Post on 07-Apr-2018
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BusinessPerspec,vesontheCCSIndustry
MichaelE.MooreExecu,veDirectorNACCSA
VPExternalAffairsandCCSBusinessDevelopment-BS
BirminghamJune6,2011
CCSAdvancing
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GlobalCCSProjects
EuropeanCCSProjects
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NorthAmericaCCSProjects
StateswithCCS&GSAc,onsCurrentor
Pending Texas Wyoming Kansas NewMexico Oklahoma Montana Pennsylvania Indiana Kentucky NewYork
Washington Louisiana Michigan Mississippi NorthDakota WestVirginia Illinois Ohio Alabama SouthCarolina
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NETL'sCarbonCaptureandStorage
DatabaseVersion3 NETL'sCarbonCaptureandStorageDatabaseVersion3
hp://www.netl.doe.gov/technologies/carbon_seq/global/database/index.html WelcometoNETL'sCarbonCaptureandStorage(CCS)Database.Thedatabaseincludes
ac]ve,proposed,canceled,andterminatedCCSprojectsworldwide.Informa]oninthedatabaseregardingtechnologiesbeingdevelopedforcapture,evalua]onofsitesforcarbondioxide(CO2)storage,es]ma]onofprojectcosts,andan]cipateddatesofcomple]onissourcedfrompublicallyavailableinforma]on.TheCCSDatabaseprovidesthepublicwithinforma]onregardingeffortsbyvariousindustries,publicgroups,andgovernmentstowardsdevelopmentandeventualdeploymentofCCStechnology.AsofApril2011,thedatabasecontained254CCSprojectsworldwide.The254projectsinclude65capture,61storage,and128forcaptureandstorageinmorethan27countriesacross6con]nents.Whilemostoftheprojectsares]llintheplanninganddevelopmentstage,orhaverecentlybeenproposed,20
areac]velycapturingandinjec]ngCO2.AccesstothedatabaserequiresuseofGoogleEarth.TheNETLCCSdatabaseisalayerinGoogleEarth.
CCSFunding
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ClimateGroup-EcofinCCSStudy
Outcomes1.Debtnotyet.Ampledebtmaybeavailablebutonlyifthreeprerequisitescanbeaddressed:
Anindicatorofperformanceacrossthewholecaptureandgenera]onchainmustbeprovidedbyawell-regardedequipmentsupplierorcontractor.
Majorsponsorswhohavesuccessfullymanagedsizeableandcomplicatedconstruc]onprojectsmustbeinvolved.
EconomicsofCCSmusthavearoutetobeingcompe]]vewithotherformsofgenera]on,withoutpublicfunding.
2.Notforspecialistequity.Specialistequity,suchasprivateequityorinfrastructurefunds,willnotbemobilisedtofinancedemonstra]onprojects.Privateequityseesdemonstra]onofCCS,liketechnologyfundingrequiringhighreturnsacrossaspreadofprojects.Infrastructurefundsdonttaketheconstruc]onandintegra]onriskinherentindemonstra]onCCSprojects.
3.Onthebalancesheetbutlimitedinscale.Bondholdersorequityholdersfrom
thebigpensionfundsorinsurancecompaniesarecomfortablewithcorporatesusingtheirbalancesheetstofinanceCCS,butonlyaslongasthescaleislimitedtojustacoupleofpercentofgroupassets.AcrosstheEuropeanu]li]es,though,thiswouldenableamaximumof5bnoffundstobeavailable,andeventhenitisques]onableifthoseu]li]eswouldbepreparedtoinvestthatmuchinCCSdemonstra]onswhilstbalancesheetsarebeingdeliveredandcapitalbudgetsarebeingcut.
