Finding Petroleum Conference · CO2 trapped in a sandstone ... necessary skills to make this work...

September 15, 2010

See Disclosure Appendix of this report for important Disclosures and Analyst Certifications

Finding Petroleum ConferenceCarbon Capture and Storage

Oswald Clint, Ph.D., ACA

Senior Analyst

Sanford C. Bernstein

+44-207-170-5089

[email protected]

Can anybody build a business out of CCS?

Observations within the Oil & Gas Industry

2

The driving force behind CCS ambitions

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

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65

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67

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CO

2 E

mis

sio

ns (

MT

)

Asia Pacific North America EU Eurasia Middle East S. & Cent. America Africa

3%

4%

6%

8%

13%

22%

43%

% of Total

R R R R RAsian Crisis

Source: Oil & Gas Journal

CO2 emissions from consumption of oil, gas and coal

3

So what is CCS?

Source: Cross-section from Scientific American

�Sounds Simple – A multi-part process to capture CO2 from power & industrial plants, transport the CO2, and permanently store the CO2 in some sealed geological structure or depleted field…

�Has it been done? - Individual processes involved are not new, but the full chain ofcapture, transport, and storage have yet to be proven together at commercial scale

Chaffin Ranch natural CO2 geyser in Utah CO2 trapped in a sandstone reservoir

4

Incentives are clear for a push into CCS

Source: EUROPA (European Union), Company reports and Bernstein estimates

� Components of the 2008 EU energy and climate change package – Reduce CO2 by 20% by 2020

1. Equipping power plants with CO2 capture and underground storage2. Revision of the EU Emissions Trading Scheme (EU ETS)3. Effort-sharing targets for emissions reductions4. National targets for increasing share of renewables in energy mix5. Reducing CO2 emissions from cars6. Reducing greenhouse gas emissions from fuels

Comparison of CO2 emissions per kWh of electricity produced…with and without CCS

5

But progress is slow…Europe's CCS proposed projects

Source: Company reports, MIT and Bernstein estimates

� Yet today there is 7,000 MW of ‘Coal+CCS’ plants being discussed for a region which has 200,000 MW of CO2 emitting coal fired capacity

� Not-In-My-Back-Yard (NIMBY) phenomenon has started affecting development plans as Shell are discovering with CCS plans for their Pernis refinery in Rotterdam. Residents from 7600 homes have raised fears about safety as the depleted gas field forcing delays on project approval

6

History shows how difficult it is to achieve targets - Prior European efficiency attempts

�1998 EU Communication set a target that energy consumption over the 2000-2006 period would be reduced by 18% by improving energy efficiency, which would also vastly reduce toxic emissions in the process. This equates to a 1% decrease per year until 2010

�However in practice, European primary energy consumption rose 0.23% CAGR between 1998 and 2008 (0.7% between 2000-2006)

Source: BP Statistical Review and Bernstein estimates

7

All boils down to costs

Source: Company reports and Bernstein estimates

Illustrative capex for newly built capacity

8

And capacity/lead times favour simple CCGT’s

Source: Parsons Brickenfield and Bernstein estimates

9

Which is why there is a big push for gas fired power plants

Source: European Commission and McCoys, Press Releases, Platts and Bernstein Estimates

10

What Is The Oil & Gas Industry Doing About It?

� While other companies such as Vattenfall and GdF are piloting, the Oil & Gas industry has all the necessary skills to make this work especially a unique understanding of depleted reservoirs

� As a technology, CCS is looked upon favorably by the industry as they need to inject gas into oilfields anyway to maintain pressure. If they can use CO2 instead of natural gas, they can clearly aim to monetize the natural gas

CO2 compression and liquefaction

Source: Vattenfall

Vattenfall’s pilot plant in Schwarze Pumpe, Germany

11

Activities by the Major Oil Companies

Source: Company reports

Company Positioning on CCS Investments made & planned CCS

capex

($M)

2009

capex

($M)

%

Global Oil Majors

BP In Nov 2005, BP formed the Alternative Energy unit as "the

commercial vehicle for its complete lower carbon offer"

- In 2007, abandoned the plan to build the world's first ever CCS

plant in Peterhead, Scotland (cost £500M) when the government declined to offer support

- In Dec 2009, bought 50% stake in a Dubai CCS project from Rio

Tinto

20,650

Chevron In Australia, the Chevron-operated Gorgon gas field has the

potential to store up to 3Mt CO2, making it one of the

world's largest CCS projects.

In Oct 2009, GE Oil & Gas was awarded a $400M contract to

deploy its LNG production and carbon sequestration technologies

at the Gorgon field.

19,843

ConocoPhillips The Company 'is progressing development of several

commercial-scale project opportunities'; it also 'provides

financial support and active participation in many external CCS research programs'

ConocoPhillips has identified several facilities for CCS

implementation including Immingham CHPP (UK); proposed

gasification plant (Kentucky, US), as well as a cogeneration plant in Sweeny (Texas, US).

