By all accounts, Exxon Mobil’s $4.9-billion acquisition of Denbury Inc. was the first major transaction in industry history driven by the need to remove CO2 from the environment, rather than the need to supply hydrocarbons to the market.

The deal is widely seen as an affirmation of carbon capture and storage’s (CCS) arrival as an essential part of the mainstream hydrocarbon industry. And in the emphasis on midstream, the deal is expected to give confidence to both public and private investors to put money on the table and steel in the ground for getting CO2 from capture to pore space.

At the same time, the Denbury deal is not considered to be the start of a wave of transactions in CCS simply because there are not many other CCS-focused companies to be acquired or merged.

 “This is not only the first major deal in CCS of this scale, it’s incredible to see a deal of this magnitude so heavily related to the transportation side,” said Graham Bain, vice president of Enverus Intelligence Research. “Transportation is clearly going to be a bottleneck in CCS. When we hear an announcement about carbon capture or storage, the transportation component is often missing. But people are thinking about that, and we are definitely thinking about that every day.”

If midstream is mentioned when CCS arrangements are announced, it is not unusual for it to be as a vague note that existing infrastructure will be used to get CO2 from capture to pore space. That is not quite as simple as it sounds.

Reconfiguring or retrofitting existing pipe for CO2 can cost in the range of $7,000 per inch diameter per mile, according to Enverus. In contrast, new line can average $133,000 per inch per mile and range as high as $200,000 per inch per mile. “Using that calculation, we backed into the value of the Denbury pipeline system of $3.2 billion to build,” said Bain.

Given that differential, “existing infrastructure will be very highly sought after,” said Bain. “Every inch, every mile of pipe is now under scrutiny. At least under review to consider if it is making its best returns as currently configured and operating, or if it would be better retrofitted for CCS midstream.”

That includes almost all lines in almost any sector, other than large-diameter long-distance pipe. First under the microscope will be un-used or under-used natural gas lines, but certainly could include lines in methanol or liquids service.

Retrofitting existing lines would be the fastest and least expensive, Bain explained. Rebuilding new infrastructure on existing rights-of-way would be the next option, reserving greenfield construction when necessary for connection. “There is no reason that midstream companies would not want to consider all their options,” he stated.

As midstream operators evaluate their assets, so are other interested parties, including large industrial emitters of CO2, owners of secure pore space, as well as public and private capital. The reciprocal confirmations of the Denbury deal are that it is safe to build or buy CCS assets and that major capital will be needed to secure the scale necessary.

“We are still in an intriguing phase of price discovery for carbon,” said Benjamin Dell, managing partner of alternative-asset manager Kimmeridge. “Our view is that the clearing price of carbon will end up in the triple digits, at least $100 to $200 a ton. There is no way to meet the scientific targets to address climate change otherwise.”

That augurs for long-term investment because “right now we are not near covering $100,” said Dell. “A lot of that can be addressed in scale. How much do these engineered solutions come down in price? There is a big back-end option value associated with CCS. Exxon owns pipes and facilities and will be an aggregator of emissions.

“The ones who get CCS to work will be the aggregators with the most scale and balance sheet,” Dell explained. “Capturing emissions, at least from industrial sites, is not the difficult part. Concentrating emissions, then moving, compressing and injecting CO2 are the expensive parts. Today the economics are difficult. The fuzziness, especially around carbon midstream, is because the math doesn’t work yet. That is why we’ve mostly seen letters of intent and [memorandums of understanding] and joint ventures. You have to give Exxon credit for actually doing things. They are signing offtake agreements and building infrastructure.”

“The Denbury midstream assets in particular set that company apart in the sector,” Michael Scialla, managing director and lead of energy equity research at financial-services firm Stephens. Those midstream assets, and the operating expertise “gave emitters confidence.”

And while the deal is not likely to precipitate other such acquisitions because of the dearth of eligible target companies, it does “open the doors for CCS midstream,” said Scialla. “We need to see midstream step up, along with storage holders. It is clear now that this is going to be a real business.

“The estimates are that CCS needs to grow a hundred fold by 2050 if we are to achieve the carbon reduction necessary,” Scialla continued. “We may be seeing a market developing for CCS that has huge growth potential.”

With the clear signal for investment and scale in CCS given, the industry’s attention now turns to permitting. Several states have advanced their efforts to take primacy in issuing permits for Class VI injection wells, most recently Louisiana. There is hope that will help dissipate the backlog of permit requests at the federal level.

One area of concern has been pipeline permits. Given the necessity of getting CO2 from the emission source to sequestration, midstream companies often finding efforts to build or expand new oil and gas lines frustrated hopes for a better reception to CCS permits.

That has not been the case, however. This is another reason that retrofitting existing lines is the first option for CCS projects.