea.  Shell is currently working with SSE to develop the world’s first full-scale low carbon dioxide (CO2) gas power carbon capture and storage (CCS) project from the Peterhead power station. A large amount of low carbon power could be produced with up to 10 million tonnes of carbon dioxide (CO2) emissions captured from the power plant and transported by pipeline offshore for long-term storage deep under the North Sea. In March 2013, the Peterhead CCS Project[1] was chosen as one of two CCS demonstration projects to progress to the next stage of the Government’s CCS Commercialisation Competition funding. Shell welcomes this inquiry by the Energy and Climate Change Committee and the opportunity to respond.

What types of CCS technology are currently being developed and how do they differ from one another?

2.   CCS is not one single new technology but rather a set of existing technologies combined to  capture  CO2 from the emissions of major industrial plants (such as power plants), transport it to a suitable location and store it  permanently deep underground. CO2 capture technologies have long been used by industry to remove CO2 from natural gas and process gas streams where it is not wanted or to separate CO2 as a product gas. There are currently three primary methods for power CO2 capture: post-combustion, pre-combustion and oxy-fuel. Post-combustion involves scrubbing the CO2 out of flue gases from combustion process. Pre-combustion uses a gasification process followed by CO2 separation from a synthesis gas to yield a hydrogen fuel gas (pre-combustion has analogies to industrial capture technologies). Oxyfuel involves combusting fuel in recycled flue gas enriched with oxygen to produce a CO2-rich gas. Innovative capture technologies are being developed by industry, including membrane technologies, chemical looping and carbonate slurry.

3.   Shell has a substantial number of commercial scale CO2 capture plants in their operations and is involved in many CCS projects across the world covering a variety of capture and storage methods. Examples include:

• Cansolv Technologies Inc. is a subsidiary of Shell and an active provider of CCS technology to the market, specialising in post-combustion sulphur dioxide (SO2) and CO2 capture technology. Cansolv’s capture technology was selected for the first global large-scale CCS demonstration project at the Boundary Dam coal-fired power plant in Estevan, Saskatchewan, Canada[2].  In January 2013, working in partnership with RWE npower, the company successfully captured the first tonne of CO2 at the Aberthaw Power Station in South Wales[3], the world’s first integrated SO2/ CO2 capture plant.
• Gorgon CO2 storage, Australia[4], currently under construction, is the world’s largest committed storage project that intends to store the majority of the CO2 (between 3.5-4 million tonnes) associated with the Gorgon LNG project currently under construction. Using separation technology common in the oil and gas industry, it will capture the CO2 and store it in a deep saline (sandstone) formation around 2 kilometres underground. 
• Technology Centre Mongstad (TCM), Norway[5]; is demonstrating CO2 capture using two different post-combustion methods; amine based absorption from Aker and chilled ammonia from Alstom. The flue gases are taken from two different sources: the Mongstad combined Heat and Power plant and the Residue Catalytic Cracker at the local refinery. Alternative capture technologies are planned to be tested at TCM in the future. 
• Quest CCS project, Canada[6]; currently under construction, is a fully integrated large-scale industrial CCS project which will capture CO2 from Shell’s Scotford Upgrader processing plant (specifically from the Steam Methane Reformers), located near Fort Saskatchewan in Alberta, Canada where bitumen produced by Shell’s Athabasca Oil Sands Project is processed into synthetic crude oil. CO2 will be separated (using amine solvent in a process analogous to pre-combustion), transported along a pipeline approximately 60 kilometres long, and stored in a deep saline formation.

What contribution could CCS make towards the UK’s decarbonisation targets? Are the UK Government’s expectations reasonable in this regard?

4.   CCS is an essential technology for meeting global, European and UK long-term energy and climate goals given the technology’s ability to decarbonise fossil power generation and fossil based industrial processes; many of which do not have significant alternative options to decarbonise. Achieving the full commercial availability of CCS technology will be essential if the UK is to deploy CCS in time to meet its mandatory carbon emission reduction targets.

