Carbon capture and storage |
De-risking CCUS: why the oil and gas industry has a key role to play
The world stands at a crossroads in its efforts to combat climate change while maintaining energy availability and security. The need to shift away from fossil fuels toward sustainable alternatives is creating challenges and opportunities for governments, industry and the financial sector. The combination of new regulatory frameworks, funding solutions, and technological advancements can help to de-risk green investment opportunities and minimise investment risks in carbon capture, utilisation and storage (CCUS) projects, with the oil & gas industry playing a key role in the energy transition
Dr Valentina Dedi Lead Economist, KBR
Governments around the world have acknowledged the urgency of accelerating the energy transition and have prioritised capital allocation in their energy policies. The Paris Agreement sets ambitious targets for reducing greenhouse gas emissions and limiting global temperature rise to well below 2°C relative to pre-industrial levels. Meeting these targets requires an unprecedented level of investment in clean energy technologies and infrastructure. According to S&P Global Platts, if the targets agreed by the world’s major economies under the Paris Agreement were to be met by 2050, it would mean more than $5 trillion in investment each year between now and 2050. To put this into perspective, this is equivalent to investing more than Germany’s entire current economy every year for the next two and a half decades. This scale of investment is well beyond what government budgets can afford. Large-scale private sector engagement will be critical too, including from the oil and gas industry. In recent years, significant capital has been directed towards energy transition projects.
Photo: KBR
However, these investments have been largely constrained to commercially viable projects, primarily favouring renewable power generation, such as wind and solar. These technologies have matured and are now market-ready thanks to a continuous decline in technology costs and the advances in efficiency over the past decade. While they are crucial to the energy transition, they alone cannot address the full scope of the challenge, and especially the decarbonisation of the hard-to- abate sectors.
The decarbonisation potential of CCUS projects
In Salah gas complex, Algeria. Oil & gas industry CCUS experience gained from projects here, and at the Tangguh LNG facility, Indonesia (opposite), can help de-risk CCUS technology development
CCUS has the scope to play a pivotal role. It can be deployed at fossil fuel power plants and in industries such as cement, iron and steel, and chemicals, where carbon dioxide can be captured and sequestered or used to create products such as fuels and chemicals. CCUS can also provide a relatively low-cost pathway for low-carbon hydrogen production, which can further contribute to the decarbonisation of the industry and transportation sector, or it can enable the removal of carbon dioxide directly from the atmosphere via direct air capture with storage (DACS) or bioenergy with CCS (BECCS). This technology is particularly relevant for the oil and gas industry, as it can help mitigate emissions from their operations and products. Although the adoption of CCS has lagged behind initial projections, there has been a substantial increase in activity and interest in recent years. Across the globe, novel technologies are being piloted with the goal of driving down costs for both the power generation and industrial sectors. In addition to chemical absorption and physical separation, the two most advanced capture technologies, other separation technologies are also being tested, including membranes and looping cycles.
To meet net-zero targets, CCUS deployment must increase by several orders of magnitude
26 | January/February 2025|
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within the next two to three decades. In the case of the US, it would mean a scale up to as much as 100 times today’s levels, according to the US Department of Energy’s Office of Clean Energy Demonstrations (OCED). While an ever-increasing number of projects across the entire value chain are being announced, only a fraction of them can take a positive final investment decision.
CCS is not a new technology, but the challenge lies in the economics of its large- scale deployment as investors face several uncertainties and risks. These can entail technology failures, cost overruns, extended timeframes, and high capital costs, among others.
Another significant risk factor is the lack of clarity with respect to the demand outlook, which makes it challenging for investors to understand the scale of opportunity, and, thus, for projects to reach a financial investment decision. Scaling up the infrastructure needed to transport and store captured carbon dioxide also requires the development of new business models that secure the required revenue streams, as well as partnerships between emitters, technology providers, and storage operators.
The oil and gas industry, with its expertise in managing large-scale infrastructure projects and subsurface storage, can play a key role here.
The importance of policy and regulation
Realising the full potential of CCUS technology, especially at these early stages, will require continued policy support and collaboration between governments, industry, and investors. Coming up with the right policy framework and financing and incentive mechanisms will be critical. Governments and policymakers must establish an environment which creates stability and revenue predictability to attract the required investment and support the acceleration of the technology.
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