Project Management Institute

Change in the Air

Carbon Capture and Storage Projects Are Helping Slow Climate; But ROI Isn't Guaranteed

BY SARAH FISTER GALE

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The US$5 billion Gorgon carbon capture and storage project off the coast of Western Australia is a joint venture of energy heavyweights.

PHOTO COURTESY OF CHEVRON

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A power station in Reichwalde, Germany

PHOTO BY FLORIAN GAERTNER/PHOTOTHEK VIA GETTY IMAGES

The fight against climate change is at an inflection point. Leaders around the world have set bold targets to slash greenhouse gas emissions and slow global warming. An energy system based on renewable power sources is coming into focus. But fossil fuels aren't going to disappear overnight—that's why there's been a surge in the number and types of projects that implement carbon capture and storage (CCS) technology. The basic idea is to funnel carbon dioxide emissions from energy and industrial facilities into depleted oil and gas fields or other underground formations in order to limit their release into the atmosphere.

Momentum is building as the business case for CCS becomes viable. These facilities can generate revenue by diverting carbon dioxide so companies can use it to extract oil. The facilities also help reduce the amount of carbon taxes that some companies must pay. The 20 large-scale CCS projects currently in the planning or construction phases will more than double the number of CCS facilities around the world.

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“Climate science says we cannot meet our climate goals without addressing these emissions through carbon capture.”

—Matt Lucas, Center for Carbon Removal, Oakland, California, USA

Their size is growing, too. When it opens this year, the US$55 billion Gorgon CCS project—Australia's first CCS facility—will be able to store more carbon dioxide than any other CCS system in the world. The joint venture between Chevron, ExxonMobil, Shell, Tokyo Gas, Osaka Gas and Chubu Electric aims to capture up to 4 million metric tons of carbon dioxide emissions per year from a liquid natural gas production facility off the coast of Western Australia. In Switzerland, Climeworks last year completed the world's first commercial facility that sucks carbon dioxide directly from the air rather than from a flue. The organization has set an ambitious goal: capture 1 percent of global carbon dioxide emissions by 2025.

Today's CCS technology has matured to the point that it can capture up to 90 percent of the carbon dioxide emissions produced by industrial processes, says Matt Lucas, associate director for carbon capture utilization and sequestration at the Center for Carbon Removal, Oakland, California, USA. “Climate science says we cannot meet our climate goals without addressing these emissions through carbon capture,” he says.

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Climeworks CCS facility in Switzerland

But a new era for CCS creates new challenges for project professionals. Building larger and more advanced CCS facilities introduces new risks as teams try to scale smaller pilot initiatives. And as the technology matures, project teams are facing new expectations to deliver benefits beyond emission reductions.

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“By identifying and eliminating waste in the project management process, we can build the project at a lower cost.”

—Tim Wiwchar, Quest CCS, Calgary, Alberta, Canada

CAPTURING BENEFITS

As organizations move beyond proof-of-concept projects, sponsors are looking for ROI. Many countries tax organizations based on the amount of carbon dioxide they emit, which can add up to tens of millions of dollars each year. CCS facilities can reduce those tax bills—and increase long-term profits. But project teams still face pressure to identify ways to shorten schedules and reduce budgets in order to maximize the value of CCS investments.

A team at Shell shaved at least three months off its Quest CCS project in Alberta, Canada by using a modular design. Prefabricated modules were built off-site, says Tim Wiwchar, project management lead, Quest CCS, Calgary, Alberta. Two years after the CA$1.3 billion Quest project was completed, this approach could become a linchpin of future Shell CCS projects. Mr. Wiwchar anticipates that roughly 10 percent of the total cost of future projects could be cut because of teams' familiarity with the modular project plan.

“On Quest, we spent CA$120 million on upfront engineering and design,” he says. By replicating the Quest design, future projects could eliminate engineering and design costs because they only have to customize the number and location of the modules. “We can practically hand the design right to the engineers,” he says.

Mr. Wiwchar's team also expects to achieve savings through more efficient project execution. “By identifying and eliminating waste in the project management process, we can build the project at a lower cost,” he says.

NRG Energy and JX Nippon Oil & Gas Exploration also have found efficiencies while completing multiple CCS projects. The organizations jointly completed the US$1 billion Petra Nova CCS project near Houston, Texas, USA in December 2016 (See “Bound by Resilience” case study above.). The project used lessons learned from a successful three-year pilot initiative in the U.S. state of Alabama to help teams scale up Petra Nova into the world's largest post-combustion CCS facility installed on an existing power plant. Ron Munson, a carbon capture project consultant and former global lead for carbon capture at the Global CCS Institute, Washington, D.C., USA, believes other project teams can use Petra Nova as a roadmap for how to mitigate risks and deliver ROI.

