Whenever I mention Carbon Engineering, the Murray Edwards/Bill Gates-backed, Squamish-based company that’s developing large scale carbon capture technology, some wise monkey points out to me that the technology is too expensive or too impractical. They come up with some mechanical/cost yardstick, and say that it doesn’t make any sense.
I have nothing against monkeys, but these sorts or replies do earn them a scowl. Oh, they may well be right about the cost being suboptimal. But the more pertinent point is: Look around you. Look out at the great big world. What a freaking mess. Panicked lunatics are trying to rip up their lifeblood energy systems like a stupid coyote chewing off three legs to get out of a leg-hold trap before hitting the right one (politically-incorrect old rural Sask joke – respect all cultures!). Survey that madness and then tell me what on #&$@% earth makes sense about the economics of anything to do with the New Green Economy (and more on economics in a bit).
We can pull our hair out, we can shout, we can try and explain energy to the general population. We are failing miserably and falling behind in the race. Sorry to say it but it’s just true. We have been outplayed by activists who understand that a logically-sound argument worthy of Aristotle himself can be obliterated by a picture of a puppy. Think that’s facetious? The petroleum industry likes to say (as do I) that “The world consumes 100 million barrels per day of oil and that number is climbing.” Climate activists counter that with a 16-year-old Swedish girl with a forlorn “we’re all going to die before we get to taste beer” look, made her a poster child for everything they want to achieve, and no one can hear our silly little message because they’re mesmerized by a angst-filled child. Stick that in your cash flow model. The first statement about consumption is true and undeniable and supports the petroleum industry, while a single manufactured quote from this 10/10 symbolic titan – for crying out loud she wears pigtails – wipes out any petroleum fact whatsoever.
The side of me that worries about justice wants to fight the good fight, but the practical side knows when to chew its leg off and move on. I know that is viewed as capitulation to some, but for businesses that require any sort of regulatory approval for anything, it is fast becoming the only game in town. And, if we think about it, maybe embracing wide-scale carbon capture and sequestration would be enough to help get these freaking monkeys off our backs (different monkeys entirely) so that we can keep feeding and fuelling the world in peace. (Having said that, some of the more die-hard activists are strongly opposed to carbon capture/storage because it allows petroleum companies to remain in business. There is no cure for that disease, other than to surmise that in all likelihood the profound stupidity of that position will not be able to hide behind schoolchildren (even the IPCC insists that carbon capture/sequestration is necessary, so better to let those activists fight with the UN Ministry of Truth than with us).)
So I’m going to assume that we will have to be involved in GHG emissions reductions, and if you disagree, good for you, but take it outside for now.
As a recap, Carbon Engineering is developing large scale carbon capture and storage technology. Occidental Petroleum is partnering on the first commercial installation, being built in Texas. First proposed as a 0.5 megatonne (Mt) facility, it is now being expanded to 1 Mt.
Let’s consider what could be possible for Canada’s sector by using this new technology. Canada’s GHG emissions in 2017 were just over 700 Mt. The petroleum sector was responsible for 195 of those Mt, according to the same source. Suppose the oil and gas sector was to announce plans to reduce GHG emissions by 30 percent, a number far out of proportion to what the rest of the country is doing. Carbon Engineering’s plant costs are not publicly available, but the Quartz site says the first one will be “hundreds of millions”. Let’s assume that, because this is the first one, that costs can be driven down or held flat while the capacity grows. So let’s say the 1 Mt plant can be done for $300 million with some capital efficiencies.
To reduce the petroleum sector’s GHG by 30 percent would be to reduce it by about 60 Mt. Building 60 of these 1 Mt contraptions would cost $18 billion.
I know, I can hear everyone saying how outrageous that amount is. And, truth be told, I don’t have that kind of money laying around either. But let’s see where it could come from and if that makes sense.
What if a $1/barrel tariff were applied to TransMountain volumes, and to Keystone XL if that ever gets built? Let’s call that a 1.5 million b/d tariff base. And what if we could get two NGL export facilities built on the coast that could export 5 bcf/d, and we applied a $0.25/mcf tariff to natural gas exports?
In combination, those two tariffs would generate $2.5 million per day in tariffs almost $1 billion per year. The tariffs would be bearable if oil and natural gas was allowed to reach global markets and fetch global prices.
That would leave us with about a 20 year payout. That could be reduced substantially by several factors: first, if the CO2 sequestration was used for enhanced oil recovery, additional benefits would accrue. Second, it is extremely likely that the cost of the facilities would come down substantially, just as with every other big project that is done a hundred times instead of once (though of course cost overruns are not unheard of, but repeatability helps reduce that problem).
Furthermore, help with the project has come from California of all places. The state realized that its pledge to reduce CO2 emissions by more than 80% wasn’t going to happen just by cutting back on lifestyle activities. Bless their weird little hearts for their acknowledgement of this reality. So the state added Direct Air Capture to their list of good-greening that qualified for carbon credits. In 2018, California’s credits were valued at $160/Mt, and, again in their wisdom, California acknowledges that carbon can come from anywhere and so can carbon reduction plans – so the California credit can be earned even if the CO2 is sequestered elsewhere (business opportunity – if you begin exhaling into a tube that goes deep down into your garden, keep track of how often you’re doing that and California might send you a cheque. Fart-lighters might make a killing too, but there are measurement issues on that file that I don’t want to contemplate.)
Taking into consideration tariff revenue and the ability to sell carbon credits to California or whoever else, the scheme actually doesn’t look that bad.
Imagine the looks on the faces of all the haters carrying the anti-fossil fuel signs if the industry announced that it had a concrete, real plan to reduce its emissions by 30 percent (and this is irrespective of any other programs underway, like Suncor’s recently announced plan to reduce GHG emissions by 2.5 Mt/yr through installation of cogeneration plants in the oilsands – this project alone will reduce petroleum industry emissions by over 2.5 percent). It is true that the “social license” experiment didn’t work the first time around when Notley tried, but that doesn’t mean we can quit trying. We may have been as dumb as that coyote to allow ourselves to get to this sad state in the first place, with several legs chewed off, but the industry wasn’t built on quitters. Just like the coyote we’ll keep at until we are free again, even if we have to roll away.
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