5.   The CCSA[7] have highlighted that to ensure the required contribution is made, such commercialisation would be necessary by the early 2020s. The UK therefore needs to maintain momentum with both the CCS Commercialisation Competition and the Energy Bill to ensure the Electricity Market Reform (EMR) proposals are developed in a timely way. It is important to ensure CCS developments outside the power sector are also considered and supported appropriately.

6.   A recent report by the Energy Technologies Institute[8] found that successfully deploying CCS would reduce the annual cost of meeting the UK’s carbon targets by up to 1% of GDP by 2050  (around £30bn per annum, ensuring the UK is the most competitive decarbonised economy)”. The CCS Cost Reduction Taskforce[9] has also concluded “UK gas and coal power stations equipped with carbon capture, transport and storage have clear potential to be cost competitive with other forms of low-carbon power generation, delivering electricity at a levelised cost approaching £100/MWh by the early 2020s and at a cost significantly below £100/MWh soon thereafter.” and that “These costs are potentially cheaper than alternative low carbon generation technologies, without the system costs and drawbacks associated with supply intermittency or inflexibility.”

Are there any potential benefits (e.g. the ability to export CCS technology abroad) of successfully developing CCS to the UK economy and, if so, what are they?

7.   Economic benefits (such as job creation) come from the provision of goods and services across the full CCS chain, including engineering design, project management, manufacturing of components, construction, legal and financial services. Other economic benefits could arise from clustering; the establishment of transport, pipeline and storage infrastructure would enable other nearby CO2 sources to benefit from them (in other sectors as well as the power sector) and cost reductions for the sector to be realised. CCS can also help the UK economy remain productive and competitive by providing the technologies that will secure a flexible, reliable and low carbon energy system and that complement other technologies, such as intermittent renewable. This will become increasingly important in a future carbon constrained world.

8.   Developing the UK’s expertise of CCS throughout the supply chain and all the related technical, commercial, organisational, regulatory and societal aspects of CCS, would strengthen the UK’s competitiveness in this sector. Whilst each project would have its own characteristics, the majority of learnings would be applicable to other projects. UK companies would therefore be in a strong position to compete internationally for future decades for the supply of CCS technologies and know-how. Such knowledge and technologies could be exported, for example, as in Aberdeen, which has become a European Oil & Gas technology hub.

What are the main barriers (e.g. economic, political, regulatory, scientific and social) to developing large-scale integrated CCS projects in the UK and internationally? How can they be overcome?

9.   There are several potential barriers to the development and commercialisation of CCS. These were recently summarised by the Energy Technology Institute and Ecofin[10] and include investability challenges, confidence in long term policy, energy marketplace challenges, business structures, operational and technological risks. The CCS Cost Reduction Taskforce also highlighted the barriers and necessary actions to overcome them, including issues such as access to finance, bankable contracts and fit for purpose funding mechanisms.

10.           The main consequence of the barriers to CCS development is its’ ability to progress through the technology learning curve to reach full scale deployment, where the cost of a technology reduces as the technology matures (see Figure 1). We believe CCS has been discovered and developed but the market alone will not pull the technology along the curve, mainly due to the high capital up-front costs of CCS.

11.           The Demonstration phase is therefore key to enable low emission technologies to be tested at industrial scale in demonstration plants, so that technical and non-technical risks are overcome, costs are reduced, public acceptance is increased on both the viability and value of CCS and the supporting infrastructure is developed. However, some of these benefits are positive externalities so are not fully captured by investors in their investment decisions and thus the initial costs are considered too high. To help industry overcome the initial high cost barrier and enable the full benefits to be exploited, support from policy-makers at this key phase is therefore required.

Figure 1: Technology learning curve:

12.           We believe that in the commercial deployment phase, a strong carbon price should be the ultimate driver and low carbon technologies can be commercially deployed under the relevant emission reduction mechanism for the sector. This can be done at the European level, for example, through the EU Emissions Trading Scheme. We therefore support the Government’s efforts to reform the EU ETS.

