Interview: North Sea at the heart of Europe’s CCUS efforts with power generation woven into its fabric

As climate change spreads its wings across the globe, engulfing the world in heatwaves, Europe is in the same boat, but no silver bullet springs to mind to come to grips with this enduring challenge, painting a dire and bleak picture of the future, as there is no one-size-fits-all solution to the problem. However, the North Sea offers a kernel of hope that the continent can stay afloat in the coming years and tackle the issue by drinking from the well of an ever-growing palette of low-carbon and clean energy sources to quench the net zero thirst with carbon capture, utilization, and storage (CCUS) as the keystone of greenhouse gas (GHG) emissions reduction endeavors.

The world is drowning in climate woes as heatwaves, droughts, flooding, and landslides sound the alarm, pushing countries to up their energy transition ante by speeding up their shift to low-emission and green sources of supply. Wood Mackenzie, an energy intelligence group, which forecasted in 2022 that the CCUS pipeline would need to grow seven-fold by 2050 to reach the capacity required for net zero, has calculated that global CCUS investment requires $196 billion through 2034 for carbon capture capacity to hit 440 million tonnes per annum (mtpa) and storage capacity to reach 664 mtpa.

With nearly 80% of the planned projects coming online by 2030, WoodMac expects CO2 storage projects to outpace emitter uptake, resulting in a global capture-storage gap of over 200 mtpa by 2034. Since almost half of the $196 billion CCUS bill is related to CO2 capture, the remaining $53 billion is associated with transport while $43 billion is earmarked for storage. Based on Wood Mackenzie’s projections approximately 70% of the investment across the value chain is anticipated to come from North America and Europe.

Even though this seems like an impressive feat, the roll-out of CCUS has run into a myriad of economic, political, and societal challenges in Europe, which served to hamper the technology’s growth at a commercial scale. Given the multibillion-dollar bets and hopes placed on CCUS as a decarbonization marvel, Offshore Energy has dived deep into the intricacies of tailwinds and headwinds of this emission reduction tool in Europe and the UK with James McAreavey, Head of CCUS at Xodus, a Scotland-headquartered energy consultancy.

McAreavey points out that the double whammy of cultural and regulatory crosses CCUS has had to bear put roadblocks, which are still in play, to derail its development. Xodus’ Head of CCUS believes that the gas industry could play a vital role in fueling the carbon capture, utilization, and storage boom across the North Sea, as its infrastructure puts repurposing opportunities on the table.

His take on the importance of government funding in driving the wave of CCUS investments aligns with Wood Mackenzie’s views, which indicate that the EU Industrial Carbon Management Strategy will propel European carbon projects forward. Currently, around 71% of disclosed projects are in Europe and North America, with close to $80 billion directly committed to CCUS across five key countries.

Furthermore, government incentives are expected to keep pushing projects toward final investment decisions (FIDs), despite no single investment mechanism being globally applied, according to WoodMac, which claims that the U.S. has taken the lead in bankrolling CCUS at 50%, followed by the UK at 33%, and Canada bringing up the rear at 10%.

McAreavey, who has a Bachelor of Engineering (BEng), Chemical Engineering, diploma from Heriot-Watt University, started his career at Xodus in 2009. During the interview, he delved into CCUS market fundamentals from multiple angles, ranging from cost efficiency to market conditions and timeframes for getting such projects off the ground to ensure they will be up and running soon.

Europe is poised to see the evolvement of hub-based storage ecosystems, with governments’ policies for the transportation of CO2 across borders and bilateral agreements handling liability risk being among the keys to unlocking the full potential of such developments.

• OE: Xodus’ whitepaper, ‘Forecasting the North Sea CCUS infrastructure to 2050’, highlights that the volume of CO2 being injected into the North Sea by 2050 will be equivalent to the natural gas currently being extracted from the basin. Will CCUS become the linchpin of Europe’s decarbonization efforts?

McAreavey: In many ways, the rollout of carbon capture, utilization, and storage (CCUS) has progressed more in the last few years than it did in the whole of the last decade. However, we are still some way off from having a working CCUS cluster in the UK, and even further from the levels of storage we will need to hit to meet our promises for net zero by 2050.

As it stands, the worldwide CCUS industry capacity (what all of the current plants working together are designed to store) sits at about 40 megatonnes per annum. While that may seem a lot, global emissions are currently in the region of 38 gigatonnes a year, and stark figures from the International Energy Agency (IEA) show that net-zero hinges on a 100-fold increase in the current CCUS capacity in the next three decades.