“Because that project was well planned and executed, they were able to finish on time and on budget,” he says. “The project is expected to pay for itself within 10 years.”

CONFIDENCE BOOST

The global uptick in CCS projects suggests sponsors are increasingly confident that the technology can meet emission goals and long-term financial targets, says Hossein Dashti, process engineer and carbon capture and storage specialist at the Centre for Coal Seam Gas, a clean energy research group at the University of Queensland, Brisbane, Australia. “Global agreement on the need for CCS projects now is stronger than ever before,” he says.

But executing even the most efficient of CCS projects can be an uphill journey. Project managers must cultivate committed stakeholders for these capital-intensive investments to gain traction. Buy-in can be achieved through innovative design of infrastructure that carries captured emissions to a storage site, says Ted McMahon, project manager, National Energy Technology Lab, U.S. Department of Energy, Morgantown, West Virginia, USA. (The U.S. Department of Energy is a PMI Global Executive Council member.) For instance, he estimates that a pipeline that routes carbon dioxide to storage can cost up to US$1 million per mile to build. “It's capital-intensive to build 100 miles of pipeline as part of the project plan.”

To reduce infrastructure costs and sway budget-conscious sponsors, project teams increasingly are building storage reservoirs closer to the industrial flues where carbon dioxide emissions are captured. But that's just one solution in the tricky pursuit of benefits. When setting ROI goals and securing funding, project teams also must plan for how future oil prices might impact these investments. Lower oil prices reduce profits and slow ROI on CCS projects. While Petra Nova was completed on schedule and is now on the verge of meeting goals by capturing approximately 1.4 million metric tons of carbon dioxide annually, a drop in oil prices took a bite out of the ROI. When the project was conceived, oil cost US$70-US$100 per barrel, but when the plant went online in the closing days of 2016, oil prices dropped to US$50 per barrel. “As a result, the profits and ROI are not as handsome as we had hoped,” says Ben Trammell, senior vice president of engineering and construction, NRG, Houston, Texas.

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“Global agreement on the need for CCS projects now is stronger than ever before.”

—Hossein Dashti, Centre for Coal Seam Gas, University of Queensland, Brisbane, Australia

Such price volatility has caused some governments—which are common funders of CCS projects—to reconsider their support.

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Quest CCS, Calgary, Alberta, Canada

In October, for example, Norway's government proposed cutting funding for its flagship CCS project by 94 percent. The plant's scheduled completion date already has been pushed back from 2020 to 2022, and more cuts could risk further delays and the loss of key resources and stakeholders.

“There is no revenue to support these projects until they are built,” Mr. Munson says. “So it's very important for project teams to secure upfront funding to offset the cost of development and design.”

A PATH FORWARD

Despite all these challenges, there's immense opportunity for project teams to cement CCS as a reliable and revenue-positive technology that can help preserve humanity. It will remain relevant even if fossil-fuel-burning power plants someday disappear: CCS also can cut emissions generated beyond the energy sector, including chemical, steel, concrete and fertilizer manufacturing facilities, says Jonas Helseth, director of international environmental nongovernmental organization Bellona Europa, Brussels, Belgium.

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“It's very important for project teams to secure upfront funding to offset the cost of development and design.”

—Ron Munson, Washington, D.C., USA

“While it's possible for us to transition to renewable energy, there are no alternatives to certain types of industrial manufacturing,” Mr. Helseth says. “So we need projects that focus on those emissions, too.”

Regardless of the source of emissions, there's clear evidence that demand for CCS projects is growing around the world. For instance, China's government has committed to building eight CCS facilities in the coming years to reach emission-reduction goals.

As the political climate changes, Mr. Munson expects CCS projects to take off. “As governments get better at understanding the importance of CCS to meet their targets, more of these projects will be deployed. The future depends on policies, politics—and strong project teams.” PM

HOW IT WORKS

Capture (and Store) the Carbon It's a three-step process.

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Carbon Busters

The data doesn't lie. There's a dire need to reduce greenhouse gas emissions. For carbon capture and storage (CCS) projects, the potential impact is huge.

INCREASING THREAT

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LEADING THE WAY

Many governments have set goals to reduce greenhouse gas emissions.

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CAPTURING IMPACT

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GLOBAL GROWTH

The number of CCS projects is on the rise.

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*Large-scale facilities are capable of capturing at least 400,000 metric tons per year of carbon dioxide emissions.