10,861

ENI In 2008, signed a cooperation agreement with Enel to

develop the CCS technology in Italy

Curently developing first Italian CCS pilot project in Brindisi

targeting 5kt/y of CO2 (operational in 2012)

17,804

Repsol - In 2009, completed development of a system for

separating and purifying CO2 from natural gas

- Commitment of cutting CO2 emissions by 2.5Mt in 2005-13

Our research activities in recent years have made breakthroughs

in the field of CO2 capture and storage, particularly in evaluating

its potential application to the company's production operations.

30.0 11,704 0.3%

Shell Stated intention of becoming "world leader" in the CCS technology. However, its first commercial CCS project

(Quest) is unlikely to be completed before 2015

The Canada and Alberta governments have pledged C$865M to the proposed Quest project to capture and store 1Mt/y of CO2

from the Scotford Upgrader

400.0 26,516 1.5%

Statoil Statoil has convinced the Norwegian government to pay for Scandinavia's first CCS plant in Mongstad (next to Statoil's

refinery) citing the uncertainty about CO2 regulatory

environment going forward

- Norwegian government is covering both the construction cost ($3.7Bn) and operating expenses of the Mongstad CCS plant,

with Statoil paying the market price for CO2

- Mongstad target capacity of 2Mt/y CO2 equating to 4% of Norway's overall emissions

10,735

Total "Investigating the feasibility of implementing these [CCS]

techniques to exploit Canada’s oil sands, LNG plants and

fields containing high concentrations of CO2"

In Jan 2010, completed €60M CCS demonstration project in Lacq

(France) that will capture 120kt of CO2 in 2011-12

78.0 16,523 0.5%

European and Russian Oil & Gas

MOL Has a a CCS working team in place for investigating

opportunities for storing carbon dioxide in its depleted hydrocarbon reservoirs

Currently studying possibilities for a CCS plans at the planned

Matra Power Station in Hungary

1,517

OMV Through its fully owned subsidiary Future Energy Fund OMV identifies renewable energy and emissions reduction

projects within the group.

Since 2006, OMV has spent €2.5M on a number of CCS-related projects in Europe including EOR study on a Romanian oil field,

Zero Emission power plant and others

0.7 3,077 0.0%

Fortum (Neste) Participating in several CCS-related projects. - Carbon capture tested successfully at the Vartan power plant

(95% of CO2 emissions)

- Planning to commission a full-scale CCS facility at the Meri-Pori power plant as an EU demonstration

1,125

NOCs

Abu Dhabi

National Oil Company

(ADNOC)

Partnered with the Masdar project which aims to capture

5Mt of CO2 by 2014 - ADNOC will inject CO2 in its reservoirs

Currently working on several CO2-EOR studies in Abu Dhabi

Saudi Aramco Aims to use carbon capture to boost oil production Saudi Arabia's first CO2-EOR demonstration plant complete by

12

The Industry Can successfully store CO2, as Statoil have shown in Sleipner, In Salah, and Snohvit

� Sleipner’s gas held 9% CO2 which no customer wanted and at the same time the Norwegian government enacted a CO2 tax in 1991

� To avoid the CO2 tax, Statoil paid $100M for the cost for the CO2 compression and the drilling of a CO2 injection well. Opex was $10-20/t to inject but made sense against a $50/t CO2 tax

� Today the CO2 has spread through the Utsira sandstone formation at the field and remained in place for the past 13 years. More than 10M tons is stored covering almost 3km2

�However, their ambition to develop CCS at their Mongstad refinery has been delayed this year, as it is too complex to do on schedule...indications are for a decision by 2017 now

Source: Statoil

13

CO2 emissions from the Majors operations

Direct CO2 Emissions - Global Supermajors

475 464443

429

475485

0

100

200

300

400

500

600

2004 2005 2006 2007 2008 2009

Dir

ect

CO

2 e

mis

sio

ns (

Mill

ion

to

ns)

BP RDS XOM TOT CVX COP

Direct CO2 Emissions - European Oil & Gas

116 119

130123

115

96

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009

Dir

ect

CO

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Mill

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to

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ENI REP STL Other


� CO2 emissions from 15 oil & gas companies. Combined they produce 680-700Mt of CO2

last year, 2.4% of global...which is more than all of the UK

60% of decrease was by Shell

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Wide variance across the Western Majors…while NOC’s continue to increase CO2 emissions

Direct CO2 Emissions - Selected NOCs

112 113117

135 134

106

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009

Dir

ect C

O2 e

mis

sio

ns (

Mill

ion

to

ns)

Petrobras Pemex ADNOC

Change in CO2 Emissions, 2005-09

11%

2%

-2%-4% -5%

-7% -8%

-17%

-28%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

COP STL CVX TOT REP XOM ENI BP RDS

% Total = -8%


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Even the self-proclaimed EOR industry leader is shying away

� ExxonMobil is a recognized industry leader in EOR, and has used CO2 injection at the Means Field in Texas and the Upper Zakum oil field offshore Abu Dhabi.

