Carbon capture imperiled from Exxon to Nuon by worst-case scenario

The cloud of carbon dioxide that burst out of Lake Nyos in Cameroon and asphyxiated 1,700 people haunts the plans of oil and power companies to bury their greenhouse gases underground.

“It was shocking,” said Minoru Kusakabe, a Japanese geochemist who makes regular trips to the site of the 1986 disaster near the border withNigeria. “The village was completely devastated, and people were in their homes dying.”

While the source of the CO2 bubble was natural, originating from volcanic magma deep below the lake, the devastation shows how shifts in the Earth’s crust can trigger worst-case scenarios for the energy industry, just as an earthquake in Japan in March triggered a tsunami that sent a nuclear plant into meltdown.

A dispute over who pays for such geological surprises is threatening to derail efforts to combat global warming and put out of reach the $25 billion governments have offered in grants to facilities that would siphon away CO2 from industrial polluters. Such projects are central to curtailing global emissions and building new markets for companies from Alstom SA (ALO) of France to General Electric Co.

Oil companies Exxon Mobil and Chevron and utilities such as Nuon Energy NV are seeking to tap those funds for carbon capture and storage plants. Insurance companies are dragging their feet in offering coverage against catastrophic accidents.

“No shareholders are going to agree for any publicly owned company to expose the total company balance sheet to an unlimited or unknown liability that long-term storage risk could relate to,” John Scott, chief risk officer for global corporate at insurer Zurich Financial Services AG (ZURN), said in an interview.

Absorbing pollution

The emerging technology, made by contractors such as Alstom SA, Fluor and Honeywell International, is one of the most promising to restrain carbon emissions from burning fossil fuels, the International Energy Agency says. The United Nations Intergovernmental Panel on Climate Change said there may be suitable sites worldwide to hold 2 trillion tons of the waste gas, or about 42 times last year’s global CO2 emissions.

After more than a decade on the political agenda, no carbon capture plant is operating at a commercial scale. While smaller facilities are demonstrating so-called CCS technology can work, none is attached to a plant generating more than about 50 megawatts of electricity, which is less than 10 percent of the capacity of the average US nuclear power reactor.

Liability obstacle

The biggest obstacles are ensuring a guaranteed return and the murky situation of liability for accidents, which companies are hoping to solve by persuading governments to assume most of the risk.

Chevron, Exxon and Royal Dutch Shell Plc agreed to invest in the $37 billion Gorgon natural gas venture that includes a carbon capture plant only after Australia’s national and state governments accepted long term liability for accidental CO2 discharges. That project’s CCS plant starts in 2015.

The gas, while harmless in small quantities such as in human breath, disperses rapidly and is lethal if inhaled in high concentrations, as Lake Nyos demonstrated.

“Even if the risks of leakage are very small, the possible liabilities are unbounded,” said Keith Whiriskey, a CCS expert at the Bellona research institute in Norway. “Geologists are very certain that the CO2 will stay down there and not leak, but being geology, they cannot predict exactly how the CO2 will act in the subsurface. We physically can’t see down there.”

CO2 for oil

Several companies, such as Norway’s Statoil ASA (STL), have pumped CO2 successfully underground into depleted oil wells. Those wells aren’t required to meet more stringent regulations on CO2 injection, under which the US can require an assurance that funds will be available to monitor the site for leaks through the life of the project.

For power utilities that are under pressure to control emissions, Japan’s atomic disaster is a reminder of the limits of risk analysis.

Tokyo Electric Power is in talks with banks to borrow as much as 2 trillion yen ($26 billion) to stave off bankruptcy as it compensates survivors of the Fukushima accident and decommissions reactors, two people with knowledge of the talks said in January. It may face 4.5 trillion yen in payments for compensation by 2013 to those who lost livelihoods and homes.

Three CCS power plants are due to start working in 2014, in Texas, Mississippi and the Canadian province of Saskatchewan. Each is selling the CO2 to oil companies that will use it to boost production.

