Cop 28 could help nudge emerging CCS sector forward

  • Market: Emissions, Hydrogen, Natural gas, Oil products
  • 25/08/23

Oil producers are key proponents of the technology, but they will need to prove their goal is abatement and not ‘business as usual', write Madeleine Jenkins, Georgia Gratton and Nader Itayim

Carbon capture and storage (CCS) projects could draw more attention at the UN Cop 28 climate summit, set for November-December in Dubai, UAE. President-designate Sultan al-Jaber has called for a 30-fold scale-up of global CCS capacity, and Mideast Gulf oil producers have long supported the technology in theory. But the nascent sector requires clear policy before a global industry can be established, while costs and scaling hurdles put emissions reduction potential at risk.

Europe leads the pack in terms of CCS development for mitigation — efforts to reduce climate change. Norway is the region's frontrunner, with the first phase of its 80pc government-funded Northern Lights CO2 storage project set to start up next year, and commercial agreements in place with emitters. Denmark has awarded storage licences and successfully demonstrated CO2 injection and storage, while the UK has also set up a strong pipeline, although all of its planned clusters are yet to start up.

"It's no surprise that CCS is ending up in the places that are also hydrocarbon producers," professor of energy policy at University College London Jim Watson tells Argus. Norway, Denmark and the UK share a geological advantage in the North Sea, with access to vast potential storage in depleting oil and gas reservoirs.

Other oil and gas producers have pushed ahead with CCS. Key oil producer Saudi Arabia has long been one of the most outspoken proponents of CCS, pushing hard for its inclusion in summaries and communiques from past climate talks. The Mideast Gulf today accounts for just under 10pc of the world's total 44mn t/yr carbon capture capacity, across three large-scale facilities in Saudi Arabia, the UAE and Qatar — although the first two of those centre on enhanced oil recovery. The region has plans for more dedicated storage, including state-controlled Saudi Aramco's Jubail CCS hub, which could capture up to 9mn t/yr of CO2 from 2027.

The UAE is targeting a capture rate of 5mn t/yr by 2030, while Qatar has upped its ambition to 11mn t/yr by 2035. Saudi Arabia aims for an ambitious 44mn t/yr capture rate by 2035. But there is a sense that the region should be aiming higher. "The conditions in this region are the best in the world to carry out these kinds of projects, so long as the economic case is there," says Robin Mills, chief executive of UAE-based consultancy Qamar Energy. "They should be doing a lot more. They could do, and I hope they will."

Huge price tag

One hurdle to a global CCS scale-up is the price tag. The technology is "hugely capital intensive", with a pay-off of 15-20 years for investment, CCS senior policy adviser at climate think-tank E3G Domien Vangenechten tells Argus. US climate envoy John Kerry this week pointed out the financial risk, as CCS might not be competitive with "alternative renewable energy in the marketplace".

"Most investment is happening in the US," Ted Christie-Miller, director of carbon removal at carbon credit ratings agency BeZero Carbon, says. North America already has a bonus in the form of existing CO2 pipeline infrastructure, Watson notes. The US' sweeping 2022 Inflation Reduction Act also offers clear tax credits for CCS and direct air capture (DAC), rising to as much as $180/t of CO2 permanently stored from DAC technology. DAC costs range from $400/t to $2,000/t. Washington this month announced investment of up to $1.2bn for the development of two DAC hubs, with funding from the 2021 bipartisan infrastructure law, which offered $3.5bn to support four large-scale DAC projects. Funding for a further 19 projects was also pledged.

In Europe, the rising price of CO2 in the EU's emissions trading system (ETS) is starting to make CCS projects economically viable, developers have said. ETS prices are designed to increase the cost of emitting over time, aligned with the ‘polluter pays' principle.

"Ultimately, costs will have to be borne by polluters," Vangenechten says. "It's going to be very difficult to argue that the public taxpayer has to pay for companies cleaning up their pollution." But "first and foremost, those financial incentives need to come from regulation in the public sector", he says.

Some have turned to the voluntary carbon market for the capital required, including UK and Danish utilities Drax and Orsted — both of which have ambitious plans for bioenergy with CCS (Beccs). Under EU legislation, Beccs is a carbon-negative technology with biomass emissions classed as biogenic and not under the scope of the ETS. Christie-Miller points to the current high price of such credits, which will "reduce over time because of the innovation curve".

But finance is not the only barrier to the sector's development. CCS and DAC will require vast amounts of storage. The UN's Intergovernmental Panel on Climate Change (IPCC) — the overriding authority on climate science — estimates technical global storage capacity at 1 trillion t. This is "more than the CO2 storage requirements through 2100 to limit global warming to 1.5°C, although the regional availability of geological storage could be a limiting factor", the IPCC says.

