Carbon capture and storage—the technology that traps carbon dioxide from industrial processes and permanently sequesters it in rock formations underground—has become a much-hyped answer to the world’s need to quickly reign in greenhouse gas emissions and curb global warming.
Whether that technology can truly scale up remains to be seen, but many companies—lured by the huge market potential and lucrative government subsidies—are plowing ahead anyway.
One of the latest examples: Industrial-gas giant
(ticker: LIN) recently announced a long-term deal with
(XOM), which will transport and permanently sequester the huge amounts of carbon dioxide captured at
‘s new hydrogen facility in Beaumont, Texas. The 2.2 million tonnes of removed CO2 a year would be equivalent to the emissions from nearly half a million cars, the company said.
In theory, carbon capture could significantly reduce emissions from fossil fuel power plants and heavy-emitting industries like steel, cement and chemicals. The United Nations’ Intergovernmental Panel on Climate Change, or IPCC, made clear in its latest reports that carbon removal is needed if the world wants to hit its temperature targets by 2050.
For years, carbon capture projects have struggled to take off due to the vast investment needed upfront and high operational costs. With last year’s Inflation Reduction Act (IRA) unleashing billions of dollars in tax incentives, however, investments are set to pick up in the coming years.
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The potential market is huge: According to the International Energy Agency, 85% of stationary emissions in the U.S. come from plants located within 100 kilometers (62 miles) of a potential geological storage site––and the estimated storage capacity is about 160 years of the nation’s current energy sector emissions.
Fossil-fuel giants and industrial leaders are quickly moving into the space, while the rising demand for transport and storage facilities could spur a wave of infrastructure construction in certain regions. The industry is set to create new winners, while helping some of the largest carbon emitters survive—or even profit from—the world’s transition toward net zero.
The Cost Problem
Carbon capture isn’t new. For years, the oil-and-gas industry has been using the CO2 captured from other industrial plants to enhance their production, while others sold the captured gas to industries that need it as feedstock, such as chemicals and food companies like
(KO).
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The adoption has remained limited, however, as the technology wasn’t economically viable if the additional income can’t cover the expensive costs and upfront investment. Petra Nova—once the largest U.S. project to capture CO2 from a coal-fired power plant—closed down in 2020 after the pandemic reduced demand for fuel and led to a collapse in oil prices.
More than a decade ago, the U.S. government introduced tax incentives that offered businesses up to $50 for each tonne of CO2 permanently stored underground, or $35 if used for enhanced oil recovery. But that subsidy wasn’t enough.
Industries that need to cut their emissions the most tend to emit more diluted CO2 streams, making it more expensive to capture. The general cost for cement plants, for example, ranges from $60 to $120 per tonne, well beyond the $50 tax credit offered by the government.
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As of September 2022, there were only 30 operational commercial carbon-capture-and-storage projects worldwide, according to the Global CCS Institute. Collectively, these facilities can capture about 43 million tonnes of CO2 a year, or 0.1% of the world’s total emissions. Among the 13 projects in the U.S., all but two are used for enhanced oil recovery.
Tilting Scales
The Inflation Reduction Act could change the market dynamic. The bill introduced significant modifications to the existing tax credit—boosting the payouts to $85 for each tonne of CO2 sequestered underground and $60 for those used to enhance oil recovery. For many projects, the economics of carbon capture and storage finally makes sense.
A key aspect of the policy is that the gap between the two numbers has widened from $15 to $25, says Julio Friedmann, chief scientist at carbon management firm Carbon Direct. “Up until August of last year, you’d get more money using the CO2 for enhanced oil recovery plus the tax credit,” he says. “That math has reversed, it is now more lucrative to just store CO2 in saline aquifers.”
Since the IRA was passed last August, there were already dozens of carbon capture projects announced in the U.S.––including both new facilities and retrofits––and the majority aren’t related to enhanced oil recovery, says Friedmann. Collectively, they are expected to reduce CO2 emissions from energy and industrial sectors by 20 million tonnes a year, he estimates.
The Inflation Reduction Act would increase the use of carbon capture 13-fold by 2030, according to the REPEAT Project led by Princeton University’s ZERO Lab. If sufficient investment in transport networks and storage basins can be deployed, the total volume of CO2 captured could reach 200 million tons a year by the end of the decade, according to the report.
The Green Rush
Thanks to their decades of experience in the field and massive capital available to deploy, fossil-fuel companies are some of the largest players in the carbon capture business. Many energy giants––including
Chevron
,
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Shell
,
––have created low-carbon business ventures in recent years, and carbon capture is a key part of their ambitions.
“The fossil fuel industry will be a driving force in carbon capture, because they want to remain viable and competitive,” says Bob Smith, co-chief investment officer of sustainability-focused Sage Advisory Services. Many of these companies are hoping that revenue from low-carbon businesses could one day exceed oil-and-gas sales, and produce even steadier profits.
(OXY), a major player in the space, currently has 14 CO2 recovery plants, 2,500 miles of CO2 pipelines––about half the U.S. total––and thousands of CO2 injection wells in the Permian Basin used for enhanced oil recovery.
The company plans to build five carbon sequestration hubs in Texas and Louisiana and is working to further develop its pipeline network to gather CO2 from industrial emitters in the region. The firm said it’s already secured agreements with access to over 265,000 acres of land space.
Occidental is also building a plant to directly remove CO2 from the air, which can be later sold as carbon credits to companies that need to reduce emissions on paper. It’s already announced a number of deals with firms like
(AIR.France),
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(SHOP), and
(TMO). The use of captured CO2 will be driven by customer preference, the firm told Barron’s.
Midsize oil producer
(DEN) is another leader. The company has over 1,300 miles of CO2 pipelines network, about a quarter of the U.S. total. It’s also seeking to secure seven underground storage sites, mostly along the Gulf Coast. It was reported last year that Exxon Mobil was considering a takeover of the firm.
By the end of 2022,
has already announced several large contracts to transport and stow 20 million tonnes of CO2 a year. The firm expects the number to hit 50 to 70 million tonnes a year by 2030, and a revenue of $15 to $25 per tonne of CO2 transported and stored.
Industrial-gas companies are another active group in the space as they pursue the so-called “blue hydrogen” by sequestering the CO2 generated during the manufacturing process. The hydrogen can be then combined with nitrogen to produce ammonia, an important industrial gas used in fertilizers and the production of plastics.
(APD) is investing $4.5 billion to build the world’s largest blue hydrogen production facility in Louisiana, as well as a multibillion-dollar net-zero hydrogen energy complex in Edmonton, Canada. The chemicals giant is already capturing CO2 from its two steam methane reformers in Port Arthur, Texas for enhanced oil recovery.
Linde is also investing $1.8 billion to build a blue-hydrogen plant in Texas, and then sell the product to OCI Global’s new ammonia plant. The company will capture the emitted CO2 itself, but has contracted with Exxon to transport and store the trapped gas underground.
The IRA incentives have made the cost of producing blue hydrogen largely at par with the traditional “grey” hydrogen that doesn’t sequester CO2 emissions, says Juan Pelaez, vice president of investor relations at Linde.
Blue ammonia is another area rife with opportunities, thanks to the relatively high concentration of CO2 produced at ammonia plants and thus low cost of capturing….
Read More:Carbon Capture Is Set to Take Off. These Companies Are Ahead of the Game.
2023-04-25 01:16:45