Carbon Capture - The Missing Piece in the Net Zero Puzzle?
By Alistair Wishart, Nadine Amr, Steven Wilson, Freddie Wright and Grace Oyegbile*
In December 2020, the Norwegian government approved funding the $1.6 billion Northern Lights project led by Norway’s Equinor, Anglo-Dutch Shell and France’s Total. Northern Lights is the transportation and storage element of Longship – Norway’s pioneering $2.3 billion full-scale carbon capture and storage project, which is planned to include the development and operation of a carbon dioxide transportation and storage network through which Norwegian and European industrial companies emitting carbon dioxide may store their emissions underground. The first phase of the project is expected to be completed as early as 2024.
Also in 2020, the UK government announced that it would set aside an £800 million fund for carbon capture investment in the UK. This enthusiasm has continued into 2021; in March, the UK government announced plans to invest nearly £1 billion to kick-start projects that aim to decarbonise industry by using technologies to capture carbon dioxide or produce blue hydrogen, as well as in cutting emissions from industry, schools and hospitals, with the aim of creating and supporting up to 80,000 jobs over the next 30 years and cutting emissions from industry by up to two-thirds in the next 15 years. March 2021 also saw the UK government publish the “North Sea Transition Deal” – developed between the UK government and the offshore oil and gas industry, the plan sets out how the UK government will support industry in transitioning to a net zero future, including investment of up to £16 billion by 2030 in new energy technologies, including CCUS at scale.
Projects such as Northern Lights and recent announcements by the UK government illustrate a renewed focus on carbon capture, both at home in the UK and further afield.
The technology for capturing carbon dioxide during the processing of hydrocarbons has been around for over 40 years. Commercial-scale carbon capture projects have been operating since the 1990s. Nevertheless, operational carbon capture projects worldwide currently number in the low double digits. Perhaps that is not surprising as carbon capture facilities are expensive to build and to operate and commercial drivers for carbon capture are few and far between in the absence of regulatory incentives. As carbon capture is coming around into fashion again, with increasing interest and, more importantly, an increasing number of carbon capture projects in the pipeline, we take a look at the technology involved, provide a snapshot of some of the current and upcoming projects, examine some of the biggest challenges and opportunities facing this sector and consider whether carbon capture has the potential to play a meaningful role in the path to net zero.
The geographic focus of this article is on the UK and the rest of the world, excluding the United States. The relatively high level of investment in CCUS projects in the United States has been facilitated by an extensive carbon dioxide pipeline network, high demand for enhanced oil recovery, as well as the availability of tax incentives – which V&E’s David C. Cole, Debra J. Duncan and Mary Alexander have explored in an article published earlier this year (V&E Insights: Final Carbon Capture Regulations Should Spur Investment, 7 January 2021).
To understand carbon capture technology requires an understanding of the context in which it is deployed. Carbon dioxide released in the combustion or processing of fossil fuels is the largest contributor to climate change. The 2015 Paris Agreement under the UN Framework Convention on Climate Change sets a long-term goal of limiting the increase in the average global temperature to well below 2 degrees Celsius, and ideally to 1.5 degrees Celsius, above pre-industrial levels. In parallel, action by environmentalist groups and shareholder activists has intensified in recent years, putting pressure on governments, corporations and industries that emit carbon dioxide to make a change. In 2019, the UK government signed into law an ambitious target for the UK to achieve net zero greenhouse gas emissions by 2050 – “net zero” meaning that some greenhouse gas emissions will be balanced by schemes to off-set an equivalent amount of emissions, including through the use of carbon capture technology (in addition to other schemes, such as planting trees). Oil majors, including BP, Shell, Equinor and Total, as well as economic zones, such as the EU, have also announced their intention to achieve net zero greenhouse gas emissions by 2050. In many cases these targets are being followed through by meaningful action. For example, in January 2021 BP completed the divestment of its petrochemicals business to INEOS in a £4 billion deal that it described as a major step by the company to “reinvent BP”.
Carbon capture is increasingly regarded as a key part of global efforts to meet net zero greenhouse gas emissions targets and as a way to reduce carbon dioxide emissions, particularly in essential industries that are carbon intensive but difficult to decarbonise including, for example, the cement, iron, steel and chemicals manufacturing industries. To understand the role carbon capture can play in this effort, it is worth briefly outlining the main technologies encompassed by carbon capture.
