Speaker 1:
Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Jason Gabelman:
This is Jason Gabelman from the Cowen Energy team. On this edition of the Cowen Energy Transition podcast series, we're pleased to be talking with Tim Wiwcher. He's Shell's CCS lead in Canada. Tim has been at for 20 years, mostly working at the Scotford Upgrader and chemicals plant, and also on the Quest CCS project.
Shell has a target of 25 million tons of carbon capture capacity by 2035. It currently operates the Quest Carbon Capture project and is participating in a number of other projects, including Northern Lights Porto's Net Zero Teesside, and the Houston CCS Hub with that. Tim welcome, and it's great to have you on with us.
Tim Wiwchar:
Thanks for having me.
Jason Gabelman:
Before we jump into your real world experience with Quest, it'd be good just to have some background about your career at Shell.
Tim Wiwchar:
Sure. I'm actually experienced hire had worked previously in the Exxon world and in a first small Canadian chemical company, chemical engineer background, joined Shell in 2002 at Scotford started up their Upgrader, worked through their business planning, production planning world, went did a little bit of time up in oil sands came back in 2012 to what we now know is Quest and was fortunate enough to work the Quest project through the construction phase startup. Then now working on the next phases of CCS here at Scotford known as the Polaris project.
Jason Gabelman:
Yeah, and I look forward to hearing a bit more on Quest. Most of these discussions have been focused on future projects so it's good to have someone with real world experience on an existing CCS project. With that, maybe we could turn to Quest and was hoping you could provide us some background on why it was developed technology used the cost structure, just some broad context on the project.
Tim Wiwchar:
The origins of Quest actually go back to the mid 2000s Shell had been through its own endeavors in CCS technology, been looking at ways to decarbonize it, its operations. We had been looking actually at the time back in Holland through [Baron Direct 00:02:58] project, as well as there were a couple of other places. But at the time when we were majority owner of the Oil Sands Operations, the Alberta government here actually put forth about a $2 billion Canadian fund for proposals that they would evaluate that deploy CCS in its various forms like Quest, where it was a pure capture and storage.
There was also one that was successful, but then backed out, which was CCS on power. Then there was one that is in operation today, which is captured from a new refinery, a chemical plant and transport of the CO2 to CO2 EOR operation in central Alberta.
That kind of spawned, Quest was successful and was able to obtain $745 million in that government of Alberta funding all done through a competitive process and actually believe it or not all that funding was basically performance based. We actually had to hit predetermined milestones in order to get it. We looked at our hydrogen units here that produce a lot of hydrogen, but emit a fair bit of CO2, 2 million tons a year to be exact and we looked at the pre-combustion technology, which is a gas processing technology as its way to start and then looked at different options for transport to... Or different locations for transport. Then it ended up in the current configuration where there's about a 60 kilometer pipe, about 36 miles long, 12 inch to three wells just north of our operations here at Scotford.
Jason Gabelman:
Got it. That's that's great. You mentioned government incentives. How important were those to getting the project over the finish line?
Tim Wiwchar:
Well, at the time Alberta did actually have a small carbon price, $10 Canadian per ton, but in order to get that infrastructure going and to really make this a good proof point that funding was significant. It was really in order for CCS to happen in Canada, you also need the regulations in place. I think the funding really was that form of commitment with our partners at the time Marathon and Chevron now CNRO to really take forward CCS and to show that the government is serious and CCS as one of those large de carbonization tools.
Jason Gabelman:
Just keeping on with government incentives? Do you see that as a important factor in the future development of carbon capture in Canada and if you have comments on the broader landscape as well?
Tim Wiwchar:
Well, I think what we're starting to see today is that incentives are coming in different forms. There are grants are ours was through a funding mechanism that was all performance based. You are starting to see carbon pricing in different parts of the world in Canada and Europe in particular, and even 45Q in the U.S. start to ramp up where there is that form of incentive that can be created to monetize the CO2 capture. There're countries is looking at investment tax credits. Interestingly enough, we're starting to see some uptake in certain industries where other companies or customers are prepared to pay for lower carbon products that are derived the via CCS.
Jason Gabelman:
Yeah. You mentioned the carbon credit in can Canada. Can you just talk about that program more broadly? There's a low carbon fuel standard as well. Can you maybe just provide some context on, on each one of those?
Tim Wiwchar:
Yeah. Back in 2008, the Alberta government put in place, and it's gone through a variety of name changes, but basically a mechanism where if there was some CO2 removal, an entity could generate a CO2 credit, if you will. In our case, through CCS. CCS can generate an offset credit. That was given a fairly firm price with some flexibility that you could essentially trade.
How that worked is the Alberta government gave some thresholds to which the first companies in various industries had to decarbonize. Basically lower their CO2 footprint, their CO2 emissions. If they weren't below that by a certain date, then what would essentially happen is you would have to buy either pay a tax or buy a credit to offset that emission. That's what CCS was there to do is to reduce emissions and generate that off offset credit.
