CCS Commercialization Roadmap

As the leaders of the world are gathering in Copenhagen (Denmark) to try to agree on Post-Kyoto Greenhouse Gas (GHG) emission requirements or more likely agree on the roadmap which will lead to such agreement, the International Energy Agency (IEA) released its report "Technology Roadmap for Carbon Capture and Storage".
Key points of the new report include:

• A call for 100 CCS (Carbon Capture and Sequestration) projects to be deployed by 2020; a significant increase on the IEA's previous estimated requirement of 30 projects;
• Over 3000 CCS projects needed by 2050;
• An additional global investment of at least US$2.5-3 trillion between 2010 and 2050 in order to achieve the projected project deployment target; and
• CCS financing levels of US$1.5-2.5 billion annually in developing countries (through international collaboration).

These estimates are an order of magnitude higher than previous estimates, not to mention that they are likely to increase further as CCS technologies move from the laboratory to pilot and demonstration scale. Also, I doubt very much that the various Governments can keep their commitments at a time of such severe fiscal constraints. Let’s see what would be the agreement in Copenhagen, but it does not look promising!

Who is responsible for the carbon footprint of manufacturing factories producing exported goods?

A position paper released by the Chinese Government on May 20, 2009 states that “Countries that buy goods from China should be held responsible for the carbon dioxide emitted by the factories that make them”.

With this statement, China (officially) brings up for negotiation a well-known, but not extensively discussed, issue: Who is responsible for the carbon footprint of each product, the buyer (end user) or the producer?

In the last two decades, we have observed a huge migration of manufacturing facilities from OECD countries to China, India, Brazil and other developing countries; along with these facilities, have the OECDs exported their obligation for carbon reduction to developing countries, too?

This is one of the many issues which are being debated, as the international community will be attempting to design a “Post-Kyoto” framework to control greenhouse gas emissions (GHG) in Copenhagen in December (2009). At the heart of the argument, there are three questions which need to be addressed:

1. What country’s GHG inventory is burdened by the CO2 emission produced from exported products?
2. Assuming that carbon is priced into each product, where (in the production-selling cycle) is the carbon-related price adjustment made? and
3. Who collects the revenue derived from this price adjustment?

Answering these questions is not easy, as there are pros and cons on each side. My hope is that the international community reaches agreement on some basic principles related to this issue.

More specifically, it seems rational that:

• The price of every product should reflect its life-cycle carbon footprint at some reasonable carbon price, independently where the product was produced.

• The price adjustment for the carbon footprint should be made in the same country which assumes the burden of GHG emissions in its inventory. So, if the CO2 produced by a shoe factory in China burdens China’s GHG inventory, it is fair for China to make an adjustment to the price of the product to reflect its carbon footprint. This means that China will collect the revenue associated with this adjustment too. Then, China’s GHG inventory should be burdened with the GHG obligation associated this facility. If China refuses to do, it is reasonable for the importing country to accept the responsibility of the carbon footprint (and include it in its own GHG inventory), but be free to apply a price adjustment at the border to reflect this product’s carbon footprint. This should not be viewed as an unfair trade practice, provided that all the products in the importing country are subject to the same price adjustment (proportional to their carbon footprint).

Cogeneration

A few interesting reports and articles have become available in recent months:

1. In December 2008, Oak Ridge National Laboratory (ORNL) published the report "Combined Heat and Power: Effective Energy Solutions for a Sustainable Future", which highlights the sharpened focus on using CHP to deal with environmental and business challenges in the U.S.

2. In the European Union (EU), the use of combined heat and power (CHP) has substantial potential for increased energy efficiency and reduced environmental impacts. It is considered to be a priority for many EU member states, according to the recent report "Combined Heat and Power Developments in Europe," which was published by Energy Business Reports.

3. Power Magazine article: CHP: "Helping to Promote Sustainable Energy"

What do Rockefeller, the present economic crisis and the global mafia have in common?

...They were all created and flourished because of lack of government oversight and periods of power vacuum.

John D. Rockefeller deserves credit for accelerating the development of the industrial age by discovering oil in the US and establishing an efficient production, refinery and distribution industry. However, he was ruthless in exploring government regulatory weaknesses and controlling the market himself. His life has become a focal point for debate regarding the proper role of government in the economy.