Pre-combustion carbon capture extracts carbon dioxide directly from a gaseous mixture produced from the gasification of a fossil fuel feedstock. The feedstock, for example coal in a coal-fired power plant, is converted into a mixture of hydrogen and carbon dioxide through the “gasification” process. The carbon dioxide is then removed from this mixture using a stripper. The leftover hydrogen is used to fire gas turbines in the power plant itself, while the carbon dioxide is compressed, ready for transportation. The carbon dioxide may then be transported for utilisation or storage. The infrastructure for carrying out pre-combustion carbon capture already exists on a commercial scale.
Post-combustion carbon capture removes carbon dioxide from the flue gas produced by burning fossil fuel feedstock in air. An amine solution is used to separate the carbon dioxide from the flue gas in an absorber. The carbon dioxide is then removed from the amine solution using a stripper, a process not dissimilar to the equivalent stage in pre-combustion carbon capture. The carbon dioxide is then compressed for transport in much the same way as in pre-combustion carbon capture. The infrastructure for post-combustion carbon capture can be retrofitted to existing plants. Because it is easier to extract carbon dioxide from a flue gas with higher concentrations of carbon dioxide, this method is more efficient when retrofitted to oil refineries than to coal-burning power plants.
Oxy-fuel combustion carbon capture, similar to post-combustion carbon capture, extracts carbon dioxide from the flue gas produced when burning fossil fuels. During oxy-fuel combustion, however, the feedstock is burned in oxygen only, producing a flue gas with higher concentrations of carbon dioxide. These higher concentrations of carbon dioxide allow the extraction of carbon dioxide at a lower temperature than with post-combustion carbon capture. The additional infrastructure required for this process, for example, the air separation unit used to extract oxygen from the air at the start of the process, can be retrofitted to existing plants.
Direct air capture
Described by Andrew Dressler, Professor of Atmospheric Sciences at Texas A&M University, as being “like draining a lake through a straw”, direct air capture is an emerging form of carbon capture technology.1 It aims to extract carbon dioxide directly from the atmosphere using chemical processes. A number of chemical compositions are being tested to extract carbon dioxide directly from the air. Canadian firm Carbon Engineering uses a fan to pull in air from the atmosphere and a potassium hydroxide solution to capture the carbon dioxide present in the air. The solution is then converted into pellet form and heated to release the carbon dioxide. The carbon dioxide is then compressed, ready for transportation or storage. Direct air capture is one of a number of ‘geoengineering’ techniques being explored which, if successfully deployed at significant scale, could achieve ‘negative emissions’ by reducing the amount of carbon dioxide already in the atmosphere (whereas pre-combustion, post-combustion and oxy-fuel combustion only reduce the amount of carbon dioxide being released into the atmosphere). Direct air capture, however, remains an emerging technology and at present it is likely to be very costly to roll-out on a meaningful scale.
Captured carbon dioxide can, in theory, be utilised in a number of ways, including in the manufacturing of cement and other building materials, production of chemicals and use in carbonated beverages. All of these applications have the potential to remove excess carbon dioxide from the atmosphere. For example, carbon dioxide gas can be turned into a solid aggregate in concrete production, while carbon dioxide can also be used to cure concrete by infusing it into wet concrete, reacting with water and calcium to form solid calcium carbonates. These processes are relatively energy-efficient and if successfully deployed, could trap carbon dioxide for hundreds of years in building materials. It has been widely reported that carbon capture might be the only viable option to reduce the carbon footprint of the cement manufacturing industry, an industry that by some estimates produces 5-7% of world’s carbon dioxide emissions. The key to any meaningful impact on the fight against climate change will lie in developing technologies, many of which are new and untested, in a cost-competitive manner so that they can be adopted more widely in industrial processes.
The oil and gas industry has been one of the longest-standing users of captured carbon dioxide for use in enhanced oil recovery, a technique involving the injection of carbon dioxide into existing oil and gas fields in order to increase the overall pressure of the reservoir and force the oil towards production wells. The International Energy Agency estimates that around 500,000 barrels of oil are produced each day using carbon dioxide based enhanced oil recovery, representing around 20% of total oil production from enhanced oil recovery. At present, the majority of the carbon dioxide used in such projects is produced from underground deposits, but there is potential to move to using carbon dioxide captured from industrial processes, as evidenced by the use of carbon capture in the Gorgon project in Australia (discussed in further detail later in this article).
