Northern Lights CEO: We are making CCS viable

The carbon capture and storage (CCS) business has been facing strong headwinds on its journey to becoming a feasible lever for hard-to-abate sectors to decarbonize. The role of carbon capture is increasingly gaining prominence as governments come to realize that renewable energy alone cannot provide the scale of emissions reduction needed by 2050. In response to this recognition, there has been a growing wave of policy and regulatory support, particularly in the European Union (EU) and the United States (US).

The first movers in the industry are making tangible progress, paving the way for interested stakeholders to move fast and join in helping create the entire value chain and move forward from the ‘chicken and egg’ dilemma.

Northern Lights, a joint venture company incorporated in Norway by energy majors Equinor, Shell, and TotalEnergies, is making headway in the field as it works on the development of the world’s first open-source CO₂ transport and storage infrastructure.

The initial stage of the Northern Lights project, boasting a storage capacity of 1.5 million tonnes of CO2 annually, is an integral component of the Longship initiative backed by the Norwegian Government which aspires to establish a comprehensive CCS value chain within Norway.

It is the transport and storage part of the Longship project, funded 80% by the Norwegian government. As part of its funding, the government stipulated that Northern Lights develop a commercial business model and offer its service to the rest of Europe.

The progress being made in this field is a reason for optimism, according to Børre Jacobsen, Managing Director of Northern Lights.

“I think we are making CCS viable, and we have to make it right. That is the backdrop we have – climate change. It is not easy, and we need to do a lot of things differently and we need to challenge ourselves and to capture the large amounts of CO2 that we need to store,” Jacobsen said during the Northern Lights Summit held on Tuesday at the company’s storage facilities and visitor center in Øygarden, Norway.

Nevertheless, early movers in the market have to face multiple challenges from various fronts, including regulatory frameworks, commercial aspects, and financing as well as environmental and technical feasibility including figuring out the best way to prove to emitters that CO2 has been captured.

A very important aspect of the CCS business is understanding how different it is from the oil and gas sector, in that it brings high investment risks while offering much lower returns.

“I find the conceptual mistake to benchmark profit returns of CCS versus oil and gas. Oil extraction is actually getting a resource that has energy content in it, while in CCS the commercial frameworks are much more akin to waste management and that type of returns,” Eduardo Famini Silva, Director Renewables and Energy Transition, RBC Capital Markets, said during the summit.

“By design, the returns will be lower and to make returns higher to developers, investors and other participants, such as builders, etc. would have to take the bill, because CCS is expensive. Therefore, we all should expect returns to be lower and I think that’s well understood, also from the investors’ perspective.”

While there is an acceptance of lower returns, it is crucial to strike a balance that encourages investment without burdening taxpayers or consumers.

Jacobsen also highlighted the importance of the need for a substantial shift in the mindset when transitioning from the oil and gas industry into CCS.

“We heard from RBC – we are in the waste handling business. I fully agree with that. But we come from the oil and gas business, and that is a very big mindset change, and we have to think about that, and we have also to think we are a customer and a margin business, that’s different,” he added.

“We have to challenge the way we do things, but we are not going to challenge the fact that we want to do it safely.”

The good news is that the investor community is dedicating more time and attention to carbon capture and storage, Silva said.

Both strategic investors interested in industry development and financial investors with a mandate are showing greater interest in CCS projects. Skepticism surrounding CCS is diminishing, not only among investors but also among industry stakeholders who recognize that CCS will evolve, mature, and become mainstream.

However, it’s essential to acknowledge that substantial risks still exist, often exceeding what certain investors can manage. The discussion about these risks and their mitigation is ongoing. Despite these challenges, there is a growing appetite for CCS investments, Silva highlighted. Many investors have already committed to the industry, but there is a consensus that more investment is needed.

The right framework and regulations are essential to attract investments. Nevertheless, the allocation of risks and the economic viability of projects must be well-defined.

A significant factor in attracting customers and investors is the role of the government as an orchestrator, coordinating and aligning various stakeholders in CCS projects. Some investors are looking for mechanisms like carbon pricing to manage their investments effectively, while others may require a safety net in case carbon prices fall. While there is a broad range of investors, their roles and commitments vary, but they all play a crucial part in the development of CCS, Silva pointed out.

Governments will need to address this challenge, and the investor community acknowledges the need for realistic return expectations.

The EU innovation fund plays a significant role in kickstarting the CCS market, as it provides essential financial support. This instrument is particularly vital for emitters who aim to avoid ETS pricing. These emitters are not looking to profit but rather seek to reduce costs, making the innovation fund a valuable resource.

It’s worth noting that the innovation fund is typically allocated to non-commercial projects with funding gaps. In theory, CCS projects should be commercially viable, and the fund could be better used to address interdependency risks throughout the value chain, which would enhance its effectiveness. The process of securing funds from the innovation fund can be intricate, involving a complex application process with specific requirements and milestones, a panel hosted as part of the summit has heard.

There is a growing commitment to CCS projects among investors and stakeholders, but the industry is still in its early stages, with a lot of uncertainties like carbon price, risk sharing, and interdependency risks posing significant challenges.

