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Assessing the use of Co2 from nAturAl sourCesfor CommerCiAl purposes in turkey

Assessing The Use Of CO2 From Natural Sources For Commercial Purposes In Turkey2

ABOUT THE EBRDThe European Bank for Reconstruction and Development (EBRD) was established in the early 1990s to facilitate progress towards “market-oriented economies and the promotion of private and entrepreneurial initiative”. The Bank provides project financing for banks, industries and businesses, both new ventures and investments in existing companies. It also works with publicly owned companies, to support privatisation, restructuring state-owned firms and improving municipal services. The EBRD serves the interests of all its shareholders - 65 countries plus the European Union and the European Investment Bank – and of those countries which receive its investments (€9.4 billion in 2015). Safeguarding the environment and a commitment to sustainable energy are central to the EBRD’s activity.

ABOUT THE PLUTO FRAMEWORKGeothermal energy projects face high risks particularly in their initial stages, including high investment costs, development risks and very limited access to project finance. To assist Turkey in realising its renewable energy geothermal potential, the EBRD has launched the Private Sector Early Stage Geothermal Development Framework (PLUTO). A US$ 125 million initiative supported by the Clean Technology Fund (CTF), PLUTO aims to provide technical support and debt finance to geothermal projects at an early stage of development to help minimise risks. The present work supports the development of this Framework by addressing the generation of natural CO2 emissions from geothermal power plants and developing new routes for monetisation of these resources.

ACKNOWLEDGEMENTSThis report was commissioned by the European Bank for Reconstruction and Development (EBRD) in collaboration with the Ministry of Energy and Natural Resources (MoENR) of the Republic of Turkey. The work was conducted by Ecofys, Ernst & Young (EY) Turkey and the Middle East Technology University (METU). The efforts were led by Adonai Herrera-Martínez (EBRD) with significant contributions from Heleen Groenenberg, Paul Noothout and Joris Koornneef (Ecofys), Turker Baloglu, Gokhan Rencberoglu and Ozan Ozbulak (EY), and Serhat Akin (METU).The team would like to acknowledge the European Union (EU) support throughout their Instrument for Pre-accession Assistance. Additionally, the work has significantly benefited from reviews and constructive feedback provided by many, including Deniz Yurtsever (MWH), Turgay Karacalar (Aytemiz), Özlem Cingioğlu, (Maspo), Tevfik Kaya (Geothermex – Schlumberger), Jan-Willem van de Ven, Jasmine Lief, Asher Persits and Bengisu Kılıç (EBRD); Yasemin Örücü and Thrainn Fridriksson (World Bank), Turgut Ölemez, Sabahattin Öz, Ümit Çalıkoğlu and Bülent Kapçı from YEGM (General Directorate of Renewable Energy at the MoENR of Turkey); Eyüp Sultan Çebi from MİGEM (Directorate General of Mining at the MoENR of Turkey); O. Cağlan Kuyumcu (BM Holding A.Ş.); Metin Yazman (Alasehir GPP); İlkay Aydemir (Kızıldere GPP); Cannur Bozkurt and Elvan Güven (Transmark); Alparslan Dereli (Konya Şeker Sanayi ve Ticaret A.Ş.); Turgay Karacalar (Aytemiz); Süleyman Çalık and Nazan Necıbe Şenol Topgüder (Türkiye Petrolleri A.O.); Tarık Aygün, Ali Karaduman, Abdullah Gülgör (Güriş İnşaat ve Mühendislik A.Ş.); Recep Durak (Burç Teknik Elk. Elekt. Mak. Müh. ve Buz San. Tic. Ltd. Şti.); Gökhan Horasanlı (Hassa Yangın Söndürme Cihazları San. ve Tic. Ltd. Şti.); Fatih Yılmaz (Karbonsan Basınçlı Kaplar San. ve Tic. A.Ş.); Mehmet Akkuş (KGS Kimya, Gıda ve Soğutma Prosesleri Ltd. Şti); Haluk Tüfekçioğlu (Menderes GPP - MEGE A.Ş.); Mehmet Şişman (Maren Enerji); Akın Tepe (Bati Akdeniz Agricultural Research Institute); Şükrü Karaca (Karaca Tarım); Nuri Cem Erbak and Tuğba Şimşek (Uludağ İçecek).

Assessing The Use Of CO2 From Natural Sources For Commercial Purposes In Turkey 3

EXECUTIVE SUMMARYBackground And Study ObjectiveTurkey has a good potential for geothermal power production. Geothermal sources in Turkey are characterised by a relatively high and continuous CO2 release, which results in high carbon intensity of the energy produced in geothermal power plants. To reduce the direct CO2 emissions from this geothermal capacity and reduce the climate impact there is a need to apply the CO2 in a useful way and store the CO2 temporarily or permanently. This study provides an overview of international experiences in the commercial use of CO2 presenting a range of technologies with varying stages of maturity, economic potentials and global demand. It also explores options for the commercial use of CO2 that are most suitable to the Turkish context.

Current CO2 Supply And TransportGeothermal CO2 sources are important in Turkey. Geothermal fields and manifestations are located mainly along the major grabens (such as Büyük Menderes, Gediz, Dikili-Bergama, Küçük Menderes and Edremit Grabens) in western Anatolia and in the Central and Eastern Anatolia volcanic regions. Over 227 geothermal fields can be used for power generation as well as for direct use purposes in Turkey. Based on Turkey’s National Renewable Energy Action Plan, launched by the Ministry of Energy and Natural Resources in February 2015, Turkey’s installed geothermal power capacity will reach 779 MW by the end of 2020 and 1000 MW by the end of 2023. Currently, only 4 of the 15 geothermal plants emissions are used for commercial CO2 production. Ex-factory (right after production) cost per tonne of CO2 is approximately 30 US$, excluding transportation cost and a profit margin.Most CO2 transport is operated by producers, while approximately 10% of CO2 is supplied to end-users through distributors. Transportation is conducted by road tankers in the current CO2 market of Turkey. Since the suppliers undertake transportation of CO2, transportation costs are reflected in CO2 end-prices. As of 2015, the average transport cost in Turkey is approximately 100 US$/tCO2 for an average distance of 200 km. Alternatively, CO2 may be transported by pipeline. This can be more economical for large volumes and transportation over long distances (i.e. over 200 km). On this base transportation cost (depending on distance) is added, and then end-price is shaped regarding contract terms and profit margin.

Options For Commercial Use Of CO2This study includes an assessment of international experiences with CO2 capture and utilisation. This is a broad term that applies to a range of applications that can utilise CO2. Captured CO2 may be utilised directly in greenhouses, algae production and other food-related applications, such as beverages. It can also be used as a resource or a replacement of other resources, such as the production of polymers, cement, concrete and methanol production. CO2 can also be applied to improve industrial efficiency and/or enhance production – e.g. in nearly depleted oil fields. Although representing a wide range of possibilities, CO2 technologies have in common that they have some capacity to store CO2 at least over the short-term and thus postpone the release of CO2 to the atmosphere. Key groups of CO2 end-use technologies are: CO2 to fuels carriers; enhanced commodity production (e.g. enhanced urea production); enhanced hydrocarbon production (e.g. enhanced oil production); CO2 for food production (e.g. application in greenhouses), and chemical production.

Current Commercial Use Of CO2 From Geothermal Power CapacityCurrent CO2 production capacity of geothermal plants, 286 ktonne per year, constitutes only 12% of the total geothermal power plant emissions (2.5 Mtonne per year) even if the production plants are fully utilised.Geothermal investors are already considering different options to further reduce their CO2 emissions either by making it a commercially viable product or reinjecting into the reservoirs. However, the CO2 commercial market to date has proven limited, which restricts investments in CO2 production. Furthermore, the production is seasonal as it declines during summer by up to 20% due to condensation-related issues and quality of the gas supplied from geothermal sources. In general, the commercial CO2 market in Turkey can be considered as a deregulated market.


Screening Of Options For Commercial COT2 Use considered three factors and underlying criteria:

• Uptake potential – To assess uptake potential of end-uses, theoretical CO2 demand potential and market development factors were selected as determinant criteria

• Economic potential – Source of revenue, CAPEX data, OPEX data, CO2 utilisation ratio per CAPEX and OPEX were selected as economic assessment criteria.

• Contribution to CO2 reduction - CO2 storage duration, other (potential) abatement effectsIn addition, a stakeholder dialogue was conducted to select three end-use technologies for further assessment. Based on the initial screening both enhanced oil recovery and application in greenhouses were identified as applications likely to be of interest for the Turkish context. Urea production was added into the final selection as it was proposed during the workshop that was held in Ankara with various stakeholders. Apart from these options, other options to store CO2 for a prolonged period could be considered, e.g. CO2 treatment of bauxite residues or the application of CO2 for concrete curing. In this project insufficient interest from key stakeholders was encountered to investigate these options further.

ConclusionsTo summarise, prefeasibility assessments for both urea production and greenhouses were positive in this study. CO2 may be applied usefully either to enhance urea production (if a new facility could be realised close to existing geothermal capacity) or in greenhouses. It is likely that the use of CO2 from geothermal power plants for these purposes will improve the greenhouse gas balance of the whole value chain of these plants. The use of CO2 from geothermal power plants (GPPs) for these purposes would lead to efficiency improvements (in the case of urea yield boosting) or may avoid fossil fuel combustion to produce CO2 (as in greenhouses). Therefore, we recommend taking these options further.

Pre-Feasibility Assessment Of Selected OptionsFor each of these options a prefeasibility assessment was conducted to test viability. This included an industry profile, gap analysis, a case study and a feasible project opportunity located.

• Enhanced oil recovery operations are seemingly interesting, as there is a high institutional commitment for continued exploration and production, and oil & gas demand in the short and medium term is likely to increase. Turkey is a transit point between the Caspian Middle East and Europe, and there is upstream potential in the Black Sea, the Mediterranean Sea as well as in unconventional oil (and gas). However, economic growth in Turkey is lagging behind on expectations, which may affect potential refinery investments. Moreover, oil prices have declined. This puts the financial viability of EOR operations under pressure. This reduces the importance of EOR as an economic opportunity for putting natural CO2 to commercial use.

• Urea yield boosting is a well-known application of CO2 and is used for the production of fertilisers. The government has prioritised development of the agricultural sector and may increase some of the agricultural production quotas in the near future. This may affect the demand for urea positively. Currently, there is only one urea producer. The financial viability assessment was conducted for a new factory in Aydin utilising CO2 from geothermal sources. This pre-feasibility screening suggests that a new plant could be profitable. This would be a basis for further detailed feasibility studies. Indeed, IGSAS has expressed an interest to build a new factory close to the existing geothermal power capacity, provided that finance can be arranged.

• Greenhouses in the south-west of Turkey are an additional obvious application. The Aydin and Antalya regions have been considered and the analysis could be extrapolated to the Dikili-Bergama, Simav and Çanakkale regions where an advanced form of agriculture is very common. Greenhouses in Aydin are close to the geothermal resources, and CO2 could be distributed and supplied by road freight. This would be a competitive option that could serve to test the use of natural CO2 in Turkish greenhouses. Alternatively, the CO2 could be carried by pipeline (possibly combined with road transport) to greenhouses in the region and even to Antalya. For large scale application of CO2 in greenhouses this would need to be considered, as Antalya is a very important area for horticulture in Turkey. The capital requirements for building a pipeline for long distance would be high and result in lowering the profitability of the CO2 end-use compared to more local use of CO2. However, our pre-feasibility assessment suggests that this option would be worth further study to improve the inventory of CO2 demand, refine cost estimates and review financing options.


CONTENTS

1. INTRODUCTION 62. NATURAL SOURCES OF CO2 7 2.1 NoN-geothermalsourcesofco2 8 2.2 GEOTHERMAL CO2 SOURCES 9 2.3 GEOTHERMAL POWER PLANTS 10 2.4 TIME EVOLUTION OF CO2 CONCENTRATIONS IN STEAM 13 2.5 REDUCTION OF CO2 RELEASES 14

3. MARKET ASSESSMENT 16 3.1 CHARACTERISATION OF CO2 SOURCES AND PRODUCTION TECHNIqUES 16 3.2 CURRENT CO2 PRODUCTION 17 3.3 CHARACTERISATION OF CO2 TRANSPORTATION AND STORAGE METHODS 21 3.5 REGULATORY FRAMEWORK AFFECTING CO2 MARKET 27 3.6 VALUE CHAIN ANALYSIS 28

4. OPTIONS FOR THE COMMERCIAL USE OF CO2 29 4.1 DEFINITION OF CO2 UTILISATION 29 4.2 KEY TECHNOLOGIES FOR CO2 UTILISATION 30 4.3 CURRENT DEVELOPMENT STATUS OF CO2 TECHNOLOGIES 31 4.4 ECONOMICS OF CO2 UTILISATION OPTIONS 33 4.5 MARKET DEMAND 34 4.6 COSTS OF CO2 TECHNOLOGIES 35 4.7 OVERCOMING BARRIERS TO COMMERCIALISATION 35 4.8 CRITERIA FOR DUE DILIGENCE 38 4.10 FINAL SCORES OF CO2 TECHNOLOGIES AND TOP THREE APPLICATIONS 42

5. ASSESSMENT OF SELECTED OPTIONS AND POTENTIAL MARKET EqUILIBRIUM POINT 43 5.1 ENHANCED OIL RECOVERY 43 5.1.2 Gap Analysis: Enhanced Oil Recovery 45 5.1.3 InternationalPractice:CortezCO2 Pipeline 45 5.1.4 Project Financial Viability Assessment:Aydın–BatmanCO2 Pipeline 46

5.2 GREENHOUSES 49 5.2.1 MarketProfile:GreenhousesinTurkey 49 5.2.2 Gap Analysis: Greenhouses 50 5.2.3 InternationalPractice:SpringhillFarms 51 5.2.4 Project Financial Viability Assessment: Road TransportationandAydın–AntalyaPipelineOptions 52

5.3 UREA PRODUCTION AND YIELD BOOSTING 59 5.3.1 MarketProfile:UreaMarketinTurkey 59 5.3.2 GapAnalysis:UreaProductionandYieldBoosting 60 5.3.4 ProjectFinancialViabilityAssessment:UreaProductioninAegeanRegion 62

5.4 CO2 DEMAND FOR SELECTED OPTIONS 64

6. CONCLUSIONS 66REFERENCES 67aNNexa–NoN-coNdeNsablegasiNKizilderewells 70aNNexb–Keyco2eNd-usetechNologies 78aNNexc–criteriaforfiNaNcialviabilityofco2eNd-uses 80aNNexd–co2 VALUE CHAIN 85

Assessing The Use Of CO2 From Natural Sources For Commercial Purposes In Turkey6 Assessing The Use Of CO2 From Natural Sources For Commercial Purposes In Turkey 6

1. INTRODUCTION The European Bank for Reconstruction and Development (EBRD) is actively engaged in both market development as well as in lending and investment activities to support the public and private sectors in implementing energy efficiency strategies contributing to energy production and greenhouse gas (GHG) emissions abatement. One of the challenges at hand is to make effective use of the CO2 that will be released from natural sources. Turkey possesses several natural sources of high purity CO2 which could be tapped into for industrial use. This CO2 would be also displacing industrially generated gas, thus supporting a net reduction of GHG emissions in the country. Nevertheless, natural sources of CO2 are rarely present in the market.

