Petra Nova carbon capture project stalls with cheap oil

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The Petra Nova carbon capture project has stopped operating because low oil prices have made it uneconomic to sell carbon dioxide to boost oil drilling operations. As the only coal carbon capture project in the U.S. and the largest post-combustion carbon capture project in the world, the failure of the Petra Nova project represents a major setback for proponents of coal carbon capture projects.

While supporters of coal carbon capture proposals have often pointed to the Petra Nova project as a success story, a technical report submitted by Petra Nova to the Department of Energy shows that the project actually experienced so many outages that it wasn’t operating for one of out every three days over the last three years. Filings with the Securities and Exchange Commission also reveal how the carbon capture project led to unexpected financial losses for NRG.

According to a representative for NRG, the company that operates the W.A. Parish Generating Station from which Petra Nova captured emissions, the carbon capture project has not operated since May 1, 2020. E&E News first reported that the carbon capture project had been placed in a “mothball status.”

The NRG representative also confirmed that the coal unit is continuing to operate without capturing its emissions. So carbon emissions from the power plant have increased – although only slightly, since the project captured just 7% of the power plant’s emissions when it was operating. Regardless of what happens with the Petra Nova carbon capture project in the future, air pollution from the W.A. Parish Generating Station that impacts communities in Houston and the region make it the deadliest coal plant in Texas.

$1 billion project captured 7% of power plant’s carbon emissions

Petra Nova is the only coal carbon capture project in the U.S., and was built at a cost of $1 billion, including $195 million of public funding through the U.S. Department of Energy. The project is a joint venture between NRG and Jippon NX, a global oil and gas company based in Japan. It captured carbon dioxide from one of the four coal units at NRG’s W.A. Parish Generating Station near Houston, Texas, and delivered it through an 81-mile pipeline to the West Ranch oil field where it was used to boost oil extraction, a process known as enhanced oil recovery. Hilcorp Energy operates that oil field, but NRG and Jippon NX also gained a stake in it as part of the Petra Nova project.

The carbon capture infrastructure was powered by a separate gas generator, which generates its own emissions that are not captured. That offsets some of the emissions captured at the coal unit, even before accounting for the emissions from burning the extracted oil, as Rice University professor Daniel Cohan noted:

Despite claims that Petra Nova reduced emissions “by 90 percent,” the project actually only captured emissions from a 240 megawatt portion of the 654 megawatt coal unit, amounting to an emissions reduction of about 33% from that one coal unit. No emissions were captured at the other three coal units or the gas units at the W.A. Parish Generating Station. 

Some articles have provided the context that the project only captured about 10% of the power plant’s carbon dioxide emissions, but even that number turns out to have been too high: EPI reviewed emissions data from the Environmental Protection Agency and a report submitted to the Department of Energy, and found that the carbon capture project actually captured just 7% of the power plant’s total carbon dioxide emissions.

According to a March 2020 Final Scientific/Technical Report submitted to the Department of Energy (DOE), Petra Nova captured 1,071,016 metric tons of carbon dioxide in 2017 – 7% of the 15,294,962 million metric tons emitted by the W.A. Parish Generating Station, according to EPA data. In 2018, the project captured 1,017,907 metric tons, 6.9% of the plant’s total 14,620,770 metric tons. Petra Nova captured 1,387,243 metric tons of carbon dioxide in 2019, but EPA emissions data for the power plant are not yet available for 2019.

Petra Nova suffered outages one out of every three days

After the high profile and expensive failure of Southern Company’s Kemper carbon capture project, advocates of coal carbon capture proposals have often pointed to NRG’s Petra Nova project as a success story. Power Magazine named Petra Nova “Power Plant of the Year” in 2017, and the Carbon Capture Coalition (formerly known as the National Enhanced Oil Recovery Initiative) said: “Petra Nova successfully entering formal operation in the U.S. marks a crucial further milestone in the ongoing commercialization of carbon capture technology in the power sector.” Department of Energy officials have also repeatedly touted the project, such as to “celebrate the third operating anniversary of Petra Nova” in January 2020.

But the technical report submitted to DOE reveals that the project suffered a variety of problems during the three-year “Demonstration and Monitoring” period of 2017 through 2019. A table in that report shows that the project experienced 367 days of outages over those three years, or one out of every three days. Problems with the carbon capture infrastructure and gas unit that powered it accounted for most of the outages.

The report submitted to DOE also shows that the Petra Nova project received Notices of Violations from the Texas Commission on Environmental Quality and from the Texas Railroad Commission, the latter concerning the carbon dioxide pipeline.

The report also shows that the Petra Nova carbon capture infrastructure and gas unit used 1.49 billion gallons of water over the three year period (not including water consumed by the coal unit). Studies show that operating carbon capture infrastructure significantly increases water consumption if used at coal plants.

Low oil prices disrupted the economics of Petra Nova from the start

NRG has not said when the company might restart the Petra Nova carbon capture project, and a representative said there is not a specific oil price that would trigger that decision. But low oil prices have disrupted the project from the start, well before oil prices fell further this year, and NRG executives have said that the project only makes economic sense with much higher oil prices – perhaps double current oil prices.

A Houston Chronicle article in 2015 noted how low oil prices were disrupting carbon capture projects, and included comments from NRG’s then-CEO David Crane:

NRG Chief Executive David Crane recently acknowledged the idea no longer is a moneymaker when U.S. oil prices are hovering near $45 a barrel.

“It’s the concept of carbon capture to enhance oil recovery as a distinct business opportunity, which made both strategic and economic sense at $75 to $100 a barrel,” he said. “Obviously, it does not currently make economic sense.”