Lack of government oversight of the financial markets is the cause of the present economic crisis, too. The genesis of the problem goes back to the “hands-off” and “the market knows best” philosophy of the US and UK governments in the 1980s and 1990s. Rapid technological innovation and the introduction of many “sophisticated financial instruments” made it difficult for the government to follow the market, even if it wanted to. The “hands-off” philosophy acted as a further sleeping pill leading to the well-known results.

Creation and spreading of organized crime benefits from similar weaknesses of the government.

A fantastic book by the title McMafia, which was authored by Misha Glenny and was released recently, documents how the organized crime has spread globally as a result of power vacuum and lack of law enforcement in cases of rapid political, social and technological change. The details of the book are frightening; the lives of most of us are directly affected by such organized crime syndicates present in the most unexpected places!

Then, what is the solution? Eventually, Rockefeller’s dominance of the US market was partially controlled by Theodore Roosevelt in 1906. However, with globalization of financial markets and global trading, a government alone can not be effective. The same applies to the global organized crime, which has no nationality and is free to seek safe heaven every time one government gets serious about law enforcement.

Global oversight is needed for a number of global activities including finance, trade, etc.

I am not advocating micromanagement of the global system, but enforcement of some basic rules to avoid catastrophic consequences for the average citizen and ensure well-functioning global market. At the national level, governments need to strengthen law enforcement, as well as their capability to follow technological change and adopt quickly to avoid being left behind by sophisticated entrepreneurs and gangsters.

The future of …FutureGen and coal-based power generation in the US

After the release of the Government Accountability Office (GAO) report on DOE’s FutureGen project, many articles have been written focusing mainly on the role of politics on this project. It is not my intension (in this note) to comment on the politics of the story, but rather to put forward some observations and recommendations on the substance of the R&D program covering coal-based power generation technologies.

For those who have not followed closely, the FutureGen Program was to be the cornerstone of the US Government to ensure sustainable use of coal for power generation through near-zero emission technology. In January of 2008, and after a demonstration site (Mattoon, IL) had been selected competitively, The Bush Administration decided to terminate its financial support to the project. The Stimulous Bill of the Obama Adminstration attempts to reverse this decision and allocates some funding for its implementation. Yet, its future seems uncertain.

First of all, it is unfortunate that funding for Integrated Gasification Combined Cycle (IGCC) and Carbon Capture & Sequestration (CCS) was combined in the FutureGen project. Maybe lack of additional funding forced the Bush Administration to shift money allocated for IGCC to cover CCS. The end result was that badly needed funding for IGCC disappeared overnight!

Each of these options (IGCC and CCS) has its own issues and deserves to be allocated its own funding; so, DOE should have a separate budget for IGCC and CCS.

IGCC is a strategic option which has been demonstrated commercially in power generation and non-power applications, but (presently) it is not competitive against conventional options (mainly pulverized coal power plants). While it is expected that IGCC costs will decline over time, substantial investments would be needed (of the order of $billions) to achieve these cost reductions. This needs to be done while IGCC has efficiency similar to conventional power plants (high steam condition, ultra-supercritical) giving it no competitive advantage. IGCC is a potentially attractive option because it promises to achieve higher efficiencies in the future and is more suitable and cost-effective if CCS is required. For this reason, it deserves to be supported until more information is available about its future costs and the fate of CCS.

US Govenment support should focus on the key issue which is the cost-effectiveness of IGCC.

It should work with industry to assess how IGCC costs could be reduced (part of it will be going through the “learning curve” every technology goes through and part through potential design simplifications and technological improvements) and implement projects to achieve these cost reductions.

CCS is facing a long list of issues (technological, regulatory, institutional, financial and legal) which need to be addressed. US DOE has outlined a comprehensive program and (in my view) the main concern is whether adequate funding will be allocated soon enough to address these issues. One observation though which I would like to offer has to do with the 90% CO2 capture requirement. 90% capture seems to have been chosen as the “God-sent” number and there is no much debate about it.

It is well-documented that the cost of CCS is not proportional to the percentage CO2 capture; in fact it increases exponentially somewhere in the 60-85% range. Therefore, it is essential to assess the cost-effectiveness of CCS throughout the 50-100% CO2 capture range to determine the optimum capture. 90% capture may be a rational long-term target, but another level may be appropriate at least for an interim period of 10-to-30 years.