To enable increased commercial use of CO2 resources in Turkey appropriate support frameworks, financing mechanisms, and technical assistance programmes need to be developed. In particular, alternative uses for industrially-generated gas need to be assessed. Against this background this report presents a market assessment on the use of CO2 from natural sources for commercial purposes in Turkey. The overall objective of this study will therefore be to assess the market for commercial use of CO2 in the country and devise a strategy to develop and scale up investment in the sector.

The remainder of this report is structured as follows. In chapter 2 the report will provide an overview of natural sources of CO2 in the country, including both non-geothermal and geothermal sources. It will provide an overview of geothermal power plants, and discuss the time evolution of CO2 concentrations in geothermal sources, and the potential reduction of CO2 releases. Chapter 3 includes a market assessment. In this chapter CO2 production, transportation and storage in general are discussed, and the market in Turkey is assessed. In addition, the regulatory framework affecting the CO2 market is assessed. A concise value chain analysis is conducted to identify the important players. Chapter 4 elaborates on the wide international experiences with many options of CO2 end-use. Criteria for due diligence and for financial viability are applied to select some promising options. This will be complemented with a detailed screening for the Turkish context to select a top 3 of options for detailed assessment. This detailed assessment is described in chapter 5. Chapter 6 includes the conclusions and recommendations of this analysis.


2. NATURAL SOURCES OF CO2 The geological processes that contribute CO2 to atmosphere are volcanism (outgassing of magmas formed in crust and mantle), production of calcium carbonate and metamorphism (CO2 is liberated when carbonate minerals undergo metamorphism) are shown in Figure 1. Most CO2 fields are similar to conventional natural gas fields, with the gas trapped in dome-like structures. The gas collects in structures capable of trapping low-density fluids. Typically these are anticlines (broad folds) of permeable rock units capped with low permeability units. Occasionally the traps may be fault bounded, and occasionally a facies change (lateral change in lithology within the unit) may provide a boundary zone. The most common reservoir lithologies are sandstone and dolomite, with mudstone and anhydrite being the most common sealing rocks. Many of these reservoirs (surface locations known as “fields”) have been developed for CO2 production for dry ice sales, industrial uses, or for subsurface injection to enhance oil recovery. Because of the limited use of CO2, and the remote locations compared to potential markets, only a few of these reservoirs remain commercially viable. Numerous natural accumulations of CO2-dominant gases have been discovered as a result of exploration activity carried out by the General Directorate of Mineral Research and Exploration (MTA, 1990). Out of five possible geological origins for natural CO2 occurrence 4 of them exist in Turkey: magmatic and metamorphic, sedimentary and geothermal sources (Yılmaz, 1990). These sources and the production capacity related to them are described below.

Figure 1 - The CO2 cycle: sources, reservoirs, and fluxes of carbon in the earth system (Meng & Meng, 2015)


2.1 NoN-geothermalsourcesofco2Magmatic and metamorphic originated natural CO2 sources are attributed to volcanism related to several inactive volcanoes located in central Anatolia. CO2 originating from Erciyes volcanism is produced from Bozkar Barite in Kayseri, a factory with a capacity of 120 tonne/day produces liquid CO2 using screw compressors since 1997. Yet another factory (from MEGAŞ) in Kayseri produces 120 tonne/day liquid CO2. Similarly, CO2 originating from Tendürek volcanism has been used in a factory to produce 120 tonne/day liquid CO2 in Ağkar factory, which was then purchased by Karbogaz (Linde) to be used in Aydın – Salavatlı geothermal field. Hasandağ volcanism based liquid CO2 (120 tonne/day) is produced in Niğde – Kemerhisar by Güney Doğalgaz. A second factory located in the same area operated by Hisargaz (Ülker) produces 120 tonne/day of liquid CO2. Note that while installed capacity is 120 tonne, none of these companies produce 120 tonnes a day in practice. This capacity may drop or increase 10% or more depending on raw gas quality. The decrease may be higher depending on operational conditions, geography, and season.

Sedimentary CO2 can be found in several natural CO2 reservoirs located in South-East Turkey. These reservoirs are found limestone traps located in anticlinal structures. The largest of these reservoirs is the Dodan (Siirt) natural CO2 reservoir located 88 km away from the Batı Raman heavy oil field. The field has several gas bearing zones at a depth between 853 to 2225 m. The field has 10.845 billion standard cubic meter (BSCM) or 383 billion standard cubic feet (SCF) of 91% purity CO2 (Table 1). CO2 gas obtained after separation of H2S and other impurities is transferred via pipelines and then injected in Batı Raman heavy oil reservoir for enhanced oil recovery (EOR) purposes since 1986 (Sahin, et al., 2012). Several recycling stations are used to capture produced CO2 in Batı Raman field that are re-injected back into the reservoir. The Çamurlu CO2 field is located 10 km away from the Bati Kozluca heavy oil reservoir. The gas reservoir area is roughly 4 km2 and the gas is produced from the Çamurlu limestone formation at a depth of -1700 m. Immiscible CO2 injection started to increase the oil recovery in Batı Kozluca reservoir in 2003 was converted to water alternating CO2 injection in 2007 (Bender & Yılmaz, 2013). Yolaçan field is relatively small, with productive area of 2.45 km2. Çamurlu formation at a depth of -2390 m contains predominantly CH4 (48.78%) and CO2 (41.57%). Similar to Çamurlu CO2 gas, Yolaçan gas is not used for EOR purposes at the moment.

Table 1 Properties of natural CO2 reservoirs in Turkey


2.2 GEOTHERMAL CO2 SOURCES Geothermal CO2 sources are important in Turkey. Studies have identified more than 227 geothermal fields that can be used for power generation as well as direct use purposes in Turkey. There are about 2,000 hot and mineral water resources that have temperatures ranging from 20 to 287°C. Up to now, approximately 1,200 geothermal exploratory, production and reinjection wells have been drilled in Turkey (Simsek, 2014; Dagistan, 2014). Geothermal fields and manifestations are located mainly along the major grabens (such as Büyük Menderes, Gediz, Dikili-Bergama, Küçük Menderes, Simav and Edremit Grabens) in western Anatolia and in the Central and Eastern Anatolia volcanic regions.

Similar to the western Great Basin of the United States, western Anatolia is a region of abundant geothermal activity currently undergoing significant extension. It has relatively little volcanism however. As a result, the geothermal activity in western Anatolia is generally not driven by magmatic heat sources but by forced convection from deeper levels of the crust. Indeed, faults accommodating deep circulation of hydrothermal fluids of meteoric origin are the primary control on geothermal systems in this region. Much of the activity in aforementioned grabens is associated with enhanced dilation on east-west striking normal faults induced by a complex combination of forces, including slab roll-back in the Hellenic subduction zone and collision of the Arabian plate with Eurasia (see Figure 2) (Faulds, et al., 2009).

The source of CO2 observed in producing geothermal fields located in the aforementioned grabens is dominantly crustal carbonates. A recent quantitative assessment of the various contributions to the volatile inventory in western Anatolia (Mutlu, et al., 2008) revealed that 70% to 97% of the total carbon budget is provided by crustal marine limestone followed by 1.04% to 26.6% sediments and between 0.03% and 4.37% mantle rocks. This conclusion is of no surprise since the basement in most parts of western Anatolia is represented by metamorphics of the Menderes Massif, consisting of gneiss–schist–marble lithologies.

Şekil 2. Arap Plakası sınırları Stern & Johnson’dan uyarlanmıştır. (2010)


2.3 GEOTHERMAL POWER PLANTSAfter the construction of the first geothermal power plant in Kızıldere, Denizli in 1984, it took approximately 25 years for the second flash geothermal plant to be built in Germencik Aydın. So far, several flash and binary geothermal power plants have been installed in several high enthalpy geothermal fields located in Büyük Menderes and Gediz grabens (see Figure 3). After privatisation of the Kızıldere geothermal field and the 14.7 MWe power plant in 2008, a new 60 MWe power plant that harnesses intermediate and deep reservoirs was built using the same field. The Kizildere geothermal field is located at the eastern end of an east-west trending extensional tectonic valley known as the Büyük Menderes Graben (Şimşek, 1985).The Paleozoic Metamorphic rocks that outcrop in the horst regions north and south of the reservoir area are downthrown along a series of semi-parallel east-west trending normal faults within the graben forming the basement rock that are overlain by Tertiary sediments and alluvium and form the main reservoir rocks. These Paleozoics include marbles, schists, quartzite, calcschists and gneiss. The temperature patterns within the reservoir are consistent with a strong separation between the deep and intermediate reservoirs. Temperature in the intermediate reservoir ranges from 170 to 200°C, whereas temperatures in the deep reservoir range from 225 to 242°C (Haizlip, et al., 2012). A large portion (88.5%) of the Kızıldere power plant used water was released to Büyük Menderes River by a 1.8 km channel between 1984 and 2002. After successful field trials 200 tonne/h cold water was re-injected into the reservoir.


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2.4 TIME EVOLUTION OF CO2 CONCENTRATIONS IN STEAM

The initial CO2 concentration and evolution over time diverges per well and reservoir. The Kızıldere geothermal field produces fluids with non-condensable gas (NCG) concentrations in steam that is separated at approximately 4.5 bar ranging from less than 10 to 17 % (gas/gas+steam by weight x 100) corresponding an average of 0.015 kg NCG/kg brine. Figure 4 presents weights percentages of NCG in steam for nine wells. When converted to reservoir conditions, these results indicate that the Sazak reservoir formation feeding shallow production wells initially contained approximately 1.6 to 2.1 weight % NCG (ENEL, 1988). More recent gas/steam measurements at various shallow and one deep producing well suggest that the NCG content of some wells has decreased during the reinjection period (see figures in section A.1 in Annex A). The rest of the wells (figures in section A.2 in Annex A) show little or no change of NCG content.

On the other hand when discharge to Büyük Menderes River and the reinjection periods are analysed together a decrease in almost all wells apart from KD-21 and to a lesser extent in KD-20 and KD-21 are observed. Decreases in NCG content are usually related to reinjection of degassed low temperature injectate with high dissolved solids or natural recharge of cooler water. It should be noted that while brine chemistry between the deep and intermediate reservoirs is almost identical, the average NCG concentration in the deep reservoir (0.03 kg NCG/kg brine) is approximately twice the shallow reservoir (0.015 kg NCG/kg brine). Gas composition is almost the same with 98 to 99% CO2 (Haizlip, et al., 2012).


2.5 REDUCTION OF CO2 RELEASES

The CO2 release from Kızıldere geothermal field is higher compared to that of weighted average of geothermal fields 122 kg CO2/kWh as stated in Bertani and Thain (2002). However, as a counter effect of the harnessing of geothermal energy, the natural CO2 emission from the geothermal field is declining with production, as indicated in the previous section. Brine reinjection, routinely implemented at geothermal plants for sustainability, has been shown to reduce the carbon dioxide released from some geothermal power plants. Injection of treated domestic waste water, as at The Geysers in California, also resulted in a drop in the amount of NCG produced. For example, CO2 emissions from the Dixie Valley geothermal plant in Nevada decreased from 69 kg/MWh of electricity produced in 1988 to 42 kg/MWh in 1992 after injection into the field increased and as the natural system became depleted in non-condensable gases during production (Bloomfield, et al., 2003). At the Larderello fields in Italy, both natural steam emissions and the associated carbon dioxide outflow have decreased as a result of geothermal power development (Bromley, 2005). One explanation for this is that geothermal fluid injected back into the reservoir during production is depleted in CO2, thus depleting the CO2 concentration of the reservoir. As a result, the reinjected fluid will tend to absorb any deep free carbon dioxide gas from the reservoir into the solution in the liquid phase. Without absorption, the free CO2 might otherwise find its way to the surface.

To experimentally assess the CO2 time evolution due to power plant operation, particularly in liquid-dominated systems such as those the Western Anatolia, NCG data from the Germencik area has been analysed. Since 2009, a 47.4 MWe dual flash plant has been in service in the area, with the consequent extraction of NCGs from the geothermal resources and the re-injection of condensate free of NCGs. Figure 5 shows the time evolution of NGC concentration at GPP inlet over six years of operation. The effects of power plant re-start as well as of the production tests of neighbouring plants have been removed as outliers.

Figure 4 - Gas in steam, weight % (gas/gas+steam) in 9 wells of the Kızıldere geothermal field (Simsek, 2014)


The degasification of the geothermal resources seems evident from the existing data, with a decline accurately fitting in the logarithmic curve (coefficient of determination R2=0.90):

Using such regression and extrapolating this fit over 50 years (as GPPs present one of the longest power plant lifetimes), the final and lifetime average NCG concentration are expected to be, respectively, 59% and 67% of the original one at power plant commissioning.

Performing a similar analysis based on decline curve analysis developed from empirical evidence in the oil & gas sector, a harmonic process representing NCG production in a boundary-dominated flow has been assumed ( (Arps, 1945), (Agarwal, 1998) represented by the green dashed curve in Figure 5). It is worth noting that transient flow at early well life (within few months of production), during which the reservoir boundaries have not been reached, is not accurately represented by decline curves. Nevertheless, once reservoir production reaches stabilisation, NCG decline seems to occur following:

With Di being the decline rate (fractional change in rate per unit time) at flow rate qi and b being an exponent varying between 0 and 1, and q being the independent flow rate variable. Harmonic decline takes place when b equals 1 with D approaching 0 with q. This conservative fit, representing NCG unfavourable mobility ratio and slower decline compared to b<1, seems to accurately represent the data available from the Germencik reservoir. Under these assumptions, the final and lifetime average NCG concentration are expected to be, respectively, 31% and 50% of the original one during power plant commissioning. This more realistic fitting based on scientific literature would also suggest a long-term carbon emission factor of 0.53 tCO2/MWh (or 530 g/kWh) for this plant in absence of any additional carbon abatement measures. gerçekleşeceğini gösterecektir.

Annex A contains additional charts with non-condensable gas (volume % CO2) in various Kızıldere wells. Not all show a clear trend in CO2 content. However, for KD-6 a clear drop in content is clear. This is due to a change in the amount of CO2 that is reinjected, which after 2004 was higher than the initial value. That Annex also shows the NCG time evolution of and Germencik wells, presenting a more distinct decline trend over time, as elaborated above.

Figure 5 - NGC content evolution for Germencik GPP (47.4 MW; 6 years data), including regressions using logarithmic and harmonic functions, showing strong data-function correlation (R2 = 0.9).


In this chapter, an overview of the main features of the Turkish CO2 market with a focus on the geothermal sources of CO2 is provided. The main geothermal CO2 sources, available distribution infrastructure and end-use options are identified and characterised. This study is completed with a market assessment of current supply and demand for CO2 and governing legal and regulatory rules for the Turkish CO2 market. An international perspective is then presented by providing an overview of main international studies on the commercial use of CO2.

