‘GO TIME’ FOR CCUS IN TEXAS

Next Six Months Will Prove Critical for Project Deployment in Lone Star State

Tamar Hallerman
GHG Monitor
6/14/13

Texas has long been touted as an ideal host for carbon capture, utilization and storage (CCUS) projects. Its robust energy infrastructure, mature oil industry and rapidly expanding population (and subsequent spiking electricity demand) have been deemed perfect for supporting a new generation of capacity that could also provide a steady stream of anthropogenic CO2 for the mature, carbon-hungry oilfields in the west’s Permian Basin and the Gulf Coast region.

But whereas the last couple of years focused primarily on planning and laying the groundwork for an anthropogenic CO2 industry in the state—the Department of Energy has set aside nearly $1 billion to support three large-scale CCUS projects there—the final months of 2013 will likely prove to be critical in Texas as two of those projects make final investment decisions and the Governor mulls legislation that could further incentivize such ventures.

To be fair, Texas has already won the race to bring the country’s first large-scale, integrated CCS project online. Air Products and Chemicals kicked off industrial capture and storage operations at a Valero Energy Corp.-owned hydrogen production facility in Port Arthur late last year, piping the facility’s captured CO2 through Denbury Resources’ Green Pipeline to an oilfield southeast of Houston for enhanced oil recovery (EOR) operations. But perhaps even more notable, two full-scale power generation projects with EOR components are also expected to declare financial close over the next six months, further establishing Texas’ status as a CCUS leader.

W.A. Parish, TCEP Move Ahead

The quieter of the two projects, NRG Energy’s W.A. Parish post-combustion retrofit in southeast Texas, could see a final investment decision by the end of 2013, company officials told GHG Monitor. The Department of Energy issued a record of decision for the 250 MW project late last month, allowing NRG access to the $167 million in stimulus cost-share funding that had been previously set aside for the project. DOE’s commitment presumably puts the project in line for “some significant announcements later on in the year,” NRG spokesman David Knox said. The utility plans on utilizing the 1.6 million tonnes of CO2 captured from the facility for EOR operations at Hilcorp Energy’s West Ranch oilfield near the Gulf Coast.

The Seattle-based developer Summit Power Group said it also plans to declare financial close on its $2.9 billion Texas Clean Energy Project (TCEP) as soon as September. Summit’s Director of Texas Projects Laura Miller said the developer is still finalizing financing and seeking a tax fix for the 340 MW gasification project, planned for a Greenfield site west of Odessa, Texas, in the Permian Basin. The project was one of the first to utilize a poly-generation business model, which allows the plant to produce and sell electricity, captured CO2 for EOR, urea fertilizer and other chemicals for multiple revenue streams. The CCUS project had one of the biggest headlines of the year last summer when it signed a memorandum of understanding with the Chinese goliath Sinopec Engineering Group and the state-owned Export-Import Bank of China reportedly worth upwards of $1 billion. While Miller acknowledged that Summit is a bit behind where it wanted to be in terms of financial close, TCEP is still moving forward. “When you have this many parties involved in various parts of the world with dramatically different time zones, it’s just logistically difficult. So that’s just been our holdup,” Miller said in a recent interview. “We are marching forward, though. We just have to nail everything down.”

Summit Plans Major Texas Expansion

As it wraps up planning on TCEP, Summit is also stacking up its team in order to rapidly expand its CCUS operations, especially in Texas. Earlier this week, the developer announced that it hired two ExxonMobil alums to focus on expanding the company’s CCUS operations. “The expansion of Summit’s team comes at a key moment in the company’s development of several natural-gas and coal-feedstock power plants with carbon-capture and sequestration via EOR capability in the United States and abroad. The company is developing such projects under a dedicated business unit, Summit Carbon Capture,” the company said in a release.

The new personnel comes as the developer plans to roll out two new CCUS projects in west Texas based on TCEP’s model. Known internally as XCEP and YCEP, those projects would also be gasification plants with poly-generation capabilities that could take advantage of TCEP’s infrastructure and economies of scale, particularly for CO2 storage via EOR in the region. “With XCEP and YCEP, we’re trying to leverage the lessons we learned from TCEP to develop more projects,” Summit’s Chief Commercial Officer Ann Banks told GHG Monitor in a December interview.

Legislation Aims to Incentivize CCUS

W.A. Parish and Summit’s CCUS projects are moving forward as Texas lawmakers are also looking to further incentivize the EOR game. Republican Gov. Rick Perry is expected to sign legislation in the coming weeks aimed at encouraging EOR using captured CO2 from gas-fired facilities. The Texas legislature passed H.B. 2446 late last month, a measure that would allow development companies like Summit Power to access and monetize franchise tax credits in the state for developing CCUS projects.

Since some development companies like Summit are not based in Texas, those franchise tax credits for building such EOR projects are often considered essentially useless since they don’t operate a balance sheet or pay taxes in the state. “This legislation allows [developers] to bundle up those future franchise tax credits and fundamentally monetize them on the open market with companies that would have an ability to take advantage of the tax credit,” said former Assistant Secretary for Fossil Energy Chuck McConnell, who testified in favor of the legislation at a hearing last month alongside electric generators American Electric Power and Exelon Corp. and the oil giant ConocoPhillips. He said the legislation could have a “significant” impact on the CCUS industry in the state. “This could be as much as $50 million of franchise tax credits for these projects,” he said. The legislation carries measuring, monitoring and verification requirements for projects to ensure that the injected CO2 is permanently stored in the subsurface.