While focusing on IGCC and CCS, the US Governemnt should not lose sight that power plant efficiency of the conventional technology (supercritical and ultra-supercritical pulverized coal) could and should be improved, too. The US, which developed this technology in the 1950s and 1960s, has lsot the leadership position to Germany and Japan in the 1980s, and recently to China.

Research on materials which can withstand high temperatures and pressures is an urgent priority.

The stimulus package supports more energy R&D

The Economist points out (in its article of the March 28, 2009 issue: Energy Research: Energiser Money) that the US DOE budget this year has increased from $24.2 billion in FY2008 to $38.7 billion in FY2009.

In addition, the stimulus package adds another $27 billion in appropriations.

The energy R&D within DOE increased by 18%, to $7.8 billion. Nevertherless, the challenge is what results all this funding will deliver.

There are positive and promising elements in DOEs’ program including the ARPA-E, a program modeled after the Department of Defense ARPA which funds basic and applied research. Also, the Energy Frontier Research Centers which team up universities with laboratories to work on new technologies.

DOE's research need to be supplemented by aggressive private sector funding from organizations such as the Electric Power Research Institute, Gas Technology Institute and others.

US technological innovation is on the decline

Until recently, the US led the world in technology development and innovation.

This was based on substantial investment in basic research and an environment which encouraged innovation. However, the last 10 years or so, many things have changed. In 2008, the Organization of Economic Cooperation and Development (OECD) ranked the US 22nd in the percentage of GDP devoted to non-defense research. At the same time, China has a 15-year plan tying 60% of the country’s economic growth to scientific and technological innovation.

In parallel, the business environment has changed substantially in the US. Venture capital has started becoming more short-term focused, having an adversarial relationship with the entrepreneurs. The core values of patience, risk-taking and trust are becoming scarce.

Openness, another core value for innovation, has been damaged by the short-sightness of investors, as well as the Bayh-Dole Act which gives universities ownership of intellectual property resulting from federally funded research. On top of this, the inflow of innovative talent from other countries has slowed down by the Patriot Act.

At a critical time, when innovation is needed to fuel economic growth, innovation in the US is facing serious challenges.

American and European companies continue to lead in the development and marketing of innovative new products, but Asian firms challenge this dominance. As a recent article of the Economist points out (The Economist, Dec 30 2008), Apple’s iPhone represents a good example of how new products are being put together presently and how most of the new products may be developed in the future:

Apple is an American company, but the components of the iPhone are almost entirely Asian: the screen is mostly from Japan, the flash memory from South Korea, and it is assembled in China.

Apple’s contribution is the design and software—and, importantly, integration of the innovations of others. A lot of the research and product innovations are increasingly happening in Asia.

A good set of recommendations on how the US could re-gain its competitiveness is outlined in Judy Estrin’s new book “Closing the innovation gap”.

Is the EU getting serious about its energy future?

On November 13 2008, the European Commission proposed the Security and Solidarity Action Plan which included, among others, three key proposals:

1. An EU super-grid to accommodate higher percentage of renewables, especially wind power;
2. “The Community Gas Ring” which allows for pooling gas supplies of EU countries in the event of gas supply disruptions; and
3. Construction of two new gas pipelines connecting Caspian and African gas networks (connections to Nabucco).

Certainly these projects highlight that EU planners have realized the urgency to diversify energy supplies, and the fact that it is time for action- not just words.

Whether these projects materialize, and when, is a story in and of itself. Some of these are recycled ideas, but this does not make them any less important or urgent. Certainly, the last two are more immediately relevant, as we are reminded by renewed end-of-the-year threats between Russia and Ukraine regarding gas-related payments and contract negotiations, which may affect gas supplies to the EU. Considering recent geopolitical developments, I will focus on the options that the EU (and by extension the West, including the US) has to secure its energy future.

A number of Russian initiatives have made it more difficult for the EU to diversify its energy supplies, at least with regard to tapping Caspian energy sources. The South Stream pipeline promoted by Russia clearly competes with Nabucco, and as the demand for natural gas softens temporarily due to the financial crisis, it will be even more difficult to proceed with both projects. For Nabucco, the most serious obstacle is the lack of gas. As Putin said, “you can only build a pipeline if you have gas to fill it”. Russia has made it difficult for the EU to obtain Caspian gas by signing more gas supply agreements. In addition to shear political pressure being exerted on the Caspian countries, Russia has a competitive advantage over the EU when negotiating deals in the region, as it has no incentive to keep gas prices down. If it maintains the gas monopoly, the European countries will have to pay any price Russia negotiates with the gas suppliers.

