US oil sector seeks framework to support CCS

Billions of dollars for CCS are becoming available, but the industry is looking for assurances and wants legal issues resolved, writes Chris Knight

The oil and gas sector sees a chance for collaboration with US president Joe Biden on paving the way for a new wave of carbon capture and storage (CCS) projects competing for billions of dollars in government incentives.

Biden last year signed into law a bipartisan infrastructure plan offering over $6bn for CCS projects. The funding was in addition to a recently clarified "45Q" tax credit that lets companies earn $35/t for storing CO2 in oil fields and up to $50/t for geologic carbon sequestration. Democrats are considering extending the credit by seven years, to 2032, as part of a vast spending bill that has stalled in Congress.

The combination of those policies has attracted new interest in CCS. ExxonMobil has proposed a hub for storing CO2 offshore in the US Gulf of Mexico, while LNG developer NextDecade has pledged to capture 90pc of CO2 emissions from its proposed 27mn t/yr Rio Grande LNG export terminal. Other ideas include pipelines to carry CO2 from ethanol plants to North Dakota for sequestration.

But industry officials say the Biden administration needs to start resolving the issues posed by new CCS projects, given the gauntlet of reviews and lawsuits they are likely to face. "As with any capital-intensive industry, the CCS sector requires certainty and predictability in the regulatory system," offshore industry group National Ocean Industries Association's (NOIA) president, Erik Milito, says. The US should start writing environmental reviews and resolving legal issues about the ability to permanently store CO2 in federal leases in the Gulf of Mexico, NOIA said in a 12 January report. Another recommendation is to revise deadlines in the 45Q tax credit to align with the long lead time needed for large offshore projects.

Oil executives see CCS as a natural alignment to the industry's strengths in capital-intensive engineering, while offering a lifeline for maintaining oil and gas production in a carbon-constrained world. It is also one of the few policy issues where the oil sector and Biden's White House have found agreement. "That is a place where we can find common ground," oil industry association the American Petroleum Institute's president, Mike Sommers, says.

The US has made progress on regulatory structures for CCS. North Dakota recently became the first state to handle approval of a "Class VI" injection well to receive 180,000 t/yr of CO2 from an ethanol plant. North Dakota is also the destination for CO2 transported by the proposed $4.5bn Midwest Carbon Express pipeline that would tie into ethanol plants across the midcontinent.

Investment nightmare

The federal government has spent $1.1bn so far on 11 CCS projects, of which just three have achieved commercial operations, US watchdog the Government Accountability Office said in a report last year. One of the projects, the Petra Nova coal-fired power plant in Texas, was mothballed in 2020 because of low crude prices that weighed on demand for CO2 for use in enhanced oil recovery. US power utility Southern in 2017 gave up on the CCS part of a coal-fired plant in Mississippi after spending $7.5bn. "Proponents of these projects are selling an unproven dream that in all likelihood will become a nightmare for unsuspecting investors," Institute for Energy Economics and Financial Analysis analyst Dennis Wamsted said in a report for the non-profit group last year.

That record has contributed to limited support for CCS from environmental groups, which see federal subsidies for the technology mostly as achieving little beyond enriching fossil fuel companies. The main beneficiaries of the 45Q tax credit are those those injecting CO2 to boost oil recovery. Federal spending should instead go on avoiding emissions, given the energy needed for CCS and uncertainty of whether long-term storage will be successful, those groups say.