WEDNESDAY 16 NOVEMBER 2005

DR JON GIBBINS, DR DAVID REINER, DR NICK RILEY AND DR SAM HOLLOWAY

  Q80  Dr Turner: You are the only witnesses who are most likely to know the answer. We know there are enough geological features to satisfy the UK's need for carbon storage. What about China?

  Dr Holloway: There has been a study conducted in the last few months which was an initial reconnaissance of the storage capacity of China. China does not have very many oil and gas fields so the storage capacity is not sufficient to last China very long. China would have to probably turn to its saline aquifers as its main storage potential. The amount of storage available in those is poorly known.

  Dr Riley: On the mineral side, arising from Sir David King's talk and the deliberations resulting from his talk yesterday, it is important to raise this. I think mineral storage is a distraction. The bulk of CO2 storage is going to have to be done by injecting the carbon dioxide underground. The issue of can we create dolomite from seawater will make the problem worse because if you make carbonate from seawater you evolve carbon dioxide back to the atmosphere. It sounds counterintuitive. I am very happy to send you the chemistry behind that. It is explained on page 11 of the Royal Society report on ocean acidification by CO2 which was released in July.

  Q81  Chairman: It just sounded so attractive.

  Dr Riley: It actually makes the situation worse in the short term. We are trying to shave off this peak of emissions in the context of that.

  Q82  Adam Afriyie: Everything is comparative. In your view are carbon capture and storage costs equivalent to nuclear storage costs with the information we have at the moment? Is there a difference?

  Dr Gibbins: The evidence is that probably the differences that we are aware of are within the uncertainty bounds. There have been several studies by the DTI in support of the Energy White Paper and later the CAT strategy looking at the options for reducing overall UK CO2 emissions. The cost differences out to 2050 if you have nuclear and if you do not have nuclear but you have carbon capture and storage are quite low. If you have neither nuclear nor carbon capture and storage, the costs become quite high. The evidence that has been presented suggests that you might be talking about, for example, a cost difference of half a penny a kilowatt hour being enough to make the difference between having a very high nuclear content in the electricity generation industry and none. That really is below the uncertainty threshold.

  Q83  Adam Afriyie: It seems that some of the barriers or some of the contributing factors for a change in energy production or storage of waste are financial or that small changes in the cost would make a fairly big difference to the outcome in terms of the energy mix.

  Dr Gibbins: That appears to be the situation although I think you also have to bear in mind that decisions that are made, because they are made under uncertainty, will not necessarily respond that drastically, so people will try and keep a balance for other reasons.

  Q84  Adam Afriyie: In a more specific way, can members of the panel point out what they would consider would have the biggest impact on carbon capture and storage in terms of a financial incentive? What particular incentive would you choose that you believe would make a difference and encourage energy producers to use carbon capture and storage technology?

  Dr Holloway: For me, the most likely route to carbon capture and storage in the UK would be via enhanced oil recovery, so some way of enabling an infrastructure that will allow CO2 to get from power stations onshore in the UK to the northern and central North Sea, where the oilfields are would be important from a geological perspective and a step forward.

  Q85  Mr Newmark: I am focused on what innovations are going to drive costs down. Could you tie in what innovations can also help drive costs down when you are answering these questions?

  Dr Riley: One of the reasons why BP are choosing the Miller field for sending the CO2 back out for storage is the legalities because under the London Convention and OSPA you can use CO2 as a working fluid if you are injecting it underground in the context of oil and gas production. That is also how Sleipner is legal. There is a CO2 proof pipeline and it is an oilfield which is already naturally CO2 contaminated. There are significant risks with offshore CO2 EOR and this is where the innovation comes in. No one has ever done it anywhere in the world, so this would be a world first to be done out in the North Sea. There are substantial capital costs for offshore EOR because of the re-engineering of the platforms, the wells etc. It is a lot more capital intensive than doing an onshore CO2 EOR operation which industry is much more familiar with. It is a mature technology onshore. If you are just going to put the CO2 underground, the cheapest option would be probably to choose depleted gas fields nearer shore rather than to have to take it all the way out for EOR, but there is a payback with EOR with the oil.

  Q86  Mr Newmark: There are some benefits to effectively levering off existing infrastructure as well?

  Dr Riley: there are.

  Dr Holloway: There is a lot to be gained from that. There is a lot known about the oil and gas fields in terms of their geology. We also know that they have contained buoyant fluids for millions of years which gives us some assurance that if there are going to be any leaks they would be as a result of what man has done to these fields, in other words, drilled into them. There is a of knowledge invested in those fields which we could exploit.

