written by Rob Thomson & Anil Lad
With the rise of clean, emission free renewable energy sources, oil & gas is becoming a smaller proportion of total global energy demand [1]. The oil & gas industry is responsible for a significant share of carbon emissions, with the 20 largest carbon emitters having contributed to 35% of total carbon emissions since 1965 [2]. Under the Paris agreement, governments have committed to keeping global temperature rises to well below 2⁰C relative to pre-industrial revolution levels, with a target of limiting this to 1.5⁰C. More recently, the UK became the first major economy to pass a net zero emissions law and several oil majors such as BP, Shell and Total, announced their pursuit of net zero targets by 2050. Consequently, there is now mounting social and political pressure on independent Exploration & Production (E&P) companies and more broadly the industry as a whole, to follow suit and commit to significantly reducing their carbon emissions.
Under all the scenarios modelled by the International Energy Agency (IEA), carbon capture, utilisation and storage (CCUS) forms an integral part of the overall solution landscape. In order to achieve the Sustainable Development Scenario (SDS), CCUS capacity in industry and fuel transformation must reach 450MtCO2/year by 2030 [3].
Despite its benefits, CCUS requires significant capital investment which is heavily affected by factors such as:
Carbon dioxide (CO2) emission source and selected capture technology
Transport distance of CO2 to either its point of storage or usage
The chosen storage/utilisation scheme including type of reservoir for sequestration and requisite infrastructure or potential offtake agreement with end user and the associated infrastructure e.g. Enhanced Oil Recovery
Furthermore, the emission source of the CO2 and the required purity of the CO2 stream are both critical considerations for deciding on the most appropriate capture technology. Typical CO2 emission sources can be grouped by:
Process Streams
Post combustion capture
Pure oxygen combustion (Oxy-Fuel) capture
Pre-combustion capture
Given the capture element of CCUS represents a significant building block for the overall Total Expenditure (TOTEX), a range of capture technologies exist that can be screened and selected based on the specifics of the applications listed above.
Gathering, transportation and possible storage infrastructure also contribute to a considerable proportion of total lifecycle costs. However, dramatic cost reductions can be achieved by re-purposing existing oil & gas infrastructure or tying into existing CO2 transportation networks. If these options are unavailable, E&Ps could collaborate with government and private entities to develop multi-user shared infrastructure hubs. These hubs provide a centralised location for carbon capture, meaning various parties can share CO2 transport and storage facilities and thus benefit from significant economies of scale. In fact, a number of consortiums around the globe have already been formed to serve this purpose. Examples include Athos, Northern Lights and Net Zero Teesside in Europe and CarbonNet in Australia.
In terms of the usage and/or storage of captured CO2, E&P companies have definite transferable capabilities, making them well-placed to capitalise on CCUS technology. Having said this, CO2 injection is still highly complex, requiring an understanding of the behaviour and migration of CO2 in the reservoir and also the requirements for monitoring possible leakages. Due to io’s involvement in CCUS feasibility and concept selection studies, our consultants have significant experience in this area and have succeeded in building a robust capability that can provide specialist technical support across the entire CCUS value chain.
From a commercial and economics perspective, solutions such as enhanced oil recovery (EOR) can generate value from captured CO2. Unsurprisingly, CO2 EOR represents the greatest proportion of global CCUS projects, with the US having the majority of operating facilities. Industry data indicates CO2 EOR can recover an additional 20%[8] of the overall oil in place (OOIP).
Government policy in the form of tax incentives or carbon pricing is also another vital factor in establishing viable business cases for CCUS. The US is again arguably leading the way in this regard with its 45Q tax credit where projects will eventually be entitled to $50/t for CO2 geologically stored and $35/t CO2 for EOR along with other policies by individual states.
E&P companies looking to position their business for transition to clean/low emission fuels may see value in Steam Methane Reforming (SMR) to produce low emissions hydrogen. This process inherently results in CO2 production, however, when combined with CCUS, represents an opportunity to produce a low emissions fuel. Currently, there are four operating commercial scale projects in North America based on either coal gasification or SMR with CCUS to produce low emissions hydrogen. This hydrogen can either be mixed with natural gas for use in gas utility networks (i.e. Hythane) or be used as feed stock for other industrial processes.
The challenges associated with use of Hythane in existing utility gas networks has been the subject numerous research studies and will be expanded upon in future articles. From an economics standpoint, taking a total hydrogen market value of $135 billion[4] and a total hydrogen production volume of 74 Mt [5] results in an average market price of $1.83/kg. According to the IEA, the cost of producing hydrogen from natural gas with CCUS currently ranges between $1.5 to $2.9/kg [5], meaning profitability is achievable, but is dependent on the point of sale and the specifics of the technology used. Although the current uses for hydrogen are mainly limited to industry, its future potential is significant. With demand for hydrogen on the grid forecast to increase whilst CCUS costs expected to become progressively lower, the attractiveness of this technology will only increase in years to come.
Other means of carbon capture include Negative Emissions Technologies (NET) which include Bio-Energy with CCS (BECCS) and Direct Air Capture (DAC) technologies. These newer technologies, once up and running, have the potential to offset CO2 emissions from other aspects of E&P operations.
E&P’s could also choose to form alliances similar to the Oil and Gas Climate Initiative (OGCI) whose members are made up of International Oil Company (IOCs) and National Oil Companies (NOCs), and essentially collate money to fund CCUS research. Through their joint focus, OGCI members were able to achieve an aggregate 9% reduction in methane emissions in 2018. They have also announced the launch of their ‘CCUS KickStarter’ fund which will enable the construction of low-carbon industrial hubs – similar to those discussed earlier [6]. Alternatively, E&Ps could also work with universities or other R&D centres to create novel carbon capture systems. As an example, one of the most recent carbon capture technologies being developed is the Li-CO2 battery which consists of a lithium anode, carbon electrode and results in the formation of lithium carbonate at the cathode [7]. If a method is found to remove the lithium carbonate from the cathode without releasing CO2, the battery could be supplied with a stream of CO2 during recharge and hence permanently remove CO2 from the atmosphere. However, this project only represents proof of concept work and much more research is needed before the technology is ready for use on an industrial scale.
In practice, a combination of the above ideas is most likely to provide an optimal solution for CCUS implementation and must be assessed against a longer term strategy for emissions reduction.
Learnings from oil & gas developments continuously demonstrate that optimisation of a single aspect of a system, such as carbon capture technology selection, in isolation to wider system requirements, often leads to sub-optimal results. Contrary to conventional process analysis, io’s unique systems thinking approach uses a holistic perspective to investigate fundamental causal relationships between variables; uncovering the true nature of system behaviour and therefore enabling our clients to establish the right balance between commercial, technical and strategic trade-offs. The transition to emission free energy is a rapidly evolving landscape with a vast array of alternatives available and as such, E&Ps must navigate through this space carefully, ensuring they maximise value and minimise business risk. Our research and experience across multiple industry sectors have shown applying a thorough decision quality strategy in the critical early business/development planning phases is a critical success factor.
If you are interested to know more about decision quality, please read our article creating greater certainty in our professional decision making