Onshore storage, though possible, is unpopular. "No one wants to take that political risk and deal with the public push-back," and so projects are usually based in offshore locations, or depleted oil and gas fields, Vangenechten says.

Countries must currently jump through hoops to legally transport CO2 cross-border. The International Maritime Organisation's (IMO) London Protocol prohibits the cross-border import or export of CO2, although a 2009 amendment permits it for safe storage. But the amendment has not been ratified by sufficient signatories, so any country that wishes to store CO2 elsewhere must sign a bilateral agreement with the importing nation and make a declaration to the IMO.

Japan will have to export CO2 to hit its climate goals, setting itself a diplomatic challenge to secure storage sites. In southeast Asia, Malaysia has storage potential and is interested in developing a framework, but energy security remains the overwhelming concern in the region.

Policy obstacles

Developers agree that clarity on policy is key to jump-starting an industry that needs all elements — capture from heavy emitters, transportation and storage — in place simultaneously to work. And Cop summits are good for messaging, Christie-Miller notes. "A clear unified backing of the engineered carbon removal industry would be very welcome."

Cop 28 could result in CCS targets, but these must be granular, with "qualitative benchmarks or guardrails", Vangenechten says. And, ultimately, the "crucial point is to reduce emissions, not to necessarily scale up CCS", he adds. The IPCC is clear that CCS and other carbon removal technologies are necessary to hit the Paris agreement's more ambitious temperature rise limit of 1.5°C — but only to offset hard-to-abate industry and existing fossil fuel infrastructure. If CCS is used to justify oil and gas expansion, climate goals will be missed, scientists say. "Nuanced definitions don't help if oil and gas actors use CCS as a scapegoat to continue business as usual," Vangenechten warns.

Kerry wants stakeholders to "acknowledge the reality" of a still-developing sector. "If it isn't doable, then there's going to be a real confrontation over the question of where the next step is," he says.

EU ETS front-year contract

Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
21/06/24

PetroVietnam, South Korea’s Mubo partner on gas

PetroVietnam, South Korea’s Mubo partner on gas

Singapore, 21 June (Argus) — Vietnam's state-owned PetroVietnam (PVN) today agreed an initial financing deal with the Korea Trade Insurance Corporation, also known as Mubo, to strengthen and streamline South Korean companies' participation in natural gas projects with PVN and its subsidiaries. The $1bn package has both mid- to long-term financial tranches available if South Korean companies secure PVN's natural gas projects. PVN has plans to expand its gas field development, pipeline construction and gas-fired power plants in projects valued at around $12bn. This is aligned with the government's plan to achieve carbon neutrality by 2050 through increased reliance on gas-fired power generation. PVN manages at least four gas-fired power plants, two coal-fired power plants and two hydropower plants, with 5404MW of total capacity, according to the firm. State-owned PetroVietnam Gas (PV Gas) is at the forefront of the gas power sector projects. It operates the 1mn t/yr Thi Vai LNG terminal, commissioned in July 2023 and has started supplying gas-fired power generation to industrial customers since 15 March. Vietnam is expecting to import more LNG, in anticipation of the start-up of the 1.6GW Nhon Trach LNG thermal power plant in November this year. The plant is comprised of two units that could require as much as 775,000 t/yr of LNG each, assuming a generating efficiency of 60pc. It is also building the 3.6mn t/yr Son My LNG import terminal in Binh Thuan province in southcentral Vietnam. The first phase of commercial operations is scheduled for 2027. A second and third phase at Son My will lift's Vietnam's overall LNG import capacity to 10mn t/yr. PV Gas is to supply 70,000t of LNG to state-owned utility EVN for use at its 715MW Phu My 3 thermal power plant in April and May, marking the first LNG supplies to the county's power sector. Russia has also expressed interest to partner with Vietnam for oil and gas supplies, including LNG, following a state visit by Russian President Vladimir Putin to Hanoi on 20 June. By Naomi Ong Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Find out more
News