Project numbers

Three projects were scrapped last year, leaving about 72 large-scale CCS projects under development worldwide, according to the Global CCS Institute in Canberra, Australia. At least 23 CCS projects to date have been considered and abandoned, according to London-based Bloomberg New Energy Finance, a research company that tracks industry investments.

Most US projects plan to sell the CO2 to help pump oil, meaning rules requiring long-term care for wells aren’t applied. Developers injecting the gas solely for permanent storage must monitor the site more rigorously and “assure the availability of funds for the life of the project,” according to the US Environmental Protection Agency. That includes care for the deposit after injection stops and “emergency response.”

Under European Union law, developers flip liability for the safety and security of sites to governments after at least 20 years from the final CO2 injections.

Dakota Gasification captures about 3 million tons of CO2 per year at the company’s Great Plains Synfuels Plant as it processes fuels and sells it to energy companies to recover oil.

For carbon capture supporters, the Lake Nyos disaster was caused by unique circumstances unlike those expected at any capture and storage plant.

Why CCS is different

In Cameroon, CO2 from a magma plume likely seeped upward through rock and combined with water in the lake, where it built up at the bottom. When the lake could hold no more, the carbon suddenly was released as a gas and erupted toward the surface in a geyser, said Howard Herzog of the Massachusetts Institute of Technology’s Energy Initiative.

At a CCS plant, the carbon gas will be compressed into a liquid form, pumped downward into porous rock underneath a layer of impermeable rock, known as cap rock. It will be monitored so that injection can be halted if pressure builds up too much. Over hundreds of years, the liquid carbon will chemically bind to the rocks around it, scientists say.

“Putting CO2 into geological formations is very different” than keeping gas in volcanic structures, said Herzog, a research engineer for emissions-cutting technologies based at the institute in Cambridge, Massachusetts. “We may get drips, but not the violent degassing we saw at Lake Nyos.”

Rocks as storage

In the US there are places where volcanic rock has held CO2 for about 65 million years, said Michael Stephenson, head of energy at the British Geological Survey in Nottingham.

“It is difficult for CO2 to leak through that strata,” Kusakabe said in an interview from his home in Japan. “And during storage it would react with the surrounding rocks to form carbonate” that’s solid.

Even so, insurance companies refuse to offer long-term policies, and public opposition to perceived dangers has cropped up around a few projects.

Zurich and Swiss Re, two of the biggest reinsurance companies, are interested in covering the operating phase of plants, after which they insist that governments help cover the liability for any massive leak that might occur during the hundreds of years that storage sites may have to be guarded.

Insurers find it difficult to gauge the risk of CCS projects and want a finite period to consider, said Cliff Warman, head of environmental practice for Europe, the Middle East and Africa at the consulting firm Marsh.

1,000-Year policy

“Is the insurance market able and willing to write a 100- or 1,000-year policy for CO2 sequestration? The answer is no,” Warman said. “It’s an almost uninsurable risk.”

Public opposition contributed to the demise of a project proposed by Vattenfall AB in Germany in Jaenschwalde in December as governments attempted to diffuse local concern in the aftermath of meltdown in Japan.

Plants proposed by RWE AG and Nuon Energy in the Netherlands were set back after the Dutch government ruled out storage of CO2 under the land. RWE is now looking at storing the gas offshore, RWE spokesman Jeroen Brouwers said.

Nuon has ambitions for CCS “under favorable market circumstances and under clear government policy,” said Melanie Poort, a spokeswoman for the unit of the utility Vattenfall.

Algerian project

Oil company BP is part of the In Salah natural gas production project in Algeria that has stored more than 3 million tons of CO2 since 2004 from a gas field it is pumping. BP officials declined to comment.

If industrial CO2 leaked into water supplies, it could cause environmental damage, “and that’s $100 million right there,” said Rodney Taylor, managing director for the environmental services group at Aon, a Chicago-based insurance company.

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