  Q87  Mr Newmark: Invested in terms of infrastructure or knowledge?

  Dr Holloway: Infrastructure questions are a bit out of my field.

  Q88  Mr Newmark: In order to keep costs down, we are always looking for a return on capital. Part of the biggest chunk of the overall cost of where we are heading here is infrastructure. Either we can go to government and say, "We want a brand new build. Give us whatever incentives and cash you can" or we can try and diminish that as much as possible. Do not rely on the taxpayer as much by leveraging off existing infrastructure that is out there.

  Dr Riley: If we can lever the existing infrastructure offshore, that will have a major payback to the Treasury because the UK taxpayer is losing revenue through decommissioning because companies can write those costs off.

  Q89  Mr Newmark: At a particular point in time they will be fully depreciated anyway.

  Dr Riley: There are still considerable costs in decommissioning because you have to remove the infrastructure. It is just crazy to not to consider reusing that infrastructure for carbon management in the future. There is going to be a report by the Eastern Energy Consortium, partly DTI funded, released shortly about this issue.

  Q90  Chairman: How quickly do we need to make these decisions?

  Dr Riley: Very soon because the decommissioning curve is accelerating for the North Sea.

  Q91  Mr Newmark: In terms of leveraging off existing infrastructure, is it possible for us to work towards understanding the cost savings ultimately?

  Dr Riley: Yes.

  Q92  Adam Afriyie: Jon and David have not answered the question on what would be the single, best innovation that would make this whole area open up and become viable. Secondly, what would be, in your view, the best incentive from government that would open up the area of carbon capture and storage or make it more viable?

  Dr Reiner: We should differentiate between the first two or three plants and commercial viability. There could be quite a strong case for wanting to have clear evidence. There has not been enough field testing. We need to be doing not just small but much more substantial experiments. The reason why Sleipner exists is because of quite a strong incentive from the Norwegian Government that made it very clear in terms of economics that they should be storing the CO2 rather than emitting it into the atmosphere. I would differentiate between what might be in the near term important investment in these demonstration plants and a longer term incentive. We need to be talking about a higher CO2 price that would provide this incentive. We talk about the various alternatives, whether it is renewables, nuclear or CCS. At the moment, the carbon price is not high enough and, more importantly, essentially it expires in 2012. If it then expires, what is the understanding of industry as to what the carbon price will be in 2013? Nobody has an idea of what that number is. If you look at for example the US SO2 trading scheme, they offer a much longer time horizon and a much greater certainty given to industry in making investments as to what the long term price will be, even if that price is going up over time substantially. That is something you can factor into your projections.

  Q93  Mr Newmark: I am assuming with SO2 that the US is effectively setting the regulatory framework within which industry has to behave and industry makes its own commercial judgments without necessarily any financial support from government.

  Dr Reiner: Absolutely. It provides a lower cost way of meeting that same SO2 target. We can talk about providing subsidies and there is a rationale for doing it maybe at the early stages, but if we are talking about commercial viability it does end up being a question of—

  Q94  Mr Newmark: As you move along your experience curve, as long as you get the economies of scale, there is then far less reliance on government intervention?

  Dr Reiner: The other point is, particularly for an issue like carbon capture as opposed to, say, nuclear, there will be some low hanging fruit and a number of easier opportunities. Those will come in more readily with the right mix of incentives. You do not necessarily need to be structuring it so that you get 100% carbon capture. It is a question of what technologies might come in at different times.

  Q95  Dr Turner: The price of carbon is a critical factor and knowing it three decades ahead, not seven years, is also critical to investors. Something like £50 a tonne would most certainly trigger the investment, I would guess, which is more than double the current price of carbon. Do you have any views on the mechanisms that the government could best use to guarantee the price of carbon being at a commercially levering level, shall we say?