Indian regulator seeks oversight of LNG terminals


21/06/24
News
21/06/24

Indian regulator seeks oversight of LNG terminals

Mumbai, 21 June (Argus) — India's Petroleum and Natural Gas Regulatory Board (PNGRB) has issued a draft proposal for enhanced regulatory control over the country's existing and planned LNG import terminals. The draft regulations released earlier this month has PNGRB taking significant control of India's existing terminals, which includes approval of a new terminal or expansion of capacity following feasibility reports, as well as setting up pipeline infrastructure for regasified LNG. Each project would require a certification of registration by PNGRB and may even face penalties if there are any start-up delays. Developers will also need to publicly disclose their regasification tariffs and other charges for transparency. The regulations are seen as an effort to reverse dwindling utilisation rates at India's existing LNG import facilities, according to traders. The proposed regulatory framework may hinder new investments across India's gas sector more broadly by introducing the additional layer of oversight. PNGRB board of directors typically being short of members results in delays in approvals for existing projects or new products. The Indian Gas Exchange (IGX) small-scale LNG contract was delayed to launch in April this year from the initial plan of late 2023. The contract was needed to help supply gas consumers located in areas not served by pipelines. Plans to introduce LNG contracts for over one-month delivery on the IGX are also being held up because the board does not have sufficient staff to accelerate the speed of decision making, sources with knowledge of the matter said. Utilisation rates at India's seven LNG import terminals ranged from 15pc to 95pc in the April 2023-March 2024 fiscal year, with six operating at 30pc or lower despite a 16pc increase in LNG imports over the same period, oil ministry data show. Indian state-controlled LNG importer Petronet's 17.5mn t/yr Dahej LNG terminal had a 95pc utilisation rate, while Petronet's5mn t/yrKochi, state-controlled firm Gujarat State Petroleum's 5mn t/yr Mundra and state-controlled refiner IOC's 5mn t/yr Ennore terminals operated at 20pc or lower. India plans to add at least 25mn t of LNG import capacity in the next few years on top of its existing 47.7mn t/yr import capacity. India imports around 45pc of its daily gas needs, equivalent to around 190mn m³/d as LNG. The country plans to increase the share of gas in its energy mix to 15pc by 2030, which would increase overall demand to 600mn m³/d. By Rituparna Ghosh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Canadian greenwashing bill passes


20/06/24
News
20/06/24

Canadian greenwashing bill passes

Calgary, 20 June (Argus) — A proponent of a major carbon capture and storage (CCS) project in Canada removed most information from its website this week after a federal bill targeting "greenwashing" successfully made its way through Parliament. The Pathways Alliance, a group of six oil sands producers, removed material from its website in response to Bill C-59 after it passed its third and final reading in Canada's senate on 19 June, citing "uncertainty on how the new law will be interpreted and applied." Parts of the soon-to-be law will "create significant uncertainty for Canadian companies," according to a statement by Pathways which is the proponent of a massive C$16.5bn ($12bn) CCS project in Alberta's oil sands region. The Pathways companies proposed using the project and a host of other technologies to cut CO2 emissions by 10mn-22mn t/yr by 2030. Project details and projections are now gone from the Pathways website, social media and other public communications as the pending law will require companies to show proof when making representations about protecting, restoring or mitigating environmental, social and ecological causes or effects of climate change. Any claim "that is not based on adequate and proper substantiation in accordance with internationally recognized methodology" could result in penalties under the pending law. Offenders may face a maximum penalty of C$10mn for the first offense while subsequent offenses would be as much as C$15mn, or "triple the value of the benefit derived from the anti-competitive practice." Invite to 'resource-draining complaints' The bill does not single out oil and gas companies, but the industry includes the country's largest emitters and has long been in the cross-hairs of the liberal government. Alberta's premier Danielle Smith says the pending bill will have the unintended effect by stifling "many billions in investments in emissions technologies — the very technologies the world needs." Construction of the Pathways project is expected to begin as early as the fourth quarter 2025 with operations starting in 2029 or 2030. The main CO2 transportation pipeline will be 24-36-inches in diameter and stretch about 400km (249 miles). It will initially tap into 13 oil sands facilities from north of Fort McMurray to the Cold Lake region, where the CO2 will be stored underground. Pathways includes Canadian Natural Resources, Cenovus, Suncor, Imperial Oil, ConocoPhillips Canada and MEG Energy, which account for about 95pc of the province's roughly 3.3mn b/d of oil sands production. Some producers took down content as did industry lobby group the Canadian Association of Petroleum Producers (CAPP), which highlighted the "significant" risk the legislation creates. "Buried deep into an omnibus bill and added at a late stage of committee review, these amendments have been put forward without consultation, clarity on guidelines, or the standards that must be met to achieve compliance," said CAPP president Lisa Baiton on Thursday. This "opens the floodgates for frivolous, resource-draining complaints." By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Global gas flaring up by 7pc in 2023


