Carbon Capture & Storage – Variations on a Theme
By: Aidan Joy, Director and Energy Transition Lead
Carbon Capture and Storage (CCS) as a process is both well understood and physically feasible. In the current context it is being discussed as a means to reduce atmospheric greenhouse gas concentration. This article focusses on the key technical aspects and business drivers of CCS: in short, what is CCS and what does it take to make it an economically worthwhile activity? In order to do that we will draw some comparisons between NW Europe and the USA.
Carnrite, from its offices in Houston, London and the UAE, advises companies in all segments of the energy value chain and in other industrial sectors on key issues such as strategy, business transformation, cash flow optimization, human capital, digital transformation, and the Energy Transition.
The CO2 Storage Imperative
CCS stands for Carbon (meaning more correctly, carbon dioxide or CO2) Capture and Storage. As this new industry evolves, a number of different types of CCS have started to emerge, and as a consequence the terminology has proliferated. In this short Opinion Piece “CCS” will be used as a catch-all term; and in addition this piece refers only to subterranean storage, which is volumetrically by far the most important type of CCS. “CCUS” refers to CO2 Capture, Utilization and Storage … that’s a smaller, more specialised field to be addressed in a future Opinion Piece.
At the 2015 Conference of the Parties (COP) to the UNFCCC (United Nations Framework Convention on Climate Change) in Paris in 2015, the great majority of the world’s nations pledged to reduce their emissions of greenhouse gases or GHGs, principally CO2, on the basis that this will prevent the rise in global temperatures which is predicted to accompany the unreduced trajectory of GHGs. In order to meet these nations’ “nationally determined objectives”, such as the UK Government’s Net Zero 2050 goal, CCS is needed. This is because developed nations such as the UK will continue to emit CO2 from so-called “hard to abate” sectors such as agriculture, aviation, cement and steelmaking.
The scale of the CCS required is huge. The IEA estimates that globally over 5,200 million tonnes of CO2 will need to be injected each year by 2050. In order for the UK alone to meet its Net Zero 2050 target it will need to inject over 100 million tonnes of CO2 annually by that date.
North Sea CO2 Storage Projects
Fortunately in this context, the UK is one of a number of developed nations which contain many ideal sites for CCS. These are the oil and gas fields of the North Sea. Industrial centres in coastal locations are linked by pipelines to offshore platforms from which wells have been drilled into porous and permeable reservoirs with trapping geometries proven to have contained buoyant fluids over geological time periods. These reservoirs are located at depths at which the pressures are such that very large quantities of CO2 can be stored, and in remote locations where an inadvertent loss of containment would not release CO2 into populated areas. Timing is also very good, with many of these fields at or near the ends of their economic oil and gas producing lives. (There is also the possibility of injecting CO2 into regional aquifers, which are both shallower and volumetrically much larger than those depleted fields … there are pros and cons to each of these options which we don’t have space to discuss here but which we intend to address in a future Opinion Piece.)
To be specific, plans are well advanced to transport CO2 from a number of industrial centres to UK depleted offshore oil and gas reservoirs for CCS (e.g. Acorn in NE Scotland, Hynet in NW England, Net Zero Teesside and Humber Zero in NE England). A number of other projects are being progressed in countries with acreage in the North Sea and adjacent marine areas … and Norway is further advanced still, with two offshore fields currently receiving deliveries of CO2 for storage: Snøhvit, in operation as a CO2 repository since 2008, and Sleipner Øst, the longest running offshore CCS project in the world, which commenced injecting CO2 in 1996. The UK alone is believed to have something over 6 gigatonnes of CO2 storage capacity in depleted fields (not aquifers), potentially representing the ability to store well over 50 years’ worth of CO2 injected at the rate of 115 MtCO2pa (see below).
As for funding, the UK projects mentioned above rely on a mixture of discretionary oil and gas company capex supplemented by some government R&D money. As a consequence, this is a big company activity – majors BP, Shell, ENI, Total and Equinor are all involved, but none of the smaller E&P companies. In due course these projects will rely for funding on industrial emitters paying tariffs, but a substantial CO2 price – which is not yet in place – will be required to commercialise the CCS industry in the nations around the North Sea.