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TwoHighLevelViews
MississippiPower-KemperCountyIGCCPowerPlant--RatebasegivestremendousuplicoupledwithDOEfundingandcapturedCO2sales.Powergenera]ononly.StateofMississippigivesstewardshipop]onviatrustfundalsovaluesCO2andtakesdirectrevenuefromsales.45Q/48A
SummitEnergysTexasCleanEnergyProject-mul]pleproductlinesnotjustpower,asynchronoussupply/demandpriceimpactorsonproducts,DOEfundingbigupli,capitalizesonCO2EORinthePermianBasin-TexasCO2ispurposefulproductnotawaste.StatevaluestheCO2doesnotseeitasawastebutavaluableresourceandtreatsitassuch.U]liza]onofTexasoffered
incen]ves(cleancoalandCO2forEORincen]vesbyHB469)aswellas45Q/48A
CO2-EOR
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RecentDevelopments&Catalystsfor
USIncen,ves Crudeoilnear/over$100onlongdatedforwardcurve 45Q/48Aamendmentsthatallowbothtobeusedsimultaneously 45Qproposedamendments---$50/50%$96/90%both-$10ifforEOR,
transferabilityandreservingfuturecredits10yrsout,100mmtonslimit
EPAgeologicsequestra]onguidanceonClassIIoptinandClassVIgivesdefini]onfor45Q
FourCO2off-takeagreementssigned-allindustrialsourcedCO2withconsidera]onoflongtermliabilityandstewardshipissues-alldes]nedtoEOR
Mississippi,Illinois,Kentucky,IndianaandTexas.eminentdomainforCO2pipelines,uni]za]onandstatestewardshipinplaceorinplay
Natgasasfuelforpowergenera]onaswellasGTLadvancingsowilltheirneedtomanagetheCCSandrelatedissuesbringsmoreinterestedpar]estothetableatbothStateandFederallevels
Mexicoopensupmoreforeigninvestmentinoilfields,likelytoseemarkedincreaseininteresttobringUSCO2totheirmaturefields EPAsRCRA-CERCLAlimitedexemp]onwouldremoveanotheruncertainty Na]onalCoalCouncilStudyseesCO2-EORasaneededcomponentofCCS GasprocessingtoremoveCO2inshaleplaysputsthemintotheCCSmix
ForwardCrudeOilSwapCurveSource:BarclayDailyCommodityReport6-3-11
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SizeandScopeofDemandisRising
Top10ProducingUSCO2-EOR
Operators2010(kbbl/dNo.Projects)
Source:Oil&GasJournal2010,BloombergNewEnergyFinance.
ConocoPhillips
ExxonMobil
Anadarko
Merit Energy
Whiting Petroleum
Hess
Chevron
Kinder Morgan
Denbury
Occidental
Texas
Wyoming
Mississippi
Colorado
New Mexico
Other states
85 (30)
43 (15)
31 (4)
24 (7)
20 (4)
20 (5)
14 (7)
13 (6)
12 (2)
6 (2)
Note:DenburyacquiredEncoreon1November2009,doublingtheirpoten]alCO2-EOR
recoverablereserveswithEncoresassetsinthemountainstates,notshowninthisfigure
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Life-cycleofaProducingField
CO2Valua,ons
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CurrentCO2
PipelineNetwork
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DenburysView
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LikelyCO2-EORScenarioSource:MIT-BEG2010Study
PointstoConsiderforCO2-EOR HighestdemandfornewCO2onfrontendofproject-peaksthentapersoff
duetorecyclingandlowerrecoverablereserves
Importanttounderstandthesearewellknownproducingfieldswithknownreservesandcharacteris]cs
Produc]onlifeislong-lowerriskthantypicalBAUfielddevelopment Highfrontendcapitalcosts,8-18monthlagoncashflow,thatinturn
peaksthentapersoverlifeoffield
Fielddevelopmenttypicallystaggered CommodityCO2pricing/supplycanbetailoredtomatchabove Needtoconsiderhighrecyclingcapitalcosts Incen]vesmostneededtosupportini]a]onofproject,recycling
investmentandcoverthelagbetweenfrontendcostsandcashflow
Howtosupportthevalueoffurtheringfieldvalueperstorage
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PointstoConsiderforCO2
-EOR
MatureareaslikethePermianBasinhavemanyoftheCO2-EORcomponentsinplace
Newareasrequiredeveloper/operatorstoini]ateasfirstmoverintoarea
Infrastructureneedstobeencouragedtodevelopintonewareas--CO2,wastewater,NGLs,powersupplyandcrudeoildeliveryto
marketcenters--allcouldbeacceleratedbyincen]ves
Carbon
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EUCarbonMarketValuesEuros/TonSource:www.pointcarbon.com
CarbonMarketsRecentDevelopments
ClimateDisclosureProjectstepsuppressureonpublicallyheldcompaniesontheirplanstomi]gateGHGemissions