Since that time since Quest took FID in 2012 through to now, that carbon price has actually increased from about $10 per ton. It went up to $15 and now is at $50. Canada, nationwide is looking at a clean fuel standard, something similar to what's in California for all fuels that are used, gasoline and diesel fuels that are used in Canada, whether they're produced here or not, and associated with it, there's going to be an increasing benchmark to which to reduce our emissions and that we are expecting by 2030 to actually hit the equivalent of about $130 U.S. per ton, which actually does provide a good incentive for CCS in that environment.
Jason Gabelman:
Got it. Is that something that you would, or that show would invest in CCS speculatively before the carbon price hit that level, if you saw trending that way or how do you think about, I guess the evolution of the carbon price? Relative to.
Tim Wiwchar:
No, that's a good question. I think for us, how we're positioning Polaris, which is the next phase. Quest was done on the Upgrader. Polaris is the capture from our chemical and refinery, so the refinery does produce a significant amount of fields used in Canada for gasoline and diesel. How we're looking at that approach is we're expecting that clean field standard to come into play by the end of this year, possibly early next. That would be, I think our confidence that we would start to see that carbon price increasing.
In Alberta, we've seen various governments come and go. We've had some challenges to whether or not they even wanted to keep CCS legislation. I think we're starting to see there's improved confidence that carbon price will stick around. Therefore if we get this clean fuel standard regulation in place that should give us the confidence, we need to take a investment decision in Polaris and then go and work to building it.
Jason Gabelman:
Got it. I do want to dig into Polaris and bit more, but before doing that, just maybe focus on Quest for a little bit longer. Can you talk about how the project performed compared to expectations?
Tim Wiwchar:
Yeah, I think Quest is one of those shiny moments on a project. We FID'd it at about $860 million Canadian came in at $790 million in an environment maybe not as hot as it is today but quite significantly through the 2012 to 2014 era. Additionally, we came in ahead of schedule by about three months. We're seeing our optics lower than expected so we're seeing some favorable subsurface and from a performance perspective, we're approaching 7 million tons of captured and stored CO2 ahead of what our plan was.
We had expected to capture and store about 1.08 million tons a year. We're definitely higher than that north of the 1.1 million ton mark. So still working through it, at the operating unit level, there's always a few things that you have to work through. It went through its first major turnaround last year got its app up and running again and survives some of our dreaded cold winters as well.
Jason Gabelman:
Got it. You mentioned some of the OPEX benefits was related to storage cost. Can you elaborate on that at all?
Tim Wiwchar:
With Quest, we store the CO2 in a saline aquifer. Think of it as a prehistoric ocean, millions of years, very brackish water and it's like rock. Once we started to get the CO2 flowing, we actually found that its porosity or permeability was a lot better. Therefore, there wasn't that restriction that we were expecting. Therefore, one of the big OPEX elements is compression, and we're starting to find some savings in that because of the favorable risk of our properties.
Jason Gabelman:
Got it. That makes sense. Maybe on the cost of Quest there's been articles that I've suggested if that if Quest were done today, it would cost 30% less. One, is that something that's true? And if it is, can you talk about some of the cost improvements that either Shell specifically, or the industry at large has been able to capture on carbon capture projects?
Tim Wiwchar:
In an environment where inflation's hitting 40 year highs, I think it's a little bit of a tougher story now, but on a 2012, 2015 basis, yeah. I think there is. I think one of the things we learned a little bit around the pipeline is I think there was a little bit of over design on that versus what you see with CO2 pipelines that are in the Permian definitely. But being a first of being government funded, we wanted to make sure that this worked. I think there's definitely some savings there. I think we also seen through modular construction, so basically taking construction offsite and then trucking it to the site and basically putting it together like a little Lego toy does offer some significant advantages. I think the other big area that we see opportunities is through scale.
If you've mentioned the Houston hub, we're looking at hopefully here in Canada to do a large CCS hub. When you do scale there's definitely opportunities to get your cost per ton down. To give you an example of that, the quest pipeline, 12 inch pipe, we are putting 1.1 million tons a year through it, but it's actually capable of three. Essentially the next two is free. It's just due to the sizing of pipe rate to go from a 10 inch, 12 inch you get that little bit extra capacity going for it. If you went from a 12 to 16 inch pipe, you'd probably get something around seven to 9 million tons a year for capacity. Again, depending on lengths as well, but through your compression system, through your removal and drying of CO2, there's definitely opportunities at scale to get your costs, pretend down.
Jason Gabelman:
Were there any other important learnings from the Quest CCS besides the ones that you just mentioned?
Tim Wiwchar:
I think, with the skepticism at CCS had, I think the big lesson that helped governments is actually CCS does work. No, it's one thing for of people to talk about it, but it's one another thing to show it and I think with the numbers that I have shared with you, we're approaching 7 million tons. We were under on CapEx, OPEX ahead of schedule. These can be done, they can be done safely and it works. For me, when people say what's the biggest lesson, not so much for me, but for society and industry, is that CCS does work.
Jason Gabelman:
Got it. Maybe moving to Polaris, you touched on the project and it's and it's features maybe can you discuss the project in a little more detail? What's the thought behind it? Why does it make economic sense? Maybe the cost structure of it as well?