Under these circumstances, the EU (and the West in general) needs to launch four parallel initiatives:

1. Re-orient the Nabucco pipeline to include more access to Iraqi gas: After all, the name of the pipeline is an inspiration from Verdi’s opera “Nabucco” (the tale of Nebuchadnezzar, King of Babylon) indicating that Iraq may provide some of the gas to the pipeline. Iraq’s natural gas reserves (3.2 tcm) are of the same order of magnitude with Turkmenistan (3 to 7 tcm). If the political situation in Iraq stabilizes, it should provide significant amount of gas. Also, it will provide access to more gas reserves in other countries of the gulf (Kuwait, UAE and Saudi Arabia). Of course, stabilization of the situation in Iraq is a significant uncertainty and stability in the Kurdish region needs to be considered, but the other energy supply options are not less problematic.
   
   
2. Improve relations with Iran: It must not be forgotten that Iran provides the easiest route for Caspian energy resources to western markets. Also, Iran itself has the second largest natural gas reserves (23 tcm) after Russia (47 tcm). While I do not underestimate the issues associated with the leadership of Iran and its plan to pursue the nuclear option, geopolitical interests of the West and Iran are aligned and provide a basis for some arrangement of mutual interest. If the West does not improve its relationship with Iran, others will- and are.
   
   
3. Improve relations with Russia: Over the last few years, the relationship between Russia and the West has been deteriorating steadily. Certainly, NATO’s continuous expansion eastward has not helped and, as many experts point out, the West has missed an opportunity to offer full membership to Russia and make it part of the Western alliance. A bold move to offer full NATO membership to Russia may need to be considered. Membership to Georgia and Ukraine may also need to be postponed or packaged together with Russia’s.
   
   
4. Develop strategic technological options, such as GTL, small-scale LNG and CNG technologies:

• Gas-To-Liquid (GTL) technologies produce liquid fuels (all grades, from diesel to kerosene) from natural gas; these products are much cleaner than similar products from crude oil. GTLs are ideally suited for the transport sector, which needs to reduce urban pollution. Also, GTLs do not need a new transport and distribution infrastructure as they can be transported and distributed with the existing oil infrastructure.
  Liquefied Natural Gas (LNG) is commercially available, but more suitable to large natural gas reserves and large consumers of gas who sign long-term LNG supply agreements. This leaves many smaller gas reserves (“stranded gas”) untapped. Also, smaller users can not afford LNG. The industry started developing smaller (even floating) LNG production facilities, but this needs to be accelerated.
  
  
• Compressed Natural Gas (CNG) technologies make it possible to transport gas in compressed form, suitable for short distances. Many such markets exist including: the Black Sea region; from north Africa to Southern Europe and Turkey; from Sakhalin Islands to Japan/Korea/China; from Colombia and Venezuela to Caribbean countries and Florida/Texas; from Indonesia to SouthEast Asia, etc.. So far, the main obstacle for the development of CNG has been economics. Steel, the material suitable for CNG containers, is too heavy and project economics are not favorable. However, synthetic lightweight materials (such as carbon fiber) can be used instead. Such materials have been used extensively in the U.S. Space Program and they are in an early commercialization stage. A number of companies have started developing CNG using carbon fiber, but without government support, CNG will not become commercial anytime soon.
  
  GTLs and CNG are particularly important because they increase the transport flexibility of natural gas. All these options need some government support to go through development-demonstration-early commercialization (the “valley of death” which is typical to the development of most technologies); these are strategic options and should not be evaluated only based on short-term economic considerations.

The first three initiatives fall in the sphere of geopolitics and are clearly politically challenging to pursue. What is needed is unity among the EU countries (something that has proven challenging for the EU so far) and collaboration with the US, which shares some common interests in the region. The development of GTL, CNG and small scale LNG technologies can be pursued unilaterally. Governments need to play a critical role, sometimes by taking the lead and at other points by supporting the private sector through Public-Private-Partnerships. The time to act is now.

