Abby L. Harvey
GHG Monitor
6/5/2015
SCS Energy has decided to drop plans for its Hydrogen Energy California project to use the project’s captured CO2 in enhanced oil recovery and instead will focus on storage. “HECA plans to permit the project using storage instead of EOR, at least initially. This is possible for HECA because the fundamental economic viability of the project does not rely on EOR revenues,” SCS Energy CEO Jim Croyle told GHG Monitor in an e-mail this week.
The HECA project, as initially planned, will be a new-build, pre-combustion 390 MW integrated gasification combined cycle CCUS project. The project’s application for certification has been challenged by the Sierra Club, which has called on the State of California Energy Resources Conservation and Development Commission to terminate the permitting process on the basis that SCS has not been “pursuing its application with due diligence” and has yet to secure a site to sequester its captured CO2. The long process of signing an off-take agreement for the use of the CO2 in EOR could threaten the project’s ability to obtain its permit, causing the project to shut down, hence the need for an alternative, pure storage option.
HECA had been in the process of signing an off-take agreement with Occidental Petroleum when the company announced plans to spin off its California operations in February 2014. At that time, it appeared that the newly formed California Resources Corporation (CRC) would continue to work with HECA to develop an agreement. According to a May 26 filing with the Energy Resources Conservation and Development Commission, conversations between HECA and the company did and do continue. However, CRC has been focusing on “internal issues,” according to the filing, and time has run out for the inclusion of an off-take agreement with CRC in the project model, at least initially. “Because HECA is the first major CCS project in California there is not the extensive infrastructure found in the Permian Basin. If HECA’s EOR customer has an extended disruption in operations, not having an alternative place for the CO2, the project would be required to shut down under its operating permit. Shutting down, of course is not an acceptable alternative,” Croyle said.
HECA began looking into storage-only options in December 2014 with the help of scientists at Lawrence Berkeley National Laboratory, as well as the West Coast Regional Carbon Sequestration Partnership (WESTCARB). “The initial results of these efforts have been positive. [Lawrence Berkeley National Lab] has expressed interest in the Project and reports that its technical work to date in the San Joaquin Valley indicates that formations in proximity to the HECA site have sufficient capacity to store the proposed volume of CO2,” according to the filing with the Energy Resources Conservation and Development Commission.
SCS Energy Says Project Still Economically Viable
According to the filing, SCS was able to adjust the project’s economic model to ensure that the project would remain economically viable regardless of the loss of the EOR revenue. The ability of SCS to make this adjustment is not surprising, Chuck McConnell, former Assistant Energy Secretary for Fossil Energy, told GHG Monitor this week, but the loss of the EOR aspect of the project is disappointing. “The prospects of the project will not be as good, just plain and simple. CO2 revenues for these projects will never be the major source of income,” McConnell said. “The reason that CCUS is so critically important for people to embrace and strive to achieve is that it’s not simply an environmental solution … it’s also a very important part of the business revenue stream long term for sustainability.”
McConnell said that while the decision to permit the project without an EOR aspect may have been necessary to get the project moving, it is a “short term solution perhaps not to be in the best long term interest of the project.” HECA also faces a September spending deadline for funds received under the American Recovery and Reinvestment Act, though Croyle has stated previously that the deadline is of little concern to the project.
EOR May be Considered for Future
Dropping the EOR component of the initial project plan does not limit the company’s ability to add an EOR component again in the future. The company will first permit the project with carbon capture and storage “adequate for 100 [percent] of the HECA’s CO2 volumes captured from operations over the life of the project” Croyle explained. However, the company will continue to communicate with potential EOR companies as construction at the project ramps up. “When the project is far enough along, potential customers believe they can rely on it to be operational within a window of time, and at least one potential customer is in a position to identify specific sites for injection, we will negotiate CO2 off-take agreements and file for amendments to HECA’s permit to accommodate the EOR use as well as storage,” Croyle said.
