Learnings

Outcomes

The role of National Gas Transmission in the CO2 value chain has been identified as key. In Scotland, National Gas Transmission could support the Scottish Cluster (Project Acorn) by enabling onshore CO2 transportation. Indeed, Project Acorn has thus-far focused on the storage side of the CCS value chain, with the critical onshore transport option unaddressed. NGT could play a fundamental and enabling role in this strategic project by leveraging its existing infrastructure and experience in onshore gas infrastructure to decarbonise the Scottish industrial sector. 

The deployment of an onshore CO2 pipeline could provide significant socio-economic benefits to Scotland:

Decarbonisation:

·       The UK is legally committed to achieving net-zero greenhouse gas emissions by 2050, with Scotland setting the more ambitious target of achieving net-zero by 2045. The project would provide a significant percentage of CO2 emissions reduction of Scotland compared to 2019 level. 

·       Thus, the CO2 pipeline can greatly contribute to Scotland net-zero commitment and by extension the UK, by providing a clear and direct decarbonisation opportunity for the energy intensive industrial users. 

·       This will allow industrials to meet their decarbonisation target at a reasonable cost and without delocalising their operations.

Employment:

·       NGT’s CO2 pipeline could directly and indirectly contribute to creating more than 12,000 jobs opportunities across the Scottish economy. 

·       The onshore CO2 pipeline would bring in jobs from the design and construction of the blue hydrogen plants and onshore CO2 pipeline as well as creating jobs indirectly through supply chain effects. 

·       The influx of new jobs from both construction activities would attract businesses and investment to the region, while the increase in wages would help create more consumer spending in the area and trickle down into further jobs creation. 

·       The CO2 pipeline is also key for the industries to remain in Scotland, rather than shutting down or delocalising due to a lack of decarbonisation opportunities.

Local Economy:

·       The project would also provide significant economic benefits to the Scottish and by extension the UK’s economy. The project could bring in direct economic output of up to £8 billion from the construction of the new build CO2 pipeline as well as new blue hydrogen plants. These significant private capital investments could also boost the overall supply chain (procurement, fabrication, transport, engineering design) indirectly.

·       Finally, induced effects from household spending would boost the Scottish and UK’s economy for the two construction projects. In addition, economic value from existing industry would be retained in Scotland.

Technical Feasibility Assessment:

The technical feasibility of developing an onshore CO2 pipeline was assessed but the results must remain confidential to preserve National Gas Transmission’s commercially sensitive information and IPR. The following methodology was used. The objective of the engineering design is to assess the technical aspects of the proposed onshore CO2 pipeline. To achieve this, the engineering case focuses and assessed various factors. 

·       The engineering analysis first considered the technical design for both pipeline options, with focus on evaluating the feasibility of repurposing existing natural gas pipelines to transport CO2 from Grangemouth to St Fergus. 

·       The safety aspects for both options were studied next. This analysis looked at the separation of assets, CO2 dispersion hazards, venting operations risks, and Building Proximity Distances (BPD). It is important to understand these areas at a high level as they can identify the hazards or limitations for the two options. 

·       The project timeline was also explored in terms of the project schedule for the design and construction phase, as this would impact the project from a commercial and funding point of view. The practicality of constructing the pipeline was also studied, as this normally poses significant risk to infrastructure projects. 

·       Lastly, the economic feasibility for the two pipeline options was estimated, including high level estimates on the Capital Expenditure (CAPEX) required (including design and construction activity) along with a comparison of the options from a sustainability perspective. 

·       It should be noted that the engineering design also provided high-level consideration to transitioning carbon dioxide assets to hydrogen, including aspects such as routing, sizing, compression requirements, BPDs, venting and materials. There may be potential to mitigate or remove some of the highlighted issues through the initial design. However, the full design requirements and associated costs will need to be understood during Pre-FEED and FEED stages to allow for decision making.

Financial Assessment:

Finally, a financial analysis explored the rates of return and financeability of the repurposing and new build options, to assess the economical viability of such project and level of funding requirement. Equally, the results must remain confidential to preserve National Gas Transmission’s commercially sensitive information. The following methodology was used:

·       The objective of the financial and commercial case is to articulate the financial value and the associated risks of repurposing compared to building a new pipeline, as well as determining which emitters it is commercially viable to connect to.

·       This project is likely to be covered under a RAV model, because the government is unlikely to fund the two blue hydrogen projects connected to the pipeline, without approving the construction of it under a RAV model. 

·       Following the setup of the RAV economic model, an “allowed revenue” (AR) was calculated annually. AR is the annual amount that NGT is entitled to recover. AR is determined by adding together return on capital, depreciation, operational cost, tax and adjustments. 

·       Return on capital is a function of the Weighted Average Cost of Capital (WACC), determined by BEIS in the initial settlement process prior to the final investment decision. For now, a 3% WACC is assumed.

·       BEIS confirmed the use of a User Pays revenue model. Users who are connected to the onshore pipeline are subject to an onshore pipeline, offshore pipeline and storage charge. This is calculated via a volumetric charge, booked capacity charge, and residual charge. 

·       A benchmark from other CCS projects demonstrated that transport costs typically represent 5-15% of the total CCS costs, thus, the range of charge applied was 5-15% of the UK Emissions Trading Scheme (ETS) price. 

Lessons Learnt

The project was executed in line with the proposal methodology. The project research development undertaken was effective because as it closely followed the requirements of the business case. As such, each of the separate studies resulted in answering all specific questions and were tied together in a clear structure. This provided an evidence-based results to National Gas Transmission in terms of the value of pursuing or not pursuing CO2 transportation in Scotland . Furthermore, due to the focused research format, comparisons were made easier, and recommendations were developed out of complex questions