Ukraine, Russia: Return of the Natural Gas Cutoff

SOURCE: Stratfor Today » December 31, 2008 1745 GMT

AUTHOR: SERGEI SUPINSKY/AFP


Summary
In an echo of events that took place in January 2006, a pricing dispute between Ukraine and Russia is once again threatening to cut natural gas supplies to Europe in the dead of winter. This time, however, Moscow’s focus is much tighter. Russia is not looking to smash the Ukrainian government, but it is looking for some specific changes in Kiev.

Europe is potentially hours away from a natural gas cutoff, thanks to a Ukrainian-Russian energy dispute. Russian and Ukrainian negotiators are in a last-minute scramble to resolve a pricing imbroglio — which, is in actuality a political fight in disguise.

The situation reminds Europeans of an unpleasant incident in January 2006. A pricing dispute resulted in Russia reducing natural gas deliveries to Ukraine, which receives about 70 percent of its natural gas from Russia. Europe, however, also gets about one-quarter of its natural gas from Russia, some 80 percent of which comes through pipelines that transit Ukraine. When the Russians cut Kiev off in 2006, Ukraine simply continued drawing natural gas from the pipelines, ultimately resulting in a reduction of supplies to Europe.

The present crisis has roots in similar circumstances. As in 2006, Russia is attempting to increase the price that Ukraine pays for natural gas. In 2005-2006, Moscow wanted an increase from US$50 to US$250 per 1,000 cubic meters; now, the Russians want to increase the price from US$179 to US$418. Also as in 2006, Ukraine is deeply in debt to Russia’s state energy provider, Gazprom. Once again Gazprom is threatening a shutoff, and the Ukrainian state energy firm, Naftogaz, is defiantly stating that it will simply confiscate natural gas transiting the country for delivery to Europe.

But there is a difference in Russian motivation this time around.
In the 2006 incident, Russia was sending a threat and a broad political message. The Ukrainian government had only recently shifted away from Russia’s orbit toward the West, in the 2004 Orange Revolution. The natural gas cutoff, therefore, was as much an effort to smash Kiev as it was a message to Europe: if we have problems with Kiev, you have problems with Kiev.

In the present circumstances, however, the Ukrainian government is unstable and ready to crack. This time around the Russians do not necessarily want to destroy the government — or even get Europe involved — they just want to make sure that Kiev crumbles in the right ways.
In particular, Moscow would like to be rid of Ukrainian President Victor Yushchenko, the leader of Ukraine’s staunchest pro-Western faction, and would like to replace him with Prime Minister Yulia Timoshenko. She has been an on-again, off-again ally of Yushchenko — the two walked in lockstep during the Orange Revolution — but in the shifting, Byzantine world of Ukrainian politics, Timoshenko is now marching to the Kremlin’s drum. She is hoping to use Russia’s influence to replace the president with someone more amenable to her own goals: namely, herself.

At the time of this writing, Timoshenko was supposed to be traveling to Moscow to work out an 11th-hour deal. Using a bit of state cash and her network of allies, she had managed to come up with US$1.5 billion to pay down Ukraine’s debt to Gazprom — something that would please Moscow mightily and could serve as an excellent starting point for negotiations on the 2009 natural gas pricing structure. Timoshenko could then bring a deal back to Ukraine and use it to torpedo Yushchenko’s credibility even among his staunchest supporters.

But the trip appears to have been canceled. Sources told Stratfor that Timoshenko found her state cash blocked at the last minute by Yushchenko’s forces within the Treasury, in collaboration with the pro-Russian Party of Regions (the group that previously served as Russia’s primary tool in Ukrainian politics). Yushchenko’s motives are obvious. Meanwhile, for its part, the Party of Regions apparently is none too happy about the Kremlin’s seeming infatuation with Timoshenko, and for reasons personal and professional pulled the plug on the planned transfer.

Thus, with five hours to go, Ukraine, Russia, Yushchenko and Timoshenko are all back to playing the game — and Europe is waiting to see how it all works out.

The one bright spot in all of this for Europe is that, unlike in 2005-2006, winter has not yet been particularly harsh. Most European natural gas storage facilities are full to the brim. Europe can easily, if unhappily, weather a cutoff for up to a month. Ukraine’s political instability, of course, will last far longer.