Will carbon capture increase oil production?

With increasing focus on CCUS, ESG Clarity speaks to two investors in this space

Despite representing less than 0.1% of negative emissions use, carbon capture and storage are the latest methods being touted as key solutions to limit global warming to 1.5 degrees Celsius.

The Intergovernmental Panel on Climate Change this week mentioned such methods, preceded recently in the UK by chancellor Jeremy Hunt’s references in the Spring Budget, where he said he was allocating up to £20bn of support for the early development of carbon capture usage and storage (CCUS), “paving the way for CCUS across the country as we approach 2050”. Further to this, the UK government will introduce legislation to establish favourable tax treatment of payments made into so-called decommissioning funds by oil and gas as it related to repurposing decommissioned oil and gas assets in CCUS projects.

Finally, the EU Net Zero Industry Act announced on 16 March that carbon capture had made it into a list of strategically important initiatives that will see significant support.

With this in mind, ESG Clarity has spoken to two groups currently invested in CCUS about how they are navigating this space.

Carbon capture suffers from ‘nimbyism’

Ulrik Fugmann, co-head of the Environmental Strategies Group, BNP Paribas Asset Management:

There are few places to invest in public markets and BNP Paribas Asset Management supports some key movers in this nascent technology through its BNP Paribas Energy Transition Fund.

One obvious element with carbon capture is cost, but as adoption increases, this should come down as we have seen – and will see – with other equipment such as solar panels, batteries, electrolysers etc.

Another more philosophical question mark is if CCUS will in fact increase oil production. This argument is slightly misguided as CCUS can scale quicker than we can eliminate the need for oil throughout society and there is not one, but many solutions needed for decarbonisation.

One challenge can be scale – the capacity of CO2 transport and storage is often larger than what the emitting asset needs. The solution and opportunity for this is to pool or collaborate around the emitting assets, which means a sharing of transportation and storage costs.

The second challenge is somewhat related to the philosophical question mark above: if it is possible to replace an emitting asset or activity with a greener alternative, surely that is preferable to CCUS, which will not be able to capture the full scale of CO2 emissions. In other words, considerations need to be taken around where there are alternatives, and whether you retrofit with CCUS applied or construct an entirely new asset/process. In addition, how much of the CO2 are you able to capture across different industries?

Carbon capture is also likely to suffer from the same challenges we have seen with onshore wind, namely the ‘not in my backyard’ problem, despite limited risks around leakage. In that regard, how is the potentially leakage risk and can it be insured – who has the liability? More regulation will be needed in this area. Solutions for this has been storage in salt caverns where the carbon becomes mineralised.

All this said, we need technologies like CCUS as the world is running out of time to reach net zero and the world – whether we like it or not – will still be rather fossil fuel dependent in the decades to come.

Reusing these emissions could boost the economy

Richard Lum, co-CIO at Victory Hill Capital Partners:

The UK government has recognised the need to do more to promote the reuse of the captured emissions, rather than only backing sequestration. Reusing these emissions could boost the economy by supplying certain sectors such as the food and beverage and agriculture industries with valuable and much needed carbon dioxide gas.

The sustainable investment trust VH GSEO is invested in the construction of two combined heat and power plants in Worksop, Nottinghamshire, UK, which bring together gas-fired engines technology with a CCS system.

The first plant is expected to become operational in Q2 2023 with first power expected in Q1 2023, and is contracted under a long-term power purchase agreements (PPAs) with a well-known energy company. It will also benefit from a long-term CO2 offtake contract with a large specialty gas company.

The plant will benefit from the involvement and expertise of some of the world’s leading industrial technology companies including Rolls-Royce, Swedish industrial group, Climeon, Mitsubishi Heavy Industries Group subsidiary Turboden based in Italy, and privately held Swiss Carbon Capture technology manufacturer, ASCO Carbon Dioxide.