By: Tariq Siddiqui
Premise
Time to invest in CCS is now. Carbon capture and its underground storage will play a critical role in the portfolio of energy companies to meet the climate goals to reach net-zero by 2050. According to Mckinsey, CCS must remove about ~5.0 GtCO2 per annum (ref1) from hard-to-abate industries by 2050 (currently only 40 mtpa from 30 operational projects). This requires massive scale up of investment in CCUS projects to a hub level. Here we present a high level overview of ten technology trends, challenges and investment vectors in Co2 storage, based on recent IEA data (table):
Reference (IEA)
Past Decisions & Future Trends
Newer CCS projects are moving to offshore storage.
Why: This reduces surface/subsurface pore space rights issues, many onshore stakeholders and perceived onshore storage risk from communities.
More developing projects are focusing on Saline Aquifer (SA) storage, moving away from CO2-EOR
Why: The emissions targeted by CCS by 2050, requires significant scale up; way beyond what CO2-EOR storage can offer.
Also saline aquifer are more pervasive then EOR oil fields reducing the transportation costs.
New CCS developments are also piloting and testing Depleted Oil & Gas (DOG) fields CO2 storage (No operational project yet)
Why: Storage operators have abundant DOG fields in their portfolios. This reduces surface/pore space rights issues.
Depleted oil & Gas fields have proven robust storage of hydrocarbon over millions of years, hence low risk of CO2 leakage.
Most Investments in CO2-EOR & Saline Aquifer storage projects will be in low cost capture industries.
Why: Natural Gas Processing (NGP), Ammonia/Hydrogen production, Ethanol and petrochemical industries have higher CO2 concentration in the process stream, making capture easier, reducing the energy needed and hence low CAPEX and OPEX
These projects benefit from robust and reliable revenue streams, and in US with 45Q credit incentives ($50 for injecting in saline aquifer and $35 in EOR)
Approximately USD 90 billion is expected to be invested In CCS in this decade (till 2030); USD 70 billion alone in these four low cost capture CCS industries (ref2).
Current project pipeline of CCS projects is nearing 1.0 billion tonnes per annum (Wood Mackenzie).
Fewer projects under development are piloting/testing in CO2 storage
Why: CO2-EOR and Saline Aquifer Storage have become a mature technology. Storage in DOG fields, is currently in field trial stage and will soon become a mature technology.
Most technology challenges still lie in the CO2 Capture technologies
Why: Main technology challenges still remain in CO2 Capture, upstream in the CCS value chain; especially in the hard-to-abate industries and power-generation, where CO2 concentrations are low (< 15 %) making capture costs very high and uneconomical (present 45Q incentives cannot offset the cost in US)
Moving towards Hub class development rather than stand alone CCS projects.
Why: The future growth potential in CCUS comes from its ability to remove emissions from hard-to-abate industries (~5.0 GtCO2) by 2050. This is only possible with scaling-up CCS from project level to a regional hub level; agglomerating emitters, transporters and storage operators. This will reduce the capital & operating costs and spread the risks among many participants.
Stand alone CO2-EOR & Saline Aquifer storage are favored when commercially attractive, producing stable revenue streams. They are still the operators choice for the profitable investment.
Why: CO2-EOR and Saline Aquifer storage coupled with low cost capture industries provides steady revenue stream from incremental oil and 45Q incentive, offering the lowest risk and highest profitability.
Larger operators with greater vertical integration along CCS value chain and deep capital resources are the beneficiaries; they are barrier for smaller and less experienced operator.
Business model for the new projects will likely be ‘Operators’ model or ‘Transporters’ model.
Why: These business model facilitate the commercial hub development, once the CCS industry has reached maturity. They will isolate ‘Emitters’ in business of producing and capturing CO2 from the complexities in ‘Transportation’ and ‘Storage-Operations’. The ‘Vertical Integration’ & ‘Joint Venture (JV)’ business models will still be valid in the early market development phase in stand-alone projects.
Summary
USA with 45Q incentives remains the most attractive market for CCS investment, although recent policy framework and government support have created new markets in Europe and China.
Why: Established CO2-EOR technology in USA since 1970’s; US has excellent network of CO2 pipelines, numerous active and depleted oil fields. In addition, there are Federal 45Q incentives, statewide support for cap-n-trade, and lucrative Low Carbon Fuel Standards (LCFS) credits for CCS in California.
Investment Vectors
USA is the most attractive place for commercial CCUS investment as well as pilot and demonstration projects.
Europe & China are emerging as attractive places to pilot hard-to-abate industries with new technologies
Offshore storage offers attractive acquisition opportunities and advantage to first-movers in underground storage thru US offshore lease-sales
More investment in commercial CCS projects; CO2-EOR & Saline Aquifer storage projects in low cost capture industries (NGP, ethanol, ammonia/hydrogen and petrochemicals). Estimated potential investment ~ USD $70 billion
R&D Investments in testing & piloting key capture technologies in hard-to-abate industries with aim for future scale-up at hub-level
Reference
A blue print for Scaling Voluntary Carbon Markets to Meet the Climate Challenge -Mckinsey
The Business Case for Carbon Capture's Big Potential - BCG