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Energy ESG: Investing in Our Future
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The trajectory of carbon capture, utilization and storage (CCUS) adoption will likely mirror that of the shale revolution.
“What we’re going to find is that, as the CCUS business begins to be built out, there will be clusters of activity and real hubs,” said Benjamin Heard, principal with Gulf Coast Sequestration. “We’re going to see what we’ve seen in other forms of development, which is that economies of scale take over and there begins to be a concentration, not only of activity where the carbon is produced, but also activity where you see both the transport and the storage.”
Various development projects also show how valuable the emerging technologies are beyond the energy space, according to members of the carbon capture technologies panel at Hart Energy’s Energy ESG conference earlier this year.
Future looks like…
The parallels to shale development start with assumptions made about 15 years ago in the shale boom’s infancy. At the time, shale pioneers leased enormous amounts of acreage for development, believing that the resource potential was much larger than traditional expectations with conventional reservoirs, Heard said. There was also the belief that the shale revolution would be exported around the globe.
“I think what we found in both of those circumstances was that shale was real, that the resource was real [and] it was accessible, perhaps not as economically as some of the investors would have wanted it to be,” he said. “But what you really found was that the production came from real sweet spots that began to be developed, and the sweet spots shrunk in size over time. And that reminds me of an adage, geologically, which is that big fields get bigger and small fields get smaller.”
Typically, agricultural waste is burned off in California, releasing a fine particulate matter known as black carbon. The Center for Climate and Energy Solutions considers it to be possibly the second biggest driver of climate change after CO₂.
There is likely to be a similar trajectory with carbon capture and storage, Heard said. There exists an enormous amount of geological potential to store carbon around the U.S., but the ability to operate facilities at tremendous scale will be limited to a localized basis in particular areas.
“Instead of seeing a distributed model where there are hundreds or thousands of sequestration assets spread out over the entirety of the United States, what you’re probably going to find is there are going to be hubs or clusters of activity that are going to take place,” he said. “We’re going to see a lower absolute number of sequestration assets, but those individual sequestration assets in the context of big fields get bigger. You’re going to see more of that activity take place in those assets.”
That might be an enormous positive for the fledgling sector because the Gulf Coast, home of and friendly to energy development, is loaded with geological potential for carbon storage.
Cleans the air like…
Sometimes the potential extends beyond a single benefit. In California’s Central Valley, for example, a partnership of Schlumberger New Energy, Chevron, Microsoft and privately owned Clean Energy Systems will build a plant to convert agricultural biomass to electricity, then store underground the carbon captured during the process. A final investment decision on the facility, which will be capable of storing 300,000 tons of CO₂ each year, will likely be made in 2022.
The project accomplishes more than reducing the carbon footprint in the region, according to Natalie Nowiski, CCS business developer and legal counsel with Schlumberger New Energy. It also helps alleviate a particular air quality issue for the Central Valley.
“That part of the country produces a lot of food and produce in the United States and as a consequence does have a lot of agricultural waste that it needs to dispose of,” Nowiski said. “This is what’s going to be used as the feedstock for this plant.”
Typically, agricultural waste is burned off in California, releasing a fine particulate matter known as black carbon. The Center for Climate and Energy Solutions considers it to be possibly the second biggest driver of climate change after CO₂. It also increases the risk of cancer.
The project, which is the first of its kind, relies on bioenergy with carbon capture and sequestration technology to produce what the partners term “carbon negative power.” The combination of utilizing waste for electricity and storing almost all of the captured carbon underground means that greenhouse gases are, in effect, removed from the atmosphere.
What investors like…
Heard perceives plenty of interest from the financial community and the general public in this new wave of CCUS projects. He divides them into three groups: traditional tax equity investors, industrial producers of CO₂ and traditional institutional capital.
“We’re going to see a lower absolute number of sequestration assets, but those individual sequestration assets in the context of big fields get bigger. You’re going to see more of that activity take place in those assets.”
The traditional tax equity investors see the government’s 45Q tax credit on carbon capture projects as a financial enabler.
“I think at this point, we’re probably a year or so away from those dollars being committed, and that’s largely because very few projects have gone through or commenced the permitting process,” he said. “That is a lengthy process that we think will take the states or the EPA several years to address on a per-project basis. So we may be mid-decade before we see a lot of those dollars be deployed.”
With industrial producers of CO₂, the interest is based on the potential for CCUS to allow them to meet their own net-zero goals or satisfy their investors’ or customer’s appetite for the companies to reduce their carbon footprint.
With traditional institutional capital, the interest here is in enabling aspects of the energy transition. These investors see CCUS as low risk in terms of commercialization and are looking to invest on either a debt or equity basis. These funds will come from institutional capital, endowments and other large pools, all the way to smaller investors and private equity.
“There is this tremendous appetite to deploy dollars,” Heard said. “What we have yet to see are actual projects that are operational phase. I do think you’ll start to see those, obviously, over the next 18-24 months.”
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