Tim Wiwchar:
Yeah. Polaris is actually, there's two parts of it. Actually, maybe to share another lesson is that I've taken through my experience in the numerous external engagements I've done is that in order to CCS, you actually have to blend typically two different business lines, a downstream line, typically refining your chemicals and an upstream business line that knows the subsurface and can work in that space.
That's what we've done with Polaris is essentially we've been able to marry our up our upstream business that has this storage piece and transport, as well as our downstream, the refinery and chemicals. We're looking to capture about 800,000 tons a year from our refinery and chemicals, our unit. In the phase, it's going to be a multi-phase for transport and storage. But our phase one is looking at a 12 inch pipe, for about 12 kilometers so about six miles. Quite close to the site, unlike Quest was with a couple of wells and that's really motivated on our own emission reduction.
I think the combination of the two from the refinery side will achieve about a 30 to 40% reduction in scope one, the chemicals will achieve about a 20 to 30% reduction in scope one. A significant reduction on our own, but it's also motivated on that clean fuel regulation that I touched on with where we would expect by 2030, the carbon price to hit about $130 U.S. per ton, $170 Canadian is which is published the phase 2, 3, 4, and 5 is what we've mentioned about getting up to that 200 to 300 million tons of total storage about 10 million tons a year. Working that through industry in the area, there's Dow Chemical, there's some fertilizer, other refiners, steel, power, in the region that we're looking at to potentially be that transport and storage hub provider of choice for them through a tariff arrangement, basically to cover off OpEX, CapEx for the transport and storage. They would likely monetize that through either a variety of clean fuel regulations or what we expect in increasing carbon pricing through our offset emission regulation here in Alberta as well.
Jason Gabelman:
Got it. That seems like a pretty complex UN undertaking establishing a hub. Maybe can you talk about the timeline for doing that and some of them may be underappreciated complexities in working with, and bringing together a variety of counterparties to establish a hub?
Tim Wiwchar:
For the phase one, which is focused on our own emissions we're... If things go well by mid next year, we should be able to hit final investment decision with having startup late 2025, early 2026. Pending conversations with commercial partners, we would hope that there's probably about another 2 to 3 million tons a year that would be ready for transport and storage by probably about 26 so maybe a year or two after our phase one. Then we're thinking a phase three might be a couple years after that.
Really one of the key things for us to look at is how do you phase that? How do you develop this large storage hub in an approach that also keeps it quite economic without overbuilding too much, but having enough overbuild to keep you ready for the future expansions? I guess in a way it's probably very similar to pipeline logistics companies in the U.S. and Canada that are moving natural gas in oil from a variety of different sources as well. This is just now moving CO2 to a common sync.
Jason Gabelman:
Got it. Is there a lot of competition from your peers to develop hubs? I think about other large oil companies with refineries in Alberta, and I would imagine they've looked at doing this too, so just maybe discussed a competitive landscape a bit up in Alberta and what gives a competitive advantage and makes it well positioned to develop this hub?
Tim Wiwchar:
Yeah, surprisingly enough, there is a fair bit of con competition. In this Heartland region that Scotford resides in, like I mentioned, there's a couple of chemical companies, there's air products, there's a couple of other refiners steel companies. What we do know from announcements in the public is that there's probably about four other groups, coalitions that are competing with us and definitely have their advantages in their own right. I think for us, having Quest having been able to work with the provincial government already, well, we haven't announced, but through our partnership with Mitsubishi, we're looking at a blue hydrogen blue ammonia export opportunity with them to Japan, which I think would definitely be of interest for provincial government from a natural gas perspective.
And of course we're working with an indigenous company [RETI 00:22:16] or project reconciliation as well and some other partners yet to be named. I think we feel confident in what we're doing, but again, I think we've hit all the key points that the government is looking for in the hub with our experience with Quest, but a couple weeks away so we're patiently waiting to see what that outcome would be.
Jason Gabelman:
Got it. As you think about the future and the development of carbon capture, do you expect the government to provide additional support? It seems like through the carbon price and the clean fuel standard that there's already, it seems like enough support to really have the space gain momentum, but are there other things that as investors and industry viewers that we should be looking for?
Tim Wiwchar:
Well, in Canada, at least there is some talk about in the upcoming federal budget about an investment tax credit for CCS. I think between that and in an escalating carbon price, those two will help. I think the other one as we've talked a little bit about here, are there opportunities where customers, whether they're in Canada or abroad are prepared to pay a little bit more for a lower carbon product? Whether that be a typical hydrocarbon derived jet fuel or a chemical, we are starting to see some of that interest. I think people have realized that bio-based chemicals and other products are quite expensive right now probably they'll be a learning curve where price comes down. But right now they're quite expensive and leave it or not on a cost pretend basis for decarbonizing CCS actually looks attractive to some customers relative to bio-based products.
Jason Gabelman:
Yeah. We'll definitely continue to watch that develop. Well, that's it for us. I really appreciate the time Tim as was a very informative discussion and thanks a lot for joining us.
Tim Wiwchar:
Thank you. Thanks for having me.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of Cowen Insights.
