A surge in carbon capture and storage projects brings promise, mergers and challenges
Energize Weekly, August 16, 2023
Initiatives in the carbon capture market are surging with new projects, acquisitions, and a swell in government funding, but the sector could face challenges in permitting, capital costs and adequate subsidies, according to industry consultant Rystad Energy.
The push to capture carbon dioxide, the prime climate-changing greenhouse gas, for underground storage (CCUS – carbon capture, utilization, and storage) is being led by major oil and gas producers, who are seeking to use the gas for enhanced oil recovery (EOR).
Occidental Petroleum has the largest capacity under development, an estimated 80 million tons a year of storage, followed by ExxonMobil and Shell, according to BTU Analytics. ExxonMobil boosted capacity in July with an all-stock purchase of Denbury Resources in a deal valued at $4.9 billion.
“Exxon’s investor materials made clear that a goal of this acquisition would be to consolidate CCUS projects, primarily along the Gulf Coast,” BTU Analytics said. “Denbury has long made CO2 [carbon dioxide] a central part of its business, operating a network of CO2 pipelines and EOR fields in the U.S.”
Harbour Energy, which is developing offshore sequestration in the North Sea, is also in merger talks with smaller Talos Energy, which is developing sequestration in the Gulf of Mexico, BTU Analytics said.
The passage of the Inflation Reduction Act in 2023 was a major spur as it provides tax credits of up to $60 a ton for carbon dioxide captured and used for EOR reinjection into oil fields to boost production.
The act also provided so-called 45Q tax credits of an extra $25 to $50 a ton for other types of carbon capture projects such as hydrogen production, bioethanol, gas processing, and direct air capture.
In the last few months, nine new projects have been announced, including an ethanol plant in Kansas and biogas plant in Louisiana, according to BTU Analytics.
There has also been a dramatic rise in direct air capture projects, Rystad Energy said, driven by a tax credit of $130 to $180 a ton for this technology, which draws carbon dioxide out of the air.
The wave of projects is posing several challenges, Rystad Energy said. Applications for the Class IV wells, needed to inject the CO2 into the ground, has risen to 98.
Most of these are waiting for approval from the federal Environmental Protection Agency, only Wyoming and North Dakota have been delegated power to approve permits. This could create a bottleneck for CCUS deployment, Rystad Energy said.
“There are 26 U.S. project facing development barrier resulting in delays,” Rystad Energy said.
Gaps in CO2 infrastructure, such as pipelines, and securing adequate underground formations in which to store the gas, are added challenges, as are rising project costs, with total capital costs rising 3 to 4 percent between 2020 and 2023.
If developers are successful, that could pose its own problems, depleting the 45Q tax credits, which have a 12-year duration for projects begun before Jan. 1, 2033.
If all eligible projects proceed with their planned injection capacities, totaling more than 171 million tons a year, the cost estimate of $3.2 billion over 10 years will be drawn down quickly, considering the levels of planned enhanced oil recovery.
“Based on our research the estimated budget allocation for 45Q tax credits may prove insufficient based on the current projects in the pipeline,” Rystad Energy said.
To learn more about CCUS projects, check out EUCI’s CCUS Projects & Environmental Law course coming up December 12-13.
