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CalCapture Project - CRC Entry into CCS Opportunities in California

image credit: Credit: Upstreamepadvisors.com
Tariq Siddiqui's picture
COO, Upstream EP Advisors LLC

Oil & Energy | Business Development | Capital Projects | Offshore Wind -  Proven leader in offshore development and operations, with 25+ years’ expertise in managing business through cycles...

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  • Sep 20, 2021
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Los Angles based California Resources Corporation (CRC) is set to design and permit California’s first carbon capture, utilization and storage (CCUS) project by 2025. The project is named “CalCapture,” it would capture carbon dioxide CO2 from the CRC operated Elk Hills Power Plant; a 550-MW natural gas combined cycle power plant and inject that CO2 into depleted oil & gas fields for Enhanced Oil Recovery (EOR) – while extending life of oil fields and permanently storing CO2 underground.

California has many sources of CO2 emissions; natural gas processing plants, ethanol plants, refineries/chemicals plants, power plants and cement industry. It therefore needs many pathways for decarbonization. Although CCS may not be the silver bullet for California, it is one the pathways that could help reduce the California emissions. CRC is supporting California in its efforts to achieve some of the most ambitious decarbonization targets in US;

California’s geological structures can store up to 3 – 5 billion tons of CO2; at the rate of 60 mtpa (million tons per annum) for 100 years. Of this 20 mtpa can be stored profitably after capture from hydrogen generation, ethanol facilities and refineries. Another 40 mtpa is not commercial today but may become commercial after R&D and piloting.

CRC is estimated to have a storage capacity of 1.0 billion tons of CO2 or nearly 20% of California’s geological structure. CRC operates almost 150+ oil & gas fields in California’s four basins (San Joaquin, Los Angles, Ventura and Sacramento basins) that can permanently store CO2 with EOR as well as dedicated CO2 storage in the depleted oil & gas fields.

CO2-Enhanced Oil Recovery (EOR) storage, accounts for 75% of all operational CCS projects to date. The CO2 from NG processing plants (high purity up to 50 %) accounts for almost 50% of all the capture sources. The Capture of CO2, its transportation and injection in to underground reservoirs for EOR is a well established technology in USA. SACROC unit has been operational since 1972, capturing CO2 from Val Verde NG processing plant and injecting CO2 in reservoirs for EOR. Almost 100+ MM tons of CO2 has been stored to date without any significant leakage of CO2.

CRC's ‘Carbon TerraVault,” is a series of CCS projects that injects CO2 captured from industrial sources into depleted underground oil & gas reservoirs and permanently store CO2 deep underground. CRC has applied for a permit for one of two initial permanent carbon capture and storage (CCS) projects at Elk Hills field - which are collectively referred to as ‘Carbon TerraVault I”. The company will apply for a permit for the second project later. The Elk Hills CCS project will be able to capture and inject 1.0 mtpa, equivalent to the annual emissions of approximately 200,000 passengers vehicle.

One of the reasons for slow pace of CCS acceptance is its “value proposition,” – the revenue model. The CCS project can be capital intensive costing unto a $ 1.0 billion. Without EOR revenues or federal and state incentives to capture and store, investors and operators will have little appetite for investing in CCS projects. Incidentally, California's state incentives, which if stacked together with federal incentives could be $275/ton. These are;

  • Federal Program: 45Q ($50/ton for storage; $35/ton for Co2-EOR from 2026)
  • State Program: Low Carbon Fuel Standards (LCFS) – $185/ton
  • State Program: Cap & Trade ~ $40/ton (Extended to 2030 recently with conditions)

Besides several environmental and economic benefits, there can also be several challenges with CRC’s Elk Hills CCS / power plant project. The post combustion capture of CO2 from power plant is energy and capital intensive due its low purity (5-15 %). Furthermore, project profitability is very much susceptible to volatility in oil prices. Petra Nova, the worlds largest installation of carbon capture on a power plant (from coal fired flue gas), located in Texas was closed in 2020 when oil prices dipped.

The key focus of the CalCapture CCS project should be to successfully pilot and test the key challenges it faces and subsequently upscale it to an infrastructure level, i.e 'Hub & cluster' concept. This will allow CCR to gain learnings from technology and regulatory environment, venture generation, integration and develop appropriate business structure for California environments.

The newer and innovative business models in the industry are considering separation of 'Capture' from 'Transportation & Storage.' Although, 'Vertical Integration' and 'Joint Venture,' business models have been there for a while, but recently 'CCS Service provider,' business model is increasingly becoming attractive; a one-stop-shop for providing capture and storage solutions for emitters. CCS-as-Service from Aker CCS is a best example.

Elk Hills CCS project, being the first in California, will carry a higher risk in technology, business, commercial and regulatory regime. The pilot projects at the early stage, demonstrate technology viability and are rarely commercial. This requires a public and private collaboration, where companies may act as contractor to the state. Finance resources are limited and investors (strategic) are few. Projects largely rely on federal grants, if there are no federal state incentives . Weighted cost of capital at pilot stage is high, with little or no margin for profitability. Therefore prime financial objective at early stage is cost recovery and keeping a visibility on future cashflows. Once de-risked, a mature CCS industry develops that is technology neutral; the financial burdens is then shifted away from state to private enterprises in a liberalized market.

The other challenge is ambiguity in claiming credit. The difference between EPA & UIA Class II injection requirement and GHG CCS protocol is most pronounced. CO2-EOR requiring class II injection is well established and less stringent, with practically no requirements for monitoring the stored CO2. To claim the much needed LCFS (in alignment with GHG CCS protocol), however does require meeting extensive measurement, monitoring and verification requirements. The Class VI dedicated storage wells require extensive MMV for both EPA/UIC and LCFS.

In conclusion, California Resources Corporation (CRC), is well positioned to address CO2 emissions from various emitting sources and geologically sequester them for long term storage into the depleted oil and gas reservoirs, thus helping to scale up the CCS infrastructure in California that can help meet the emissions targets of key emitters and the state.

 

 

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Matt Chester's picture
Matt Chester on Sep 20, 2021

The pilot projects at the early stage, demonstrate technology viability and are rarely commercial. This requires a public and private collaboration, where companies may act as contractor to the state.

This seems to be a key point-- the question is how much will CCS command public financing where it has to compete with those dollars with other clean energy tech. What's the current appetite for them at the state/national level?

Tariq Siddiqui's picture
Tariq Siddiqui on Sep 20, 2021

Indeed this is correct. Here is what's happening in the industry:

Its agreed there are multiple pathways for decarbonization; including renewables and removal project like CCS. All the new technologies are enabled with public private partnership. There are three phases in this cooperation; In early phase technology and regulatory risks are high, cost of capital is high too and investors, in the absence of regulations are not willing to invest. The government grants and subsidies help technology & regulations the boost, but as technology& regulation de-risked  mature investment moves into private phase, which is technology neutral and investors and operators are free to choose technology may that be renewable or CCS.

In EU and Norway there are regulations (Cap & trade in EU i.e cap and trade; and Carbon tax in Norway). In USA the regulations a=have been left to states. North Eastern states in US have Cap & trade plus California, most others don't. So for certain technologies in CCS (not all), Government private partnership will be required till regulations and technology mature and decarbonization becomes technology neutral. Read my Energy central recent articles; one for CCS in California by CRC and one by ExxonMobil for Houston, both require public support for infrastructure. scaling. Same is true for renewable and wind, though they are little bit ahead of CCS worldwide as well as in USA.

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