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Interstate Natural Gas Association of America
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Developing a Pipeline Infrastructure for CO2 Capture and Storage: Issues and
ChallengesAn INGAA Foundation Study
February, 2009Presented by
Lisa BealDirector, Environment and Construction PolicyInterstate Natural Gas Association of America
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Presentation Outline
Climate Change OverviewWhy the StudyOutlook for CO2 SequestrationWhat would a CO2 Pipeline Network Look LikeThe Current Regulatory RegimePossible Industry StructuresKey Issues and ChallengesWhat Next?
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Overview
States are continuing to develop and implement individual and regional programs.An aggressive federal bill (S 3036) has been debated in the Senate and a similar bill has been proposed in the House. The Federal program structure seems to be converging.Direct regulation is very much on the table.International negotiations are also continuing.Economic troubles may slow action in 2009, but probably will not preclude it entirely.Treatment of the natural gas sector is still very important and very poorly understood by regulators.
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Federal Legislative Scorecard
Many bills offered in 2007, mostly in the Senate.Lieberman/Warner bill, S. 2191 emerged as the survivor in the Senate late in the year.Revised and brought to the full Senate as Lieberman/Warner/Boxer S. 3036 in June 2008.
Only limited discussion before being dropped on procedural grounds.
Comparable House bill released by Representatives Dingell and Boucher in October.Positioning continuing for 2009.
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The Shape of Future Legislation
Hybrid cap and trade with direct regulation of large stationary sources. Overall reduction of 70 – 80% by 2050.Oil consumption regulated at refineries.Small gas users likely regulated at LDC with possible phase-in.Possible phase-in of the cap.Some initial allocation of allowances, phasing out by 2025 –2030.Direct regulation of methane fugitives is uncertain.Limitations on use of offsets.Credit for early action will be very limited.
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Where Do We Go From Here?
New Administration will set the agenda for possible legislation in 2009 or more likely early 2010.Replacement of Dingell by Waxman in the House may cause shift rather than wholesale change.Obama administration more likely to regulate under CAA.If Federal legislation is not forthcoming, state activity will continue, and may continue anyway.Both drive industry to support legislation. Proponents of legislation are not dropping the issue at this point.
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Key Issues For Pipelines
Get inventory in order – may want to wait for reporting rule.Keep in step with regulatory developments – state, regional and federal.Prepare analysis of developing options.Is direct regulation better than cap and trade?What are the options for reductions/creating value.Participate in the debate on regulatory structure, especially treatment of fugitives, offsets, early reductions, initial allocation.
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Why this Study?
Research and policy analysis to date has focused on carbon capture technologies and geologic sequestration issues
Little analysis of pipeline transportation requirements
The INGAA Foundation sponsored this study to examine the implications for a pipeline network
Physical requirementsCostsDevelopment policiesRegulatory framework
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Overview of CCS
Carbon Capture and geologic Storage has three steps 1) CO2 capture and compression 2) pipeline transportation3) underground storage
The capture component of CCS is the most technically challenging and uncertain costStorage cost and operational issues vary widely with the geologic settingTransportation of CO2 by pipeline is a mature technology and should not see significant changeAcross all steps, the scale needed for a national program will be most challenging
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Uncertainties are Reflected in Costs by Step
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Sequestration Potential is Large
Depleted natural gas and oil reservoirs, saline aquifers, coal beds, and shales are most suitable for CO2 storageCoal power plants will dominate the proposed CCS projects in the futureGeological storage capacity in the Lower 48 states is estimated to be over 450 years at recent U.S. GHG emissions rates
Geologic storage capacity in Canada may be about 2,000 years equivalent of Canadian GHG emissions
Large scale sequestration has been successful at sites in the North Sea, Algeria, and Saskatchewan
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Estimated Geologic Storage Capacity (million tonnes)
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U. S. Sources of CO2There are 1,715 large (> 100,000 tonnes CO2/yr) CO2sources in United States
1,053 electric power plants259 natural gas processing plants126 petroleum refineries105 cement kilnsRest are iron and steel foundries and ethylene, ammonia, hydrogen, ethanol, and ethylene oxide plants
Coal-fired power plants will be the major source of CO2The analysis expects the following levels of sequestration by 2030
300 to 1,000 million tonnes per annum in the United State 90 to 150 million tonnes per annum in Canada
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Coal Plants and Sequestration Potential
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Pipeline Requirements
U.S. has 3,600 miles of pipelines for delivering CO2 to EOR projectsThe future CCS pipeline network infrastructure depends on three factors
The location of the CO2 sources and sinksWhether the network can be built in an integrated manner to combine flows and minimize costs rather than piecemealHow large a role EOR will play in early CCS development
The study evaluated 4 cases2 Low cases (300 MT/y by 2030) with more or less CO2 in EOR2 High cases (1,000 MT/y by 2030) with more or less CO2 in EOR
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Pipeline Requirements are between 5,900 and 36,000 Miles
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Costs Range between $8.5 and $65.6 billion
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Potential CO2 Network
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Regulating CO2 Pipelines Today
CO2 pipelines operate as private contract carriage transporters of CO2 from naturally occurring resources to EOR projects
No rate regulation, rates determined in bilateral negotiationsSome states have jurisdictional authority on tariffs where eminent domain has been grantedState resource agencies and federal land management agencies issue construction permits and environmental oversight
U.S. DOT, Office of Pipeline Safety, Pipeline and Hazardous Materials Safety Administration (PHMSA) is responsible for safe design and operationsPipelines are project specific, unlike oil and gas pipelines
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Comparison of Regulatory RegimesElement Oil Pipelines Gas Pipelines CO2 Pipelines
Rates Regulation Authority (Interstate) FERC FERC None
(Possibly STB)
Regulatory Regime Common Carriage Common Carriage / Contract Carriage
Private, Contract, or Common Carriage
Ownership of Commodity
Mostly third-party ownership
Mandated that interstate pipelines only transports gas owned by others.