In this study, commercial CO2 market is analysed under four main activities:• Production and treatment: CO2 production techniques and applications are briefly introduced.• Transportation and storage: Different CO2 transportation and storage applications are covered.• Supply: Major suppliers and supply contracts, including terms, are discussed.• End-use: Commercial CO2 end-use applications are analysed in detail in next chapter.

Globally, concentrated CO2 is produced either inherently as a by-product from industrial process (e.g. ammonia production), or by a capture process from various resources, including but not limited to power plants, petrochemical plants or other industrial process, or directly from natural underground CO2 reservoirs. Based on a study conducted by United States Environmental Agency in 2009, CO2 sources and production techniques can be categorised into two main groups, by the type and purpose of the facility operations: CO2 production well sites and CO2 capture sites. CO2 production from geothermal resources is assessed as a separate group in the present study.

• CO2 production wells – CO2 production wells include any surface drilled area from which a carbon dioxide stream is extracted (United States Environmental Agency, 2009). CO2 can originate from a number of sources including methanogenesis and oil field biodegradation, kerogen decarboxylation, hydrocarbon oxidation, decarbonation of marine carbonates and degassing of magmatic bodies (Zheng Zhou, 2012). In general, purity level of CO2 extracted from natural wells is high.

• CO2 release from geothermal power plants – CO2 is naturally dissolved in geothermal brine and usually removed from the cycle by a condenser (Ármannsson, 2003). The number of geothermal production sites increases rapidly as environmental awareness, incentives and technological developments facilitate geothermal investments.

• The total capacity of 24 countries that have invested in geothermal plants has reached up to 12 GW . It has been estimated that in 2050, the generation of electricity from hydrothermal sources will reach up to 70 GW (Niyazi, et al., 2015).

• There have been various studies on CO2 emissions of geothermal power plants. For this study, Bertani and Thain’s approach was adapted and 122 g/kWh CO2 emission will be used as an industry standard. Based on these assumptions, global electricity production of geothermal plants reached 100 TWh and CO2 emissions reached 12.2 million tCO2 in 2014.

3. MARKET ASSESSMENT

3.1 CHARACTERISATION OF CO2 SOURCES AND PRODUCTION TECHNIqUES

Figure 6 - Commercial CO2 value chain


• CO2 capture – CO2 capture involves the implementation of the following processes in an integrated manner: separation of CO2 from mixtures of gases (e.g. the flue gases from a power station or a stream of CO2-rich natural gas) and compression (IEA, 2013). The way in which CO2 can be captured depends fundamentally on the way that CO2 is produced. In some industrial processes, the separation of CO2 requires traditional processes modification. In other cases it might be an integral part of the process such as bioethanol production or fermentation where generation of concentrated CO2 is an inherent part of the production process. There are several CO2 capture applications in Turkey, including the bioethanol plants Torku and Tezkim (80 and 120 tonnes of CO2 per day, respectively) and Barit Maden (a fermentation plant, 50 tonnes of CO2 per day). CO2 capture is considered as out of scope for this study, although the carbon capture technologies and applications become increasingly relevant in view of increasing global consumption of fossil fuels and development of carbon capture technologies. Detailed reports on the topic can be found on web sites from the Global CCS Institute and International Energy Agency.

Natural wellsSedimentary CO2 reservoirs are located in south east of Turkey and mainly used by Turkish Petroleum (TPAO) for enhanced oil recovery (EOR) applications. These reservoirs are found in limestone traps located in anticlinal structures. Three main reservoirs are discovered and exploited by TPAO. These are Dodan, Çamurlu and Yolaçan fields. Their CO2 concentrations are 91%, 73% and 41% respectively. The largest reservoir is the Dodan (Siirt) natural CO2 reservoir, located 88 km away from the Batı Raman heavy oil field. There is no publicly available production data. EOR applications in Turkey are discussed in detail in the next chapter on end-use.

Magmatic and metamorphic originated natural CO2 sources are attributed to volcanism related to several inactive volcanoes located in central Anatolia. These CO2 fields are operated by private companies and total installed production capacity is over 560 tonnes per day. The biggest producers are Linde, Güney Doğalgaz and MEGAŞ with 120 tonnes per day production capacity.

Though the production capacities (see Table 3) are known, there is no publicly available data on the production levels. However, these companies report yearly their production, sales and costs related to production to General Directorate of Mining Department (MIGEM). The project team made an official data request to MIGEM. Based on the data shared by MIGEM, natural well production has reached 77 ktonnes of CO2 in 2013, with a compound annual growth rate of 6%. Biggest producers are Güney Doğalgaz, MEGAŞ and Barit Maden with a production share of 27%, 26% and 21% respectively. Figure 7 briefly summarises current situation in market.

2 Geothermal Energy Association, 2014 Annual U.S. & Global Geothermal Power Production Report3 (Bertani & Thain, 2002) stated that 2% of the geothermal-based power plants had CO2 emissions of at least 500 g/kWh, whereas 50% had emissions of 100 g/kWh or less. The authors obtained data from 85 geothermal power plants operating in 11 countries around the world. The weighted average of CO2 emissions is 122 g/kWh. A study published on Geothermal Resources Councils website suggests 0.2 lbs. CO2/kWh (90 g CO2/kWh) as an industry average emission rate. The paper highlights that this value is the weighted average values for all geothermal capacity, including those binary plants with completely close loops that do not emit CO2. Binary plants only represent 14% of capacity in the weighted average. Ármannsson (Ármannsson, 2003) analysed CO2 emissions from Icelandic geothermal power plants. This author evaluated data of three dry steam geothermal power plants and found CO2 emissions between 26 - 181 g/kWh.4 Data gathered from stakeholder interviews

3.2 CURRENT CO2 PRODUCTION

Table 3 - Natural well producers from magmatic and metamorphic fields and production capacities4


Geothermal Power Plants and CO2 Emissions The Turkey’s geothermal fields have been assessed in detail in section 2.2. In this section, an overview of CO2 emissions from geothermal power plants, current market structure, and installed production capacities are provided. Based on the current rate of installed capacity increase and on Turkey’s Renewable Energy Action Plan, the country’s capacity will reach almost 1,000 MW by the end of 2020 and over 1200 MW by the end of 2023.

5 Based on MIGEM data6 National Renewable Action Plan For Turkey, 2014

Figure 7 – CO2 production of natural well producers5

Figure 8 – Short-term projection of installed geothermal capacity6


Based on various academic studies (Niyazi, et al., 2015) and stakeholder interviews, CO2 emissions (expressed in tonne per hour or in grams per kWh) of 12 out of 15 active geothermal plants are collected. From this analysis, a weighted average of the current CO2 emission of 887 g/kWh has been derived. Figure 9 shows the total emissions of geothermal plants in Turkey for the next eight years. CO2 emission from GPP is expected to reach 5.9 MtCO2 level by 2023. The CO2 emission projection is based on the following assumptions:

• The weighted average CO2 emission level of the 12 plants is representative for other plants• Brine flows and concentrations in all of the 12 plants represent total capacity and will vary, i.e. CO2 emissions will change

over time as discussed in section 2.5. This implies a constant decrease of 3.5% per year• It is conservatively assumed that geothermal power plants in Turkey have an average capacity factor of 72%. This is

deducted from geothermal power plants capacity factor from TEIAS data published in 2014 and 2015.

Only 4 of the 15 geothermal plants emissions are used for commercial CO2 production. Total installed capture capacity is 785 tCO2 per day. Generally, the CO2 emissions are released directly into the atmosphere. In the long term, regulators might restrict CO2 emissions of geothermal plants or there might be carbon credit costs for geothermal producers. As potential restrictions may be expected, geothermal investors are already considering different options to reduce their CO2 emissions either by making it a commercially-viable product or reinjecting into the reservoirs. Below listed items are the key issues on CO2 emission reduction efforts, as highlighted in interviews with stakeholders:

• Limited CO2 commercial market restricts investments in CO2 production;• Production is seasonal as it declines during summer by up to 20% due to condensation related problems and quality of the

gas supplied from geothermal sources;• Geothermal producers consider reinjection of CO2 into reservoirs but lack of information on this topic limits further steps.

Figure 9 – Total theoretical CO2 emissions from geothermal plants


The biggest player in the market is Linde and it holds nearly 58% of the production capacity from geothermal plants stated in Table 4. HABAŞ follows Linde with a 38% market share. They are both vertically integrated and active from production to supply. Table 4 summarises current market players, production plants, locations and final product. These four production plants are directly connected with a pipeline to a geothermal plant. The pipeline transfers the gas mixture from the gas removal system of the geothermal power plant to the production plant. The plant purifies the gas mixture (up to 99.9%) and removes residual gases (for instance S2H, CH4), condensate the CO2 and stores it in a tank.

Current CO2 production capacity of geothermal plants, 785 tonne per day, constitutes only 12% of the total geothermal power plant emissions. Commercial CO2 producers, CO2 production capacities and main products are listed in Table 5. In line with the above, Linde has the highest market share, in terms of production capacity, and holds nearly 37% of the total retail CO2 market in Turkey.

Table 4 – Commercial CO2 production capacity from geothermal sources7

Table 5 – Commercial CO2 producers in Turkey8

7 Data gathered from stakeholder interviews and company websites 8 Data gathered from stakeholder interviews and company websites


CO2 production costsTable 6 includes all typical investment and operational costs for CO2 production facilities. It should be noted that, due to the lack of public information on investment and operational costs for Turkey, the typical costs provided in this section are based only on stakeholder statements.

CO2 transportationTransportation of CO2 from production sites to the end-use areas can be conducted through several methods regarding CO2 condition (gas/liquid), the type of deployment (onshore/offshore), transportation scale and transport distance.

Interviews reveal that CO2 transport is a significant cost item throughout the value chain, and especially for the large-scale CO2 deployment, early strategic planning transport infrastructure is vital to reduce costs (European Technology Platform for Zero Emission Fossil Fuel Power Plants, 2011). Reducing CO2 transportation costs will increase economic feasibility and attractiveness of CO2 application usage, which is apparently not economically attractive at the current time in comparison to other uses of capital or alternative means of supplying the same goods or services.

CO2 can be transported by pipeline, by sea-freight, or in containers by truck or by train. In this section, these three methods are briefly described:

• Pipeline transportation is a mature technology and an economic and effective way for large scale, long-distance, and long-term CO2 transportation (Zhao, et al., 2013). Depending on the situation, CO2 is transported in liquid or gaseous phase. To safely transport CO2 in the liquid phase the pressure needs to be above 8 MPa in order to avoid two-phase flow regimes. Liquid CO2 also has higher density, thereby making it less costly to transport (Metz, et al., 2005). It is –and likely to continue to be- the most common method of large-scale CO2 transportation and this method can be used for both onshore and offshore deployment (Global CCS Institute, 2015). As of 2013, 50 MtCO2 are transported per year through over 2,500 km of CO2 pipelines in United States (US) (Zhao, et al., 2013). Costs for CO2 pipeline transformation are mainly influenced by the distance and volume. OCAP (the Netherlands) transports gaseous CO2 from Shell to greenhouses over a short distance (tens of kilometres) in a 40-year old reused oil-pipeline at a pressure of 1-2 MPa.

Table 6 – Typical CO2 Production Facility Investment and Operational Costs of Different Sources9

3.3 CHARACTERISATION OF CO2 TRANSPORTATION AND STORAGE METHODS

9 Data gathered from stakeholder interviews


• Sea-freight transportation can be an alternative option for many regions of the world since transportation of CO2 by ship may be economically more attractive, particularly when the CO2 has to be moved over large distances or overseas (Metz, et al., 2005). Liquid CO2 can be transported by marine tankers typically at about 0.7 MPa pressure and temperature of -55 °C. When compared to road and rail tankers, larger scales of CO2 can be transported by marine tankers (Metz, et al. 2005). Shipment of CO2 already takes place in Europe, where ships transport food-quality CO2 (around 1,000 tonne) from large point sources to coastal distribution terminals (Brownsort, 2015). As of 2015, Norwegian chemical company Yara International ASA has a fleet of three ships, carrying the largest CO2 tanks in Europe. Each can carry up to 1,800 tonnes, the equivalent of 90 full tanker truck loads (World Maritime News, 2015).

• Transportation by road and rail tankers is the preferred mode for small quantities of liquid CO2. These systems transport CO2 at a temperature of -20ºC and at 2 MPa pressure. While transport capacity of a road tanker is between 10-25 tonnes, 60 tonnes of CO2 can be transported by one carriage of a train10. However, these methods are uneconomical when compared to pipelines and ships, except on a very small scale (Metz, et al., 2005). Road and rail tankers can be used only for onshore deployment.

Transportation costsThrough the research and interviews conducted, typical costs for CO2 transportation are gathered in Table 7. Our research shows that:For onshore deployment:

• Unit cost (cost per tonne per km) of CO2 transportation by road tanker is significantly higher than for pipelines. Hence, road tankers are economical only on a very small scale with limited ranges, when compared to the pipeline: In US, ranges between 100 - 200 km are accepted as feasible for road tanker transportation.

For offshore deployment:• Pipelines benefit significantly from scale, whereas the scale effects on ship transport costs are less significant (European

Technology Platform for Zero Emission Fossil Fuel Power Plants, 2011).• For amounts smaller than a few million tonne of CO2 per year and/or for larger distances overseas (typically over 1,000 –

1,250 km), the use of ships, where applicable, can be economically more attractive (Zhao, et al., 2013; Metz, et al., 2005).

10 Source: Stakeholder Interviews


Table 7 – Typical costs for CO2 transportation

*European casesCase 1-2-3-4: Cost estimates for commercial natural gas-fired power plants with CCS or coal-based CCS demonstration projects with a transported volume of 2.5 Mtpa, for 180-500-750-1,500 km of distances respectivelyCase 5-6-7-8: Cost estimates for large-scale networks of 20 Mtpa for 180-500-750-1500 km of distances respectively. In addition to the spine distance, networks also include 10 km-long feeders (2*10 Mtpa) and distribution pipelines (2*10 Mtpa)**Includes liquefaction costs- : No data availableEUR/US$ Annual Average Exchange Rate = 1.392705 for 2011; 1.114641 for 2015TRY/US$ Annual Average Exchange Rate = 0.376639 for 2015


Table 8 – Typical costs for CO2 storage costs

* Benefits of EOR/ECBM per tonne of CO2 are not included**Sites in Southern Africa1: On-shore East Coast - Basin2: On-shore South Coast - Basin3: Off-shore South Coast - Depleted oil and gas fields4: South - Coal fields

5: Inland South – Coal fields6: Off-shore South - Depleted gas fields7: Off-shore South - Depleted oil and gas fields- : No data availableEUR/US$ Annual Average Exchange Rate = 1.114641 for 2015

CO2 storageCapturing CO2 is typically done for two reasons: preventing the CO2 to be released in the atmosphere and/or adding value by utilising the CO2. In the first case the objective is to store CO2 permanently in subterranean geological structures (e.g. saline aquifers, depleted oil and gas fields, deep unmineable coal seams) (Kulichenko & Ereira, 2012). Before utilisation, CO2 may be stored temporarily. In Table 12 an overview of CO2 storage duration for different utilisation options is presented.

