Natural gas pipeline developers should be encouraged to facilitate the development of an interstate CCS pipeline transportation market. The pipelines have the skills and resources needed to provide this infrastructure within our economy. Within the United States somewhere between 3,000 to 4,000 miles of CCS pipelines have been developed over the past 30 years to transport CO2 for enhanced oil recovery. Given the emerging energy policies of the Obama Administration, a much expanded role for CCS pipelines lies in our future.
Pipelines can be built in three basic configurations to deliver CO2 to a “sink” area for injection into a salt cavern, depleted oil/gas field or non-mineable coal seam formation. The associated electric or natural gas power plant(s) that are the carbon source can be built directly over the “sink,” a single line can be built from the electric plant to the “sink” formation, or a network of CO2 pipelines can be built to transport the gas to the underground formations. Since some electric plants, such as peaking plants, do not run continuously, a network configuration may be favored to improve the load factor, and thereby the economics of the pipelines. Obviously, if the electric plant is located directly over the “sink” formation, the pipeline would be very short in length and would not be a major economic consideration. If the carbon capture site configuration and an available “sink” formation were relatively close to each other, single lines will likely evolve whose depreciable life would be tied to the physical and economic life of the power plant. A less extensive CO2 transportation network may evolve regionally in circumstances where power plant “farms” might be constructed due to favorable access to the electric grid, adequate water, and economic coal (including rail transport) or other fuel sources at a particular location. The evolution of a more extensive CO2 interstate transportation network might be more remote in its potential to evolve, and probably would be the last considered option if economics are permitted to prevail, even though improving the scale and volume of CO2 transportation would improve pipeline economics. Another factor that would play into economic evaluations will be the cost of and timing considerations associated with transporting energy by wire.
Before the market-place recognizes an extensive need for CO2 transportation facilities, a number of developments will need to occur. A carbon cap-and-trade law would improve the economics of carbon capture and sequestration facilities, such as those associated with coal power plants. CCS facilities increase the cost of delivered power substantially. Today, renewable electric generation options, such as wind or solar panels, appear be the preferred energy source alternatives by state regulators and national political leaders. Natural gas power plants also seem to be preferred over coal plants, even with potential CCS facilities, due to their relatively low capital cost requirements, shorter construction windows, and with more clarity today that significant additional gas supplies are available from non-conventional gas fields, such as the Barnett Shale fields of North Texas.
CO2 pipeline development requires an environment where CO2 is viewed by policy makers and the public as a commodity (rather than hazardous material) that can and should be safely transported and stored without significant leakage. This will require the evolution of several technologies and safety legislation, eminent domain transportation rights and clarity of CO2 environmental policies. Clarification of CO2 as a commodity, rather than a hazardous material, would facilitate transportation to remote storage sites and sequestration in applications where some economic benefit besides disposal can be realized, such as is currently the case with enhanced oil recovery. Thus, a number of important policy and legal matters need to be resolved before power plant developers and pipeline proponents will get a clear economic signal that an extensive CO2 transportation grid should be constructed.
Development of a pipeline network depends on the ability of electric distribution companies to pay for the facilities. Current state regulatory procurement processes that evaluate the best power source options will remain in place, and a power plant with CCS must be a best, or at least an acceptable, alternative to others in that planning process. The economics in part will depend on the cost of purchasing emissions credits as an alternative to CCS-related facilities once the cap-and-trade market fully evolves. Whether the CO2 transportation facilities are price-regulated or not is important, but not really the central question because the costs of transportation can be recovered by the pipeline developer if a contract with a credit-worthy electric LDC is in place. However, if CO2 transportation facilities were price-regulated, such as is the case today with interstate natural gas transportation facilities, this may help smooth approvals in the state-regulated energy procurement approval processes. Therefore, a jurisdictional transportation scheme would be likely more successful in its evolution. However, in the alternative policy makers could permit market-based or negotiated price options to evolve assuming a demonstrably competitive market for energy supply options.
CO2 pipelines are physically very similar to natural gas pipelines in almost all important respects. The pipeline and compression (or pumping) facilities can be built using transferrable, well-developed technology for similar costs per mile, though CO2 pipelines would likely more often be high pressure lines that is the case today for natural gas pipelines. CO2 pipelines would have electric compression or pumping facilities, rather than gas-fired compression which is more typical in the current interstate gas pipeline transportation network. CO2 pipelines do not corrode faster than natural gas pipelines as long as contaminants are controlled; thus, they do not inherently depreciate faster or slower than natural gas transportation facilities. Due to these factors, improving the cost of CO2 transportation would depend most importantly on government economic policies, such as the tax depreciable life, whether investment tax credits would be available and regulatory depreciation policies, such as the possible ability to defer depreciation until the full transportation demands evolve. Given favorable regulatory and tax policies, the facility costs could be recovered with a favorable depreciation scheme, such as levelized depreciation, and with the economics of tax incentives being transferred from the government to consumers. If the CO2 pipelines are non-price regulated facilities, the recovery of costs is simply a matter of negotiation between the electric LDC and the pipeline developer, a matter which is already well evolved for similar natural gas pipelines.
The circumstances that will drive the evolution of an extensive CO2 network are tied to technological developments and to large scale policy initiatives to sort out national energy source priorities.
I believe those interested in promoting CCS pipeline development should promote the following policies:
· CCS transportation as transportation of a commodity rather than as a hazardous material
· Eminent domain rights and certification of CCS transportation facilities
· Jurisdictional status and price regulation of interstate CCS transportation facilities with market-based pricing exceptions permitted for demonstrably competitive markets
· Economic incentives, such as favorable income tax treatment and innovative rate strategies, including negotiated rates and capacity release trading on CCS pipelines
Bruce E. Warner, CPA, CDP, CSS
March 2009
Author’s note: For more information on this topic, see the excellent article: “Carbon Dioxide (CO2) Pipelines for Carbon Sequestration: Emerging Policy Issues” by Paul W. Parfomak and Peter Folger”