SofarEPAintacttocon]nueGHGregula]ons CCSMethodologiesbasedocumentreleasedinMay CCSrecognizedasaCDMmechanismnowworkingoutthedetails Seeingincreasedinterna]onalinterestinUSoffsetsasKyoto
Protocolsslipawayin2012USsaysbindingagreementunworkable-wantsmorecountrybasedprograms
Overallcarbonmarketmovingupinvalue,primarilyondamagetopublicacceptance/percep]onofnucleardeploymentduetoFukushimaandnotaslikelyabigofplayerincarbonreduc]ons
UKplacescarbonfloorofstar]ngin2013~$25/tonthenescalates WCItostartcapandtradein2012 AB32stalledbutexpectedtoadvanceCCSlikelytohaveafuture
roll
EUlookingatlinkingtoCaliforniascapandtradeprogram Chinaindiscussionstocreateownna]onaltradingprogram
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CarbonPrograms
EU-ETS&mul]pletradingplaorms Na]onalregistries CDM/JIPost2012Kyoto? CCSeligibleforCDMDec2010COP-16Cancun* Na]onaltradingprograms-UK,NZ,Japan,China? UKcarbonpricefloor Norwayoffshorecarbontax Albertacarbontax CarbonTaxAustralia? USRGGIcurrent,CAandWCIin2012? USandinterna]onalvoluntarymarkets *CCSCERSfromCDMsindevelopingcountries?(SeeCatoIns]tutes:
Poten&alimpactsofCCSontheCDMCATO-2DeliverableWP2.3-D01andD02)
USRPSandAEPSSource:hp://www.pewclimate.org/sites/default/modules/usmap/pdf.php?file=5907
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Ques,ons&ThankYou!MichaelE.Moore
VPExternalAffairsandBusinessDevelopmentCCS BlueStrategiesLLC WWW.BLUESOURCE.COM Execu,veDirectorandFoundingBoardofDirectorsMember NorthAmericanCarbonCaptureStorageAssocia,on WWW.NACCSA.Org VPandFoundingBoardofDirectorsMember TexasCarbonCaptureStorageAssocia,on WWW.TXCCSA.Org mmoore@bluesource.com Tel:281-668-8475
Resources CSLFTechnologyRoadmap:hp://www.cslforum.org/publica]ons/
documents/CSLF_Technology_Roadmap_2010.pdf
DOE/NETLCarbonDioxideCaptureandStorageRD&DRoadmap:hp://www.netl.doe.gov/technologies/carbon_seq/refshelf/CCSRoadmap.pdf
GCCSIStrategicAnalysisoftheGlobalStatusofCarbonCaptureandStorage:hp://www.globalccsins]tute.com/sites/default/files/Report%201-Status%20of%20Carbon%20Capture%20and%20Storage%20Projects%20Globally_2.pdf
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TexasCleanEnergyProject
Eric(Ric)Redman,President
SummitPowerGroup
Workshop:ChallengesOpportuni&esintheCCSIndustry
Houston,Texas
May5,2011
Summary&Overview
TCEP:a400MWIGCCplantw/90%CO2capture Designedfromoutsettobeprojectfinanced Thisprovidesusefuldiscipline(evenwithDOEfunding!) Financing:$1.4Bdebt(bankdebt&projectbonds);
DOEaward$450MM;remainder=equityinvestment
RoyalBankofScotland(RBS):leadlender,debtarranger Equitysyndicate:4-6majorequityinvestorsexpected TotalcoststobeknownaerFEEDstudy(mid-summer)
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Background:Incep]on
Summitmaxim:Dontplanprojectsenvironmentalistswilloppose In2002,weaskedCleanAirTaskForceWhatsanOKcoalplant?
Mathema]cally,U.S.andworldcouldnotdowithoutcoal CATFrecommendedIGCC&CCSandlater,Sustectechnology
Goal:Tohelpchangeourindustrybyusingcoalcleanly&acceptably SummitbeganworkingwithSiemens,Linde&FluoronIGCC
Triedmanytechnologies,configura]ons,by-products,&sites CametoTexasatinvita]onofEnvironmentalDefenseFund
(EDF)
LearnedTexasprovidesbestcurrentsitesforCCSbecauseofEOR
PickedPenwellsitewhenFutureGenAlliancechoseIllinois Environmentalsupportconsistent,outspoken&gra]fying
Commercialconcept
TCEPtobeprojectfinancedinprivatecapitalmarkets Configuredanddesignedforbestavailability Availabilitymaersmorethanthermalefficiency Plantcontainsnounproven,non-warrantedtechnology Integra]onriskisenoughriskforWallStreet Technologicalheart:Siemensgasifiers+high-H2turbine
Financingheart:long-termavailability&performance 90%carboncaptureemergedfrompre-FEEDwork Ureaproduc]on(couldhavebeenotherproducts)result
ofsizingmismatch(gasifiersvs.CT)+marketanalysis
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Projectfinancing
Revenuesmustbeenoughtoservicedebt+yieldarac]veROE Keyconstraint:debtservicecoveragera]o(DSCR)