� ExxonMobil is also pioneering its CFZ technology where CO2 is stored in a liquid during capture, and then stored as a liquid under ground. However, in Europe the EU Commission's proposed directive on CO2 geological storage bans the use of liquids.

0%

20%

40%

60%

80%

100%

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89

199

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So

urc

es o

f O

il R

eserv

e Incre

ase

Reserve Revisions Field Extensions and New Discoveries

Acquisitions Enhanced Oil Recovery


16

Many mature and depleted fields will soon be available

� 20% of UK oil production is sourced from fields which started more than 25 years ago, while 10% of UK natural gas is sourced from similar aged fields

� Total gross capacity of 292 potential UK and Norwegian CO2 sinks is 36 Bnt

� Only 67 sinks have total storage capacity of 100 Mt i.e. 23% are considered cost effective

� Incremental oil recoverable through EOR is estimated at 3.8Bn bbls in Norway and the UK

Sources of CO2 Potential CO2 Storage


17

In the US the potential is also huge with 1700 reservoirs

� These 1700 reservoirs with EOR Potential have the potential to extract 20Bn bbls of oil


18

However, the distance between EOR CO2 fields and power plants is large

Refineries

Ammonia Plants

Cement Plants

Hydrogen Plants

Ethanol Plants > 50 Bcf/Yr


Fossil Fuel Power Plants

Candidate CO2 EOR Fields

Refineries

Ammonia Plants

Cement Plants

Hydrogen Plants




Candidate CO2 EOR Fields

Refineries

Ammonia Plants

Cement Plants

Hydrogen Plants


Other Industrial Sources

Refineries

Ammonia Plants

Cement Plants

Hydrogen Plants


Other Industrial Sources





Source: Intek

19

Distance matters due to pressure dissipation

Source: BERR

10,000,000 kg CO2/hour is equivalent to 87.6 Mt CO2/year

20

In Conclusion…

�Although the current cost exceeds the market price of CO2, there are quite a number of oil companies now involved in carbon capture and storage projects which is encouraging.

�However many obstacles exist for them including costs, government policy changes, public perception

�Tougher decisions are needed…Switzerland has already made a harsh tweak – it increased carbon taxes from 12 Swiss francs to 36 Swiss francs per tonne from 1 January 2010, due to failure to meet the 2008 greenhouse gas reduction target!

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Disclosure Appendix

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SRO REQUIRED DISCLOSURES

• References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, and Sanford C. Bernstein, a unit of AllianceBernstein Hong Kong Limited, collectively.

• Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration, productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or contributions to, generating investment banking revenues.

• Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the U.S. and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets exchanges outside of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless otherwise specified. We have three categories of ratings:

Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily.

• As of 04/19/2010, Bernstein's ratings were distributed as follows: Outperform: 47.5% (0.9% banking clients) ; Market-Perform: 46.2% (1.0% banking clients); Underperform: 6.3% (0.0% banking clients); Not Rated: 0.0% (0.0% banking clients). The numbers in parentheses represent the percentage of companies in each category to whom Bernstein provided investment banking services within the last twelve (12) months.

• Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the following companies TLW.LN / Tullow Oil PLC.

• The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking-securities related services and received compensation for such services BG/.LN / BG Group PLC.

• In the next three (3) months, Bernstein or an affiliate expects to receive or intends to seek compensation for investment banking services from BG/.LN / BG Group PLC, CNE.LN / Cairn Energy PLC, GALP.PL / Galp Energia SGPS SA, LKOD.LI / LUKOIL, NVTK.LI / NovaTek OAO, OGZD.LI / Gazprom OAO, PMO.LN / Premier Oil PLC, ROSN.LI / Rosneft Oil Co, SGGD.LI / Surgutneftegaz, STL.NO / Statoil ASA, STO / Statoil ASA, TLW.LN / Tullow Oil PLC.

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12-Month Rating History as of 4/26/2010========================================BG/.LN - O (IC) 1/22/2009CNE.LN - O (IC) 1/22/2009GALP.PL - M (IC) 1/22/2009LKOD.LI - U (IC) 1/15/2009NVTK.LI - O (IC) 1/15/2009OGZD.LI - O (RC) 7/16/2009, M (IC) 1/15/2009PMO.LN - O (RC) 2/19/2010, M (IC) 1/22/2009ROSN.LI - U (IC) 1/15/2009SGGD.LI - U (IC) 1/15/2009STL.NO - M (IC) 1/22/2009STO - M (IC) 1/22/2009TLW.LN - O (IC) 1/22/2009

Rating Guide: O - Outperform, M - Market-Perform, U - UnderperformRating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change

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CERTIFICATIONS

• I/(we), Oswald Clint, Ph.D., ACA, Senior Analyst(s), certify that all of the views expressed in this publication accurately reflect my/(our) personal views about any and all of the subject securities or issuers and that no part of my/(our) compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views in this publication.

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Finding Petroleum Conference · CO2 trapped in a sandstone ... necessary skills to make this work...

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