*Capable of capturing at least 1.5 million metric tons per year of emissions

Sources: Climate Action Tracker; Global CCS Institute; The Global Status of CCS, Global CCS Institute, 2017

CASE STUDY

Bound by Resilience

By distributing risk, a landmark U.S. facility set a template for project success.

Organizations can't blaze trails without anticipating risks. That's how the team behind a first-of-its-kind carbon capture and storage (CCS) facility was able to manage surprises and deliver the project on time and on budget.

The US$1 billion Petra Nova CCS plant completed in December 2016 was a joint venture between NRG Energy and JX Nippon Oil & Gas Exploration. Petra Nova is the world's largest post-combustion CCS facility installed on an existing power plant. It captures emissions from a 240-megawatt equivalent slipstream of flue gas from a coal-fueled unit in Richmond, Texas, USA and funnels up to 1.4 million metric tons of carbon dioxide per year to a nearby oil field. Over the two-year project, there were no lost-time incidents in a combined 1.8 million construction hours for all team members.

“Our project success was about picking the right technology and the right partners and then assigning risk to those most equipped to handle it,” says Ben Trammell, senior vice president, engineering and construction, NRG, Houston, Texas.

Careful planning came first. With US$190 million of funding from the U.S. Department of Energy (DOE) on the line, the team had to ensure taxpayer money wouldn't go to waste. The project team researched and reviewed multiple carbon capture system providers. It eventually chose Mitsubishi because of the company's scalable CCS technology and because it could bring additional Japanese equity partners to the table.

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Petra Nova CCS project near Houston, Texas, USA

PHOTO COURTESY OF NRG

“That aided our ability to fund the project and to secure the DOE support,” Mr. Trammell says.

Once all stakeholders were on board, the team broke up project responsibilities based on each partner's expertise, or lack thereof. “We went into this recognizing our own limitations in delivering the engineering, procurement and construction,” Mr. Trammell says.

Properly distributing risk required upfront discussions among all potential partners, Mr. Trammell says. But the team ultimately devised a strategy based on each partner's specialty. For instance, Mitsubishi agreed to deliver deployment of the CCS technology with a guaranteed delivery date.

“This agreement helped us mitigate risk related to cost, schedule and performance,” Mr. Trammell says. Mitsubishi accepted risk on delivering functioning technology, and engineering firm TIC, which had extensive experience building related facilities, took on the risk of delivering construction on time. NRG maintained responsibility for integrating the coal plant with the new CCS technology and building a 75-megawatt combustion turbine generator, which is used as a heat and power source for the Mitsubishi system. NRG also took responsibility for building the 80-mile (129-kilometer) pipeline to an oil field, where the carbon dioxide is used in oil extraction.

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“Our project success was about picking the right technology and the right partners and then assigning risk to those most equipped to handle it.”

—Ben Trammell, NRG Energy, Houston, Texas, USA

By making the risk-mitigation strategy clear to potential partners during the vetting process, NRG was able to ensure all contractors were comfortable with the risk-sharing environment before they committed to the project, Mr. Trammell says. This paved the way to the best possible outcomes, he says.

“From a project management standpoint, Petra Nova was a raging success.”

Emission Critical

There are more than a dozen carbon capture and storage (CCS) projects under development around the world. Here are a few of the largest.

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LAKE CHARLES METHANOL

Location: Lake Charles, Louisiana, USA

Sponsored by clean energy manufacturer Lake Charles Methanol and the U.S. Department of Energy, the US$3.8 billion facility is designed to capture more than 4 million metric tons of carbon dioxide per year from a petroleum coke-to-gas conversion plant when completed in 2022.

YANCHANG INTEGRATED CCS

Location: Shaanxi Province, China

The system will capture 410,000 metric tons of carbon dioxide per year at two separate coal-to-gas conversion plants. The carbon dioxide will be trucked to oil fields 140 kilometers (87 miles) away. Project completion is slated for 2020.

CARBONNET

Location: Gippsland, Australia

In Australia's state of Victoria, the Victorian Department of Economic Development, Jobs, Transport and Resources plans to build a network of CCS facilities across the Latrobe Valley region and transport carbon dioxide to underground storage sites. The project aims to capture up to 10 million metric tons of carbon dioxide per year. No budget or schedule has been set—but the project has received AU$100 million in funding from government agencies.

CALEDONIA CLEAN ENERGY

Location: Grangemouth, Scotland

Scottish and United Kingdom governments jointly awarded a £4.2 million grant to start industrial research and feasibility studies for a facility at a coal plant that would capture 3.8 million metric tons of carbon dioxide per year. Construction could begin by 2022.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

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