The panel agreed that oil and gas companies, due to their ability to operate at scale and manage risks, are crucial in developing CCS projects. These companies are willing to bear the risks associated with reservoir performance, project development, price volatility, and liability for the stored CO2.

“There is a conundrum here. But, we need oil and gas companies to develop carbon storage most likely, if you want to do it that scale. We need to make these projects rank up in the capital allocation processes. These companies will be taking on the risk of the reservoir performance, the project development risk, and there is also a price risk where we have no idea what the price for storing CO2 is gonna be yet, and also the liability for the CO2 in the ground which is quite enormous. Therefore, we have no clue how profitable carbon storage is going to be,” Øystein Arvesen, VP Strategy & Sustainability at Aker BP ASA, said during the panel.

“If you want the short answer on whether Aker BP is planning to work in the field with zero to very slim profit margins the answer has to be no. That wouldn’t make sense. But we believe that we can find win-win solutions here and that there is commercial potential in CCS, otherwise, we wouldn’t be here.”

Aker BP established a dedicated CS team approximately two years ago. Prior to that, the company had a cautious approach towards CCS. As explained by Arvesen, the concept of carbon capture and storage was relatively vague and the company wasn’t certain about the precise position in this space. However, from around 2019 to the present, significant developments have taken place. One notable milestone was the emergence of Northern Lights, which brought considerable momentum to the CCS industry.

One of the major strategies for derisking CCS is securing long-term offtake agreements.

Being a trailblazer in the industry means that you have to pave the wave, both on the regulatory side of things and building of the business model, Jostein Tegle, Strategy & Market Director, said during the summit.

“How do you distribute risk between the storage and transport provider towards the emitters? That’s actually by developing these commercial agreements, which is hard work. So, hopefully, it will be easier for those coming after. Of course, the benefit of being first is that some of this risk is mitigated with the support from the Norwegian government and also can influence the framework for the future. So that’s the privilege of being first,” Tegle added.

Northern Lights has signed the world’s first commercial agreement on cross-border CO2 transport and storage with Yara. Under the deal, the duo will transport CO₂ captured from Yara Sluiskil, an ammonia and fertilizer plant in the Netherlands, and permanently store it under the seabed off the coast of western Norway. 

In addition, earlier this year Northern Lights JV and Ørsted signed a CO₂ Transport and Services Agreement (TSA) to store 430,000 tonnes biogenic CO₂ emissions per year from two power plants in Denmark. The deal is seen as an essential step for creating a commercial market for CCS in Europe.  

Nevertheless, in order to bolster the cross-border cooperation in CO2 transport and storage in Europe and beyond, it is key for countries like Norway and the UK, which have vast storage potential, to put in place bilateral and multilateral agreements with the EU member states in order to facilitate the process.

The commercial viability and profitability of CCS projects are still uncertain, making it essential to create a sustainable and balanced financial model that encourages the participation of various stakeholders. In conclusion, the profitability of CCS projects may be lower than traditional energy ventures, but this is a necessary trade-off to address climate change and decarbonize the industry.

The Northern Lights project is on track both when it comes to the timeline and budget, according to Sverre Overå, the project director. The project comprises the development of a receiving terminal, underwater infrastructure (including the pipeline, subs installations, and wells), intermediate storage tanks, and onshore facilities.

The receiving terminal, the point where CO2 will be received from incoming ships, is in the commissioning phase, with 95% completion, and it is anticipated to be in full operational readiness next year.

The most extensive part of the project involves the subsea pipeline, spanning 110 kilometers. The offshore portion is nearly complete, with the near shore section set for installation in April of the following year.

The underwater infrastructure accounts for two-thirds of the project’s current budget, roughly €700 million.

The CO2 storage itself, according to Overå, will include two wells, with one intended for injection and the other as a contingent well for backup or maintenance purposes. The storage, situated in a saline aquifer, has been tested successfully for an initial capacity of 1.5 million tons per year over 25 years. There is ample capacity for further expansion, up to 5 million tonnes over the same period.

Next month, the project developers are planning to carry out an injection test using water in both wells to confirm that everything is in order.

Both the subsea section and wells are expected to be ready for operation in 2024, Overå confirmed.

Finally, the next significant milestone for the project will be the arrival of the first CO2-carrying ship, expected in mid-2024.

Northern Lights has ordered three LNG-powered, wind-assisted CO2 carriers at China’s Dalian Shipbuilding Offshore Co.

The vessels are specifically designed to transport liquefied CO2 in purpose-built cargo tanks from industrial emitters in Norway and Europe to the onshore receiving facilities in Øygarden, Norway.

“I have a great sense of pride in what we achieved and where we are. I’m inspired by today, and what I am inspires me is that we are a community and of like-minded people who are doing everything we can to develop CCS, not only here in Norway, in Europe and beyond, and we are at the start of this,” Jacobsen said.

“We know that the challenge is there, and we need to grow quickly. So, most of all, I am convinced that we are doing the right things. It will take time, but we need to stay the course. Ours is a community of perseverance. CCS has had many false starts, but we carry on, and here we are.”