2. The CO2 market

Revenue generated from selling CO2 for reuse is likely to be moderate, and subject to future downward price pressure because of the strong potential supply surplus.

Understanding the current and future potential CO2 market size, the CO2 market price and hence the possible revenue generated from the selling of CO2 for reuse applications is fundamental in determining the potential impact the short-listed technologies may have in accelerating the uptake of CCS.

The current global CO2 demand is estimated to be 80 Mtpa, of which 50Mtpa is used for EOR in North America. The future potential demand for CO2 that could eventuate by 2020 is estimated to be 140Mtpa, taking into consideration the current development status of the short-listed reuse technologies. The current and future potential CO2 demand are immaterial when compared to the total potential CO2 supply from large point sources, which is estimated at 500 million tonnes annually for high-concentration sources, and 18 gigatonnes per annum (18000Mtpa) of dilute CO2 from power, steel and cement plants.

Due to this supply surplus, large scale facilities such as power, steel and cement plants that install CO2 capture, and natural gas processing plants which produce CO2 as a by-product of their operations, are likely to be price-takers in the market for CO2, particularly under regimes that impose a carbon price penalty on emissions. The likelihood of a growing global CO2 supply surplus is consistent with an expectation that bulk CO2 market prices for reuse applications will be no higher than at present, and that they will be subject to future downward pressure that will strengthen with the adoption of regimes that impose a carbon price penalty on emissions.

2.1 Demand

2.1.1 Current demand

As presented in Part 1, currently there are a large number of uses for CO2. Despite the large number of uses identified, many are on a relatively small scale. The picture of current CO2 utilisation on a scale relevant to the use of CO2 captured from large point source emitters is presented in Figure 2.1. This is based on the following data:

  • The current global demand for CO2 is estimated at 80Mtpa.
  • Of this 80Mtpa, at least 50Mtpa is utilised for EOR, almost exclusively in North America.
  • The remaining 30Mtpa represents the global demand of all other uses, predominantly the mature industries of beverage carbonation and food industry uses.

Note that the numbers above represent non-captive uses for CO2; captive uses are not considered. Refer to Section 1.4.4 for more details on the distinction between captive and non-captive uses for CO2.

 

Figure 2.1 Approximate proportion of current CO2 demand by end use

2.1.2 Future demand

The future potential demand for CO2 that could eventuate by 2020 was estimated, taking into consideration the current development status of the short-listed reuse technologies. The estimates for the cumulative demand to 2020 were presented and discussed in Part 1 of the report. The future demand estimate (for the year 2020) for the short-listed reuse technologies is 140Mtpa, including EOR. This estimate is based on a predicted growth of current technologies such as EOR and urea fertiliser and the implementation and commercialisation of demonstration projects for the remaining technologies in line with their prospective development timeframes.

2.2 Supply

The estimated current global demand of 80Mtpa is supplied from natural geological CO2 reservoirs, or is produced as a by-product from several different industrial processes such as ammonia production, ethanol production, and natural gas processing. This bulk CO2 is sold to the industrial gas industry, or in the case of gaseous CO2 for EOR (enhanced oil recovery), is supplied to the oil and gas sector through dedicated pipelines.

Over 80 per cent of the CO2 used for EOR in the US is sourced from natural wells, and by default this CO2 from natural sources represents the majority of the world’s non-captive CO2 supply. There is a good opportunity to extensively replace the natural CO2 with anthropogenic CO2 for applications such as EOR. The total potential CO2 supply from large point sources (greater than 0.1Mtpa from a single site) is estimated at 18 gigatonnes per annum (18000Mtpa). The cost to capture CO2 varies amongst the different sources that make up this 18Gtpa. For example, capture of CO2 from power generation plants is expensive, yet this makes up over 70 per cent of the 18Gtpa from large point source. However, the cost to capture from sources that are currently typically utilised (e.g. CO2 from ammonia plants, ethanol production, natural gas processing) is relatively low cost.

Data concerning the amount of CO2 available from each source is not exact. However, by consideration of the IPCC Special Report on CCS (2005) and the IEA’s CO2 Emissions Database (courtesy IEA Greenhouse Gas R&D Programme), it is estimated that the lowest cost sources could provide 500Mtpa or more of CO2, with low-intermediate cost CO2 sources (<US$35/t CO2 avoided) providing another 2Gtpa plus.

The current demand for CO2 is shown relative to the potential supply from these low-intermediate cost sources in Figure 2.2 below.

Figure 2.2 Current global CO2 supply and demand

It is evident that there is a very large theoretical supply surplus. The demand estimated for 2020 (140Mtpa as compared to the current 80Mtpa for the short-listed technologies) does not make a significant difference in this supply-demand balance. Even taking into account very optimistic scenarios for the uptake of CO2 reuse technologies in the next decade, the supply surplus is likely to grow with the adoption of regimes to restrict CO2 emissions.

It is also evident that the large volume of CO2 available from low to medium cost sources is likely to supply the majority of near-term reuse demand growth in preference to higher cost supply that could be developed by installing capture plants on power, steel or cement plants.

2.3 CO2 market pricing

2.3.1 Pricing of bulk CO2

The price of bulk CO2 is typically agreed through private negotiations between parties and is not generally available for public scrutiny. However, the following are examples of known prices:4

  • Ammonia producers in the US experienced a range in prices of around US$3 to US$15 per metric tonne for bulk gaseous/supercritical CO2, which varied significantly by location within the US.
  • The price for pipelined CO2 has historically been in the range of US$9-US$26 per tonne, which incorporates the cost of the pipeline infrastructure (capital and operational costs).
  • The Dakota Gasification Company’s Great Plains Synfuels Plant pipes CO2 205 miles to Canada. In 2009 they sold US$53.2m worth of CO2, whilst it produced 2.8Mtpa, suggesting a price of US$19 per metric tonne produced, incorporating the cost of transportation – although only half their emissions were consumed.
  • Cardinal Ethanol LLC, who in March 2010 entered into a contract to sell 40,000 tonnes of CO2 at a price of US$5/tonne. The recipient of the CO2 pays for the transportation.

The range of prices above is considered a realistic representation of the bulk gaseous/supercritical CO2 price in the present, and to represent a general upper limit into the future.

In summary, large scale facilities such as power, steel and cement plants that install capture technology, and natural gas processing plants which produce CO2 as a by-product of their operations, are likely to be price-takers in the market for CO2. This is due to the aforementioned supply surplus and the prospect of regulatory constraints on CO2 emissions.

2.3.2 Future pricing of bulk CO2

Since the current supply surplus is likely to increase in the future, the current market prices for bulk CO2 are indicative of the upper limit of prices that can be expected into the future.

4 SRI Consulting, March 2010, Chemical Economics Handbook 2010