Securely storing carbon dioxide underground is a means of permanently removing excess carbon dioxide from the atmosphere. The Global CCS Institute, an Australian-based think tank whose stated mission is to accelerate the deployment of carbon capture and storage, estimates between 2,000 and 20,000 billion tonnes of storage resources exist in North America alone. The International Energy Agency reported that there were approximately 31.5 gigatonnes of global energy-related carbon dioxide emissions in 2020.2 Interestingly, this figure represents an almost 6% drop on 2019 emissions levels, reflecting the fall in the global consumption of fossil fuels caused by the COVID-19 pandemic and resulting economic and social impact – roughly the equivalent of removing the European Union’s carbon dioxide emissions from the global total. Nonetheless, these figures indicate that if and when carbon dioxide can be economically captured on a large-scale, whether from industry, oil and gas operations or directly from the air, many carbon-intensive industries have huge potential to become more sustainable.
Once captured, carbon dioxide is compressed into liquid form and transported to its final storage location either by road or rail infrastructure, by ship, or by pipeline if extracted from a site with existing infrastructure. Carbon dioxide is then typically stored in one of three locations:
- in depleted oil and gas fields which have ceased to be economically viable for oil and gas production but have established characteristics for trapping and storing gas;
- in deep saline aquifers, which are porous rock formations below the sea floor with enough pores to provide sufficient storage capacity in active oil and gas wells;3 or
- in existing oil fields when used in conjunction with enhanced oil recovery, which is where the majority of carbon dioxide is presently stored. Upon injection, 90 to 95% of the carbon dioxide used in the enhanced oil recovery process remains sequestered underground.
Once the carbon dioxide is stored, monitoring is required to prevent leakage, a risk especially when storing carbon dioxide in depleted oil and gas fields. Geophysical techniques and technology first used in the oil and gas exploration industry, such as geological mapping and leak detection modelling, are being used to monitor the geological movements deep in the oil fields or aquifers to ensure the stored carbon dioxide remains in place. Ongoing and continuous monitoring over the long term, however, cuts across the long accepted practice of oil and gas majors plugging and abandoning depleted wells. The ongoing costs associated with monitoring, therefore, can deter oil majors from heavily investing in carbon capture projects.
According to the Global CCS Institute, there are 65 large-scale carbon capture facilities worldwide with an estimated combined capture capacity of over 100 million tonnes of carbon dioxide per annum. 26 of these facilities are currently in operation, with three under construction, and a further 34 in various stages of development.
In terms of the geographic spread of these large-scale projects, the highest concentration is in the Americas where 38 facilities are either in operation or in development, representing around half of the projects globally – 12 of the 17 new projects initiated globally in 2020 were in the United States. Europe has 13 projects in operation or in development and notably all are concentrated in the North-West of the continent (seven in the UK, four in Norway, and one in each of Norway and the Netherlands). Asia Pacific has 10 projects in operation or development, followed by the Middle East with three (all of which are in operation).
The vast majority of carbon capture projects in operation today have been deployed to reduce the carbon dioxide emissions of industrial processes, from hydrogen production and fertilizer production to natural gas processing. One such project in operation, SaskPower’s Boundary Dam Power Station, has been retrofitted to a coal fired power plant. This project captured 64,855 tonnes of carbon dioxide in September 2020. Some projects in development anticipate applying carbon capture technology to industrial “clusters” which can share pre-existing infrastructure and therefore lower costs and offset the high research and development and ongoing monitoring costs associated with carbon capture.
Key International Projects
A recent example of carbon capture in operation is the Gorgon gas project in Western Australia. Gorgon is one of the world’s largest LNG projects, comprising a three-train 15.6 MTPA LNG facility, as well as a domestic gas plant. The integrated carbon capture and storage element of Gorgon makes it one of the world’s largest carbon capture projects to date.
The project is operated by Chevron Australia, which has formed a joint venture with partners Shell and ExxonMobil. JERA, Osaka Gas, and Tokyo Gas have minority stakes in the project. Carbon dioxide (which comprises around 15% of the feed gas for the liquefaction facility) is stripped out of the feed gas. Up to four million tonnes of carbon dioxide is planned to be captured and stored each year. According to Chevron Australia, this is likely to result in up to a 40% reduction in project emissions, compared to projected emissions without carbon capture.
Gorgon shipped its first LNG cargo in 2016 and domestic supply of gas started the same year. Technical problems delayed the start of the carbon capture and storage operations – which were originally planned to start in 2017 – to 2019 and full injection rates were achieved in Q1 2020. It has been reported that due to the delay, Chevron Australia could be required to pay more than $100 million for carbon dioxide released at the site from 18 July 2016, being the date it made the first shipment of LNG from the site. This is because the Western Australia’s state government’s approval of the project was granted on the condition that the project achieve an 80% emissions burial target through carbon capture and storage by the end of July 2021.
