Boosted By Incentives, Carbon Capture Gains Momentum

Carbon management and other emissions reduction technologies are gaining priority in oil and gas-producing basins across the U.S. as companies look to reduce their carbon footprints amid the energy transition.

The moves come as investors and shareholders pressure energy companies to address climate change, doing their part to cap global warming to about 1.5 C. Making the task more challenging, however, is building a sustainable portfolio without compromising profitability and maintaining energy security, something that is frequently rocked by geopolitics.

The balancing act is bringing together traditional trios of operators, service companies and midstream players with technology specialists, startups and others from different sectors as many target net-zero emissions by 2050.

The task at hand appears to be big, considering data from the U.S. Environmental Protection Agency show total emissions reported from the petroleum and natural gas systems sector have increased, rising to 312.2 million metric tons of carbon dioxide equivalent (MMt CO₂e) in 2021 from 276.7 MMt CO₂e in 2016. While methane emissions fell to 70.9 MMt CO₂e from 89.8 during the same period, CO₂ emissions jumped to 241.2 MMt CO₂e from 186.7 MMt CO₂e.

Carbon capture and storage (CCS) is being eyed as one of the solutions to wrangle emissions. And incentives in the Inflation Reduction Act of 2022—such as an increase to the 45Q tax credit, expanded construction deadlines and lower carbon capture thresholds—are luring companies to incorporate CCS into their emission reduction strategies.

Despite the added benefits, experts say there are still challenges ahead.

“Every major company has the concerns that the whole world has,” said Charles Fridge, CEO of Verde CO₂, a CCS developer focused on carbon capture, transmission, storage and monitoring. “That is a need to decarbonize—either for their investor base or just for the greater good of humanity.”

However, when it comes to implementing CCS, some companies, he added, have suffered from “paralysis by analysis,” weighing pure sequestration versus enhanced oil and gas recovery and needs to lower the carbon intensity of hydrocarbons needed today.

Experts say carbon capture technologies are critical to lowering greenhouse gas emissions, which are mostly comprised of CO₂.

Incentivizing action

Companies did not have a clear line of sight that showed how to make a CCS business model work and get returns until 2021 when the U.S. Treasury spelled out who could earn the 45Q tax credits, Fridge told Hart Energy. The Internal Revenue Code section debuted in 2008, but changes brought by the Bipartisan Budget Act of 2019 led to the IRS and Treasury Department publishing in 2021 final details on regulations meant to encourage CCUS projects.

The Inflation Reduction Act (IRA), which became law in August 2022, could encourage more developers to pursue such projects as significant tax credits and other benefits improve project economics. The 45Q tax credit is $17/metric ton for sequestered qualified carbon oxide, but the value jumps to $60 per ton for storage associated with enhanced oil recovery (EOR), $85 per ton for dedicated geologic storage, $130 per ton for direct air capture with carbon utilization and up to $180 per ton for direct air capture with carbon storage.

Certain wage and apprenticeship requirements must be met in some instances.

Making CCS projects even more attractive are direct pay options, the ability to transfer the credits and a lower carbon capture threshold for some plants and facilities. The IRA also gives companies more time to start construction to qualify for the credits.

“There’s been a significant increase in the number of projects that are in development just since 2018,” Jeff Erikson, general manager of client engagement for the Global CCS Institute, said in November during KPMG’s Global Energy Transformation Conference in Houston. “The IRA then took it to a point where many more facilities are now in the money or close to the money.”

Getting started

Collaboration and partnerships have emerged in pursuit of CCS projects. These include Talos Energy, Carbonvert and Chevron Corp. teaming up for the Bayou Bend CCS hub; Exxon Mobil Corp. and several others pushing to develop a massive CCS hub in the Houston Ship Channel; and California Resources Corp. forming a carbon capture JV with Brookfield Asset Management Inc.

Occidental and its 1PointFive subsidiary is working with the King Ranch agricultural production and resource management company on what the oil and gas producer said will be the largest direct air capture (DAC) deployment project in the world. Its lease agreement could support up to 30 DAC plants, with the potential to remove up to 30 MMmt of CO₂ per year through DAC with enough pore space estimated to store up to 3 billon metric tons of CO₂, the company said.

“What we’re seeing now, especially post Inflation Reduction Act, is very akin to the start of the unconventional days,” Fridge said. “You’ve got a land rush.”

He pointed to areas blessed with Miocene- and Oligocene-aged formations along the Gulf Coast and other parts of the country that are ideal for carbon sequestration.

Property owners whose land have had no oil and gas production due to the lack of traps and seals for traditional oil and gas find themselves with ideal locations for injection and permanent storage of CO₂, he added.

A week before the IRA’s passage, only a handful of companies with land teams were out in certain areas knocking on doors, Fridge recalled, noting Verde, Talos Energy, Exxon Mobil and Oxy Low Carbon Ventures were among them.

“Not a big rush. Fast forward six weeks after, the same landowners I was talking to had received 20 to 30 calls from startup companies, from oil and gas companies,” that had decided to start pursuing projects, he said.

Verde CO₂ is working with Denver-based natural gas producer BKV Corp. to identify CCS projects as the company looks to expand its emissions reduction efforts. BKV, the largest producer in the Barnett Shale with assets also in the Marcellus Shale, expects to have its initial CCS project online by the end of 2023. EnLink Midstream will transport the natural gas from BKV’s Barnett operations in North Texas to a processing plant where CO₂ will be captured, compressed and permanently sequestered by a nearby injection well, BKV said on its website.