20/06/24
News
20/06/24

Global gas flaring up by 7pc in 2023

London, 20 June (Argus) — Gas flaring from hydrocarbon production rose by 7pc in 2023 to 148bn m³, the highest level since 2019, according to a report by the Global Flaring and Methane Reduction Partnership (GFMRP). The GFMRP, an initiative managed by the World Bank, has since 2011 used satellites to gather data and create an inventory of global flaring. And volumes flared last year rose to the highest since 2019, reversing a fall in 2022. The gas flared could have had a market value of $9bn-48bn, assuming either US Henry Hub prices on the low end or European import prices on the high end, according to the GFMRP. And assuming all these flares operated with a 98pc destruction efficiency, the volumes flared would have resulted in 381mn t of CO2 equivalent (CO2e) of emissions, although if some flares were lower efficiency, they would have emitted more methane and CO2e emissions could be higher, the GFMRP said. The countries where the biggest increase in flaring was reported were Iran, Russia and the US. Volumes flared increased by 3.2bn m³, 2.9bn m³ and 1.7bn m³ in these countries, respectively, compared with 2022. Iran's emissions were higher because of an increase in oil production without a parallel investment in the infrastructure required to use the associated gas produced. The increase in Russia was uniform across hydrocarbon provinces in the country, and might have been driven by supply chain problems limiting maintenance in the wake of the war in Ukraine, the report said. And the US rise in emissions was sharpest in the Permian basin, where power cuts in the record-breaking hot summer of last year might have left electrically-powered compressors in collecting infrastructure unable to run, leading to operators flaring produced gas instead. But emissions fell in some countries. The biggest fall was in Algeria, where 400mn m³ less gas was flared compared with 2022. Although oil production in the country also fell by 2pc, flaring intensity of production was still down by 3pc, which the report attributes to flare gas recovery projects implemented by state-controlled Sonatrach at Hassi Messaoud, the country's largest oil field. The company committed to more projects at other fields in 2023, which could deliver further reductions, the report said. And in Venezuela, oil production climbed by 7pc but methane emissions fell by 300mn m³ (4pc), leading to a 10pc reduction in overall intensity. Reductions in flaring were localised in oil fields in the north of Monagas state, linked to flare gas recovery infrastructure built in the region by state-controlled oil firm PdV. Nine countries collectively — the five named above, and Iraq, Libya, Nigeria and Mexico — are responsible for 75pc of global gas flaring, but only 46pc of oil production. Production facilities might flare gas for safety purposes or maintenance. At other oil-weighted sites, associated gas might be flared because there is no infrastructure to put it to use. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Shipping industry urges action to stop Red Sea attacks


20/06/24
News
20/06/24

Shipping industry urges action to stop Red Sea attacks

Dubai, 20 June (Argus) — The International Chamber of Shipping (ICS) has called for urgent action to stop "unlawful attacks" on commercial shipping in the Red Sea by Yemen's Houthi rebels after the sinking of a second bulk carrier since November last year. "This is an unacceptable situation, and these attacks must stop now," the ICS said. "We call for states with influence in the region to safeguard our innocent seafarers and for the swift de-escalation of the situation in the Red Sea." The Iran-backed Houthis began attacking ships in the Red Sea six weeks after the Israel-Hamas war broke out last year in what they claim is an act of solidarity with Palestinians in Gaza. The British-owned, Belize-flagged Handysize bulk carrier Rubymar sank on 4 March this year, four weeks after a Houthi attack. And the United Kingdom Maritime Trade Operations (UKMTO) said on 19 June that it believes the Greek-owned and operated bulk carrier Tutor has also sunk after the Houthis struck it with an unmanned surface vessel on 12 June. Since the attacks began, three sailors have been killed and two ships seized in separate incidents, one of which has since been freed. "We have heard the condemnation and appreciate the words of support, but we urgently seek action to stop the unlawful attacks on these vital workers and this vital industry," the ICS said. "And we must not forget the crew members from the [cargo vessel] Galaxy Leader and [containership] MSC Aries who are still being held captive." The Houthis have stepped up their attacks in recent days, prompting counter measures by US and UK military forces deployed in the area. The Red Sea is one of the world's most important shipping lanes, serving as a vital trade link between Europe and Asia. The attacks have led to an increase in freight rates and shipping insurance costs. And they have disrupted trade flows through the Suez Canal at the northern end of the Red Sea as many shipowners opt to avoid the area by taking the longer route around the southern tip of Africa. The combined flow of crude and oil products transiting the Suez Canal in both directions dropped by 34pc on the month and by 65pc on the year in May, according to preliminary data from trade analytics firm Kpler. Most oil passing through the canal southbound is now of Russian origin — 92pc in May, according to Kpler data. India, China and the Middle East were the main destinations. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more