Equinor is one of the multinational players at the forefront of carbon capture. The Norwegian state-owned multinational energy company has been developing carbon capture technology for 20 years and is involved in around 40 research projects exploring the potential for carbon capture. The Northern Lights project, which Equinor is developing in partnership with Shell and Total, is a large-scale carbon capture project that includes capturing carbon dioxide emissions from waste-to-energy and cement industrial sources in the Oslo-fjord region of Norway and shipping liquefied carbon dioxide from the capture sites via an onshore terminal and then by pipeline for storage under the Norwegian sector of the North Sea. Equinor’s growing interest in carbon capture is reflected in the evidence it has put forward that subsurface formations under the Norwegian sector of the North Sea have the potential to store the equivalent of 1,000 years’ worth of Norway’s carbon dioxide emissions.
Phase one of the Northern Lights project, for which the final investment decision was made by the Northern Lights partners in May 2020, includes building capacity to transport and sequester up to 1.5 million tonnes of carbon dioxide per annum. A potential phase two of the project could see capacity increased by a further 3.5 million tonnes of carbon dioxide per annum, subject to market demand. A well to be used for injection and storage was successfully drilled in March 2020 and the facilities are scheduled to be operational in 2024.
The initial success of phase one has attracted the interest of Microsoft, which aims to become a technological partner to the project. This partnership ties in with, and facilitates, Microsoft’s broader net zero greenhouse gas emissions target of 2030.
As noted at the beginning of this article, the Norwegian government recently approved a decision to fund the $1.6 billion Northern Lights project. Despite this influx of investment, reports suggest that Equinor, Shell and Total believe that they will lose money in the first phase of this project and only break-even when carbon dioxide storage reaches full utilization.4 This illustrates the economic difficulties inherent in carbon capture and storage projects, even for energy majors, despite significant government subsidies.
The Northern Lights project will form part of a full-chain carbon capture, utilisation and storage project – Longship – which will first capture carbon from a cement factory in Brevik and a waste-to-energy facility in Oslo. The Norwegian government has pledged to provide funding for the development of Longhorn as well as 10 years of ongoing operation support, which together is estimated to cost $2.7 billion. This, again, illustrates the heavy reliance carbon capture projects have on government funding, with the Norwegian government being one of the most proactive governments in the carbon capture sector.
Pipe dreams? Carbon capture and existing infrastructure
Some carbon capture projects in development plan to capitalise on existing infrastructure. The Acorn Project, to be located in the North East of Scotland, aims to capture carbon dioxide and return it to subsurface formations in the UK sector of the North Sea. This project is designed to overcome one of the main hurdles to carbon capture – the high initial capital costs of setting up a carbon capture facility – by re-purposing legacy North Sea assets and infrastructure.
The Acorn Project is operated by Pale Blue Dot Energy with funding and support from Chrysaor, Shell, and Total, as well as the UK and Scottish Governments and the European Union. The Acorn Project will be based at the existing St Fergus gas terminal north of Aberdeen (the landing point for around one third of all natural gas used in the UK) and will use existing North Sea pipeline infrastructure (the Atlantic and Goldeneye pipelines) to transport carbon dioxide to existing gas fields that have ceased production.
In phase one, emissions will be captured from the St Fergus gas terminal itself (around 200,000 tonnes). A proposed phase two would use a new onshore pipeline to transport emissions from heavy industry in the Scottish central belt, most notably the Grangemouth refinery. The UK government’s Industrial Decarbonisation Strategy includes over £31 million of funding for initiatives linked to the Acorn project, including to fund offshore studies and detailed engineering, which could see a final investment decision on phase one taken as soon as later this year, with the first storage well to be drilled in 2022 and phase one of operations to commence in 2024.
A similar project is being considered in the North of England. The Net Zero Teesside consortium of BP, Eni, Equinor, Shell and Total are looking to develop a large-scale carbon capture, utilisation and storage facility on regenerated former steelworks land in Redcar. The consortium aims to decarbonise a cluster of carbon dioxide-intensive businesses by as early as 2030 and deliver the UK’s first zero-carbon industrial cluster, with the potential to capture up to 10 million tonnes of carbon dioxide emissions – the equivalent to the annual energy use of over three million UK homes. The UK government in March 2021 announced £52 million of funding for Net Zero Teesside, underlining the UK government’s support for the nascent carbon capture, utilisation and storage sector, as part of its Industrial Decarbonisation Strategy.
