LONDON – Carbon capture and storage (CCS) is becoming increasingly viable for the upstream sector, according to Wood Mackenzie, with most of the industry’s largest companies planning to use sequestration to help reach their decarbonization targets.
However, Angus Rodger, from the Asia Pacific upstream research team, cautioned: “We believe the regulatory, commercial, and technical hurdles still to be overcome are significantly underestimated.
“Discussions with both existing and aspirational CCS operators convey a clear message: hitting targets will be very challenging.”
In 2019, the world emitted around 33 gigatonnes (Gt) of CO2, he pointed out, while current CCS projects are capturing just 40 MM metric tons (44.1 MM tons) of CO2 annually. “If we are to hit global decarbonization goals, this will have to rise to at least 7,000 metric tons/yr by 2050.”
At the same time, the number of planned carbon sequestration projects has risen steeply from around 50 in 2019 to almost 300 today, providing a major growth opportunity for the upstream sector drawing on existing skills and infrastructure.
Three of the largest offshore gas projects approved so far in 2021 – Barossa (Australia), North Field East (Qatar) and Ghasha (UAE) – all have a high CO2 content, and have associated CCS or carbon capture, utilization and storage (CCUS) plans to capture/offset it.
One barrier to CCS uptake is a lack of relevant legislation and regulation. “We believe companies and investors continue to underestimate the regulatory, commercial, and technical hurdles they have yet to overcome,” Rodger said.
“Current and aspiring CCS operators know that hitting targets will be very challenging. Many admit in private that they are at the start of a steep learning curve and lack certainty as to their ability to execute in the absence of relevant legislation.
“Even so, establishing a footprint is strategically important, especially as companies hope to turn CCS into a future source of cash flow.”
For some companies, he pointed out, this development represents an environmental, social and governance (ESG) issue, while for others, it is a business opportunity hat still requires a commercial, cash flow-driven model.
“Decarbonizing upstream is crucial as ESG risks expand. CCS can prolong asset lives, maintain investability and help capture price premia. Carbon pricing will expedite these factors.”
However, one of the major challenges slowing CCS uptake is a lack of relevant legislation and regulation concerning sequestration, licensing, carbon accreditation, incentives and ultimate liability for leakage risk.
This is putting the brakes on operators keen to implement CCS in countries such as Indonesia, Russia, and Australia, Rodger said.
“The lack of a clear economic incentive for CCS means that virtually all projects in operation today have required significant levels of government support. Public funding is helpful and necessary – as it was in the early days of wind and solar – but for CCS to scale up beyond demonstration projects, it must be driven by commercial imperatives,” he added.