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CERAWeek 2022: Carbon hubs emerging as cost-effective strategy

08 March 2022 Kevin Adler

In the 50 or so years that the oil and gas industry has been using carbon capture and storage (CCS) technology, approximately two dozen large-scale CCS operations have opened. As the industry likes to say, carbon capture is a proven technology.

But for CCS to be scaled up to make a serious dent in global climate emissions, the industry must grow by orders of magnitude from where it stands today. At CERAWeek 2022, industry leaders said that carbon hubs could be a key part of that answer by providing reliable access to carbon capture services for a wide range of emitters at affordable cost.

The world could need as much as 8 gigatons/year of carbon storage by 2050 to meet a net-zero target, said Nick Cooper, CEO of Storegga, which is developing the Acorn CO2 storage hub in the UK. "We need to be building 2,000 hubs-plus," he said, likening the challenge to the Industrial Revolution.

The first true carbon hub only opened in 2020, the Alberta Trunk Line CCS system in Canada, but S&P Global Commodity Insights predicts that, by 2030, 22% of large CCS projects will be multi-user hubs, according to Carolyn Seto, S&P Global director, upstream technology & innovation, who led discussion panels on 7 and 8 March. "For this to succeed, at the end of the day, we have to make a business out of this," Seto said.

For oil and gas companies, a profitable business means not only sequestering their carbon from upstream production or refining, but making the service available to industrial emitters, said Christine Healy, TotalEnergies senior vice president for carbon neutrality and continental Europe.

"I'm not embracing the idea of Big Carbon," she said, to laughter from the audience. "But Big Storage could be exciting."

Like a midstream business

Wolf Midstream helped to develop Alberta Trunk Line, and CEO Gordon Salahor told CERAWeek 2022 attendees that he thinks of the storage facility like other midstream businesses in oil and gas. Just like a pipeline, the CCS facility is delivering a service that must be reliable and affordable, he said.

One thing that Wolf Midstream has noticed is that, with the trunk line operating, businesses that have high carbon emissions are considering locating new operations where they will have access to the storage facilities. In other words, the Alberta Trunk Line is starting to create a CCS ecosystem. "They know they have a solution," he said.

In the US as well as Canada, ethanol facilities are among the front-runners for hub services, with three such hubs proposed in the US Midwest in the last year. An ethanol plant's CO2 output is nearly 100% pure, thus making the capture more efficient than from other streams, said Salahor. At a price of $50/ton for carbon sequestered in the US, as dictated by the IRS Code 45Q, ethanol carbon capture is one relatively sure bet today for a market covering the cost of capture, compression, transportation, and storage, he said.

In thinking about CCS as a business, several panelists said that the cost of carbon must be increased in order to attract developers and investors.

Healy said that TotalEnergies, which is one of the partners in the Northern Lights CCS project in Europe, having opened in 2017, has found "very few projects can be done at $40 to 50 per ton, but when we get to $100 per ton then hubs really make sense."

With advances in technology, however, she said that the cost curve "could look very different in five years."

Managing costs

ExxonMobil Vice President Ventures, Low Carbon Solutions Ed Graham agreed that industry's investment in improving the technology will drive down costs. "We are evaluating all the pieces of the value chain … and we believe we have expertise [from oil and gas] that we can transfer to capture and storage," he said.

But Salahor pointed out that there are limits to cost reduction. In particular, he said compression of CO2 to a liquid form for transportation and storage costs $20/mt, and Salahor predicted that it can't be reduced more than marginally.

Choosing the right location also is critical for managing costs, panelists said. This starts by finding locations that can store large volumes of carbon, either in depleted oil fields or in aquifers. ExxonMobil is looking at sites that can handle 5-10 million mt/year, for example.

ExxonMobil is the lead developer of a proposed $100 billion Houston hub that now has a total of 14 partners. "It's a large investment, and we have all the technologies in place," Graham said.

Now, the company is looking for supportive government policy, such as a higher 45Q credit or a tax on carbon. But it also needs certainty over issues such as how injections of carbon will be managed and where liability will lie after injections are made, he said.

Wolf's Salahor said that the company is pursuing smaller projects as a way to keep the initial cost of a project in the range of $300-500 million. "Then, hopefully, we can build it out" to capture millions of tons per year, he said.

Ideally, CCS sites should be near large emitters of carbon, thus keeping the transportation costs down. And then, if the site is in a country or locality that is supportive of CCS, the project has a much smoother path to success, the panelists said.

Government and stakeholder backing is critical, agreed Chevron New Energies Vice President, CCUS, Chris Powers, and he placed it on an equal footing with innovation within the industry and partnerships among emitters and CCS developers.

Australia's experience

Australia's government has been leading the way in providing certainty and support, said Jane Norman, chief of staff and vice president of strategy for Australian oil and gas producer Santos, Ltd. The company has been investigating CCS sites in the central part of the country since 2006 and, with new regulations that last year added CCS carbon to the nation's credit program, she said financial incentives are finally in place.

Santos anticipates building a site with 1.7 million mt/year of storage capacity, but it could be expanded to 20 million mt/year, she said. And that's one of three hubs the company is considering in the country. "Each uses existing infrastructure, such as reservoirs and pipelines," she said, though the company has not yet received permits to operate.

The higher level of sequestration would represent a business opportunity for Santos and Australia as a whole to import CO2 from other Asian nations and store it for a fee—an idea that Norman said has brought inquiries from Japanese and South Korean industrial firms.

On 28 February, Santos signed a memorandum of understanding to potentially develop CCS projects in Australia and the island nation of Timor-Leste with SK E&S, K-CCUS Association, CO2CRC, and Korea Trade Insurance Corporation.

Each project is unique

Just like for oil exploration, each underground storage area and each emitter's profile is unique, the panelists said. They agreed with S&P Global moderator Seto that they need to adopt a "service model" to accommodate the different needs of partners.

"Every customer has a different timeline," said Salahor, based on how much carbon it needs to sequester and the pressure it's facing from government, investors, and other stakeholders.

And every jurisdiction has different rules as well, said Chevron's Powers, who added that the company's project in California would benefit from additional revenues through the California Low Sulfur Fuel Program that goes beyond the US 45Q tax credit.

In the US Gulf where ExxonMobil hopes to operate a CCS hub, Graham said he's seen a range of ideas emerge on how to meet market needs. "Some companies want to provide storage only, and others transportation only, while others are engaged across the entire value chain," he said. "What's exciting on the Gulf Coast is that you can see all the pieces of the value chain forming."

The same is happening in the UK at several sites, said Cooper. He said the three most advanced UK projects have 46 "prequalified" emitters that are now being evaluated by the government for inclusion in the projects, adding that "three times as many are interested parties."

Taking the next step will require working with those partners and also sharing best practices and knowledge across the industry, added Powers. "It's about building a thoughtful strategy," he said.

Posted 08 March 2022 by Kevin Adler, Chief Editor

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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