It is clear that Europe’s decarbonization efforts need to be accelerated, and that CCUS will play a key role in this process. Estimations place CCUS at between 10 and 15% of the energy mix in 2050, and we are currently not on the trajectory to make this achievable. While this source cannot fuel the transition on its own, it will prove fundamental in providing certainty of supply as we begin to move away from fossil fuels.

• OE: How will the oil and gas industry spur further development of CCUS?

McAreavey: A proportion of the demand for carbon capture in 2050 will come from gas-fired power stations, which will still be an essential part of our energy mix moving forward. Much of the energy transition revolves around energy sources that are intermittent, meaning a baseload of power will need to come from elsewhere.

Equally, we will need a lever that can be pulled with a moment’s notice when energy demand surges. Gas-fired power stations, in partnership with other sources like pumped hydropower, hydrogen, and nuclear, will provide the steadiness and predictability that renewables lack.

Indeed, power generation is a cornerstone of most of the CCUS projects currently progressing through the UK government’s funding competition. The East Coast Cluster, which is working to decarbonize the entire Humber industrial region, has power stations at its core. HyNet on the north-west coast is doubling down on hydrogen – which will replace gas in power and heating – with plans to store the carbon arising from its production.

Meanwhile, the Acorn project on the northeast coast of Scotland, part of the Scottish Cluster, offers a route to decarbonization for the planned Peterhead carbon capture power station. Other initiatives, like Wintershall Dea’s Camelot and the Bacton Energy Hub, are also doing their bit to make low carbon energy production from gas a reality.

• OE: How much will the refurbishment and upgrade of existing fossil fuel infrastructure in the North Sea cost Europe to propel CCUS forward?

McAreavey: Our recent whitepaper shows that re-use of existing infrastructure can be achieved for between 50% and 70% of the storage needs within the North Sea. This provides an opportunity to reduce cost and carbon footprints for both the CCUS project itself and the owners of the infrastructure. Particularly considering gas pipelines, there is a pragmatic case to be made for rationing the offshore hydrocarbon use of infrastructure.

For example, primary gas trunklines that come to shore are placed next to industrial factories and estates which are responsible for significant emissions – why don’t we repurpose some of these? A strategic national and cross-border infrastructure build-out strategy is required to ensure optimal network design and protect key infrastructure from becoming abandoned or removed ahead of reuse.

Despite this, projects will still require significant subsea work. Whether the infrastructure is reused, most CCUS projects will require new subsea infrastructure to link the bulk transport systems to injection systems. In many cases, these modifications may require a seabed bypass of decommissioned oil and gas platforms.

Additionally, the majority of costs will come from the CCUS ‘capture kit’ and the drilling of new wells, which cannot be avoided. So, while there is certainly existing infrastructure that will lower financial implications, the industry still needs to be prepared to invest in this emerging sector for it to see any real success.

• OE: As Xodus’ whitepaper anticipates eight operational CCUS projects in Europe by the end of 2030, what will it take for the region to ramp up these projects to the level required to meet decarbonization goals?

McAreavey: At Xodus, we have produced a CCUS whitepaper, entitled ‘Forecasting the North Sea CCUS infrastructure to 2050,’ to chart the relative cost efficiency of projects and determine in what market conditions or timeframes they would get up and running. A total of 560 potential storage sites were assessed, alongside North Sea gas pipelines and potential new infrastructure to generate scenario-based forecasts for the rollout of carbon capture.

In our 2050 ‘high-case scenario,’ we forecast the volume of CO2 being injected in the North Sea to be equivalent to the natural gas currently being extracted; that’s good news for those in the gas industry and gives an idea of the scale we’re dealing with. To achieve this level of injection, we predict that we will need 100 storage sites, over 7,000 kilometers of new pipelines, and numerous onshore capture and gathering sites.

• OE: Do you expect further growth in cross-border CCUS projects over the next few years?

McAreavey: Europe is the only leading economic region with its largest hydrocarbon basin at the heart of its economy. 40% of European industrial emissions are generated within 500 km of the North Sea. North America and East Asia do not have access to a similar well-located basin.

As a result, regions within Europe, particularly Norway and the UK, have unmatched potential to become CCUS hotspots due to their vast geological storage potential. Despite having access to more resources than we would require to meet any potential CCUS need, it remains challenging to assess the relative cost efficiency of projects or frame in what market condition or time horizon a project would become viable.

