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Oram: There’s merit in the Pouakai project

The backers of a proposed Taranaki "clean energy" industrial complex are asking for a $20m loan from the Provincial Growth Fund to help pay for development work. Rod Oram says that, despite some risks and drawbacks, there is merit in the proposal.

The first news this week of the mooted $3 billion Pouakai project in Taranaki sounded almost too good to be true. Reports said we would reap abundant economic benefits while reducing our greenhouse gases. Oh, and its demand for gas would force the Government to reverse its ban on offshore exploration thus “saving” the local oil and gas industry.

Close inspection, however, does suggest there’s a lot of merit in the project, although inevitably it carries significant risks given the ambition of the venture. If it came to fruition over the next five to eight years, it would be the largest single foreign investment and industrial complex in the country.

But the Government won’t have to do an embarrassing about-turn on offshore exploration. The project could get the gas it needs to produce electricity, hydrogen, and urea fertiliser from existing onshore and offshore Taranaki fields, concludes an independent research report for 8 Rivers, a US venture capital company driving the project and the technology involved in it.

In fact, the project would help New Zealand transition to a low emissions, higher value economy, which is exactly what Government policy is seeking to do. Some of those skills may prove to be exportable. But if the technology is proven here in its first industrial-scale application, similar plants will be built elsewhere in the world where there are already abundant gas supplies. It won’t trigger here a massive surge in expensive exploration for gas to export.

The heart of the Pouakai project would be a 360 MW electricity generator powered by gas. It would have a relatively conventional gas turbine driven in a highly unconventional way - by supercritical carbon dioxide. This is CO2 at very high temperature and pressure so it behaves almost like a fluid rather than a gas. Moreover, the CO2 is in a closed system so it is reused in the turbine.

The supercritical CO2 accounts for 95 percent of gases in the system. The rest is a mix of 2 percent oxygen and 3 percent natural gas which is fired in the combustion chambers with the recycling CO2.

This is the scientific breakthrough. CO2 is non-combustible, in fact it is used in fire extinguishers. But the very high temperature and pressure in the combustion chambers enable the burn, and thus heating of the recycling CO2. The volume of new CO2 created by the combustion of the oxygen and gas are drawn out of the system for either sequestration in, say depleted oil and gas fields, or use in industrial purposes.

The technology is called the Allam Cycle, after its inventor Rodney Allam, a British chemical engineer. 8 Rivers, with partners, has built a 50 MW demonstration plant near Houston, Texas, which was first fired up in mid-year. This article
in Spectrum, the magazine of the US Institute of Electrical and Electronics Engineers, best explains the Allam Cycle and the plant. The diagram above was taken from it.

This is a big step forward in carbon capture and sequestration from power plants, which is one of the great challenges to solve as a transition technology until we can get to purely renewable, non-fossil fuel energy.

Existing CCS systems are woefully inadequate. They are expensive to build and run to capture and clean the exhaust gases from gas turbines and coal-fired plants. In the Allam cycle, there is smaller volume of waste gas, and it exits the system clean and at high pressure, making it cheaper and easier to pipe off to sequestration.

The Pouakai plant would produce some 1m tonnes of CO2 a year which would have to be sequestered in Taranaki’s oil and gas fields if New Zealand is to chip away at reducing its emissions. An MBIE study has concluded, for example, that the depleted Maui field could store some 350 m tonnes of CO2.

For 8 Rivers, the big goal is to put an Allam Cycle power plant at the centre of a complex to produce other products from the gas. Overall, the complex would use some 30-45 petajoules of gas a year, compared with current NZ gas consumption of around 200 petajoules.

To some extent the project might divert gas away from lower value uses such as the Methanex methanol plant. The demand from the project would also encourage more exploration and development of gas sources in Taranaki, still is still allowed under the government’s change of rules. Moreover, the backers of the project also want to be active join venture partners in such work.