A major challenge for the success of carbon capture will always be attracting the funding required to get a project off the ground. Carbon capture and storage is not inherently well suited to project financing, and structuring a bankable model for carbon capture projects will not be straightforward. At a basic level, carbon capture represents an additional cost to an existing process, and without carbon pricing or tax incentives, sequestering your ‘product’ (carbon dioxide) in underground reservoirs does not generate revenue. Although the technology for capturing carbon is relatively well developed, the lack of mass deployment at scale means the technology is not as ‘tried and tested’ as project finance lenders would typically expect and it generally remains expensive. Every project will rely on the suitability of the physical characteristics of a distinct underground reservoir for trapping carbon dioxide indefinitely without leakage, which introduces the kind of geotechnical due diligence headache that project finance lenders tend to want to avoid.
One of the biggest hurdles for successful deployment of carbon capture technology is therefore that it needs significant and unwavering policy support to make it viable on the scale required. Carbon capture is unlikely to become widely used without incentives such as tax credits, carbon pricing mechanisms (such as the European Union emissions trading system), prescriptive regulation, government subsidies or other measures.
Carbon capture and storage has had a chequered past in the UK. In 2015, the Chancellor of the Exchequer scrapped the UK government’s proposed £1 billion ring-fenced capital budget for carbon capture technology. However, as noted earlier, over the past two years the UK government has demonstrated a renewed interest in this technology, backed by financial support. While this policy U-turn is promising, the government’s 2015 decision serves as a reminder that the widescale adoption of carbon capture globally is likely to continue to be at the mercy of favourable government policy.
A potential cornerstone for investment in carbon capture could be the much-anticipated rise in hydrogen as a clean fuel to replace the burning of conventional fossil fuels such as natural gas. Hydrogen also benefits from being more easily storable than electricity at a large scale, and hydrogen fuel cells could play a role in decarbonising the use of heavy duty vehicles such as lorries, trains and possibly even shipping. The production of so-called “blue hydrogen” is therefore perceived by some as a key stepping stone to a lower carbon future.
“Blue hydrogen” is produced by steam methane reformation, currently the same method for most of the industrial production of conventional “grey” hydrogen, with the difference that the carbon dioxide produced through the process is captured using carbon capture technology, thereby reducing (but not eliminating) the carbon emissions from the production process. This has already garnered the interest of Equinor, which announced during the summer of 2020 plans for the Hydrogen to Humber Saltend project (H2H Saltend), a facility which will produce blue hydrogen from natural gas using carbon capture technology, with the ultimate aim of contributing to the creation of a decarbonised industrial cluster in the UK’s Humber region. As with many other projects, H2H Saltend is reliant on the support and co-investment from the UK government. In March 2021, the UK government granted £75 million for H2H Saltend, again as part of its Industrial Decarbonisation Strategy.
Does carbon capture have a future in the fight against climate change?
The potential for carbon capture to mitigate climate change has long been recognised, but the deployment of carbon capture technologies has been relatively slow. Although carbon capture deployment has tripled over the last ten years, carbon capture projects currently remain geographically concentrated in the United States and North-Western Europe, with a noticeable lack of projects in the Central, Eastern and Southern Europe, the Middle East, Asia and Africa. The International Energy Agency has reported that investment in carbon capture accounts for less than 0.5% of funds invested in clean energy technologies globally.5
Achieving a net zero target will require a transformation in the way we produce and use energy. Recently, carbon capture technologies appear to have captured the interest of a wider pool of players, including governments, energy and heavy industry companies, with increased investment, tax incentives and subsidies from governments such as the Norwegian, United States and UK governments. Carbon capture is gaining momentum as a component in the drive to reduce greenhouse gas emissions and, as it stands today, its potential impact on the sustainability of conventional energy generation and industrial processes in the years to come looks very promising.
1 In June 2020, the UK government announced a pledge of £100 million of new funding towards the development of direct air capture technologies as a means of reducing carbon emissions.
2 Global CO2 emissions in 2020, IEA, Paris https://www.iea.org/articles/global-energy-review-co2-emissions-in-2020, The International Energy Agency (2021).
3 The pores in underground saline aquifers are initially filled with a fluid such as saline water. Once the carbon dioxide is injected, as it is more buoyant than the salty water, some of the carbon dioxide will migrate to the top of the formation and become structurally trapped beneath a layer of impermeable cap rock that acts as a seal.
4 See: https://uk.reuters.com/article/uk-norway-ccs/equinor-partners-see-initial-losses-from-norway-co2-storage-despite-government-subsidies-idUKKCN26D27N
5 CCUS in Clean Energy Transitions, IEA, Paris https://www.iea.org/reports/ccus-in-clean-energy-transitions, The International Energy Agency (2020).
* Grace Oyegbile is a trainee solicitor in our London office.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.