“They have very ambitious carbon reduction goals, so much so that they started with a $250 million commitment to these projects,” Fridge said of Verde’s agreement with BKV. The two are already working on projects, including one on the Texas Gulf Coast. “It is a nonexclusive joint venture where we both put money in to develop pure carbon sequestration projects.”

Verde currently has projects in five areas across the U.S. The three biggest considerations when finding spots for carbon sequestration, Fridge said, are storage capacity, reservoir quality and containment.

One of the greatest concerns is finding suitable locations to inject CO₂, particularly in some formations where vintage wellbores could be problematic in terms of cross flow moving uphole from a sequestration interval, according to Fridge.

Assessing economics

It’s still the early days, however, for CCS.

There are about 30 CCS projects in operation globally, and about 13 of these are in the U.S., Erikson said.

“Despite the money that’s out there, not every industry and not every facility is going to be able to develop and deploy a CCS project that is in the black, even with the increased support for that,” Erikson said. “The economics on a per project basis continue to be a challenge. I think companies actually need to look beyond the project economics and look at the impact that it has on their business, their ability to attract new clients that want net zero or want to work with companies that are committed to a net-zero pathway to preserve their current market share.”

A sufficient amount of CO₂ is needed to justify investments, according to Chad Zamarin, senior vice president of corporate strategic development for Williams Cos. Project returns are supported by the increased 45Q credit in the IRA.

Williams is working to decarbonize the natural gas value chain by developing CCS infrastructure as part of its Louisiana Energy Gateway project, which will gather 1.8 Bcf/d of natural gas produced in the Haynesville to customers along the Gulf Coast.

With more than 5 Bcf/d of gathering infrastructure already in the Haynesville, the company has a large footprint to leverage. 

“It’s all about aggregating enough CO₂ and getting it in a large enough quantity to make it economic because it takes a lot of infrastructure to capture the CO₂,” Zamarin told Hart Energy. “In the Haynesville, we have a large footprint and we can leverage that scale to capture a lot of CO₂. We’re targeting capturing 2 million tonnes per year of CO₂ from the entire basin.”

Plans are to inject the captured carbon into the same pipes Williams utilizes to gather gas and deliver it south to a hub where companies will separate the gas from the CO₂, move it through a CO₂ pipeline and then permanently store it underground, Zamarin explained.

“You’ve got some key elements there that make it a good first place to prove out that technology,” he added. “We feel really good about it.”

If the project is a success, the concept could be carried out in other shale plays; however, technologies and techniques may need to be adapted to different geologies, he said.

“Louisiana has good geology for permanent storage of CO₂. We’re looking at a big decarbonization project in Wyoming, along with wind power, hydrogen and good ability to store,” Zamarin said. “We’re looking at different technology for different places. In some parts of the country, underground storage may not be the solution for CO₂. So, we’re going to need to, as a country, figure out other technologies to capture the CO₂.”

Tapping technology

Digital technologies, including high performance computing, could play a beneficial role, providing insight into design feasibility, scalability and costs, according to Hema Prapoo, energy industry director, Americas, for Microsoft. She pointed out that 80% of the cost of CCUS projects are for capture.

Microsoft is among the technology partners on Northern Lights, part of the Longship CCS project offshore Norway with a focus on CO₂ transport and permanent storage. It has also worked with Aker Carbon Capture and Ørsted to explore ways to accelerate development off biogenic carbon capture.

“When we look at the shale environment when we are trying to drill wells, we are leaving a lot of reserves down there,” Prapoo said at the Houston conference. “But when you’re looking at CCUS, you cannot afford to have this carbon seep back up to the atmosphere. So, in order to do that, it’s very good to run your reservoir modeling.”

Digitization opportunities could come with use of sensors, machine learning and digital twins to ensure carbon is being captured and moving in the right direction, she said.

Williams is also tapping technology to manage carbon and other emissions via investments in several tech startups, including Context Labs, a data software company; and Satlantis Technology, a satellite-based GHG monitoring company.

“What we’re doing is creating a technology that will allow us to track the emissions of the full lifecycle of energy that we’re moving across our systems,” Zamarin said, adding certificates with traceable emissions fingerprints will be generated.

The company wants to add the emissions profile of energy, specifically natural gas, to variables that include geography and price to connect end-users to the cleanest sources of energy, he added. “We’re calling it next-gen gas.”

Looking ahead

While technologies are poised to help overcome challenges and open new CCS opportunities, there are other issues to tackle aboveground. Getting permits for needed infrastructure is among them.

“I think it’s going to be difficult in many parts of the country to get pipelines built, which is essential to build out the network here in a timely manner,” Erikson said. “The clock is ticking. We are in a race against time.”

There were nearly 200 projects in the global CCS facilities pipeline as of September 2022, according to the Global CCS Institute’s 2022 Status Report, which noted new projects were announced each month that year. The count was 44% higher than 2021.

Asked whether CCUS will be a success or not, Erikson spoke of heavy headwinds and misunderstanding about what CCUS does.

“For some folks, there is a sense that the best way to decarbonize the oil industry is to get rid of the oil industry, and I get that,” Erikson said, adding they are committed to a stable climate. “There are some challenges out there. So, it’s important for all of us to engage with our communities, our neighbors, with our policymakers and others to make sure that we are moving this forward because … study after study says that you may be able to get a stable climate without CCS, but it’s unlikely.”