Throughout the chain from production sites to the end-use areas, CO2 can be stored through several methods regarding CO2 condition (gas/liquid) and storage purpose (stockpiling after production / distribution / stockpiling before end-use / result of end-use). From production sites to end-use areas, CO2 can be stored in cryogenic tanks, polyurethane insulated tanks, pipelines, underground oil formations and bituminous coal beds. These five methods are briefly described below:

• Cryogenic and polyurethane insulated tanks are used both by CO2 producers and end-users. Cryogenic tanks present higher material quality than polyurethane insulated tanks and are preferred by end-users to fulfil higher CO2 standards (e.g. beverage producers). A CO2 producer needs a tank with capacity between 200-300 tonne on average; while end-users use tanks with capacity between 10-50 tonne.11 Cryogenic and polyurethane insulated tanks are filled with liquid CO2 and used also for distribution in addition to the purposes of stockpiling after production and before end-use: CO2 trailers and containers are carried by trucks (road tankers) and trains (rail tankers) while CO2 vessels are transported by ships (marine tankers).

• Pipelines can be also used as stores of CO2 gas, in addition to the purpose of distribution: They may serve as CO2 hubs.• CO2 gas is permanently stored in underground oil formations after EOR process and in bituminous coal beds after ECBM.

CO2 storage costsTypical costs for CO2 storage gathered through research are indicated in Table 8

11 Data gathered from stakeholder interviews


Assessment of CO2 transport and storage in TurkeyThrough interviews with stakeholders and desktop research, existence of transportation and storage methods are investigated for Turkey. The results are indicated in Table 9.

It is worthwhile noting that:• • Transportation is conducted by road tankers in the current CO2 market of Turkey. All of the containers and trailers

and approximately 70% of the trucks are owned by the suppliers. The rest of the trucks (30%) are rented from logistics companies. Since the suppliers undertake transportation of CO2, transportation costs are reflected in CO2 end-prices. As of 2015, average transport cost among Turkey is approximately 100 US$/tCO2.

• • In the Turkish market, investments for end-user tanks and related equipment are undertaken by the supplier with some exceptions (e.g. some beverage producers consuming large amounts of CO2). The majority of tanks (approximately 90%) are polyurethane insulated tanks due to their low cost when compared to the cryogenic ones. The capital expenditure is recovered by rents paid by end-user or through guaranteed long-term contracts.

• • EOR has been used by TPAO at a pilot and full field scale at four different locations in south-eastern Turkey where CO2 is permanently stored.

Assessment of CO2 supply in TurkeyAs of 2011, global demand for CO2 is estimated at 80 Mtpa (Parsons Brinckerhoff/GCCSI, 2011). While China is the major market for CO2, accounting for almost 34% of global demand in 2014, North America, Other Asia/Oceania, Europe and the Middle East account for about 23%, 16%, 12% and 8%, respectively (IHS, 2015).Based on the interviews with stakeholders and our research, CO2 supply in Turkey can be described as follows.

• In Turkey, CO2 is supplied by producers and their distributors to the end-users. As of 2015, approximately 0.5 M tCO2 per year is supplied to end-users.

• There are nine CO2 producers (Linde, HABAŞ, Güney Doğalgaz, Hisar Doğalgaz, Barit Maden, Torku, Tezkim, MEGAŞ and BM Holding) and eight of them (all producers except BM Holding) supply CO2 to the market. Linde is the biggest producer in Turkey, followed by HABAŞ.

• The majority of supply is operated by producers, while approximately 10% of CO2 is supplied to end-users through distributors in charge with logistics and tank/tube filling operations. Each of the two major players (Linde and HABAŞ) has 15-20 large distributors.

• Large distribution networks of Linde and HABAŞ give them competitive advantage since transportation is a significant cost item.

• Current supply potential is larger than current domestic demand. In 2014, about 43 k tCO2 were exported. This was an annual increase of 35% compared to 2013. The value of export market was approximately 7 M US$. Turkey’s largest export market is Iraq (51% of total CO2 export volume), followed by Lebanon and Israel (Figure 10). Imported volume of CO2 is negligible.

3.4 MARKET ASSESSMENT OF CO2 TRANSPORT, STORAGE AND SUPPLY IN TURKEY

Table 9 - Current existence of CO2 transportation and storage methods in Turkey


• Ex-factory (right after production) cost per tonne of CO2 is approximately 30 US$. On this base transportation cost (depending on distance) is added, and then end-price is shaped regarding contract terms and profit margin. For Turkey, typical prices of raw gas and typical CO2 end-prices are gathered through research and interviews then indicated in Table 10, comparable with typical prices in the U.S. market.

• In the market, “take-or-pay”12 is the common contract method between producers and their gas suppliers (e.g. GPPs). Take-or-pay contracts are also signed between producers with swap purposes. Producers prefer to sign guaranteed long-term contracts with CO2 end-users.

Figure 10 - Amounts of CO2 exported between 2010 and 2014 (ITC Trademap)

Table 10 - Typical prices in Turkey compared to the U.S.

12 With take-or-pay contract, the company either takes the product from the supplier for a pre-defined price or pays the supplier a penalty.

*Interviews:[1] KGS Process (Service Provider)[2] Burç Teknik (Dry Ice Producer)[3] HASSA Yangın (Fire Extinguisher Supplier)**Includes cylinder filling chargesEUR/US$ Annual Average Exchange Rate = 1.114641 for 2015


In general, the commercial CO2 market in Turkey can be considered as a deregulated market. The only exceptions are the Turkish Mining law that regulates natural well productions and Turkish Food Codex that regulates end-uses in beverage industry. In this section, the legal and regulatory frameworks that affect the current commercial CO2 value chain are addressed.

CO2 production wells The natural CO2 exploration and exploitation is regulated by Turkish Mining Law. The main principles of the Turkish Mining Law are as follows:

• The Turkish Mining Law was amended in February 2015 by an amending law (all together referred to “Amended Mining Law”) and regulations issued thereunder. Turkish Mining Legislation establishes the principles and procedures with regards to exploring, operating, rightful ownership and renunciation of mines comprising all kinds of substances (including natural CO2 exploration and production), except petroleum, natural gas, geothermal and water sources.

• Mining operations in the framework of this legislation is executed by the Ministry of Energy and Natural Resources (ETKB) and General Directorate of Mining Department (MIGEM) of ETKB.

• Mining rights and minerals are exclusively owned by the state. The ownership of the minerals in Turkey is not subject to the ownership of the relevant land. The state, under the Mining Legislation, delegates its rights to explore and operate to individuals or legal entities by issuing licences for a determined period of time in return for a payment of royalty. Mining rights with respect to certain types of mines, however, belong to state or state enterprises. The licences for mining rights are granted to Turkish citizens, legal entities established under Turkish laws and some authorised public bodies. Companies established under Turkish law according to the provisions of the Turkish Commercial Code are Turkish companies even if they are established by foreign persons with a 100% foreign capital. Consequently, there is no distinction between the mining rights that may be acquired by local investors and those that may be acquired by foreign investors provided that the foreign investors establish a company in Turkey under Turkish law. Foreign companies have to establish a branch in Turkey in accordance with the laws of Turkish Republic and whose statute prescribes that mining is included in their field of activity. Local and international investors have literally equal rights.

• The Law allows for multiple licences involving different categories of minerals in the same area.

Duties and royaltiesThe Amended Mining Law distinguishes five groups of minerals. Pursuant this classification the royalty amount to be paid to the state differs. CO2 is located in the 3rd Group minerals that are defined as following: Slats in the form of solution and obtained from sea, lake and spring water, Carbon Dioxide (CO2) gas (except for geothermal, natural gas and areas that have petroleum).

• Royalties are collected based on the annual total sales of raw ore and pre-defined sales price set by MIGEM• For CO2, a royalty of 5% has to be paid• The royalty amount to be with respect to the mining activities realised on state-owned lands is 30% more. If the state-

owned land has also a forest status and is more than 5 hectares, licence-holders have to pay forest fees subject to the decision of the Forest General Directorate of the Ministry of Environment and Urbanisation without paying the additional 30%

• 25% of royalty paid to provincial administration, 25% of royalty paid for infrastructure expenditures of the region and the remaining 50% of royalty is paid to treasury.

Types of licences• There are two types of licences: Exploration Licence and Operation Licence. The right of priority in licence applications is

determined according to the date of application. Licences become valid on the date of registration to the Mining Registrar. Transfers, successions, sequestrations, pledges, mortgages and expirations are required to be registered in the Mining Registrar.

• Exploration Licence: The exploration licence is a certificate granting the right to explore on a determined land. The exploration licence is granted following the submission of the necessary documents, licence fee and licence guaranty fee within 15 days following the application. The exploration licence is granted for 3 years which can be subject to an extension of 2 years for Group 4 minerals. The exploration licence-holder, by the end of the second year, has to submit an

3.5 REGULATORY FRAMEWORK AFFECTING CO2 MARKET


exploration activity report. Maximum licence area for 3rd Group minerals, including CO2, is 500 hectare.• Operation Licence: The operation licence is a certificate granting the right to operate the mine. The exploration licence-

holder has to apply for an operation licence before the end of the term of exploration licence. The term of operation licence is at least 10 years, which can be subject to an extension. The operation licence-holder has to submit to the General Directorate, technical documents, a sales information form and an activity information form related to the operation activity conducted during the previous year by the end of April of each year. One mining engineer has to be employed as a technical supervisor.

• Licence fees: Licences are subject to an application fee, annual licence fee to be determined by the Ministry of Finance every year and a guaranty fee in the amount of 0.3% of the annual licence fee per hectare. The Amended Mining Law provides an advantage to the licence-holders of not paying 50% of the royalty if the extracted ores are processed in Turkey, in other words if there is an additional value.

• Environment, safety and health issues: Environmental Law No. 2872, Environmental Impact Assessment Regulation and Labour Law No. 4857 are the principle regulations governing mining activities. There are many other regulations enacted based on those principle regulations which are applicable to mining industry.

• Inspection of Activities: MIGEM conducts inspection for every mining field in order to control the technical and financial matters on site. The purpose of this audit is controlling and supervising the execution of all the mining activities pertaining to mining rights and obligations.

• Incentives: If the mine operators create additional added value by processing the minerals in the country they pay 50% less royalty.

CO2 production from Geothermal Power Plants Geothermal activities in Turkey is regulated by Law numbered 5686 (3rd Jun, 2007) “Law on the Geothermal Resources and Natural Mineral Waters” (Geothermal Energy Law), “By-Law Regarding the Geothermal Resources and Natural Mineral Waters” (11/12/2007) (Regulation) and “By-Law Regarding the Use of the Geothermal Sources for Electricity Generation” (14/10/2008). The mentioned laws and regulations regulate the geothermal resources along with natural mineral water resources and geo-thermal gases and it covers the procedures of usage rights, licences (transfer or assignment), electricity production and related incentives. It should be noticed that there is no special article on CO2 production from geothermal sources. However CO2 produced from geothermal wells can be utilised and evaluated for any purposes.

CO2 supply, storage and distributionThere are standards and regulation for supply, storage and distribution related to safety and operation. For targets or volumes of CO2 there is no law or regulatory framework limiting supply, storage and distribution.

CO2 end-use A number of CO2 end-use applications are widespread in Turkey, including greenhouse applications, enhanced oil recovery (EOR), dry ice production, beverage applications, anti-fire applications, and dry ice washing. From this set of applications only beverage industry applications are regulated.

The Turkish Food Codex issued by the Ministry of Food, Agriculture and Livestock regulates CO2 usage in beverage industry and defines the chemical composition of the CO2 product. This regulation prescribes a minimum purity level of 99% in beverage industry. Further, it limits CO2 additive utilisation, listed below

• Beer: Minimum 0.3% (percentage by weight)• Wine: Maximum 2 g/l (percentage by weight)• Soft Drinks (Soda): Minimum 2 g/l

3.6 VALUE CHAIN ANALYSISWithin the scope of the project, major CO2 players are mapped by their activities in the value chain and analysed. A matrix is developed to briefly summarise relations between different market players. (see Annex C).


4. OPTIONS FOR THE COMMERCIAL USE OF CO2

4.1 DEFINITION OF CO2 UTILISATION

In this chapter, an overview of commercial uses of CO2 in the world and in Turkey making optimal use of existing (worldwide) information on CO2 end-use options will be provided. Based on existing information on worldwide CO2 end-use options, the options will be assessed against financial and technical (including permitting and sustainability) criteria. To assess the opportunities of the selected CO2 end-use options, sustainability and financial viability are considered important indicators. Furthermore, it is important to understand the requirements of permitting and due diligence for future project development.

From this assessment the technologies will be screened while applying the Turkish situation regarding supply and demand of CO2, market situation and regulatory framework. This yields a set of most likely applications in the top three sectors of application for commercial CO2 end-use in Turkey. For these options the key financial and technical parameters will be assessed in detail and proposed to stakeholders for review.

CO2 utilisation has been applied for many years in some industrial sectors, e.g. oil exploration and the chemical industry. Nevertheless still not much is known about ‘CO2 utilisation’. Common questions surrounding CO2 utilisation technologies are: what is CO2 utilisation technology? Why is it of interest? Where can CO2 utilisation be useful? In this project an overview is provided of the current status of CO2 utilisation technologies based on research reports, press releases and trade articles on emergent CO2 utilisation applications and technologies.

Over the last decade there has been increasing interest in the role that carbon dioxide capture and geological storage (CCS) can play in reducing CO2-emissions from energy and industrial related sources. Less attention has been paid to the possibilities of utilisation of the captured CO2. Carbon capture and utilisation (CO2) is a broad term that applies to a range of applications that can utilise CO2, either as part of a conversion process, i.e. for the fabrication or synthesis of new products (e.g. to make polymers in the chemical sector), or in non-conversion processes, where CO2 acts a solvent or working fluid (e.g. for enhanced oil recovery; CO2-EOR). Because of the broad nature of CO2 applications, a variety of definitions of CO2 is used. Based on various studies (European Commission, 2013; Parsons Brinckerhoff/GCCSI, 2011; Styring, et al., 2011) we have adopted the following definition:

‘Carbon dioxide utilisation (CO2 ) covers a broad range of processes involving the separation of carbon dioxide (CO2) from industrial and energy related sources (where necessary), its transport (where necessary), and its use in the fabrication or synthesis of new products or as a solvent or working fluid for various industrial processes.’

This definition indicated that CO2 options describe a wide variety of technologies to be applied in various sectors. Before describing these options in more detail, first we provided an overview of how CO2 can be utilised:

• Utilising CO2 directly – Captured CO2 can be used in greenhouses, algae production and other food-related applications, such as beverages. A requirement for these types of use is that the CO2 should meet specific standards related to purity of CO2;

• Using CO2 as a resource – For several applications CO2 can be used as a resource or a replacement of other resources, such as the production of polymers, cement, concrete and methanol production;

• Using CO2 to improve industrial efficiency and/or enhance production – CO2 injection in nearly depleted oil fields can enhance the production of these fields. Furthermore, CO2 can be used as a working fluid in power generation and geothermal energy extraction;

• By preventing costs for CO2 emissions – In case industrial emissions in Turkey will be taxed, CO2 emission reduction will avoid costs, either when CO2 is stored permanently (e.g. through mineralisation and, potentially, through CO2-EOR), CO2 emissions are reduced (e.g. through the substitution of fossil- with renewable-based liquid fuels), or when CO2 is temporarily stored (e.g. through fuel production).

