Resources

Renewables are gaining ground – but how does carbon capture and sequestration work, and can companies afford it? Pavel Molchanov, Raymond James managing director and energy analyst, explains.

The Russia-Ukraine war has highlighted Russia’s role in the global energy market. Many nations, including the United States, are seeking ways to disentangle from dependence on Russian fossil fuels. Renewable energy is gaining ground, but the transition away from fossil fuels may in some cases require a 1:1 switch to similar hydrocarbons. That is why decarbonization is such an important part of the new energy era, including the process of carbon capture and sequestration (CCS).

The U.S. is ahead of all other countries combined in CCS deployment, despite being one of only two industrialized countries without a nationwide carbon pricing policy. Even with the U.S. leading on this issue, CCS capacity as of 2021 was only 40 million metric tons. In contrast, global carbon dioxide (CO₂) emissions in 2021 were approximately 36 billion tons, which means that only 0.1% of that was captured and sequestered.*

Why isn’t carbon capture more widely used?

It’s expensive, costing roughly $50 to $100 per ton, combining both capture and sequestration. For enhanced oil recovery (EOR) – which accounts for 75% of worldwide CCS capacity – oil producers typically find naturally occurring (extracted) CO₂ to be cheaper than captured CO₂.

As it relates to power plants – some of the world’s largest individual emitters – it is frequently simpler to shut them down rather than deploy CCS. As U.S. utilities decarbonize, they retire their legacy coal plants and replace them with some combination of wind, solar, power storage and natural gas. Much the same is taking place in China and India. In Europe, labor union strength sometimes keeps coal plants operating for longer than they otherwise would, but asset retirements are still routine.

On the other hand, CCS tends to be a more attractive option for large-scale emitters that cannot be realistically mothballed. This includes refineries, liquefied natural gas processing facilities, chemical plants, hydrogen plants, fertilizer plants and steel mills. CCS enters the conversation when companies in these industries face ESG investor pressure and/or regulatory mandates to decarbonize on an accelerated timetable.

Oil prices, EU embargos and Russia’s effect on renewables

Is the war in Ukraine responsible for soaring gas prices? How do U.S. economic conditions affect the global oil market? And what does it all mean for decarbonization? Hear more from Raymond James director and energy analyst Pavel Molchanov in the latest episode of For What It’s Worth.

  

You’ve got CO₂. Now what?

Once companies have captured carbon via post-combustion, pre-combustion or direct air capture processes, the next step is to store or use it. Historically, the only economically viable method of sequestration was to inject the CO₂ into mature oilfields as part of EOR. Oil and gas producers have been the earliest adopters of CCS. The well-established history of EOR in the U.S. is a key reason for the outsized role of the U.S. in scaling up CCS.

For two reasons, the mainstreaming of CCS requires significant diversification beyond EOR. First, EOR is only applicable in oil-producing geographies. For CCS to reach scale in key economies, such as Japan, South Korea, most of Europe (beyond the North Sea region) and large parts of China, it cannot rely on EOR. Second, even in areas with EOR operations, the need for captured CO₂ is finite in scope as well as duration. The global oil and gas industry’s very cautious approach toward capital spending and the fact that peak oil demand is looming on the horizon both point to reduced emphasis on EOR over time. So what else can be done with CO₂? This is what the bulk of the CCS startups are working on.

• Dedicated geological storage: In places where oil (or gas) fields are so mature that they are essentially depleted, it is often possible to use those empty reservoirs for sequestration.
• Production of fuels and chemicals: Fuels and chemicals can be derived from captured CO₂ feedstock. These end products are not “bio-based,” but they are certainly climate-friendly. Not only is the captured CO₂ kept from the atmosphere, but the process also displaces petroleum or natural gas that would otherwise be consumed.
• Production of concrete: Concrete production accounts for approximately 8% of global CO₂ emissions and is the second most widely used substance on earth, behind only water. The most elegant solution to decarbonizing concrete is to use captured CO₂ as a feedstock. According to CarbonCure, which has sold more than 550 production systems around the world, mineralized CO₂ increases concrete’s compressive strength by 10%.

Solutions that ease the transition from fossil fuels – Russian or otherwise – to renewables will continue to play an important role in the evolution of the energy sector. While big companies may be slow to adapt CCS due to cost and other considerations, smaller startups may prove big innovators (and opportunities) in the field of carbon capture.

*Source: Global CCS Institute