Firstlayerofprotec]onforprojectlenders(revenuesexceedprojectcosts) DSCRlevel+assuredrevenuesdeterminethemaximumamountofdebt
TCEPfinancialmodelusesmarket-requiredDSCR Revenuesfrompower,urea,andCO2/EORsales95%oftotal Dura]on&qualityofcontractsaffectra]ng&lendersevalua]on
SignificanceofDOEawardinthiscontext:reducesproductsalesrevenuerequiredtomeetDSCR&providearacIveROEs,allowingoutputtobesoldatmarketpricesratherthanproducIoncost
Projectfinancingrisks
Keyconcepts:(1)lendersdonttakeANYrisks;(2)allrisksmustbetakenbyothers;and(3)theothersmusthavedeepenoughpockets
Comple]oncosts&mechanical:useEPCcontracts,warran]es,mustfix&liquidateddamages(LDs),reservesforcon]ngencies
Opera]ons&maintenance:needlong-termwarran]es,LDs,somesignificantpor]onofcostsfixed,somemustfixprovisions
Projectrevenuesvs.costs:Needbankableoff-takecontracts&securesupplycontracts;ideallytheseshouldtrackeachother;
dura]onofcontractsmaersalot(longtermisbeerthanshort) Financialcapitalcostrisks:thingsturnsourquicklyifcostsexceed
revenuesforlong;notlikerunningacompanyquarter-to-quarter;trapdooropensunderprojectsifDSCrequirementsnotmet
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Tax&CCPI-3benefits
TCEPenjoysaCCPI-3award($450M),aSec.48AITC($313M),accelerateddeprecia]on&Sec.45Qsequestra]oncredits
Combina]onisapparentlyunique&requiresop]miza]on
Addi]onalfinancinghelpDOEhasprovided: 80/20reimbursementratefor$211MofDOEfunds Willingtoletloanproceeds&DOEfundsbeusedfirstineachphase
Incompletelyop]mizedTCEPfinancialmodelshowsadequateDSCRs+ROEsates]matedprojectcostsandrevenues
But:(1)Projectcostsarenotfinal,and(2)taxabilityofCCPawardwouldcostTCEP$157MMupfront.
Costques]ons-1
OldIGCCfear:nowarrantedavailability.TCEPtriestofixthat. NewIGCCfear:riskofhugecapitalcostsincreases&overruns
SupposedlessonofEdwardsport,Taylorville,Eastman,etc. Ourneedtodis]nguishTCEPisconstant Theoutofcontrolcostfearcanbecomeself-fulfilling DOEwillhavelimitedabilitytoprovideaddi]onalfunding
Whatwearedoingaboutit: Havetriedtolearnfromotherprojects Costreduc]onteam(CRT)effortwithFEEDcontractors Contract&financialarrangementswithvendors Topengineers,consultants,andlawyersassis]ngtheSummitteam Workingtoop]mizefinancing,innovatewithoff-takeagreements
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Ownership&lenders-1
Summitini]atedTCEPitself,intendinganeventualnewowner Largecompanybecameprospec]veownerinearly2008butfailedin
late2008;Summithadnevertransferredownership
Jan-June2009:SummitsuccessfullysoughtTexasincen]velegisla]on December2009:DOEselectedTCEPfor$350MCCPI-3award Summer2010:DOEboostsCCCPI-3awardto$450M Mid-2010:SummitretainsWellfordCapitaltocommence
nego]a]onswithpoten]allong-termequityinvestors
Currently:RBStolead3-bankteam;Capstarleadstaxequitywork
Financingschedule Permingtobecompletebymid-2011
Airpermitinhand;NEPA(EIS)RODscheduledformid-summer FEEDStudyscheduledtobecompletebymid-2011 Off-takeagreementsscheduledtobecompletebymid-2011 Vendorcontracts(water,coal,etc.)tobecompletebymid-2011 EPCcontract(s)tobereadyforFEEDStudyresultsatsame]me
SignedEPCcontract(s)shouldbefinalstepbeforeclosing Lenderstobelinedupinadvance;loanagreementsprepared Membersofequitysyndicatetobechoseninadvance FinancialClosingtooccurassoonaspossibleaerEPCsigning
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BigIssues
Knownbigissues: TaxabilityofCCPIawardwhenrecipientisnotacorpora]on Impactofelec]ngcorporatetaxtreatmenttoavoid
taxability
Marketpercep]onofinevitabilityofprojectcostcreep Poten]albigissues(possiblebutnotexpectedtomaterialize):
Actualprojectcosts,ifnotkeptin]ghtcontrol EPCcontractstructure,ifnotsa]sfactorytofinanciers Long-termwarran]esofavailability&performance(dio)
Inherentadvantages:PermianBasinloca]onforCO2/EOR,Siemensgasifiers&high-H2combus]onturbine;revenue
contribu]onofurea;DOEsupport;environmentalsupport
Moreinforma]on www.texascleanenergyproject.com=projectwebsite www.summitpower.com=Summitwebsite Eric(Ric)Redman,eredman@summitpower.com
Thankyou!
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