see attached Carbon Capture Closer to Profit in Brent Rally: Energy Markets
By Mathew Carr
Aug. 4 (Bloomberg) -- Capturing pollution from European power plants and using it to force oil from underground reservoirs may turn a profit for the first time as crude prices rise.
Gathering carbon dioxide and pumping it into wells to extract more crude for so-called enhanced oil recovery became too costly for companies after Brent oil fell 73 percent between its record high in July 2008 and December that year, according to Thomas Greenwood, an analyst at Bloomberg New Energy Finance. The 115 percent rebound since then may make it profitable even without government subsidies that are designed to curb the emissions, he said.
EON AG, Germany's biggest utility, and Sweden's Vattenfall AB are among companies seeking about 4.3 billion euros ($5.7 billion) in European Union subsidies for carbon capture and storage. Regulators want to introduce the technology to help curb the greenhouse gases blamed for global warming.
``Projects are not far from becoming profitable,'' Greenwood said from London. ``If carbon-dioxide-based enhanced oil recovery were to take off in the North Sea it would be a major boost to carbon capture and storage in Europe.''
North Sea Brent crude, used to price two-thirds of the world's oil, will rise to $88 a barrel next year and $92 in 2012, according to the median of 23 analyst forecasts compiled by Bloomberg. It was at $82.46 a barrel at 8:07 p.m. in Singapore.
`Makes Sense'
Enhanced oil recovery involves pumping carbon dioxide into underground reservoirs to extract more crude than would otherwise be obtained through natural pressure. The process has the advantage of extending the lifespan of an oilfield while permanently burying the pollutant.
``Initial projects all have to be around enhanced oil recovery,'' said Lewis Gillies, chief executive officer of 2Co Energy Ltd., a London-based company studying the development of carbon-capture projects. ``Given the current financial environment, it actually makes sense for quite a number of these projects to have the same carbon-dioxide solution.''
Five power stations in Yorkshire, northern England, could pipe carbon dioxide into a single North Sea field, according to Gillies. 2Co has already hired investment banks to consult with oil producers on the best storage locations, he said.
The first carbon-capture projects may be years from completion, according to Greenwood. Most of the costs of the initial installations will probably be paid for by governments or with the help of EU grants, he said.
Three Years Away
``Power stations will take at least three years to build so we wouldn't expect them online until 2014 or 2015,'' Greenwood said. European Union countries have capacity to store more than 60 years of emissions, he said.
EU carbon allowances for 2010 delivery were at 14.43 euros a ton on London's European Climate Exchange yesterday. The
permits, which enable polluters to emit greenhouse gases, will trade at about 23 euros in 2014, according to New Energy Finance.
Power stations capturing carbon dioxide would earn revenue by selling the gas and cut costs by reducing requirements for carbon allowances. As crude prices rise, the ability of oil companies to pay for the gas would increase.
Scottish & Southern Energy Plc, Britain's second-largest power generator, said July 8 it plans to demonstrate the capture and storage of carbon emissions at a natural gas-fired plant in Scotland. Its previous partner, BP Plc, abandoned an earlier proposal for enhanced gas recovery in 2007.
SSE is already capturing carbon dioxide at its Ferrybridge coal station in Yorkshire and then releasing it to test the technology, Justin Smith, a spokesman for the Perth, Scotland-based company said by phone on Aug. 2.
``If a viable solution for storing that carbon was proposed, we would be interested,'' he said.
For Related News and Information:
For more Energy Markets Column stories: {NI NRGM<GO>}
Carbon capture and storage stories: {NI CARBCAPT <GO>}
Emission market news {NI ENVMARKET <GO>}
Top energy, environment stories {ETOP <GO>}, {GREEN <GO>}
European power-markets home page {EPWR <GO>}
Climate-change news: {NI CLIMATE <GO>}
--With assistance from Catherine Airlie in London. Editors: Raj
Rajendran, Stephen Voss
To contact the reporter on this story:
Mathew Carr in London at +44-20-7073-3531 or
m.carr@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
