Webinar Recap: Emerging Carbon Sequestration Markets
Highlights from our conversation with CO2 sequestration experts about project pipeline growth and what to watch for in the future. In case you missed it, the recording can be viewed here!
Last week, I had the pleasure of going deep into emerging markets for CO2 sequestration with three people who are out there making it happen: Adrian Corless, CEO of Carbon Capture Inc.; Robby Rockey, CEO of Frontier Carbon Solutions; and Dick Lonquist, Chairman of Lonquist Sequestration.
Click here to watch the recording.
Highlights
Why do we think CO2 sequestration is exciting (and necessary)? As the Intergovernmental Panel on Climate Change (IPCC) and scientific community keep telling us, the world needs to reach “net zero” emissions by 2050 if we want to limit global warming to 1.5 degrees C or less. Current global CO2 emissions are roughly 40 gigatonnes (or 40 billion tonnes) of CO2 per year, a long way to go to get to zero. While electrifying power production, transportation, and other sectors is critical, the IPCC estimates that 10 gigatonnes of CO2 a year needs to be from the atmosphere by 2050 to get us to net zero CO2 emissions. [1] Bottom line: We have a 40 gigatonne problem to solve over the next 25 years, and we need to be halfway there by 2030 to be on track.
Something needs to be done with the gigatonnes of CO2 that we hope will be captured from emissions sources or removed from the atmosphere. We’re excited about technologies to convert CO2 into useful products — cement, plastics, fuels — but given the amount of CO2 we’re talking about, a lot of it needs to go back underground. There are immediate opportunities in carbon sequestration.
What markets are emerging for carbon capture, utilization and sequestration (CCUS)? Both regulatory and voluntary markets for capturing CO2 are growing. Here in the US, the key regulatory market is the 45Q tax credit established by Section 45Q of the US tax code. In 2018, the value of these tax credits was increased to $50/per tonne CO2 sequestered, or $35/tonne CO2 used for EOR. There seems to be strong bipartisan support to further update the 45Q tax credit to over $75–180/tonne CO2, depending on how it is captured and used. [2]
“Until the government initiated the tax credits for this, we never got one phone call [about CO2 sequestration]. But we’re currently working on about 70 projects in 18 jurisdictions in the US and Canada.” — Dick Lonquist, Chairman of Lonquist Sequestration
California’s Low Carbon Fuel Standard (LCFS) also allows credits to be generated through direct air capture. The price of these credits is significant, though it has fallen significantly from almost $200/tonne CO2 last year to about $90/tonne CO2 currently due to reduced demand (COVID) and increased supply (new renewable diesel facilities). [3]
Outside of the US, the EU’s Emissions Trading System (ETS) is a large potential market for credits generated from CO2 sequestration. The ETS cap and trade system that is currently trading between 80 and 90 euros per tonne CO2. Increasingly, Canada is incentivizing CCUS projects as well.
In addition to regulatory markets, many major corporations (Stripe, Shopify, Microsoft, Salesforce… the list goes on) have also made over a billion dollars in voluntary commitments to purchase CO2 credits “at cost”, effectively helping early carbon removal technologies come down the learning curve. While this is effectively scaling capital rather than a true market, it’s a strong signal of future interest in high quality carbon credits.
How hard is it to put CO2 underground? We have been successfully storing CO2 underground safely for decades, though this knowledge has been buried inside the oil and gas industry (har har). In the US, hundreds of millions of tonnes per year of CO2 are injected into depleted oil fields for enhanced oil recovery (EOR). For example, Wyoming has put around 6 million tonnes of CO2 underground per year for the last 30 years. That’s a few hundred million tonnes of CO2 stored. [3] Additional CO2, H2S, and other gases are routinely injected into acid gas disposal wells (under EPA Class 2 permits).
What’s new about the CO2 sequestration projects being developed today are the CO2 capture equipment (the source of the CO2) and the permitting pathway (EPA Class 6). Today, most CO2 injected underground comes from natural CO2 deposits rather than carbon capture. [4]
Definitions: The US EPA permits Class 2 wells for oil and gas operations (including CO2 and H2S disposal). The EPA created the Class 6 well permit in 2010 for CO2 sequestration. Only two Class 6 wells have been approved by the EPA so far.