13.           In the UK, we welcome the current CCS Commercialisation Competition to support the key demonstration phase. Among the other potential benefits, this will help build public acceptance both in the UK and further afield which may reduce public opposition as seen, for example in Barendrecht. We also welcome, in principle, the proposed EMR that will allow CCS projects to apply for a Contracts for Difference (CfD) for low carbon electricity generation. It is key that the UK maintains its focus on short and long-term deployment of CCS and the momentum with both the CCS Commercialisation Competition and the Energy Bill. The risk for any new policy or regulatory framework is the uncertainty it creates for industry until it is implemented and a funding stream secured. It is also important that the CfD is flexible enough to suit the specific characteristics of CCS alongside other technologies. As yet, there is little detail on how a CfD would apply to CCS, for example, the allocation process, contract terms or a clear long-term budget allocation within the Levy Control Framework. Developing these details is imperative to give the industry more clarity and certainty to incentivise investment and we would welcome that detail being published as soon as possible.

14.           Most of the focus in the UK is currently on the application of CCS to the power sector. Shell’s global involvement in CCS show that it can be applied in other sectors. It is therefore important that the Government consider further the applicability of CCS to other sectors in the UK as well as power.

Are there any safety issues associated with capturing, transporting and storing carbon dioxide? How could they be overcome? Who should have responsibility for ensuring these activities are safe?

15.           Shell considers safety to be of highest priority for all its operations. We use industry best practices to design, construct, operate and maintain our facilities so that we meet the highest safety standards. CCS uses existing technologies that have been used by the oil and gas industry for decades to capture, transport and inject/store CO2. CCS brings these existing technologies together to reduce power station and industry CO2 emissions.

16.           A number of CCS projects have already demonstrated that, with proper site selection, design and management, CO2 can be successfully captured, transported and stored for many years without leakage. CO2 capture technology has been used successfully for several decades in the petroleum, chemical and power industries. CO2 pipelines have been used for enhanced oil recovery (EOR) for decades; there are currently about 5,800 km of CO2 pipelines in operation in North America. CCS is very safe when appropriate sites for underground storage are selected and appropriate measures are taken to contain the CO2 when designing and operating the site. Confidence in the permanent underground store of CO2 is based on:

• The same geologic trapping principles that have kept oil and gas underground for millions of years;

• 100 years of seasonal underground storage for gas at hundreds of sites in North America and Europe  (depleted gas fields and salt caverns chosen for their impermeable properties);
• 30+ years of CO2 injection for EOR (Shell was one of the first to use CO2 for EOR in Texas);
• 15+ years experience with acid gas injection (mixture of H2S & CO2) in Alberta, Canada;
• 14+ years of experience with dedicated CCS Projects in the North Sea and Algeria (Sleipner, InSalah)

17.           The regulation of CCS is in the main guided by the 2009 European Union Directive on the geological storage of CO2 (‘The CCS Directive’).  The UK has completed implementation of the Directive, for example through the Storage of Carbon Dioxide (Licensing etc.) Regulations 2010. These Regulations implement the requirements of the Directive relating to the licensing of CO2 storage and to the liabilities of the storage operator both during and after the active operation of the store.

How have other countries incentivised CCS development? How successful have they been? How do they compare to the UK’s efforts?

18.           Support from governments is essential to incentivise commercial deployment of CCS, which will not happen if left to the market alone (as explained above).

19.           In Canada, where Shell is involved in the Quest project in Alberta, the range of steps to incentivise CCS development include:

• Direct funding, for example, the allocation of a $2billion fund for CCS demonstration by the Government of Alberta, tied to knowledge sharing commitments;
• Establishing robust regulations governing pore space tenure and long-term liability; Shell was the first company to receive leases under the new pore space regulations;
• Initiating the Regulatory Framework Assessment (RFA) process to develop a world-class regulatory system for CCS technology in Alberta (to look at technical, environmental, safety and monitoring aspects of CCS);
• Introducing bonus CO2 credits that are designed to provide an additional short-term incentive to help progress CCS by establishing a greater “value” for CO2 until the CO2 price increases -- as prices rise the additional credit would disappear. 