Although representing a wide range of possibilities, CO2 technologies have in common that they have some capacity to store CO2 at least over the short-term and thus avoid release of CO2 to the atmosphere (Styring, et al., 2011). Each CO2 technology


4.2 KEY TECHNOLOGIES FOR CO2 UTILISATION

has different time horizon for CO2 storage; for some the removal is permanent, with the carbon from CO2 ending up locked up in minerals or in long-lasting products (e.g. some polymers), for others storage is indefinite in geological formations (e.g. in enhanced oil recovery); for others e.g. where the carbon is converted to fuels, removal is only temporary and therefore offers only limited potential to abate CO2 emissions. Another benefit is that CO2 utilisation can lead to additional reductions in GHG emissions.

Examples include improvements to process efficiency, which leads to increases in energy efficiency therefore reducing fossil fuel consumption for the same end service (e.g. enhanced power cycles using supercritical CO2), the displacement of more intensive forms of production of intermediates within a value chain (e.g. in bulk chemicals production), or through substitution of conventional fossil fuels (e.g. in algae-based biofuels production systems using CO2).

CO2 offers the potential to use a waste stream of CO2 in the production of commercial products and services. The creation of value-added commodities such as fuels, fine and bulk chemicals and building materials using CO2 can provide the revenues needed to offset upfront investments and ongoing production costs.

One of the main challenges for CO2 uptake is the low reactive state of CO2 under standard conditions. This means that for many of the CO2 applications energy is needed to put CO2 in a reactive state. CO2 is therefore most interesting for niche applications where there is sufficient surplus energy – preferably generated from renewable sources – and/or where substitution of the conventional production method leads to energy or materials gains during fabrication/synthesis.

Also from a policy and regulatory perspective, CO2 technologies present potential challenges. The way in which CO2 is used in many CO2 applications, and in particular the temporal aspects of emission abatement, mean that policies which support CO2 must be designed carefully. For instance, it may be difficult to justify incentives to CO2 technologies which only offer short-term storage of CO2 rather than long-term/permanent emission reductions (European Commission, 2013).

Based on available literature an overview of CO2 applications is created and summarised in Table 11. This table also provides an overview of the current development status of the technologies. The applications in this overview are grouped on the basis of sectors in which the technologies could apply. The groups developed are (European Commission, 2013):

• CO2 to fuels carriers – within this group, technologies which can provide a means for new types of energy vectors are covered. They partly consist of commercially established technologies linked to more novel use (e.g. renewable methanol), and more embryonic forms of energy carrier development (e.g. biofuels from algae).

• Enhanced commodity production – this group of technologies use CO2 to boost production of certain goods, typically where CO2 is already used but the source could be modified (e.g. urea yield boosting). It also includes use of CO2 as a substitute in existing technologies (e.g. for steam in power cycles). These technologies generally involve applying new methods to techniques which are in commercial practice today, but could be modified to use CO2.

• Enhanced hydrocarbon production – this group of technologies involve using CO2 as a working fluid to increase recovery of hydrocarbons from the subsurface (e.g. CO2-EOR). They range in maturity from commercially viable under certain conditions through to pilot phase;

• CO2 for food production – there are several applications for CO2 utilisation in the food industry, such as CO2 utilisation in greenhouses for growing crops, but also direct use for instance in beverages, extraction of aromas and food freezing using dry ice;

• CO2 mineralisation – this group of technologies relies on the accelerated chemical weathering of certain minerals using CO2. It can be used in a range of applications, typically involving construction materials (e.g. concrete curing) or in niche circumstances such as mine tailing stabilisation;

• Chemicals production – CO2 can be used in the synthesis of a range of intermediates for use in chemical and pharmaceuticals production, including carbamates, carboxylation, insertion reactions, inorganic complexes and polymer production. Conversion methods require the use of catalysts, heat and/or pressure to break the stable CO2 structure, and include photocatalysis or electrochemical reduction. One of the most promising technologies is the use of CO2 to make various polymers such as polycarbonate.


• Other CO2 utilisation – in this group other options for CO2 utilisation that do not fit naturally in the abovementioned categories. Among them are applications for mechanical industry (e.g. metal working, moulding), applications in electronics and dry washing, using CO2 as a working fluid in circuits and water treatment.

A more detailed description of CO2 applications can be found in Table 31 (Annex B).

4.3 CURRENT DEVELOPMENT STATUS OF CO2 TECHNOLOGIESAs mentioned previously, the development of CO2 technologies is ongoing and technologies are at differing stages of maturity. Some of the technologies are commercially available (e.g. Enhanced Oil Recovery (EOR), use of CO2 to boost urea production, beverage carbonation, food freezing), whereas others are in earlier phases of development, ranging from early R&D to (commercial-size) demonstration. In Table 11 an overview of the CO2 technologies and their technical maturity is presented.

Besides the current technological status is it important to estimate when the different CO2 technologies will reach commercial availability. In Figure 11 such an attempt has been made for a selection of CO2 technologies:

It should be noted that the basis for the estimated deployment timescales claimed by technology proponents is unclear, and it is possible that some may be overly optimistic. Figure 11 therefore also indicates a more pragmatic view of the potential timeframe to commercialisation.

Figure 11 - CO2 technology development timeline (Parsons Brinckerhoff/GCCSI, 2011)

The light blue circles represents the technology at demonstration scale, while the dark blue circle represents commercial operation of the technology based on claims from the respective proponents. The arrow from the dark blue circle indicates a more pragmatic timeframe to commercialisation


Table 11 – Technical maturity of various CO2 technologies13 (European Commission, 2013; Neeser, 2014; Parsons Brinckerhoff/GCCSI, 2011; U.S. Department of Energy, 2014)

a ‘Research’ means that while the basic science is understood, the technology is conceptually feasible and some testing at the laboratory or bench scale has been carried out, it has not yet been demonstrated in a pilot plant. ‘Demonstration’ means that the technology has been, or is being, built and operated at the scale of a pilot plant, but that further development is required before the technology is ready for use in a commercial/full scale system. ‘Economically feasible under certain conditions’ means that the technology is well understood and is applied in selected commercial applications, although it has not been proven in all conditions. ‘Mature market’ means that the technology is in commercial operation with multiple replications, or could be easily modified to accommodate new applications involving non-captive CO2.

13 Technology statues classification based on (Metz, et al., 2005)


4.4 ECONOMICS OF CO2 UTILISATION OPTIONSAs presented in Table 11, CO2 technologies are currently at very different stages of commercialisation. Although some technologies have been proven, most other technologies are in rather early stages of development. The uptake of these technologies and their potential to be scaled-up from the R&D and pilot level to commercial scale will depend on various (economic) factors. In the early stages policy will play an important role, especially in supporting R&D and market development. Nevertheless, in order for the technology to become commercially available, the market should embrace the technology through investments and active participation of private parties. This will require sound business cases with acceptable pay-backs and commercial risk levels and for policy-makers to develop effective policy and market interventions. Both require an understanding of the factors underpinning the potential commercialisation of CO2 applications. Key economic factors driving the development of CO2 technologies within the EU and elsewhere include:

• The potential to generate value from products and services which utilise CO2 – creating revenues and/or avoiding costs;• Market demand and outlook – potential CO2 volumes that could be used;• Costs – capital, energy and other cost components, and the potential for their reduction;• Barriers to commercialisation – market, cost, and other factors.

Due to the early stage of development in which most CO2 technologies are currently in, it is impossible to make a comprehensive and quantitative analysis of the cost factors involved.


4.5 MARKET DEMANDTable 12 summarises estimates of the global future potential for CO2 utilisation across various CO2 applications. The ranges shown indicate that there is thought to be significant potential for CO2 across a wide range of applications, especially in CO2 to fuels and CO2 mineralisation.

Table 12 – Estimated global long-term demand for CO2 applications (European Commission, 2013;Parsons Brinckerhoff/GCCSI, 2011; Styring, et al., 2011)


As can be derived from the ranges, there is a large degree of uncertainty in the estimates of future demand shown in Table 12. This reflects the large uncertainty that is surrounding CO2 technologies on factors such as demand, supply, technological development, cost development and overall market development.

For this assessment we specifically focus on the possibilities for Turkey. As the long-term demand potential presented in Table 12 are reflecting global demand potential, a selection is made. In this study is focused on those technologies that have a large potential as these technologies are most likely to develop faster towards mature levels and become state of the art. Therefore, only technologies that have a potential of >30Mt CO2 are selected. All other technologies are excluded, unless there are specific reasons to keep them in. Such exemption is made for four technologies:

• • During the stakeholder meeting a Turkish representative of a urea production plant showed interest in this technology. For this reason, urea production is included in our assessment;

• • Also the application for CO2 utilisation in greenhouses is included, as Turkey is ranked fifth in the world with regard to the surface of greenhouse agricultural land (Freshplaza, 2015);

• • Based on the presence of geothermal sources enhanced geothermal systems with CO2, was included in our assessment;• • The beverage industry is among the largest users of commercial CO2 in Turkey and is therefore also included in the

assessment.

An important factor in determining whether commercial deployment of CO2 technologies is possible is the cost of the technology compared to its alternatives. When costs cannot be reduced to a comparable level, additional benefits to demonstrate added value (e.g. avoided costs of CO2 emissions) or policy incentives (e.g. through subsidies) will become very important.

A comparative assessment of costs for different CO2 applications is difficult as detailed cost studies are not available for all technologies. Based on the information that was available, cost factors for CO2 technologies are reflected in Table 13.

Cost factors that are typical for CO2 technologies include:• Up-front capital costs – These are typically high for many CO2 technologies and may include significant investments in

capture plant and industrial production facilities;• Energy costs – Many technologies currently at the R&D stage have prohibitive energy requirements e.g. for undertaking

photo-catalysis, algae cultivation or synthetic fuel production. As well as improving the efficiency of these key processes, an important cost factor here is the ability to use surplus or off-peak renewable energy;

• Operating costs – Other important production costs include materials and chemicals (e.g. capture solvents, catalysts), increased O&M, labour and land costs.

As presented in Table 11, most CO2 technologies are still in early development stages. This could imply that there is still high potential for cost reduction. For the more mature technologies this potential will be smaller, although scaling up can still result in considerable economies-of-scale effects.

CO2 technologies face a wide ranging set of barriers and obstacles to their wider use and commercialisation. These barriers can be related to different aspects, such technology, country and/or legal and regulatory frameworks. Overcoming these barriers is often a complex challenge which, to a great extent, depends on various factors lying outside the direct control of individuals, companies or policy-makers.

Many CO2 technologies share the same barriers as those faced by Carbon Capture and Storage (CCS), involving high CAPEX and OPEX costs, demonstration of the technology at full scale and fully integrated, additional energy requirements (the ‘energy penalty’ associated with CO2 capture) (European Commission, 2013). If the CO2 technology results in permanent storage of CO2, ongoing liability, public acceptability and issues related to monitoring, reporting and verification (MRV) also need to be considered.

On the other hand, because CO2 deployment is based on the creation of products and services, it faces a range of barriers specific

4.6 COSTS OF CO2 TECHNOLOGIES

4.7 OVERCOMING BARRIERS TO COMMERCIALISATION


to the market for those goods, notably its ability to compete commercially. These barriers can vary from e.g. existing technologies being technically and economically proven (existing hydrocarbon-based fuels and chemicals; conventional building products) to the need for large-scale infrastructure changes to be made (wide-spread use of CO2-EOR; formic acid to hydrogen energy).

Also national circumstances can greatly affect the potential and likelihood of CO2 deployment (UNFCCC, 2014). Elements that can support the development of CO2 technologies in a country include: availability of high-purity CO2, availability/abundance of renewable electricity, geological resources, presence of oil and gas industry systems, local knowledge and experience, regulatory frameworks, market conditions, financial supporting programmes and presence of high-tech industry (European Commission, 2013; UNFCCC, 2014). Commitment from the national governments and the main stakeholders is needed, to establish an optimal set of policies, actions and practices that fit the needs of a country or region and the phase of technology development (UNFCCC, 2014).

Finally, the development of new technologies is always accompanied with uncertainty on costs, revenues, implementation, competition with emerging technologies, generation of investments, etc. Strategies aimed at managing such uncertainties are important and likely to play a role in successfully demonstrating CO2 end-use at scale.


Table 13 – Summary of key economic and market factors for CO2 utilisation (European Commission, 2013)


To overcome these barriers and to stimulate the development of CO2 action is needed. During a technical expert meeting (TEM) organised by UNFCCC on “unlocking mitigation potential for raising pre-2020 ambition through renewable energy deployment and energy efficiency improvements” in 2014, the following actions were formulated (UNFCCC, 2014):

• Scoping and agenda-setting - an important basis for developing and deploying CO2 establishing the technical potential of the CO2 technologies in the country. Building expertise is also an important factor in the design of policies with the aim to advance CO2. Examples of expertise-building and the creation of national RD&D programmes to stimulate the creation and sharing of knowledge among stakeholders. Furthermore the access to international research and knowledge-sharing initiatives are important for the acceleration of capacity-building in countries where CO2 development is currently in an early phase (IPCC, 2014).

• Strengthening institutional arrangements and legal and regulatory frameworks - there is a strong need for comprehensive and transparent regulatory frameworks for carbon dioxide storage (IEA, 2013). There is growing experience in developing these frameworks; however they will be most effective if they are designed in parallel to the development of the first CO2 projects, as lessons learned can be incorporated directly as well as ensuring that the concerns of local populations have been recognised and addressed.

• Design and implementation of effective and multifaceted policy portfolios – policies play an important role in the stimulation of CO2 technologies, especially when it comes to improve the cost-competitiveness of CO2 technologies and to increase trust of investors. The most effective and efficient policy to stimulate the development of CO2 technologies depends on different aspects, among which the development stage of the technology, the presence of existing programs (e.g. to stimulate R&D and/or demonstration projects) and the existing regulatory framework (e.g. for the implementation of technologies). Designing policy measures therefore often require a mix between economic and financial instruments.

As outlined in the sections above, there is a wide variety of CO2 technologies, each at various stages of development and commercialisation, providing opportunities for many different sectors. Despite some uncertainty regarding potential benefits of some of the CO2 technologies, some appear as interesting options for utilising the CO2 emissions from geothermal sources in Turkey. To create a better insight into this, a set of criteria have been selected to indicate the most interesting CO2 technologies:

• Uptake potential – this criterion is an indication for the scale of its potential application worldwide. Several factors will together determine the uptake potential among which technical maturity and potential of the technologies;

• Economic potential – this criterion gives an indication for the likeliness of creating a sound business case for the technology that would draw the attention of investors. Important factors are the potential for commercialisation and costs;

• Contribution to CO2 reduction – CO2 technologies can contribute to CO2 reductions and therefore increasing the sustainability of the Turkish industry. To determine their contribution, the permanence of CO2 storage capabilities is an important factor as well as their additional energy requirements.