So what are the sequestration rates involved? In short: far too low to meet demand. Admittedly the industry is young and funding models are at a very early stage, but all of the planned storage projects in the UK, Netherlands, Norway and Ireland sectors added together – only two of which have passed FID – are projected to sequester a maximum of just over 20 Mtpa of CO2 when they are all fully operational, of which the UK projects represent about half. The storage requirement of the UK alone by 2050 – about 115 MtCO2pa – far exceeds this figure. To reiterate, a substantially higher CO2 price will be required, maybe in the region of $200 per tonne.
But Wait … is this a new idea?
In a sense, no. Oil producers have been injecting CO2 into low-permeability reservoirs in the Permian Basin in Texas and New Mexico since the 1970s, well before the theory of Anthropogenic Global Warming (AGW) attained its current level of popularity. Injected CO2 mixes with oil in those reservoirs, making the oil more mobile and increasing recovery factors; this is referred to as Enhanced Oil Recovery or EOR. Now this is not CCS intended to reduce AGW … the CO2 source is not atmospheric but a naturally occurring gasfield located in Wyoming / Utah, and the CO2 is transported by pipeline to the Permian Basin. But the CO2 remains in the reservoirs into which it is injected, so though there is no reduction in atmospheric CO2 there is no significant gain either. And there are no government grants or fiscal incentives supporting this activity … given favourable prices the increased oil production pays for the supply of the CO2, so incentives aren’t needed.
The situation in the USA crystallises the key differences between CCS and EOR. Whereas the technology is very similar the business model is totally different. EOR is a value-adding activity and those that undertake it do so on a commercial basis funded by increased oil sales. CCS on the other hand requires incentives in the form of government subsidies, a carbon tax or a carbon pricing scheme to make it an activity capable of attracting proponents and investors. Of course it stands to reason that these mechanisms will ultimately increase costs for consumers.
Since 2018, however, the 45Q expanded tax credit has applied in the USA, under which companies that capture CO2 earn $50 per tonne if the CO2 is stored permanently (CCS) or $35 if the CO2 is put to use (e.g. for EOR). It is reported that this sum is to be increased and to be converted from a tax credit to a payment. On this basis one might conclude, though governmental pressures on the UK and European nations to decarbonise are stronger than in the USA, that in respect of technology, infrastructure and fiscal incentives the USA is already well ahead of Europe.
Technology will improve, costs will come down, more reservoirs will become available. But broadly CCS, unlike EOR, is a non-value adding activity to the companies that carry it out, and fiscal terms must therefore be put in place in order that it should provide them with an adequate rate of return. In the absence of these terms, the market will continue to put a price on carbon – companies are willing to pay to purchase “offsets” to their emissions – but it will not be high enough to generate compelling returns. The onus is firmly on governments. And like all activities intended to reduce AGW it must be coordinated globally … there’s only one atmosphere, and CCS spend in one country can be counteracted by emissions in another.
Carbon Capture and Storage is in many ways very similar to EOR, and thanks to EOR it has a long technical history on which to build. The value proposition is very different, however, and incentivizing CCS on the scale upon which it will be needed is in effect a journey into uncharted waters. In all of these respects the USA and the nations bordering the North Sea Basin, despite their very different starting points, have a great deal to share and to learn from one another.
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Carnrite has been advising energy industry participants worldwide on key strategic, operational, and organizational issues since 1991. We follow Energy Transition issues and developments closely from our London and Houston offices in order to support our energy industry clients with relevant, up-to-date, actionable advice.
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About the Author
Aidan Joy joined The Carnrite Group’s UK business in September 2020 after over 30 years of experience in the international oil industry. He worked as a geologist during the growth years of the North Sea, mainly in the UK sector, progressing to the role of Subsurface Manager for Kerr-McGee, at the time a very active E&P company. In 2000 he moved onto the strategy, commercial and finance side of the business, and between 2004 and 2019 he was based first in Perth, Australia, then in Calgary, Canada.
During this time, Aidan worked for several operating oil and gas companies on a very wide variety of upstream and midstream ventures and deals. In addition, he represented Apache on the Board of Directors of APPEA, the Australian Petroleum Production & Exploration Association.
Since 2016 Aidan has worked as a business consultant for the international energy industry in the USA, Canada, and the UK. In recent years he has increasingly specialized in projects related to organizational structure and the Energy Transition. He currently serves as Vice President of the Petroleum Exploration Society of Great Britain (PESGB) and as co-Chair of the PESGB’s “Exploring the Energy Transition” Special Interest Group.
Aidan graduated from Imperial College, London with a B.Sc. In Geology. He lives in SE England with his wife and three sons.