20.           In the European Union three areas of policy have been developed to support the deployment of CCS technology, alongside other technologies (therefore not exclusively for CCS):

• The EU ETS launched in 2005, to establish a carbon market which had the potential to underpin the deployment of CCS in the long-term[11].
• The European Energy Programme for Recovery (EEPR), established in 2009 to provide €1bn to co-finance European CCS projects alongside other projects in the fields of energy infrastructure and offshore wind.
• The NER300, established in 2010 with the intent to award funds to 8-12 CCS projects by using allowances from the New Entrant Reserve of the ETS, with potential for the mechanism to deliver €4.5bn of funding for CCS and other low carbon technologies (at a CO2 price of €15/ton).

21.           None of these three policy measures have succeeded in delivering an operating CCS project in the EU[12] and this shows how specific support (from the EU and member states) for the demonstration phase in CCS is as important as the policy mechanisms for commercialization, such as a reformed EU ETS and a reformed capital support mechanism that learns the lessons of the previous NER300 experience.

Is the UK Government’s approach, set out in its CCS Roadmap, likely to incentivise development of CCS in the UK?

22.           Whilst we welcome the steps the UK Government is taking, whether it will be sufficient to incentivise development of CCS in the UK will only be revealed by the market in time. It is imperative to maintain momentum with the planned approach so that the CCS Commercialisation Competition is successful and the 2012 Energy Bill provides a legal framework for EMR. In parallel, developing detailed proposals of how CCS would apply for CfDs under EMR, is also necessary as well as other steps for the commercialisation phase, such as reform of the EU ETS.

Could the successful development of CCS improve international efforts to mitigate climate change? What role could UK CCS play in this? 

23.           CCS can permanently store GHG emissions resulting from the use of fossil fuels across the economy (power generation, refineries, steel and cement production). CO2 easily accumulates in the atmosphere but is very slow to depart so can be likened to a stock pollution problem. When combined with biomass for energy, CCS is the only technology in the energy system which directly addresses this type of problem by removing CO2 from the atmosphere and storing it deep underground. Other technologies which improve efficiency help to slow down the rate but not the total volume of CO2 in the atmosphere. Therefore, it can play a very significant role in reducing GHG emissions.

24.           The Energy Technologies Institute[13] recently found that “The capture of carbon from the power sector by 2030 is a key feature of the lowest cost pathway to meeting 2050 climate change targets, and CCS if fitted and run at full load will reduce emissions at a cost of £45-£85/Te.”

25.           Shell’s 2013 New Lens Scenarios[14] highlight CCS as a key technology with the capability to have a major impact at the scale of the world’s energy system by mid-century.  With strong government policy support in one scenario (“Mountains”), CCS is deployed much more rapidly than in the alternative scenario (“Oceans”), where there is a greater emphasis on options for end-users.  In Mountains, accelerated CCS is one of the key reasons behind world emissions peaking in 2030, whilst in Oceans they more or less plateau for about 20 years from that same point.  And in electricity generation, Mountains reaches net zero emissions by 2060 at a global level, whilst that process is 25 years later in Oceans.  It should be noted that CCS still makes a significant contribution in Oceans; its development takes place at the rate energy technologies have broken into the market historically, based on patchy support.  If CCS were to be rejected altogether at commercial scale, then neither scenario would reach net zero CO2 emissions across the whole energy system by the end of the century.

What are the consequences of failing to develop CCS and what alternatives are available for decarbonisation if CCS fails?

26.           If the UK does not develop CCS in this early demonstration phase, the risk is that the UK ends up relying on imported expertise from regions such as US and Canada. The Energy Technologies Institute’s recent publication “Carbon Capture and Storage Potential for CCS in the UK”[15] found that:

• “without a national CCS infrastructure, the cost of reaching UK Climate Change targets will double from a minimum of around £30bn per year in 2050…equivalent of an additional 2p per kWh on all UK energy use in 2050. “, and;
• “Each five years of delay in implementing CCS until 2030 will add the equivalent of £4bn per annum to the total cost of the compliant UK energy system”.

September 2013