Table 14 shows a first overview of scoring the CO2 technologies on these criteria.

4.8 CRITERIA FOR DUE DILIGENCE


Table 14 – Criteria and scores of CO2 technologies on due diligence criteria

Table 14 reflects the scores of CO2 technologies from an international perspective. To create a better insight into the Turkish perspectives, more information is needed from local stakeholders. These assessments will also include the role of the regulatory and legal framework, providing better insights into the Turkish opportunities for CO2 technologies, from economic, sustainability and regulatory (including permitting) perspective.

A due diligence methodology is utilised in section 4.8 to assess commercial use options of CO2 globally. The same due diligence methodology is applied for Turkey to determine top 3 applications, and summarised final scores of each CO2 application in Table 16 in this section.

Assessment criteria and scoring methodology utilised as follows:• Uptake potential – To assess uptake potential of end-uses, theoretical CO2 demand potential and market development

factors are selected as determinant criteria. The scoring methodology for each criterion is described below:• Theoretical CO2 demand potential (75% of total point): To determine current demand caps of CO2 end-uses in Turkey;

theoretical CO2 demand of each end-use is calculated through multiplying its CO2 utilisation ratio (indicated in Table 36) with current market size (or area) of its output (or applicable field). To increase accuracy, production volumes/capacities are selected as market size. Efficiency rates are also considered while determining demand caps, if needed. All results obtained so far are indicated in Table 15. When scoring, the end-use with the highest demand potential takes 100 points, and then the rest is graded relatively;

• Market development factors (25% of total point): If the related end-use technology/application is currently available in Turkey, then it is appointed with 100 points. Otherwise, 0. In Figure 15 the results of the uptake potential are presented.

4.9 ASSESSMENT METHODOLOGY FOR COMMERCIAL CO2 USE IN TURKEY


Table 15 - Market sizes of outputs, areas of applicable field and theoretical CO2 demand potentials

• Economic potential – Source of revenue, CAPEX data, OPEX data, CO2 utilisation ratio per CAPEX and OPEX are selected as economic assessment criteria. Below explained scoring methodology for each assessment criteria;

• Source of revenue (50% of total points): The sources of revenue listed in Table 13 are evaluated in terms of applicability in Turkey. If the source of revenue of related CO2 application is applicable in Turkey, it is rated with 50 points otherwise 0.

• CAPEX data (12.5% of total points): If the related CO2 application industry benchmarks are publicly available or typical values are shared with project team during stakeholder meetings, related CO2 application is rated with full points otherwise 0.

• OPEX data (12.5% of total points): If the related CO2 application industry benchmarks are publicly available or typical values are gathered during stakeholder meetings, related CO2 application is rated with full points otherwise 0.

• CO2/CAPEX (tCO2/US$, 12.5% of total points): For this criterion, CO2 technologies that have CO2 utilisation ratio and CAPEX value available are evaluated. It is assumed that technologies or applications with higher CO2 utilisation ratio per investment requirement have higher economical potential for commercial CO2 market. The project team highlights that it is assumed that the economic life of CO2 applications is identical, which is a very rough approach. The CO2 application with maximum CO2 utilisation ratio per CAPEX is rated with full point and others are rated relative to that.

• CO2/OPEX (tCO2/US$, 12.5% of total points): For this criterion, CO2 technologies that have CO2 utilisation ratio and OPEX value available are evaluated. It is assumed that technologies or applications with higher CO2 utilisation ratio per OPEX have higher economical potential for commercial CO2 market. The CO2 application with maximum CO2 utilisation ratio per CAPEX is rated with full point and others are rated relative to that.


• • Contribution to CO2 reduction – The same assessment explained in Table 12 is utilised. Below explained scoring mythology for each assessment criteria;

• CO2 storage duration (75% of total points): Technologies with higher storage duration contribute more to global greenhouse gas reduction targets and therefore should be rated with a higher score. Technologies with permanent storage duration rated with full points and others are rated relatively.

• Other (potential) abatement effects (25% of total points): CO2 technologies with displacement effects on hydrocarbon consumption are rated with full points, potential displacement effects are rated with half of the total points. Any technologies that prolong the use of fossil fuels or have no direct effect are rated with 0 points.

Table 16 – Scores of CO2 technologies on uptake potential, economic potential and contribution to CO2 reduction


The methodology introduced in section 4.9 applied for Turkey. Based on points attributed in previous sections for each selection criteria, relative final score summarised in Table 17 for each CO2 application are obtained. The relative weights of selection criteria and score tags are as follows:

• Uptake – 40%,• Economic potential – 30%,• Contribution to CO2 reduction – 30% of final score.• Tags:

• Scores greater than 75: High• Scores between 50 – 75: Medium (Med)• Scores less than 50: Low

Table 17 summarises findings and clearly shows that worldwide immature CO2 applications are not suitable for further analysis due to the lack of data or local stakeholder. EOR and greenhouse applications are the clear winners of this assessment as both technologies are currently applied in Turkey and have high CO2 consumption potential.

The technologies with highest final scores; Enhanced oil recovery (EOR) and greenhouses are selected for a detailed assessment. Urea production is also added into the final selection as it was proposed during the workshop that was held in Ankara with various stakeholders.

To build a preliminary project pipeline for Turkey, commercial CO2 application opportunities of following top 3 applications are further analysed: EOR, greenhouses and urea production. Project cards including industry profile, gap analysis, a case study and a feasible project opportunity located in Turkey, are prepared for each application. It needs to be noted that these ‘rough’ pre-feasibility studies are based on international benchmarks or benchmarks obtained during interviews. Further work is needed to refine assumptions, models and test the outcomes with industry references. This is, however, not part of the scope of this work.

Table 17 - Criteria and scores of CO2 technologies on due diligence criteria applied for Turkey

4.10 FINAL SCORES OF CO2 TECHNOLOGIES AND TOP THREE APPLICATIONS


5. ASSESSMENT OF SELECTED OPTIONS AND POTENTIAL MARKET EqUILIBRIUM POINTPreviously selected CO2 applications are further analysed to assess commercial applicability in Turkey. These analyses can be grouped into four main sections:

• Market Profile – Market profile section gathers information on related CO2 application including production in terms of unit and US$ value, brief market information on major players and SWOT analysis.

• Gap Analysis – This section introduces CO2 application and its technical, commercial, regulatory barriers.• International Practice – International practice section introduces an international case of related CO2 application, as

reference.• Project Financial Viability Assessment – Financial viability assessment section contains proposed project description,

main assumptions for financial assessment and end results from end-user and geothermal power plants perspectiveIn this chapter commercial application of CO2 for three end uses are assessed: use of CO2 in enhanced oil recovery (section 5.1), in greenhouses (section 5.2), and in the production of urea (section 5.3). Based on stakeholder interviews, for each of these end uses an overview is presented including the following components: a concise market assessment, a SWOT analysis, barriers to the use of commercial CO2, international practices and financial viability, including illustrative project examples. An assessment of the present and potential market equilibrium is presented in section 5.4.

5.1 ENHANCED OIL RECOVERY5.1.1 MarketProfile:OilMarketinTurkey

Production,ImportsandExports

Volume (Crude Oil, M Barrels)

Value (Crude Oil, bln US$)

Volume Growth (CAGR, %)

Value Growth (CAGR, %)

Source: TPAO, BMI


• There are 13 prominent players on oil production field. TPAO is the largest player, followed by N.V. Turkse Perenco.• Total maximum annual demand (theoretical) for CO2 is estimated at over 500 kt for 2014 and 2015 (as indicated in

Figure 15).• Crude oil demand volume maintains its growth for the next 3 years, with an equal growth rate with real GDP.

Meanwhile, decline in oil prices pegs total crude oil demand value around 20 billion US$.

MarketSize

MarketInformation

SWOT Analysis of Oil Market in Turkey

Volume (Crude Oil, M Barrels)

Value (Crude Oil, bln US$)



Source: TPAO, BMI

Strengths & Opportunities• Turkey is transit point between the Caspian, Middle East and Europe• There is high government commitment for E&P• Domestic market maintains its demand growth• There is upstream potential in Black Sea, Mediterranean Sea and unconventional oil and gas,

although all are at early stage• Opportunity of importing from Eastern Mediterranean and Northern Iraq and serving as a transit

hub has been arisen• Decline in oil prices is expected to make country’s energy costs decrease

Weaknesses & Threats• 93% of total demand is imported while domestic production is in decline. 77% of total domestic

crude oil reserves has been utilised• Turkish economy is growing under expectations. This mediocre growth may affect potential

refinery investments with high CAPEX requirements


5.1.2 Gap Analysis: Enhanced Oil Recovery

5.1.3 InternationalPractice:CortezCO2 Pipeline

Technology OverviewWith CO2 enhanced oil recovery (EOR), additional oil - otherwise inaccessible - can be recovered from the oil fields. The oil moves towards the oil well, since the solvent properties of CO2 influence the viscosity of oil by dissolving in trapped oil reservoirs or, in case of heavy crude oil reservoirs, the gravity of CO2 ensures some of the remaining oil can be mined (Figure 12) (Parsons Brinckerhoff/GCCSI, 2011).

During processing of the recovered oil, the CO2 contained in the oil is separated and re-injected or released to the atmosphere (Parsons Brinckerhoff/GCCSI, 2011).

EOR is a mature technology, which is commercially employed since the 1970s. Oil companies developed the technology and fund EOR from the revenues of recovered oil without other external funding. Application is limited to favourable locations, since reservoir’s characteristics influence the amount of CO2 injection needed. CO2 sources are currently predominantly naturally occurring CO2 reservoirs, but industrial CO2 sources are used as well. EOR application can assist the development of CCS demonstration projects, since after depletion, the reservoirs can be (further) filled with CO2 (Parsons Brinckerhoff/GCCSI, 2011; European Commission, 2013).

Technical Barriers• No technical barriers expected for deployment of EOR onshore, already commercially available. Offshore EOR is not

widely deployed yet.

Commercial Barriers• Costs vary widely depending on the location and local circumstances. For instance, wells may not always be suitable for

use of EOR, which means that they need to be adapted or that new wells are needed.• The CO2 needs to transported form the geothermal plant to the oil well. The most cost-effective transport solution will

depend on the required CO2 volume and the distance between production unit and oil reservoir

Regulatory Barriers• If EOR is used in combination with storage (CCS) additional regulation is required

Natural sources of CO2 need not be near oil fields amenable to EOR for this application to be economically viable. In US, the vast majority of power plants projected to be equipped with CCS would be within 1,100 km o f oil basins with significant CO2-EOR potential (Advanced Resources International, 2010) which led the project team to sketch a pipeline conveying CO2 from GPPs located in western Turkey to the oil fields in the south-eastern region of the country. Before assessing financial viability o f a pipeline, the project team analysed the Cortez CO2 Pipeline, which is the longest pipeline included in the CO2 Pipeline Infrastructure Report, as reference (IEAGHG, 2013).

Figure 12 - Enhanced oil recovery

Figure 13 - The Cortez CO2 Pipeline (Willbros, 2013)


5.1.4 ProjectFinancialViabilityAssessment:Aydın–BatmanCO2 Pipeline

The 808-km, 762 mm Cortez CO2 Pipeline is the longest, heaviest, and largest capacity carbon dioxide pipeline in the world. The pipeline is completely onshore and was fully funded by Shell, who contracted an engineering firm to design and build the pipeline. The project was initiated with Bureau of Land Management environmental impact statement in 1976. The construction was commenced in 1982 and completed in 1984.

This long completion time was due to the requirement in the US for state by state approval of the pipeline routing (IEAGHG, 2013) and the construction took only 2 years. It originates at the McElmo Dome area -the largest natural CO2 source in the world with 425 billion m3 (about 760 MtCO2) of recoverable CO2- in Colorado (Kinder Morgan, 2014).Final destination is the Denver Unit in the West Texas Wasson Oil & Gas Field where the conveyed CO2 is utilised for EOR purposes (Willbros, 2013). The 24 Mtpa capacity pipeline has been operated since 1984.

As of 2014, Kinder Morgan is planning to increase pipeline’s capacity by 50 percent through connecting new CO2 sources to the pipeline, to meet growing CO2 demand. 327 million US$ is expected to be invested in the project (Kinder Morgan, 2014).

Project Description• Based on the existing oil & gas pipelines’ routing, a CO2 pipeline with total length of 1,340 km is designed. The length of

the main pipeline is 1,260 km and there are 2 additional connections: A 40 km connection with the GPPs in Aydın and another 40 km connection with Adıyaman. Diameter of the pipeline is planned to be 0.15 m.

• This pipeline is connecting CO2 supply (potential for 5 Mtpa or more) with demand for over 500 ktonne CO2 (Figure 15). CO2 produced from the GPPs in Aydın and Denizli is conveyed to Adana, Adıyaman, Diyarbakır and Batman oil fields through the pipeline. The oil productions of these four fields constitute 93% of Turkey’s total oil production. Although the amount of oil produced in Adana is negligible compared to Batman, Diyarbakır and Adıyaman, the field is included in the project since it’s already on the oil & gas pipelines’ routing. 5 GPPs with 400 tCO2 / day capacity each should easily fulfil the CO2 demand to be emerged within this project.

• Application of EOR has been tested by TPAO at a pilot or full field scale in different fields in south-eastern region. This project aims to meet CO2 demand emerged with the decreasing CO2 supply from Dodan field to the region and new EOR projects which will be initiated in Diyarbakır, Adıyaman and Adana.

Figure 14 - Aydın - Batman CO2 Pipeline

Blue: PipelineYellow: GPPs Yellow: Oil Fields


• • It is assumed that the pipeline, well construction related investment costs (as the wells will be constructed especially for the CO2 production) and EOR technology investments are undertaken by the oil producers in south-eastern region while the investment for the CO2 production facilities are made by GPPs. Each party of the project should operate its own invested assets to make a reasonable profit.

Financial Viability Assessment• Through research and analysis, the values indicated in Table 18 are determined and used to assess financial viability:

Figure 15 - Oil Production and Theoretical CO2 Demand Cap in Turkey

Legend: e=estimate, f=forecast

* Brent – WTI – OPEC Basket AverageSources:1: IEAGHG (2013)2: ESPA & ARI (2014)3: Interviews4: European Technology Platform for Zero Emission Fossil Fuel Power Plants (2011)5: TEDAS

6: OPEC, BMI7: Damodaran (2015). The cost of capital in Oil/Gas P&E Industry in Emerging Markets is accepted as hurdle rate for the end-user side. This data is incorporated from the list composed by Aswath Damodaran, professor at the Stern School of Business at NYU.8: Humphreys (2010). The figure shows average pipeline lifespan.

Table 18 – Enhanced Oil Recovery Project Assumptions


• • Construction is assumed to be completed in 2 years (2016-2017). Then, cash flows are projected for 30 years (2018-2047) according to the economic life of pipeline. Since supply potential is quite higher than demand, it is assumed that CO2 demand will be met. Cost, price and demand projections are based on OECD, BMI and OPEC forecasts’ growth rates. EBITDAs extending to years are accepted as cash flows.