  Dr Gibbins: What I was going to suggest was, looking at what might be an incentive, you could have a flexible incentive in the sense that you guarantee a price for carbon but obviously if that price is coming out of the trading market then clearly the government should not pay it and would not need to, but you do need to underwrite the price of carbon. Going back to the Chairman's comment about what the Prime Minister was saying about where you get your energy from, if you are looking at carbon capture and storage with a view to promoting energy security, you perhaps need to look at different support mechanisms for coal and natural gas because the technology is intrinsically different. With regard to the breakthroughs, the biggest breakthrough that would move things along is not a technological breakthrough; it is seeing a utility and an oil company working on a project together and making a go of it. There is a technological breakthrough that I think is required and that is probably post-combustion capture on a large scale. I say that because post-combustion capture and pre-combustion capture making hydrogen are relatively well understood and it will go but the post-combustion capture is necessary for some of the retrofit options and for some of the industry options. We do not necessarily need to demonstrate that in this country. It may well be demonstrated overseas. I think Canada is quite a likely prospect.

  Q96  Adam Afriyie: I was at Imperial as well. What areas of competitive advantage do you think we have in the UK? Obviously we have the oilfields but are there any other areas of competitive advantage that you would identify in the UK, other than Imperial College?

  Dr Gibbins: We have the City. The UK stands to gain out of carbon capture and storage in two ways. The UK has the opportunity to make this technology acceptable possibly 10 years earlier and that could have huge implications when the globe is going to say, "Okay. It does not look too bad, tackling climate change; let's go for it!" That is the biggest benefit to the UK. I know that is not the question you are asking but bear that in mind. However, there is a lot of money that has to change hands to make this happen. Do the Chinese pay for it themselves? Do we pay for it? Leave that aside. That is part of the debate on how you tackle climate change. There is an awful lot of money going to be traded. There will have to be projects to verify and a lot of financing for projects. A lot of that is likely to come out of the City of London. If we can get that experience here first, we can make some money for the UK and bring on that number one objective an awful lot. Although the technology is there, do not lose sight of the City because that is what is going to lubricate the whole system and make it happen.

  Dr Riley: We have a good opportunity for early demonstrations of new combinations of technologies such as the BP project with Miller and Peterhead that is about to be announced. That will be a world class demonstration project.

  Dr Holloway: The Miller Project will involve Scottish and Southern Electricity as well so it will demonstrate the full capture and storage chain—

  Q97  Chairman: The link between energy production and what you do with the raw materials?

  Dr Holloway: Yes. Thank you.

  Q98  Dr Iddon: Sam Holloway mentioned the possibility of accidentally drilling through one of these high pressure storage systems. That is not the only risk, is it, because we all know about continental drift which takes place over centuries. I am more concerned about earthquakes which do occur in Britain from time to time and subsidence which is related to both of those factors. We are talking as if these caverns are there for ever and are self-contained. What about geological movement? Is that a risk?

  Dr Holloway: Drilling through high pressure accumulations of gas is an every day fact of life in the oil industry because when you discover gas fields they are under pressure and that pressure is retained by dense mud inserted in the well. Drilling through an existing CO2 storage site should not in itself necessarily promote leakage because you can control your well drilling process and plug your well with suitable materials afterwards. On the question of earthquakes, the saline aquifer storage experiment in Nagaoka in Japan was hit by a magnitude 6.3 earthquake during the experimental period and this did not in any way damage the site significantly at all. One would try and store CO2 away from earthquake prone zones. It seems unlikely to me that seismic activity of that kind would be a significant risk because geologists are able to predict areas where the seismic risk is very low. CO2 is not planned to be stored in caverns but in the pore spaces between grains of sedimentary rocks. The concept of an underground, large cavity is not realistic.

  Dr Riley: The Miller field where BP propose to reinject CO2 is in the region of the UK continental shelf which experiences the most frequent and strongest earthquakes and the oil and gas from the Miller field has not been shown to be leaking. It has been in place there for many tens of millions of years.

  Q99  Dr Iddon: Can I ask whether an adequate risk management assessment has been made anywhere in the world for CCS technology?

  Dr Holloway: There is a published assessment of the risks of enhanced oil recovery and CO2 storage in the Forties oilfield. That concluded that the risks from the natural or geological system were negligible and not enough was really known about the risks associated with the wells to be able to make significant comment. Within the IPCC 2006 revision of the guidelines for greenhouse gas inventories, there will be some general guidelines about the sort of process that should be gone through of characterising the geology, modelling the geology to see if there are places where the site might leak and how the CO2 will be distributed underground, monitoring that, feeding back the monitoring results to check that the models are correct, preparing a remediation plan in the event of any leaks and, when injection into the site is finished, subsequently monitoring will continue and so will iteration with the models to such a point that we feel confident that the future distribution of carbon dioxide can be predicted and an agreement between, say, the regulator and the operator would then ensue and the site could be closed.