Where are CO2 sequestration projects being developed? Many of the first CCS projects are planned for Wyoming and South Dakota, whose regulatory frameworks allow permitting in months vs years. These states have “Class 6 primacy,” meaning the state has permission from the EPA to issue permits for CO2 sequestration wells. Frontier Carbon Solutions is focused on operations in the Rockies for this reason, and due to the region’s long history of successful CO2 storage via EOR.
Wyoming also recently passed legislation (SB47) that allows the state to take over liability for the sequestered CO2 after 20 years, as long as certain conditions are met. This makes insuring and financing a carbon sequestration project significantly easier! (Especially if the company leading the project is a new company or startup.)
Lonquist highlighted the benefits of other regions — 80% of Lonquist’s sequestration projects are in the gulf coast. The gulf coast has both a high concentration of industrial and O&G facilities that are candidates for CO2 capture, and a lot of good rock.
Speaking of good rock: what type of rock is needed? There are a few types of geologies that are being considered for CO2 sequestration: 1) depleted oil and gas fields, 2) saline aquifers, and 3) areas with ultramafic rock, which reacts with CO2 to form a mineral (vs the CO2 remaining trapped as a gas).
To sequester CO2 in depleted oil fields, the wells may need to be reconditioned, which can require a significant amount of resources. According to Mr. Rockey there is a lot of hidden risk in repurposing old oil wells. As a result, most US carbon sequestration projects use saline aquifers. According to Mr. Lonquist, 90% of their projects are saline aquifer projects. Part of the extensive permitting process is demonstrating that the geology prevents injected CO2 from contaminating potable groundwater. (The safe drinking water act of 1974 is there for a reason!) In both cases, the CO2 is sequestered in the pore space (empty space) within a rock formation, generally beneath an impermeable “cap rock”.
There are also ultramafic rock formations — CO2 injected into these formations mineralizes (turns into rock) over months, eliminating concerns about it possibly escaping. The US has good formations for mineralization including for example Rio Tinto’s nickel mine in Minnesota (shameless plug), as well as some areas on the West Coast. These rock formations also tend to be shallow (on the order of 1000 ft deep), which reduces well costs.
How do we make sure the CO2 stays sequestered? The most intensive part of the 1000-page application for injection permits is proving that the CO2 will stay put, through geologic studies and modeling. CO2 plumes are primarily imaged with seismic imaging. In typical EOR operations, seismic data is collected every few years to monitor the CO2 plume.
What are the voluntary markets asking for? The corporations making voluntary carbon credit purchases are hiring their own teams of experts to do this, but also relying on the EPA and states’ Class 6 well certifications. It’s still early days — there aren’t established sets of processes out there.
How much does this permitting and development work cost? The extensive reservoir modeling and other permitting requirements do create a major financial barrier to filing a CO2 sequestration permit. The amount of effort that goes into preparing Class 6 permit applications is 10–20x more than the effort required for other permits used for gas disposal by the oil & gas industry. Filing three permits (e.g. for a project with 3 CO2 sequestration wells — each well bore is a different permit) will cost a few million dollars.
On top of financial resources, the EPA estimates that it takes 1 man-year to review each Class 6 application — if the project isn’t in WY or ND, the time for permit review and approval is a multiyear wait!
What are the major cost drivers of sequestration projects? Outside of permitting activities, the major drivers of project cost are the wells, CO2 compression, and pipelines. A sequestration well likely costs on the order of $7–15mm per well, and is designed to sequester ~1 million tonnes of CO2 per year for a 20–30 year life. (This may be 2.5mm tonnes of CO2 per well on the gulf coast, depending on geology.) For CO2 pipelines, a first-order assumption is about $1mm per mile. The CO2 is typically compressed to 1400–1500 psi (100 bar) for injection so that it behaves like a liquid and can be easily pumped — depending on the cost of electricity, compression may add about $10/tonne CO2.