What we do know is that the location advantage will reduce the cost of developing CCUS projects by providing nearby storage sites, a deep skill base, and infrastructure. In the coming decade, the North Sea will be an essential part of CCUS efforts across Europe. While Xodus has identified that share will decrease over time, it will likely remain dominant into 2050.

• OE: Can CCUS extend the lifetime of fossil fuels in the North Sea, especially natural gas and LNG, as they are often described as transition fuels that will enable a low-carbon future?

McAreavey: There’s a false narrative that follows CCUS when discussed hand-in-hand with fossil fuels. Often it is dismissed as a way for oil and gas organizations to continue business as usual in a changing climate – both literally and metaphorically. However, it is extremely important to acknowledge that, at the moment, we don’t have a single solution to the energy transition, and both oil and gas and CCUS will play a fundamental role in the process.

This does not mean that we should pursue fossil fuel-powered generation ahead of renewable sources such as solar and wind, but it does mean that those sources don’t yet provide consistent and secure energy provision for Europe’s population during peak demand, and we need something to fill the gap.

It is likely that CCUS will extend the lifetime of fossil fuels in the North Sea, but this raises key questions about co-existence. CCUS, as already noted, is an expensive venture and will likely need to rely on oil and gas infrastructure to keep costs down. But if these pipelines continue to be used by their previous owners – what do we do?

• OE: Can Europe develop its own CCUS supply chain in time to take full advantage of this decarbonization tool or will it depend on other regions to bring these projects to life?

McAreavey: In terms of natural resources, infrastructure, and skills capability, Europe has everything it could need to create a CCUS supply chain. The wider issue surrounds the window of opportunity that we have to capitalize on getting the process started for maximum impact and return on investment.

On a positive note, the creation or repurposing of CCUS infrastructure will require the expertise that currently sits in the gas transmission, distribution, and utilization sectors. The skills are incredibly transferable, and that’s the same for hydrogen too.

You need slightly different materials to make pipes and slightly different seals in the valves, but when it comes to engineering, it’s virtually identical. Hydrogen and CCUS are the two sectors with the most crossover with our current energy system and there is a huge opportunity for the current workforce to move into a new industry.

However, the bottom line is that to create a supply chain that spans across the continent, we will require cross-government collaboration. Currently, there are restrictions on transporting waste and toxic gas across borders, alongside a lack of open communication between nations on cost and requirement. Until this can be changed, CCUS cannot reach its full potential within the region.

• OE: What are some of the key headwinds and missing pieces in the global CCUS chapter that need to be addressed to unleash the full potential of this technology on the road to net zero?

McAreavey: The headwinds facing CCUS deployment across Europe are two-fold: cultural, and regulatory. As a society, we fail to place value on carbon, despite the huge cost associated with its impact on our environment and daily lives. We generally consider carbon dioxide to be a waste product, making the idea of investing huge amounts into safely storing it seem unattractive.

The price of emissions allowances (UKA) traded on the UK’s Emissions Trading System is currently around the £58 per metric tonne mark; if you look at decarbonizing through floating offshore wind, CCUS, hydrogen, or nuclear, the figure is significantly in excess of this.

Similarly, industry confidence in CCUS remains low. This is undoubtedly a knock-on effect from cultural perceptions of carbon dioxide as lacking worth, making investors doubt the profitability of the process when compared with the risks associated. Additionally, the regulatory landscape adds complexity.

While carbon storage is not a new phenomenon, current European Union and UK legislation has very tight restrictions around how carbon dioxide is captured and stored. If any CO2 ‘escapes’ the transportation or storage process, there are stark financial consequences for the operator or organization. This makes investing in CCUS infrastructure unattractive without government intervention.

This is an area in which we see other regions excelling, and Europe is failing to catch up. For example, in the United States, there are tax deductions for sequestering carbon. While this may not be a perfect business model, it is allowing for advanced development of the alternative fuel source, while ensuring businesses can capitalize on the window of opportunity.

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Offshore Energy’s interview with McAreavay highlights that Europe can benefit from a similar carbon tax like the 45Q tax credit incentive for carbon sequestration the U.S. launched in 2008. America’s CCUS arsenal is also supported by the Inflation Reduction Act (IRA), which President Joe Biden signed into law in August 2021 to enhance and extend the 45Q tax incentive and turbocharge clean energy development. 

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While Europe has been a trailblazer and frontrunner in clean energy and net-zero aspirations for years, what has been done so far is not enough to reach emissions reduction targets, thus, more decarbonization work awaits ahead of fulfilling climate ambitions of ushering in a sustainable energy future.

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