Building on the midstream industry’s long experience in capturing and sequestering CO₂ Tailwater Capital portfolio companies are developing carbon-credit systems and pipelines while EnCap Flatrock Midstream companies eye “replumbing” opportunities.

Tailwater Capital is investing in both the physical and financial infrastructure to support carbon capture, utilization and sequestration (CCUS). All the new technology, however, is built on long experience.

“We tell our LPs all the time that the midstream has been in CCUS for a long time,” David Cecere, a partner with Tailwater Capital, told Hart Energy. “CO₂ already comes up with natural gas. We have been separating and sequestering it for years, not particularly as a business model, but just to put on-spec gas into the system.”

‘Low-hanging Fruit’

In July, New Frontier Markets opened a proprietary blockchain marketplace for voluntary carbon offset credits. The platform is expected to become broadly available in the fourth quarter of 2022. The voluntary global decarbonization market is expected to reach as much as $100 billion by 2030.

Hart Energy September 2022 - CCUS Nothing New for Midstream - David Cecere headshot“The low-hanging fruit in front of the industry is where there are highly concentrated emitters with potential sequestration nearby.”—David Cecere, Tailwater Capital

New Frontier also signed a memorandum of understanding with Johnson Rice & Co., the oldest independent energy investment bank in the U.S., under which New Frontier will be able to make use of the bank’s energy transition and capital markets expertise, as well as its underwriting capabilities and securities trading platform.

Another Tailwater portfolio company, Frontier Carbon Solutions in the Rockies region, is exploring exciting CCUS on several fronts.

“The low-hanging fruit in front of the industry is where there are highly concentrated emitters with potential sequestration nearby,” said Cecere. “We are pursuing that approach, rather than direct air capture or long-distance transportation. We think the rifle-shot approach, the more localized approach, is more efficient and effective.”

That is especially the case given how the industry has struggled to get long-haul pipelines constructed. “It just makes more sense in terms of both environmental impact and reduced red tape as compared to large-scale, complex projects.”

‘Replumbing’ is Essential for CCUS

Early in the shale bonanza, midstream operators spent billions of dollars in “replumbing” North America, including reversing existing lines, adding capacity, and building new pipe to connect new sources of supply. Even in historic basins such as the Permian, early assumptions that plenty of pipeline capacity existed were true in aggregate on paper, but not as often in the field.

Now the same thinking is dawning among leading capital allocators. “In a career that is approaching four decades I’ve seen so many cycles of new opportunities driven by new technology or new markets that are dependent on getting the right types of molecules to the right places,” said William R. Lemmons Jr. a managing partner and founder of EnCap Flatrock Midstream. 

“That is exactly where we are with the new chapter of CO₂,” he added. “There are pipelines in place, but they may not be adequate to get the molecule from node to node. There is a need to go back and replumb to meet the new need, and that is a new opportunity.”

Notably, in most of the CCUS projects proposed over the past few months, the attention has been on the capture and the sequestration. Few of the announcements mention the pipe, connections, and compression needed to get the CO₂ from one to the other.

Hart Energy September 2022 - CCUS Nothing New for Midstream - EnCap Flatrock Midstream Billy Lemmons headshot“There is a need to go back and replumb to meet the new need, and that is a new opportunity.”—William R. Lemmons Jr., EnCap Flatrock Midstream

In May, EnCap Flatrock Midstream portfolio company Humble Midstream and public midstream major Enbridge announced the joint development and marketing of a low-carbon hydrogen and ammonia production and export facility at the Enbridge Ingleside Energy Center, near Corpus Christi, Texas.

Transport Ranks with Reservoir Capacity in Rating CCUS

Global operational sequestration capacity has reached 10 million tons per year, which represents a mere 3% of planned capacity, according to a recent report by Enverus Intelligence Research (EIR).

Notably, the report stressed the importance of midstream considerations between capture and sequestration. “When evaluating sequestration locations, [we] considered reservoir quality and proximity to point source emissions and transportation as leading indicators. As a result, the Southern Louisiana Oligocene-Miocene, with its clean sand aquifers, stood out among numerous locations and is now deemed among the best storage reservoirs in the world,” EIR stated.

Specific to the midstream, “Kinder Morgan, Denbury and Occidental operate the majority of CO₂ pipe in the U.S. in support of CO₂-EOR floods,” Heather Leahey, vice president at EIR, told Hart Energy. “Those companies currently get the majority of their CO₂ from natural sources, although incentives favoring industrial CO₂ should tip the scale in the other direction.”

Stated pipe capacities assume CO₂ molecules are transported from one end of the system to the other – in reality, throughput can likely exceed capacity with multiple intake and offtake points along the pipeline.

“As neighboring project developers look to increase operations, companies with existing CO₂ pipe hold a significant advantage and should be able to market near-term spare capacity to competitors,” Leahey explained.

“While likely less challenging than building pipe to transport hydrocarbons, we have seen several instances of pushback on proposed CO₂ pipe,” she noted. “Having the ability to support near-term CO₂ transportation needs should benefit those midstream companies with operational assets. That said, the market will still require significant pipe build out or retrofitting of existing hydrocarbon pipes to support CO₂ capture projections.”

Oil and gas super majors like Exxon Mobil Corp., BP Plc, Shell Plc and Equinor ASA are “leading the pack for global carbon dioxide sequestration capacity,” the EIR report stated,” while large independent operators like California Resource Corp., Occidental and Denbury have revealed plans to participate in both permanent storage and CO₂-EOR operations.”

Hart Energy September 2022 - CCUS Nothing New for Midstream - Enverus Heather Leahey headshot“The market will still require significant pipe build out or retrofitting of existing hydrocarbon pipes to support CO₂ capture projections.”—Heather Leahey, Enverus Intelligence Research

Eight project locations for CO₂ sequestration in Louisiana have been announced amounting to 2 gigatonnes (Gt) of combined disclosed storage, with first injection dates scheduled between 2022 and 2026, EIR found. For reference, current global permanent CO₂ storage cumulatively is only 10 million tonnes per annum (mtpa). 

Increasingly supportive policy and decarbonization commitments helped catalyze a wave of CCUS project announcements across the U.S., Canada and European countries bordering the North Sea, EIR found. Using information disclosed through the end of 2021, North American operational and proposed projects amount to 280 mtpa or 63% of global capture capacity. European equivalents account for 29%.

Enverus subsurface modeling suggests 1.5 Gt of CO₂ storage capacity across all projects, falling short of operator disclosure by 30%. “While still 15% below company estimates, we believe Denbury’s New Orleans site offers the highest capacity at 425 million tonnes,” the report stated.

Planned projects in the U.K. aim to address 45% of 2019 (pre-COVID) point source emissions using carbon capture technology, compared to 27%, 10% and 8% in Canada, the Netherlands, and the U.S., respectively, EIR calculated. All four countries hold some form of net-zero 2050 ambitions and have announced incentives to support CCUS operations.