Case 1 – Assessment with actual crude oil prices• • When IRRs are calculated with actual crude oil prices (Table 19), the project is not financially viable for end-users since

their IRR is negative for each GPP retail margin alternative.

Case 2 – Assessment with crude oil prices in the recent history• Considering the sharp decline in crude oil prices in the recent year, IRRs are recalculated assuming 2013 prices of 104

US$/bbl (results see Table 20) to assess project’s viability. Only a CO2 retail price of 42 US$ reaches to an IRR above the hurdle rate on end-users’ side and GPP side.

Table 19 - IRRs of GPPs and end-users depending on the retail margin of GPPs, for Case 1

Table 20 - IRRs of GPPs and end-users depending on the retail margin of GPPs, for Case 2.

Pre-feasibility shows that Aydın – Batman CO2 Pipeline can be financially viable and rentable after the crude oil price reaches its price level in recent history


5.2 GREENHOUSESMarketProfile:GreenhousesinTurkey

Production

Greenhouse Area

Greenhouse Production (M tonne) Volume Growth (CAGR, %)

Greenhouse Production (bln US$) Value Growth (CAGR, %)

Source: Turkstat, BMI, Ministry of Food,Agriculture and Livestock

Source: Turkstat,General Directorate of Vegetative Production

Greenhouse Area (1995 – 2014, daa)14 Greenhouse Area Distribution (2014, %)

* Ornamental plant areas have also been included in land under protectıve cover since 2011.

14 1000m2


MarketInformation

• There are over 40,000 players on greenhouse market. Agrobay and Gürmen Group are leading players.• Annual estimated demand cap (theoretical) for CO2 is 10 M tonne as of 2015.• Market size is expected to reach 3.1 billion US$ in 2018.

SWOT Analysis of Greenhouses in Turkey

Strengths & Opportunities• The government has made development of the agricultural sector a priority, ensuring continued

levels of investment• The food production industry is better developed than that of many neighboring states, creating

strong export opportunities and demand for basic commodities• The government continues to invest heavily in irrigation projects and improvements to

infrastructure, which can improve yields and ease transport difficulties• Turkey is in a good location for trading with the EU, the Middle East and former Soviet countries

Weaknesses & Threats• The industry is largely fragmented• The industry is dependent on government subsidies which keep prices for some key commodities

artificially high• Pressure on government to reduce subsidies• Hot and dry weather remains a perennial problem, as water is scarce in some states and irrigation is

not widespread

5.2.2 Gap Analysis: GreenhousesTechnology OverviewGrowth rates of several plant species increase with elevated CO2 levels as long as all other nutrients, water and sunlight are available in abundance. Greenhouses currently employ gas engines or buy technical CO2. In case of a gas engine, a CO2 vaporiser collects CO2 from the flue gases and distributes it inside the greenhouse via diffusers. External CO2 supply reduces energy costs for greenhouse famers. Replacement by external high purity CO2 supplies is possible as long as the concentration in the greenhouse remains within limits of 1,300-1,500 ppm (Schurr, 2009).

Technical Barriers• No technical barriers expected, already commercially available

Commercial Barriers• In order to be used, the concentration and composition of CO2 should meet certain conditions that could impose,

depending from the source, additional costs;• CO2 needs to be transported from the geothermal plants to greenhouses, requiring investments in infrastructure. The

mode of transport will depend on the demand and the distance to be covered. In the Netherlands, an existing oil pipeline is used for transporting CO2 to greenhouses;

• CO2 demand of greenhouses differs depending on the season: temperature (less ventilation due to low temperatures), amount of sunlight, plant species and size of the biomass inside the greenhouse (Global CCS Institute, 2014);

• In case of external industrial sources, (structural) CO2 delivery problems can occur (OCAP, 2015).

Regulatory Barriers• Upon using in greenhouses, CO2 should meet conditions/limits for agricultural application. This includes a high purity in

general and very low concentration of certain impurities (e.g. ethylene).


In the heart of the English countryside, Springhill Farms injects upgraded biogas into the national gas grid, while the carbon dioxide (CO2) by-product goes to the farms’ tomato greenhouses

The gas produced during anaerobic digestion consists roughly of 60 percent methane and 40 percent CO2. Until recently, biogas from anaerobic digestion was only used for local heating or power generation, but a much more economic yield is gained by upgrading biogas to biomethane (biogas with the specifications of natural gas). Upgrading technology turns raw biogas into biomethane by removing impurities and CO2.

Pentair Haffmans’ solution to separate the biogas stream allowed Springhill Farms to produce more than biomethane. Pentair Haffmans’ two-step approach results in higher methane yield and allows for recovery of pure CO2.

At Springhill Farms, liquid CO2 is stored during the night and used in the daytime in the greenhouses. According to the firm, the system configuration enables precise CO2 dosing based on a set timetable that assures optimal plant growth.

5.2.3 InternationalPractice:SpringhillFarms

Kaynak: PENTAIR, Haffmans Biogas Upgrading Springhill Farms, Case study

Plant Capacity Key Benefits• Biogas: 500 Nm3/h• Biomethane: 225 Nm3/h• CO2: 3,000 tonnes per year

• CO2 as a profitable product• 15% increase in tomato output

Şekil 16 – Biyometan Fabrikası


Project DescriptionProject 1 – Road Transportation

• A CO2 plant of 100 tCO2/day capacity, initial investment covered by geothermal power producers, located in Aydın region, will supply greenhouses nearby via road transportation, in a 150 km range from GPP, with an acceptable retail margin. It is assumed that all of the produced CO2 will be supplied to greenhouses (1,800 decares greenhouse area is required). A CO2 greenhouse application will consume 0.5 tCO2 per decares and increase agricultural yield by 20%.

• Road transportation costs are covered by end-users via CO2 retail price.• The CO2 production facility investment and the idea of CO2 utilisation in a pre-built and functioning greenhouse are

valuated and hence ignored initial CAPEX and OPEX of required greenhouse area. The effects of road transportation range and retail margin on both sides (GPP and greenhouses) investment returns are assessed.

Project 2 – Aydın – Antalya Pipeline• Based on the existing infrastructure routing, a CO2 pipeline with total length of 340 km is designed. Diameter of the

pipeline is planned to be 0.27 m.• This pipeline will connect CO2 producers in Aydın region to the biggest greenhouse area in Turkey, Antalya. It is assumed

that the pipeline investment will be covered by geothermal investors and reflected to CO2 end price via retail margin.• It is assumed that the initial penetration rate of greenhouse utilising CO2 will be 30% and will increase gradually (10% per

year) for 5 years.• The required amount of CO2 will depend on the road-transportation range. A 100 km range will cover Burdur, Antalya and

Isparta, 200 km will cover Antalya, Burdur, Denizli, Muğla, Isparta, Afyon and Konya. A 100 km further increase in range, so 300 km in total, will connect also the Karaman, Kütahya and Eskişehir regions.

• Road transfer logistic related costs are transferred to end-user via CO2 retail price.• The CO2 production facility and subsequent CO2 utilisation in a pre-built and functioning greenhouse are valuated. Initial

investment in the greenhouse area is not included in this assessment. The effects of road transportation range and retail margin on both sides (GPP and greenhouses) investment returns are assessed.

• CO2 Requirements of project: 100 km road transport range will require 3.2 MtCO2 supply in 2020, 200 km 3.8 MtCO2 and 300 km 5.8 MtCO2 respectively.

5.2.4 ProjectFinancialViabilityAssessment:RoadTransportationandAydın–AntalyaPipelineOptions

Figure 17 - Aydın - Antalya CO2 Pipeline

Blue: PipelineYellow: GPPs Green Area: Antalya, Mersin and Adana region, 77% of Turkey’ total greenhouse area


Financial Viability Assessment

Project 1 – Road Transportation• Through research and analysis, the values indicated in Table 21 are determined and used to assess financial viability:

• A 100 tonne/day capacity plant will supply 1,800 decares greenhouse area• Cost, price and demand projections are based on Turkstat, BMI and related ministry forecasts’ growth rates. EBITDAs

extending to years are accepted as cash flows.• Table 22 summarises 100 km road transportation case. The results clearly show that a retail margin less than 50% won’t be

attractive for GPP and a margin higher than 200% will limit CO2 utilisation in greenhouses for tomatoe production

Sources:1: Interviews2: Turkstat3: EEX4: NYU, 2014

EUR/US$ Annual Average Exchange Rate = 1.114641 for 2015TRY/US$ Annual Average Exchange Rate = 0.376639 for 2015

Table 21 – Road Transportation Project Assumptions


• Table 22, Table 23 and Table 24 summarise 200 km and 300 km, respectively, road transportation cases. The results clearly show that transportation costs eat up retail margin. For a 200 km range, a retail margin higher than 150% will limit CO2 attractiveness. For a 300 km range, retail margin decreases to 100%.

Table 22 – 100 km Road Transportation Case




• • Considering the findings of different cases, CO2 utilisation in greenhouses can be considered as an attractive commercial CO2 application for both end-users and GPP investors for a certain transportation range and retail margin


Tablo 24 – 300 km Yol Nakliyesi Vakası

• As the range of road transportation increase, the covered greenhouse area increases. This will change the number of required CO2 plants, pipeline cost per tCO2 and average CO2 requirement per year.

• Cost, price and demand projections are based on Turkstat, BMI and related ministry forecasts’ growth rates. EBITDAs extending to years are accepted as cash flows.

• The transportation range effects on commercial CO2 attractiveness are analysed and findings are noted in Table 26, Table 27 and Table 28. Analysis clearly shows that a commercial CO2 price higher than 84 US$ will not be attractive for greenhouses in Akdeniz region. This finding is not contradictory as previous project findings, as the average annual production per decares (10 tonne/decares) in Turkey is low, compared to modern greenhouse where one can produce 25 tonne/decares, due to lack of technology and know-how. Low IRRs indicates that the pipeline project will not be attractive for commercial purposes unless it is incentivised by governments or the average production per decares is increased to modern greenhouse levels.

Project 2 – Aydın – Antalya Pipeline• Through research and analysis, the values indicated in Table 25 are determined and used to assess financial viability:

Sources:1: Stakeholder interviews2: (IEAGHG, 2013)3: Turkstat4: EEX5: NYU, 20146: Pipeline & Gas Journal, 2010. The figure shows average pipeline lifespan.7: (European Technology Platform for Zero Emission Fossil Fuel Power Plants, 2011)

EUR/US$ Annual Average Exchange Rate = 1.114641 for 2015TRY/US$ Annual Average Exchange Rate = 0.376639 for 2015


Table 26 – Aydın – Antalya Pipeline and 100 km Road Transportation Case

Table 27 - Aydın – Antalya Pipeline and 200 km Road Transportation Case


Tablo 28 - Aydın – Antalya Boru hattı ve 300 km Yol Nakliyesi Vakası

Pre-feasibility shows that CO2 utilization in greenhouses can be viable, in certain transportation range and productivity level, however due to the limited average greenhouse

productivity in Turkey, greenhouse applications cannot fill the CO2 emission gap


5.3 UREA PRODUCTION AND YIELD BOOSTING5.3.1 MarketProfile:UreaMarketinTurkey

Production,ImportsandExports

MarketSize

Volume (Urea, MTonne) Volume Growth (CAGR, %)

Value (Urea, M US$) Value Growth (CAGR, %)

Source: BMI, ITC Trademap, IGSAS, EY Analysis

Source: BMI, ITC Trademap, IGSAS, EY Analysis

Volume (Urea, M Tonne)

Value (Urea, M US$)




5.3.2 GapAnalysis:UreaProductionandYieldBoosting

MarketInformation

• There is only one domestic urea producer in the field. IGSAS is the single actor in the market.• Annual demand cap (theoretical) for CO2 is approximately 71 kt for additional urea production and over 30 kt for

urea yield boosting, as of 2015.

SWOTAnalysisofUreaProductioninTurkey

Strengths & Opportunities• Turkey is geographically well placed to take advantage of trade opportunities in both Europe and

Asia• Urea has more azote than any other fertilisers and it has lower unit price• The government has made development of the agricultural sector a priority and may change some

of agricultural production quotas in near future. That may increase the demand for urea

Weaknesses & Threats• There is insufficient production of urea and that causes increasing import values• There are many substitutes for urea as fertiliser and demand may decrease in future• Seasonal demand for fertilisers is affecting urea demand also• Increasing effect of organic agriculture may decrease preferability of urea

Forming the basis of 50% of the world’s fertiliser, urea is produced from a chemical reaction between ammonia and CO2 at high pressure and temperature (Figure 18). This CO2 is usually extracted from by-products from reforming natural gas from within the same factory. However, external CO2 supply can be needed, since natural gas as feedstock produces a surplus of ammonia relative to CO2. Before application within the urea production, the CO2 from flue gasses is purified with flue gas reformers. The CO2 from urea production is once again released into the atmosphere once the fertiliser is applied in the field (Parsons Brinckerhoff/GCCSI, 2011).Urea yield boosting is increasingly being practised in industry and has an enhanced market perspective (European Commission, 2013). This process is relatively mature with installations at industrial scale since the 1990s, for instance at Mitsubishi Heavy Industries (Parsons Brinckerhoff/GCCSI, 2011).

Figure 18 - Urea production process (MHI, 2015).


Technical Barriers• No technical barriers are expected, as CO2 utilisation in urea production is already commercially available.

Commercial Barriers• Typically, CO2 utilisation in urea production involves on site capture of CO2, completed with CO2 from other sources.

Depending on the characteristics of the production facility a balance between on-site capture and usage of CO2 from geothermal sources should be found.

• Price and demand volatility of urea and ammonia might deter investors for capture and transportation investments.

Regulatory Barriers• No specific barriers are expected on regulatory aspects.

5.3.3 InternationalPractice:UCGwithPowerGenerationandUreaProductionResulting from a continuous growth in population and the agriculture sector, fertiliser demand in Bangladesh is rapidly increasing. The installed annual capacity of the seven national urea fertiliser plants sums up to 2.8 Mt urea providing 2.5 Mt urea, whereas 0.75 Mt urea (23.2%) had to be imported in 2006. In order to cover its fertiliser demand, Bangladesh requires additional production capacities of 1.1 Mt urea per year.

Against this background, Kempka et al. assessed the exploitation of the Jamalganj coal field (Northwest Bangladesh) via a combined underground coal gasification (UCG) operation with electricity generation, the subsequent storage of excess CO2 in the former UCG reactors and CO2 utilisation in an integrated urea process (Figure 19).

Taking into account 3,600 t/day of coal being consumed by UCG and a synthesis gas to coal consumption ratio of 2,100 sm³/t coal, an integrated 155 MWe CCGT power plant used for autonomous power supply as well as a synthesis gas composition of 30 % H2, 8% CH4, 22% CO, 8% N2 and 32% CO2, a daily urea production rate of 3,5 t is found as feasible.

