OPINION - the UK oil and gas companies should contribute to Peterhead

Nov 30 2015


The Peterhead carbon capture project is not 'dead', as one UK newspaper reported last week - but it is short of around £450m funding, which had been expected to come from the UK government, but was cancelled last week following a spending review. But there is a large, available source of funds which can be organised quickly to fill the hole - contributions from other oil companies.

To talk about 'contributions' is not the kind of language which probably goes down well in oil company finance departments. Oil companies 'invest' in developments in order to get return, 'pay' for people and suppliers to build and operate them. Sometimes they make 'grants' to good causes. 'Contributing' millions of pounds to the Peterhead carbon capture project does not fit with any of this.

But we can use another language which perhaps oil company commercial departments do understand - spending money in order to avoid larger costs.

The industry is getting a big helping hand from its institutional investors in pointing out what these costs might be.

Many investors are questioning whether they should be investing in fossil fuel companies at all. At our London "Investing in Petroleum under a Carbon Cloud" conference on November 19, we heard how Allianz, an institutional investor in oil and gas companies, sometimes spends a quarter of the time in meetings with oil company CEOs discussing climate change.

We have heard about oil company shareholders signing resolutions that the business must be 'compatible with 2 degree temperature rise'.

At a meeting in London last week organised by Critical Resource, Claire Short, chair of the Extractive Industries Transparency Initiative and former UK Secretary of State for International Development, said that perhaps extraction companies should put money into renewables rather than fossil fuel companies.

In answer to this suggestion, the chair of the meeting, Daniel Litvin, suggested that, an economist might say that fossil fuel companies should only put money into renewables only if they are the organisations best qualified to run solar and wind farms - an alternative could be that they return money to shareholders (and close down).

John Browne, former CEO of BP, has said that oil and gas companies face an 'existential' climate threat.

At some level none of this makes sense. People will still want to drive and heat their homes in 10 years time and probably won't be able to do that with just renewables. Perhaps the most sensible observation is simply to say, oil companies are under enormous pressure to do 'something' about climate change, but there is a shortage of ideas about what that 'something' might be.

The Economist picked up this tone in an article 2 weeks ago, when it included this sentence in an article: "In the absence of a global carbon tax or some other effective measure, however, the risk for the oilmen is that everyone from environmentalists to politicians will simply find other ways to make them pay for global warming."

Statoil's head of sustainability wrote in The Guardian yesterday that the CEO has issued a challenge to his 22,000 employees to do more to meet the climate challenge, saying "we need a mindset of radical change", also pointing out that 1 in 5 UK homes "cook on our gas".

Not to mention the 'Oil and Gas Climate Initiative' where BG Group, BP, ENI, PEMEX, Reliance, REPSOL, Saudi Aramco, Shell, Statoil and TOTAL aim to 'catalyse practical action on climate change'.

Oil companies can keep institutional investors happier, avoid closing down, find an 'effective measure', make 'radical change' and 'catalyse practical action on climate change' by making sure that Peterhead keeps running and contributing money to it;.

This contribution could be presented as a 'investment', a 'grant', a 'reduction in cost', or even a 'purchase'. UK oil and gas companies need to buy emission credits to cover the emissions from their offshore operations, and Shell / Peterhead can sell them;.

The revenues won't contribute enough if they are sold at the market 'carbon price', but perhaps Shell / Peterhead could sell them at an inflated price of Eur 100 / ton, in return for some promised additional benefits, perhaps preferential access to the carbon dioxide stream for enhanced oil recovery, or ability to tell their shareholders that they have a level of 'membership' in the project? These companies have already asked for a higher carbon price after all.

Peterhead could also be a building block for a CO2 supply big enough to be used for enhanced oil recovery in the North Sea, which all oil companies could benefit from, points out Stuart Haszeldine, Professor of Carbon Capture and Storage, with Edinburgh University.

"Peterhead project is also unique in that it captures CO2 from gas rather than from coal - and the UK is moving in the direction of gas power."

Mr Haszeldine also points out that Peterhead could be funded by the EU Energy Union Innovation Fund, Shell selling ownership of Peterhead, bidding in a market for 'firm low carbon power' (which the UK might start purchasing), or taxes.


The White Rose project is also affected by the loss of government funding - but perhaps oil companies have more to gain by supporting Peterhead rather than White Rose, due to its proximity to the oilfields.

If the momentum behind the project is stalled, it is possible that Shell will give up on carbon capture activity in the UK, focussing instead on its projects in Canada, Australia and Norway. It could be many years before another project in the UK reaches a similar state of readiness, Mr Haszeldine says.

Does anyone have any ideas about how to move forward on this? Perhaps avoiding using the word 'contributions' would be a good start!

Many thanks to Stuart Haszeldine, Professor of Carbon Capture and Storage, with Edinburgh University, for contributing some of the ideas behind this article
 

 



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Issue 59 Sept- Oct 2017

CCS in the U.S.: Bipartisan support grows for CCS incentives to drive projects .. California extends cap & trade .. Kemper the death knell for CCS? NOT. Korea and China joint CO2 capture research project .. Japan’s big steps toward CO2-free hydroge.....


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