update... Power stations capturing carbon dioxide could earn revenue by selling the gas and cut costs by reducing purchases of carbon
permits. As crude prices rise, the incentive for oil companies
to pay more for the gas would increase.
"If the CO2 permit price goes up, the power plant does not
need to sell physical carbon dioxide for so much," because of
its strengthened competitive position against rival stations
that still need to buy permits, Greenwood said. A rally in oil
to $100 a barrel would negate the need for a carbon price at
all, he said.
Risk, Reward
The enhanced oil recovery plant is in a strong bargaining
position in its relationship with the utility after the
pipelines are built, because the power station can't easily
switch to another field, Greenwood said. So construction and
transport contracts between utilities and the oil company will
likely share the profits from any increase in the carbon and oil
prices, as well as share risks should prices fall, he said.
+------------------------------------------------------------------------------+
Carbon Capture Closer to Profit in Oil Rally: Energy Markets
2010-08-04 15:13:43.973 GMT
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 toward $100 a barrel.
Gathering carbon dioxide and pumping it into deposits to
extract more crude for so-called enhanced oil recovery became
too costly for companies after Brent crude 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.
E.ON 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 $82.61 a barrel at 4:10 p.m. in London,
having advanced 10 percent in the past year.
'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. Much of the spending on the
capture plants 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 14.35 euros
a metric ton on London's European Climate Exchange as of 4:02
p.m. local time. The permits, which enable polluters to emit
greenhouse gases, will trade at about 22 euros a ton in 2014,
according to New Energy Finance.
Power stations capturing carbon dioxide could earn revenue
by selling the gas and cut costs by reducing purchases of carbon
permits. As crude prices rise, the incentive for oil companies
to pay more for the gas would increase.
"If the CO2 permit price goes up, the power plant does not
need to sell physical carbon dioxide for so much," because of
its strengthened competitive position against rival stations
that still need to buy permits, Greenwood said. A rally in oil
to $100 a barrel would negate the need for a carbon price at
all, he said.
Risk, Reward
The enhanced oil recovery plant is in a strong bargaining
position in its relationship with the utility after the
pipelines are built, because the power station can't easily
switch to another field, Greenwood said. So construction and
transport contracts between utilities and the oil company will
likely share the profits from any increase in the carbon and oil
prices, as well as share risks should prices fall, he said.
Societe Generale oil analyst Mike Wittner, whose estimates
last year were the most accurate of 21 analysts surveyed by
Bloomberg, forecasts a price of $108 a barrel for Brent in 2014.
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 to test the technology and then
releasing it, 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