Nakaten et al.’s techno-economic modelling results demonstrate that compared to the actual urea global market price, an economic and carbon neutral operation of underground coal gasification combined with urea production and EGR is feasible in Bangladesh. Furthermore, the results emphasise that a total substitution of urea imports can be realised by urea production from domestic coal resources.

Figure 19 - Proposed coupled UCG-CCU process (Nakaten, et al., 2014)


Project Description• More than 70% of Turkey’s urea demand is imported and there is only one domestic producer. To meet the demand with

additional domestic production, a urea plant located in Aegean geothermal region using the emitted CO2 as feedstock can be a solution. This urea plant can be built near a GPP in the region and meet the urea demand of agricultural lands in the region where urea is used as fertiliser for grain, vegetable and fruit production. It was also noted that feasibility studies for urea production with the same purpose have been conducted, during interviews.

• First, the areas of farms and orchards within a 200 km-radius circle centred at the centre of GPPs located in Aydın and Denizli, are identified. Then, using the urea utilisation ratios per decare, the theoretical urea demand of region is calculated. As of 2014, this demand requires CO2 quantity over 70kt per year (Figure 21), to be used as feedstock. At this level, it is assumed that CO2 demand can be met by a single GPP in the region.

• The project of an urea plant to be built near a GPP in Aydın, meeting the demand of Manisa, Afyonkarahisar, Aydın, Denizli, Uşak, İzmir, Kütahya and Muğla and utilises CO2 produced by that GPP is designed.

• It is assumed that the investments for the CO2 production facilities are made by GPPs. Each party of the project should operate its own invested assets to make a reasonable profit.

5.3.4 ProjectFinancialViabilityAssessment:UreaProductioninAegeanRegion

Figure 20 - Demand points within GPPs centred 200 km-radius circle

Yellow: GPPs Red: Demand points Green: Demand area


Table 29 – Urea Production Project Assumptions

Financial Viability Assessment• Through research and analysis, the values indicated in Table 18 are determined and used to assess financial viability:

Sources:1: Parsons Brinckerhoff/GCCSI, 20112: Interviews3: Gübretaş, 2015

4: Rahimi, Bonabi and Mohaghegh 20135: TMO, 20156: NYU, 2014

Figure 21 - Agricultural Lands and Theoretical CO2 Demand Cap in Aegean Region


Table 30 - IRRs of GPPs and Urea Plant depending on the retail margin of GPPs

• Construction is assumed to be completed in 1 year (2017). Then, cash flows are projected for 25 years (2018-2042). Since supply potential is higher than demand, it is accepted that CO2 demand will be completely met. Cost, price and demand projections are based on OECD and BMI forecasts’ growth rates. EBITDAs extending to years are accepted as cash flows.

Pre-feasibility demonstrates financial viability and profitability,suggesting further detailed feasibility studies

5.4 CO2 DEMAND FOR SELECTED OPTIONSCurrent market demand of Turkey is approximately 0.5 MtCO2/year and market retail price is, roughly, 150 US$/tCO2. The pre-feasibility assessments in previous sections suggest that the EOR (Case 2), Greenhouse (Project–2; 200 km range) and Urea production applications are financially viable under conditions and thus applicable.

• Current demand with average price : 0.5 MtCO2/year – 150 US$/tCO2

• Urea Production Project demand with price : 0.13 MtCO2/year – 152 US$/tCO2

• Greenhouse Project demand with price : 2.43 MtCO2/year – 80 US$/tCO2

• EOR Project Case 2 demand with price : 0.42 MtCO2/year – 42 US$/tCO2

Figure 22 presents these demand volumes, as well as the supply of CO2 in the Turkish market. The graph is divided into supply quartiles. Since the greenhouse project covers a large area and number of potential customers can be expressed in thousands, both supply and demand created by that project added gradually into the supply-demand curve. As the rest of the projects represents single project & customer, their effects on supply-demand curve are impacted directly rather than gradually. The graphs suggests that the market equilibrium point, upon implementation of selected projects, will shift from E1 towards a level of 2,1M tCO2 – 62 US$/tCO2 (E2). Proposed projects will increase commercial market demand and thus increase market attractiveness for potential CO2 producers. The decreased commercial CO2 price will increase market attractiveness for end-users and thus further increase CO2 demand.


Figure 22 - Market Equilibrium

E1: Current market equilibrium pointE2: Potential market equilibrium point


6. CONCLUSIONSOver the past decades, the European Bank for Reconstruction and Development has financed a range of geothermal power plants in Turkey. These geothermal power plants are characterised by high direct CO2 emissions, and EBRD is committed to reducing the direct emission factor of geothermal power plants in Turkey. Against this background, EBRD solicited a study into opportunities for applying the CO2 from geothermal sources commercially so that immediate GHG emissions from geothermal power plants could be reduced.

This study included an inventory of options for commercial use of CO2 based on international experiences. We conducted a criteria assessment to evaluate these options, and tested these with stakeholders in a workshop at the Ministry of YEGM. In our assessment we considered uptake potential (theoretical CO2 demand potential and market development factors); economic potential (based on source of revenue, CAPEX and OPEX data, CO2 utilisation ratio) and contribution to CO2 reduction (CO2 storage duration and other indirect abatement effects). Based on these criteria three commercial end-use options emerged as interesting for Turkey: commercial use of CO2 for enhanced oil recovery, use to enhance production levels in urea production, and application in greenhouses.

We found that EOR operations are seemingly interesting, as there is a high commitment in government for continued exploration and production, and demand in the years ahead is likely to be stable. Turkey is a transit point between the Caspian Middle East and Europe, and there is upstream potential in the Black Sea, the Mediterranean Sea as well as in unconventional oil (and gas). However, economic growth in Turkey is lagging behind on expectations, which may affect potential refinery investments. Moreover, oil prices have declined. This puts the financial viability of EOR operations under pressure. This reduces the importance of EOR as an economic opportunity for putting natural CO2 to commercial use.

A well-known application of CO2 is in urea production, where (industrial) CO2 is commonly used to boost yields. The government has prioritised development of the agricultural sector and may change some of the agricultural production quotas in the near future. This may affect the demand for urea positively. Currently, there is only one urea producer. We conducted a financial viability assessment for a new factory in Aydin utilising CO2 from geothermal sources. This pre-feasibility screening suggests that a new plant could be profitable. This would be a basis for further detailed feasibility studies. Indeed, IGSAS has expressed an interest to build a new factory close to the existing geothermal power capacity, provided that finance can be arranged.

Finally, an obvious application of natural sources would be in Turkey’s numerous greenhouses in the south-west. We considered the Aydin and Antalya regions. Greenhouses in Aydin are close to geothermal capacity, and CO2 could be distributed and supplied through road freight. This would be a competitive option that could serve to test the use of natural CO2 in Turkish greenhouses. Alternatively, the CO2 could be carried by pipeline (possibly combined with road transport) to greenhouses in Antalya. For large scale application of CO2 in greenhouses this would need to be considered, as Antalya is a very important area for horticulture in Turkey. The capital requirements for building a pipeline for long distance would be high and result in lowering the profitability of the CO2 end-use compared to more local use of CO2. However, our pre-feasibility assessment suggests that this option would be worth further study to improve the inventory of CO2 demand, refine cost estimates and review financing options.

To summarise, pre-feasibility assessments of CO2 end-use in urea production and greenhouses were evaluated positively in this study. CO2 may be applied usefully either to enhance urea production, if a new facility could be realised close to existing geothermal capacity, or in greenhouses. Both options will help to store CO2 temporarily. It is likely that the use of CO2 from GPP for these purposes would lead to efficiency improvements (urea) or may avoid fossil fuel combustion to produce CO2 (in greenhouses). As such, they may improve the greenhouse gas balance of the whole value chain of geothermal power plants, and we recommend taking these options further. Follow-up work to this study could comprise detailed feasibility studies or the elaboration of specific business cases of specific urea production capacity near existing geothermal power capacity, or of a pipeline to the greenhouses in Antalya.


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aNNexa–NoN-coNdeNsablegasiNKizilderewells

Figure 23 - CO2 in gas phase (Volume %) KD-6.

Figure 24 – CO2 in gas phase (Volume %) KD-14








Figure 29 - CO2 in gas phase (Volume %) KD-21

Figure 30 – CO2 in gas phase (Volume %) R-1


Figure 31 – CO2 in gas phase (Volume %) R-1

Figure 32 - Regression analysis of CO2 in gas phase (Volume %) KD-6







Figure 36 - Gürmat Germencik Power Plant CO2 (Weight %)


aNNexb–Keyco2eNd-usetechNologies


Table 31 – Summary of main CO2 technologies reviewed (European Commission, 2013)


aNNexc–criteriaforfiNaNcialviabilityofco2eNd-usesFinancial viability assessment techniqueFinancial viability assessment will be used to decide whether a CO2 end-use project is financially viable and should go ahead or to prioritise projects when limited resources are available. While various techniques are applicable for assessing financial viability and comparing proposed investments, the most common technique used is Net Present Value (NPV), which is followed by Internal Rate of Return (IRR). According to the survey conducted among 205 Fortune 1000 Chief Financial Officers in 2002, NPV is found to be the most preferred tool and IRR comes right after, as illustrated in Figure 37 - Survey highlights.

NPV analysis measures how much the cash flows from a project is worth at a point in time (the present value) while IRR is the rate of return that makes the NPV of all cash flows from a particular investment equal to zero, with the formulas below:

If the analysis is to determine whether a CO2 end-use project is financially viable or not, then a zero/positive NPV or an IRR above the chosen hurdle rate will demonstrate it is financially viable. A negative NPV or an IRR below the hurdle rate demonstrates that the project is not financially viable.

Figure 37 - Survey highlights (Ryan & Ryan, 2002)


Table 32 - NPV and IRR requirements for financial viability

If the analysis is to prioritise CO2 end-use projects when limited resources are available, the project that generates the highest aggregate NPV or has the highest IRR for the resources available should be chosen.In this study, IRR is considered as the main financial viability assessment technique to be used for proposed CO2 end-use projects.

ApproachAs mentioned in the “Financial Viability Assessment Technique” section, several investment alternatives can be applicable for a CO2 end-user.

For example, an investor planning to make a greenfield investment in urea production has the alternatives below:

• Investment alternative 1: A facility without CO2 application, utilises CO2 procured from a supplier for urea production and for urea yield boosting if applicable

• Investment alternative 2: A facility with CO2 application, utilises captured CO2 for urea production and apply urea yield boosting through the CO2 procured from a supplier

• Investment alternative 3: A facility with CO2 application, utilises captured CO2 for urea production but does not apply urea yield boosting

To choose one of the alternatives, investor should prioritise projects according to their IRRs. For each alternative, initial CAPEX requirement (CF0); CAPEX, operational expenditures (OPEX) and revenues composing cash flows extending to years (CFt), economic life of the investment (N) and even the hurdle rate shall differentiate, as the IRR. For instance, initial CAPEX requirement of CO2 technologies that differentiates through alternatives are given below:

• Investment alternative 1: CO2 utilising equipment investment + CO2 storage investment + Procurement costs for CO2 inventory (as initial and extending CAPEX)

• Investment alternative 2: CO2 utilising equipment investment + CO2 investment + CO2 storage investment + Procurement costs for CO2 inventory (as initial and extending CAPEX)

• Investment alternative 3: CO2 utilising equipment investment + CO2 investment + CO2 storage investment

In this case, investor should choose the investment alternative that has the highest IRR among the viable alternatives.

When it comes to finance a CO2 end-use project, investment alternatives should be shaped depending on the end-user’s actual CO2 utilisation (Table 33) and its dependence on CO2 technologies. So, dividing end-users into the profile groups regarding actual CO2 utilisation is crucial to determine CAPEX, OPEX, revenue and other components while determining and analysing investment alternatives.

Regarding actual CO2 utilisation, end-users who can invest in CO2 technologies (CO2 procurement, CO2 utilising equipment or CO2 storage) can be divided into four profiles (see Table 33). The focus for this study is on profiles 1 and 4: end-users that are procuring CO2 from external suppliers and end-users that are currently operating without CO2 supply. End-users that capture CO2 on-site (profiles 2 and 3) are considered out-of-scope, as it is assumed that they will not be interested in procuring CO2 from geothermal sources. On-site utilisation of CO2 in geothermal plants (e.g. enhanced geothermal systems with CO2) falls technically under profile 2 was considered in this project as well. study.


Table 33 - End-user profiles regarding CO2 utilisation

Table 34 - Profile transitions and requirements

Transitions between profiles require investments or divestments. For example, transition from profile 4 to profile 1 requires investment of CO2 utilising equipment, CO2 storage and CO2 inventory while transition from profile 1 to profile 4 requires divestment of these invested assets.

All of the profile transitions and their requirements (investment / divestment) are listed in Table 34.After profiles 2 and 3 are eliminated due to the scope, there are two ways of transitions left: Transition from profile 1 to profile 4 requiring divestment; and vice versa requiring investment. Regarding our aim of identifying a preliminary pipeline of 3 – 5 suitable projects in Turkey, the study should be performed within the scope of project financing so divestments will be considered as out of scope. This study is based on the transition from profile 4 to profile 1.

In a nutshell, criteria for financial viability of investments made by end-users operating without CO2 supply (profile 4) to become an end-user operating with CO2 supply and procuring it from a supplier (profile 1) is determined within the study. Greenfield investments made with the same purpose are also covered.Regarding the financial viability assessment technique selected, criteria to assess financial viability of investments should include the items indicated below:

• CAPEX required for CO2 utilisation, to be used as CF0• OPEX required for CO2 utilisation and revenues from the product that CO2 is utilised for, to calculate CFt since net profits

extending to years will be used as CFt• An alternative rate of return, to be used as hurdle rate• Economic life of the invested asset for CO2 utilisation, to be used as N

These items are determined for the majority of CO2 end-uses to calculate IRR when needed, within the study. In Table 35, CAPEX, OPEX and revenue components related to profile transition “4 to 1” are summarised.


Table 35 - CAPEX, OPEX and revenue components

Based upon gathered typical costs for selected components, financial viability of suggested projects are assessed while constituting a preliminary pipeline for top 3 applications selected according to the due diligence criteria.

Typical costs to assess financial viabilityCO2 utilisation ratios, typical CAPEX and OPEX values related to CO2 utilising categories are being determined and listed in Table 36. Typical costs for CO2 transportation and storage are provided in section 3.3.


Tablo 36 – Tipik CAPEX - OPEX değerleri ve ortalama CO2 kullanım oranları.Bir dizi uygulama için, teknolojinin olgunlaşmamasından dolayı hiç değer sağlanamadı.

Sources[1] European Commission (2013)[2] Parsons Brinckerhoff/GCCSI (2011)[3] Blom, et al. (2012)[4] Sahin, et al., 2010)[5] Sectoral Regulations[6] Mauney & Hendrix (1987)

[7] (Rahimi, et al. (2013)[8] İGSAŞ (2014)[9] TMO (2015)[10] ESPA & ARI (2014)[Not numerated] Interviews


D.1 CO2 Value Chain Mapping


D.2 CO2 Value Chain – Major Players


D.3 CO2 Value Chain - Relation Matrix

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