BofA, Occidental, Former EIA Chief Talk Carbon Capture

Advancing carbon capture, utilization and storage in the race to net-zero will require incentives for innovation, governmental support and investment, according to a panel of energy experts.

Many of the world’s largest players in oil and gas are counting on carbon capture to help lower emissions. Through a collection of technologies, CO₂ captured can be permanently stored in geological formations underground or used for other processes such as CO₂ for EOR.

Efforts to shrink carbon footprints have mostly been centered on efficiency and renewables; however, carbon capture, utilization and sequestration (CCUS) removes carbon altogether, Adam Sieminski, president of the King Abdullah Petroleum Studies and Research Center and former administrator for the U.S. Energy Information Administration, said during CERAWeek by IHSMarkit last week.

The carbon capture concept has been around for decades and used for EOR, but uptake in recent years amid the global transition to a net-zero economy has been slow, given its high costs limit commercial feasibility. Capturing opportunity is possible, however, experts say.

“You want to incentivize innovation. You want to minimize government investment when you can,” Sieminski said, noting large-scale deployment is needed and highlighted the scalability of CCUS. “You’d like to increase industry competitiveness, and you want to minimize the overall costs …so that consumers can afford the energy products that they want to buy.”

In the U.S., the 45Q tax credit is incentivizing companies to dive into carbon capture projects. The U.S. Treasury Department and the Internal Revenue Service issued in January final regulations regarding the credit for qualified carbon oxide sequestration using carbon capture equipment. The move extended by two years the deadline for when construction must start on carbon capture projects to qualify for the tax credit.

The regulations also allow smaller carbon capture facilities to come together for a single project to claim the credit if certain criteria are met and establish procedures for allowing third-party taxpayers to claim the credit among other rules and oversight.

“45Q has been a very effective tool in a U.S. context, primarily because you do get bipartisan support,” said J.R. Rickertsen, managing director of energy corporate banking for BofA Securities Inc. “It’s easier essentially to allocate a tax credit than it is to try to allocate a tax cost, and that has really resulted in its bipartisan support.”

That said, there is still room for improvement, he added, turning to pricing.

“At the end of the day, whatever mechanism you’re looking for to finance carbon capture investment, you’re looking for a sufficient and stable CO₂ price to make that work,” Rickertsen said. “And so current pricing at $50 a tonne will potentially result in a doubling, for example, of current U.S. installed CCUS capacity. But a higher price, say a move to $100 or $110 may end up redoubling it again.”

Other avenues to encourage investment in CCUS include direct financial assistance, offtake agreements in which CO₂ is sold and cost recovery mechanisms, Siemenski added, noting a state- or federal-based liability forgiveness could also encourage investment.


Road to Net-Zero

Companies have already begun to adjust business models, incorporating carbon capture into the mix. Occidental Petroleum Corp. is among the leaders with subsidiary Oxy Low Carbon Ventures. The Houston-headquartered company is building on its decades of carbon management expertise to grow a sustainable business model.

The company, working with Macquarie Group’s commodities and global markets group, announced in late January delivery of the industry’s first major shipment of carbon-neutral oil—2 million barrels for Reliance Industries in India. The transaction, as Oxy Low Carbon Ventures explained in a news release, “results in the offset of an amount of carbon dioxide equivalent to that associated with the production, delivery and refining of the crude oil and the use of the resulting product through the retirement of carbon offset credits.”

Robert Zeller, vice president of technology for Oxy Low Carbon Ventures, called it the “first step of a new market of climate-differentiated crude oil.”

“We look at this as a bridge for something that we’re working hard on, which we call ‘net-zero oil,’” Zeller said. “We’re eventually going to produce oil using the capture and sequestration of atmospheric CO₂ on an industrial scale, using direct air capture facilities.”

Net-zero oil essentially aims to offset the amount of greenhouse gas produced during the production, delivery and refining of oil and the product’s use with the amount removed from the atmosphere.

Carbon-neutral gasoline and jet fuel could be sold just like carbon-neutral oil to help balance emissions in hard to abate areas such as industrial areas like transportation and cement, Sieminski said. “There are also nature-based solutions that make a lot of sense,” Sieminski added, pointing out potential for mangrove restoration along the Texas, Louisiana and Florida coasts.

Occidental, which aims to hit its net-zero target by 2050, has partnered with several others to help lower greenhouse gas emissions. It teamed with Rusheen Capital Management to form 1PointFive to deploy Canada-based Carbon Engineering’s direct air capture technology in the Permian Basin. Worley was tapped in February to carry out FEED work for the facility. Construction is expected to begin in 2022.

Oxy also partnered with Cemvita Factory to convert CO₂ into ethylene and Net Power, the company behind the Allam-Fetvedt Cycle technology that converts natural and renewable gas into emissions-free power. “And we’re excited about this blockchain end-to-end tracking of carbon intensity with Carbon Finance Labs,” Zeller said.

“We’re not choosing or chasing a real shiny object,” Zeller said. “We’re trying to do what we do well and amplify what other people can bring to the table to make it better, so our core competencies in exploration, production, chemical innovations, carbon management and active investing is helping move multiple technologies to commerciality.”

Attracting Investments

Given the ongoing ESG movement, such projects could be seen as a positive for investors.

“Special purpose acquisition companies, SPACs, in the United States really has been attracted to anything that has a particularly helpful energy transition angle to it,” Rickertsen said. “It shows that there is appetite.”

However, risks still exist.

“I’m a corporate banker. … The mantra that I learned when I started was, first, lose no money. Second, try to make some,” he added. That means, return of principal is the primary goal.

“Beyond that, you can ask the question of what should the capital ultimately end up costing?”

Socially responsible investment is also important, Sieminski added.

But eliminating investment in hydrocarbon-producing companies “just doesn't make any sense to me.” He called it short-sighted given billions of people don’t have electricity or clean cooking fuels, and need hydrocarbons for energy.

“We need solutions that deal with the fact that those hydrocarbons are going to have emissions,” he said. “And I think that providing incentives for the technology associated with cleaning up those emissions …is terribly important and is being overlooked by a lot of the people that just simply want to ban fossil fuels.”

As BoA mobilizes $445 billion worth of capital through 2030, Rickertson said he believes there will likely be focus on projects “driven by credit worthy counterparties that are trying to, to the greatest extent possible, address a lot of the operational risks with their credit and where the bank is initially investing, taking a bit of the regulatory tax risk as we work out how the structures work.”

In the past, MLPs were effective at attracting equity. Between 2013 and 2014, about $50 billion came into MLPs, Rickertson said. “That’s about as much as we’ve spent over a 10-year period through tax credits, subsidies and direct support on wind and solar when it really took off over a 10-year period.”

He envisioned harnessing that power to create an MLP 2.0.

“The investors would need to be able to benefit from whatever tax supports were being provided,” he said. “I think that may be an avenue to democratize the finance of the equity and really see it take off in investment.”