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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Carbon Capture Could Dramatically Improve The LNG Outlook

Climate change is no longer a fiery apocalypse that we expect to happen in the far off future. Rising sea levels, wild-fires, heat waves and extreme weather events are already wreaking havoc everywhere and could cost the global economy a staggering $1 trillion dollars over the next five years in crumbling infrastructure, reduced crop yields, health problems, and lost labor as per the Carbon Disclosure Project (CDP).

A big part of climate change is being wrought by global warming, thanks to rising carbon levels in the atmosphere. Industrial activity has spewed out some 2,200 gigatons of CO2 since the 19th century industrial revolution and continues to emit another 40 GT every year. At this rate, we could exceed the 2,620 GT limit in just over a decade, leading to irreversible damage to entire ecosystems, economies and communities. 

With the transition from fossil fuels to renewables in full swing in many states, natural gas serves as the energy bridge due to its lower emissions profile compared to coal. After a brief reversal, natural gas prices have been soaring again with Ovintiv Inc.(NYSE:OVV), Cheniere Energy (NYSE:LNG) and EQT Corp.(NYSE:EQT) our top picks.

Unfortunately, the same cannot be said about its chilled brethren, with LNG having one of the most emissions-intensive upstream resource themes in the energy sector. 

Indeed, the World Bank recently issued a recommendation to avoid LNG bunkering, saying hydrogen and ammonia offer the best long-term solutions as the shipping industry continues to adopt increasingly stringent measures to decarbonize.

Meanwhile, oil and gas giant Saudi Arabia has abandoned plans to develop LNG from its Jafurah gas field and instead plans to make a much cleaner fuel: Blue hydrogen. Blue hydrogen is derived from natural gas through the process of steam methane reforming (SMR), with the carbon dioxide emissions captured and stored underground using Carbon Capture, Utilization and Storage (CCUS) technology.

And now researchers are saying that the use of carbon capture and storage (CCS) can have a material impact on the carbon emissions of LNG projects. 

According to Wood Mackenzie anywhere from 25-50% of the CO2 emissions depending on the strategy used can be removed from LNG projects using CCS technology.

Cleaner LNG

According to Woodmac, about 40% of the total scope 1 and 2 LNG emissions come from the process of gas liquefaction. The main options for reducing LNG emissions include CCS, carbon offsets, electrification, methane leakage reduction, and the use of renewables and batteries. 

Luckily, LNG players are well placed to employ CCS to lower their emissions by simply repurposing their existing infrastructure.

The first approach involves capturing reservoir CO2. The big advantage of this method is that the acid gas removal unit (AGRU) used to capture CO2 does not incur additional costs since all LNG projects remove CO2 from the feedgas stream before liquefaction to prevent the CO2 from freezing and blocking processes. WoodMac says reservoir CCS has the potential to lower overall intensity of LNG projects by 25%, and in some cases up to 50%.

The second approach is post-combustion CCS, which involves capturing CO2 from the LNG flue gas stream. Although post-combustion CCS is more expensive than reservoir CCS, there are significant cost benefits of adding post-combustion CCS to a new-build LNG facility, due to design and location synergies.

$4 Trillion Carbon Marketplace

Woodmac says CCS will play a significant role in reducing emissions from LNG projects as long as country-specific legislation progresses and costs can be brought down. 

Meanwhile, Wal van Lierop of Chrysalix Venture Capital and an investor in Canada-based carbon capture startup Svante has proposed creating policies that will make carbon markets not only feasible but profitable.

Related: Oil Rebounds On Mexico Production Outage

Lierop argues that carbon pricing, CCSU technology and policies need to be such that capturing, repurposing or permanently storing carbon dioxide becomes more profitable than emitting it into the atmosphere. If policymakers were to price CO2 at $100 per ton, the 40 GT of CO2 that the world emits annually represents a $4 trillion opportunity for carbon capture firms. If that figure seems monstrous, consider that it represents just 5% of the global economy and is certainly lower than the nearly $70 trillion in damages that the economy would otherwise suffer in the face of a full-blown climate disaster.

It’s not such a far-fetched idea, either.

Here in the United States, Section 45Q(a)(1) allows a credit of $20 per metric ton of qualified carbon oxide captured by the taxpayer using carbon capture equipment which is originally placed in service at a qualified facility before the date of the enactment of the Bipartisan Budget Act (DOE). It’s essentially a tax code that provides a performance-based tax credit for carbon capture projects that can be claimed when an eligible project has:

  • securely stored the captured carbon dioxide (CO2) in geologic formations, such as oil fields and saline formations; or
  • beneficially used captured CO2 or its precursor carbon monoxide (CO) as a feedstock to produce fuels, chemicals, and products such as concrete in a way that results in emissions reductions as defined by federal requirements.

Today, 45Q pays $35/ton for using captured CO2 in Enhanced Oil Recovery (EOR) or synthetic fuels and $50/ton for sequestering CO2 in geological storage. A bill under consideration might amend 45Q to pay an even higher credit for direct air capture: $43.75/ton for EOR or fuels and $65.50/ton for geological storage.

Still, that might be too low to encourage carbon capture firms whose breakeven point is higher than $50/ton. Coupling 45Q with a Fee and Dividend system could be a more effective solution. This system is currently under consideration in the U.S. House of Representatives H.R.763. The fees collected under H.R.763 would be distributed as dividends to all U.S. citizens to offset higher gas prices and elevated costs for hydrocarbon-based goods.

By Alex Kimani for Oilprice.com

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