About half the gas would power the electricity plant. About 160 MW of the 360 MW of electricity would be exported to the grid, and the rest used to run an air separation plant to split out oxygen for the plant’s combustion process, industrial gases and hydrogen, and to run a second plant to turn the other half of the gas supply into hydrogen, ammonia and urea.

Because the complex could store the gases, it could draw down on them to keep running its processes while diverting more of its electricity to the grid at times of peak demand and high prices. Thus, the plant could help reduce the volatility of electricity prices, encouraging some industrial gas and coal users to switch to electric power, thereby reducing emissions.

The hydrogen and urea plants, though, pose some considerable economic risks. Potentially, the large hydrogen output would mostly be used for ammonia and urea production capacities of 3,400 tonnes per day and 6,000 tonnes per day.

Potentially there would be an export market for some of the hydrogen, particularly in Japan. One of the benefits of the Pouakai project that’s being sold to our government is as a source of hydrogen for the conversion of heavy goods vehicles to a clean fuel from diesel.

Yes, there are some test markets for hydrogen powered cars in California, Germany and Japan; and maybe New Zealand could be a test market for heavy vehicles. But those still seem highly challenging and somewhat distant technologies, particularly at scale.

Similarly, the urea plant would be very large with a capacity of some 2m tonnes a year. Currently our farmers, mostly dairy, use some 800,000 tonnes a year of this nitrogen-based fertilizer. About two-thirds of that is imported and one-third is made at Ballance’s Kapuni plant using Taranaki gas supplies.

The plant is a legacy of the Think Big projects of the Muldoon government. The agricultural sector understands that Ballance had in the past couple of years thought long and hard about investing up to $1b in a much larger, replacement plant but has decided not to.

Apart from the massive investment itself, Ballance must have wondered about the demand for urea here. It has been essentially flat in recent years as farmers are getting smarter at using it more sparingly and effectively to reduce pollution.

But a far bigger global issue is in play, which will impact here too. The use worldwide of such artificial fertilisers is by far the biggest breach of the nine fundamental environmental boundaries of the planet quantified by scientists. The fertilisers contribute to climate change, biodiversity loss and ecosystem degradation. Thus, the pressure on a fundamental redesign of global foods systems is escalating, as I described in this column in August.

This issue is a critical factor in the viability of Pouakai because the urea plant is the central economic driver of its business model.

The backers of Pouakai say the urea plant, because of the benefits of the Allam Cycle at the heart of the complex, would be some 35 percent more efficient than other urea plants and be zero carbon emissions in its production processes. Thus, the fertiliser would be highly competitive in export markets.

So, should New Zealand welcome Pouakai? And if so, how should the Government help its development?

If the project lived up to its promises, it would use gas to produce electricity, hydrogen and urea in ways more efficient and cleaner - essentially there would be no greenhouse gases emissions if secure sequestration was guaranteed. On both economic and environmental grounds, those would be much superior to the ways we use gas now.

Those benefits in turn would help us decarbonise the electricity market and help reduce the burning of coal, gas and diesel by industry.

Potentially, there are export markets for the large quantities of hydrogen and urea produced, but those comes with risks.

The backers consider New Zealand a prime place to build the first industrial scale application of the Allam Cycle to electricity generation and the allied processing of gas into useful products. Our advantages include the small scale and connectedness of the country, with high technical competence, and successive governments that have shown a willingness to think in integrated rather than siloed ways.

So far, the backers are only asking for a $20m loan from the Provincial Growth Fund to help pay for development work on the project. That seems like a reasonable request. Similarly, the project deserves a far-sighted and co-ordinated inter-agency approach on policy. One example was the way the previous National-led government created a space regulatory framework and assisted in other ways to help Rocket Labs advance quickly and effectively backed by private sector money from here and abroad.

Soon the Pouakai backers will need to start raising the $3b they reckon they need to build the complex in Taranaki. If the project is as good as they say it is, the private sector here and abroad will fund it without any help from the Government, which would be wise.

This story was first published on Newsroom Pro on November 29.

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