What CO2 sales price or credit pricing is needed for sequestration projects to pencil out? There is industry consensus that CO2 capture from emissions sources (think smokestacks) becomes attractive at a CO2 price of $85/tonne. Our panelists are also seeing CO2 capture projects on post-combustion sources happening at $50–70/tonne. Changes to the 45Q tax credit would spur additional projects. [2] However, people are starting to make investment decisions to start both industrial carbon capture and direct air capture projects regardless.
The voluntary offset market is currently paying higher prices per tonne CO2 — some corporates (e.g. Stripe) are buying some initial credits at their actual cost ($75–2,000/tonne) to catalyze technology development. However, the pathway between the first few million tonnes and billions of tonnes is still very unclear. Is this demand going to be enough to get down the cost curve?
Canada has taken a different approach, offering an Investment Tax Credit (ITC) to cover 60% of the CAPEX of direct air capture projects, and 50% of CCUS projects. Mr. Lonquist pointed out an additional advantage that Canada has: all the pore space in Canada belongs to the crown, as opposed to the US where understanding land, pore space and mineral rights gets much more complicated. [5] (Note: Mineral rights and pore space rights are different — pore space is attached to the surface landowner, while mineral rights can be separated from the landowner.)
How much land is typically used for a project? How much space would be needed to sequester a gigatonne of CO2? As an example of the scale of CO2 sequestration projects, a typical section (mile) can store 18–20 million tonnes of CO2. Doing some rough math, the land needed to store a billion tonnes of CO2 is about 50 square miles.
What is the biggest challenge that needs to be addressed for CO2 sequestration? The EPA permitting process and timeline is the 800-pound gorilla in the room (read: bottleneck). For those in Louisiana, Texas, or any EPA-regulated state, it will take 2–5 years just to get a permit for CO2 sequestration. These permits are very technical and require review by engineers, geophysicists, etc. — thousands of technical reviewers will need to be hired to keep up with and accelerate this process.
If you want to contact your members of Congress about improving the CO2 permitting process (or anything else on your mind!) here is a link to get in touch.
Looking into your crystal ball, how much CO2 will be sequestered in the next ten years? There is a lot of void space between today and where we want to be. The amount of CO2 sequestered will really start to be material at the 20-year mark. Dick and Adrian think it’s possible to get to 100 million tonnes of CO2 sequestered in the next ten years. While 100 million tonnes is inconsequential from a climate standpoint, this is still a huge amount of infrastructure to build, and necessary for carbon capture technologies to mature enough to scale further.
Building out carbon storage hubs today will allow massive acceleration in the second decade, much like how we move crude oil around today. In the future, it’s not crazy to imagine a world where CO2 and hydrogen are captured or generated in many different regions and moved around via pipeline, much like oil and gas operations are ubiquitous today. CCUS facilities will be onshore or offshore; in Texas, the Rockies, the gulf coast, and other regions. They will use slightly different technologies depending on the mix of thermal energy and electricity available, the local weather, and what sequestration or utilization applications are happening locally.
Notes
- Where else could we store 10 gigatonnes of CO2? What about planting trees? We should absolutely plant lots of trees, but that alone won’t solve the problem. Scientists are still working to determine how much CO2 trees actually store and for how long, but this recent study by the Nature Conservatory estimates that 330 million tonnes of CO2 per year could be captured by planting trees in the US.
- An increase to $85/tonne CO2 for point source CO2 capture and $180/tonne CO2 for direct air capture was proposed last fall, as well as updates to enable small companies to access the credits and encourage more project starts. Updates to 45Q have already been proposed through other bills with bipartisan sponsorship. For more info on the status of 45Q legislation, see the Clean Air Task Force’s recent summary.
- The drop in LCFS pricing is the result of decreased fuel demand in California due to COVID, new renewable diesel capacity coming online, and other supply chain shocks.
- Currently, ~70% of the CO2 used for EOR comes from natural underground deposits — yes, in some places we take pure CO2 out of the ground! There are a small number of commercial “point source” CO2 capture facilities operating, and just one facility capturing CO2 directly from the air . (Climeworks’s project with Carbfix in Iceland, which captures just 4000 tonnes of CO2 per year.)
- In particularly complex cases, you can also get into 3D tetris: developers have to worry about creating a drilling hazard by sequestering CO2 over top of an oil field.
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