Current NRG CEO Mauricio Gutierrez also acknowledged in 2017 that low oil prices had disrupted the economics of the project:

NRG took the lead on the project in 2014 because “someone needed to prove the concept,” says CEO Mauricio Gutierrez, and because the company expected to make money on it. “We took the risk on behalf of our investors,” he says. The trouble is, the deal (ultimately approved by since-departed David Crane) was built on 2014 expectations that oil prices couldn’t possibly drop below $75 a barrel. Surprise. “At 50-dollar oil it’s very challenging,” says Gutierrez.

Similarly, a report by the Global CCS Institute explained:

Petra Nova project is driven from oil production, with 90% of its revenue stream coming from CO2 sale for EOR. Therefore, oil prices are of utmost importance in this project. According to the project, oil price needs to average $75/bbl over 2018 – 2027 in order for the project to be viable.

NRG had to cover losses at Petra Nova, and determined it has declined in value

Filings with the Securities and Exchange Commission show that losses at the Petra Nova project have impacted NRG. In its 2019 10-K annual report, NRG explained that it “contributed $95 million in cash to Petra Nova” that was used “to prepay a significant portion of the project debt.” NRG also determined that the decline in value of Petra Nova is “other-than-temporary” and so the company “recorded an impairment loss of $101 million.”

During NRG’s second quarter 2019 earnings call, two analysts noted that they were “surprised” that the company might be forced to cover a portion of Petra Nova’s debt. NRG CEO Mauricio Gutierrez explained why NRG would need to pay up to $124 million to cover debt owed by the carbon capture joint venture:

Back in 2014, when we closed the financing for this project, NRG and our 50-50 partner JX Nippon provided a financial guarantee to Petra Nova’s lenders. These guarantees were to remain in place to support a one-time debt service ratio test, which prescribed a prepayment of principal in the event the ratio fell below the threshold. We have been in active negotiations with project lenders, and we now expect to fund the prepayment in the third quarter. Although the final prepayment amount has not yet been determined, our obligation is limited to the guarantee amount.

In a report published this week, the Institute for Energy Economics and Financial Analysis noted that NRG also recorded impairments to the Petra Nova project in 2016 and 2017, and warned potential investors to heed Petra Nova’s failure when considering other coal carbon capture proposals:

The mothballing of Petra Nova highlights the deep financial risks facing other proposed U.S. coal-fired carbon capture projects, including Enchant Energy’s plan for the San Juan Generating Station in New Mexico and Minnkota Power Cooperative’s Tundra Project at the Milton R. Young Station in North Dakota.

Japanese export credit agencies hoped to secure oil fields for Japanese oil companies

In addition to direct funding from the Department of Energy and NRG’s own investments in the project, Petra Nova’s lenders were Japanese export credit agencies, because traditional lenders considered the project too risky, according to a 2015 report by the Paulson Institute. Similar to the Export-Import Bank of the United States and quasi-governmental financial institutions in other countries, export credit agencies finance foreign investments that benefit companies based in their countries.

The Paulson Institute report explains that the involvement of Japanese oil company JX Nippon, which is a 50-50 partner with NRG in the Petra Nova carbon capture project, played a key role in attracting those loans because the Japanese export credit agencies were motivated in part by the prospect of helping secure oil fields for Japanese oil companies and promoting Japanese manufacturing companies:

JX Nippon’s involvement was essential to securing the third and final leg of the financing stool: risk-tolerant debt financing from unconventional lenders.

Due to the unprecedented scale and complex financial structure of the Petra Nova project, “commercial banks saw the project as first-of- a-kind of risk,” explains NRG’s Ragan. “So the financing strategy that we undertook had to be one that didn’t involve traditional commercial lending avenues.”

Instead, JX Nippon’s involvement opened the door to $250 million in loans from two Japanese export credit agencies, the Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (NEXI).

A division director for the Oil and Gas Finance Department at one of the Japanese export credit agencies explained that “Expanding this scheme to other regions will support the obtaining of oil field interests by Japanese companies and further the business of Japanese companies.”

NRG’s W.A. Parish Generating Station remains the deadliest coal plant in Texas

Carbon capture policy discussions often focus only on carbon dioxide emissions, ignoring the many other significant impacts of burning coal on the environment and the health of people in nearby communities.

In “Coal-Blooded,” a report by the National Association for the Advancement of Colored People (NAACP), Indigenous Environmental Network, and Little Village Environmental Justice Organization, environmental justice advocates remind policymakers and advocates why that is short-sighted:

An analysis of the physical effects of the coal industry reveal that it is important to consider not only climate change, but also environmental justice, or the disproportionate location and impact of coal-fired power plant activity on low-income communities and people of color.

The health impacts of pollution from the W.A Parish Generating Station are a vivid reminder of that call from environmental justice advocates. A study by researchers at Rice University found that air pollution from the W.A. Parish Generating Station caused more deaths than any other coal plant in Texas, in part because air pollutants from the power plant “frequently impact densely populated areas in the nearby Houston suburbs and the Dallas–Fort Worth region.”

Petra Nova W.A. Parish Generating Station pollution
Image from “Air quality and health benefits from potential coal power plant closures in Texas

Air pollution from coal plants often places a disproportionate burden on communities of color, and that is likely true at the W.A. Parish Generating Station as well. According to the Energy Justice Network’s mapping project, about two-thirds of people living within 25 miles of the massive power plant are Black, Hispanic, Asian, or American Indian, while one-third are White.





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