Common for CO2 owned by pipeline owner / third-party
Tariffs / On-going regulatory oversight
Yes - rates are approved by FERC
and increase indexed to PPI +/- an
increment
Yes - Rates are periodically set by rate
cases before FERC
No - STB would only look at rates if a
dispute is brought before it.
Rate disputes Every five years the increment to PPI is
modified.
Rare for disputes outside of rate cases. However they can be brought before FERC
Uncommon due to ownership
relationships and prearranged deals
Siting State and local governments
FERC State and local
governments
Safety PHMSA PHMSA PHMSA
Market Entry and Exit Unregulated entry and exit
Need approval for both entry
(construction) and exit (abandonment)
Unregulated entry and exit
Product Quality
“Batch” modes transport different
products at different times. Not
Specifications individually set in tariff
approved by FERC
No Federal Regulations*
Posting information Tariff information is available on-line
Daily operational and tariff information is available on-line
None Required
Eminent Domain Yes - Varies by state. More often if pipeline is a common carrier.
Yes Varies by State Law
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Key Issues Identified by Industry and Government Experts
Liability for performance of both the pipelines and the sequestration reservoirs in short term and long term
ensuring pipeline deliverability and the permanence of storage
Financing of pipeline and sequestration facilities corporate balance sheet financing, to project financing, to hybrid approaches including some public financing
Siting and right-of-way acquisition whether federal eminent domain is desirable how to address overlapping federal, state, and local siting authorities and processes
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Possible Pipeline Ownership StructuresOn-site Sequestration Model. A large power plant pipes CO2to a sequestration structure on or near the site of the plantProject Ownership Model. A plant partners with or signs long term contract with a sequestration site developer and pipeline operator (possibly the same entity) to transport and sequester CO2 (most likely structure for EOR projects)Municipal Solid Waste Model. A plant contracts for CO2removal services with an independent collector pipeline/sequestration service providerPublic Utility or Government Ownership Model. An independent government chartered corporation collects and sequesters CO2
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Federal Regulatory Options
Area of Potential Federal Regulation Pros Cons
1. Federal jurisdiction for commercial regulation in one agency
Current confused state of affairs may not support the large potential CO2 pipeline investments needed in next 20 years.
Although some clarification by Congress may be inevitable, objections may be raised by states and special interest groups (industry, environmental, local government, etc.).
2. Economic Regulation, Rates
Provide more certain costs for shippers and adequate returns for pipelines.
May hinder early CO2 pipelines’ profits from innovative contract terms with shippers given that volume flows will be uncertain.
3. Common Carriage Regulation
Ensure access for all CO2 producers.
Where capacity is prorated, may not provide assurance of adequate disposal of captured CO2
4. Private Contract Carriage
Would provide performance assurance, especially for first movers, and provide contract commitments for financing.
May reduce access to the system.
5. Access to Pipeline Capacity
Requiring open access through common carriage would encourage fewer pipelines to be built, better economies of scale.
Economic incentives can lead to optimally sized pipelines in any case. If pipeline developers or shippers want to tie up capacity for themselves (e.g. to support CCS projects planned for the future) they should be able to do so.
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Federal Regulatory Options (contd)
Area of Potential Federal Regulation Pros Cons
6. Federal Lead for Environmental Reviews (e.g., Hackberry for LNG terminals)
Will reduce burden to pipeline developers and make CCS more economically viable.
Would upset state officials and lead to backlash among citizens against CO2 pipelines and CCS.
7. Federal Eminent Domain
May be needed to improve planning and system wide design and operating efficiencies.
May create backlash among property owners. Trade off for ED might be impractical rate regulation.
8. Federal Corporation for Storage Development and Operations
Would provide a federal commitment towards a broadly social goal.
May stifle private sector opportunities and depending on how structured could result in political considerations driving decision making.
9. Market Entry and Exit Permission for Interstate CO2 Pipelines
Would likely be tied to other regulations. Incentive to regulate might be to limit environmental foot prints of similar projects that can be consolidated.
No reason to restrict entry or make it more burdensome.
10. Product Quality Federal standards may help reduce environmental concerns. Would allow linking of separate systems in the long-run.
Might restrict most the economic choices (e.g. Oxy-firing of low-sulfur coals without an FGD). Work-around might include a “clean CO2” spec for EOR and a “dirty CO2” spec. In the long run pipeline quality specs may have to be tied to EPA underground CO2 injection rules.
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Need for a National Approach
Future CO2, unlike in EOR applications, will have no economic value outside what a GHG carbon policy (cap and trade or tax) confers on it
Creates special challenges for financing
CO2 transport and sequestration will be continent wideInvolving large investmentRequiring standard operating capabilities and rules, e.g., CO2quality standardsEnsure access and performance
Future pipelines will be in more heavily populated areas with more siting and construction challenges
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