Shell, Exxon Look to Profit From Capturing Carbon Emissions

April 22, 2021

The following article appeared in the 04/19/21 WSJ.

Oil companies have for decades made money by extracting carbon from the ground. Now they are trying to make money putting it back.

Energy giants such as Exxon Mobil Corp. XOM -1.26% and Royal Dutch Shell RDS.A -1.99% PLC are pushing carbon capture and storage—where carbon is gathered and buried underground—as part of a drive to reduce both their own and their customers’ emissions. Executives say the service could become a new source of income when the industry is grappling with how to adapt to a lower-carbon economy.

Oil companies have long captured carbon from their operations, albeit mostly to produce more oil. Now they want to retool that skill as a service they can sell to heavy-polluting industries like cement and steel, burying their carbon in the ground indefinitely for a fee, rather than releasing it into the atmosphere. Yet critics question the environmental benefits and high cost of such projects.

Last month, Shell, Total SE and Equinor AS A launched a joint venture to store carbon in a rock formation thousands of feet beneath the seabed off the coast of Norway. The state-backed Northern Lights project is set to be the first time companies outside the oil industry will be able to pay to have their carbon gathered and stored. Exxon has said it plans to form a new business unit to commercialize carbon capture and storage, forecasting it could become a $2 trillion market by 2040. Chevron Corp. has formed partnerships on storage projects, while BP PLC is codeveloping storage projects in the U.K. and Australia.

Oil executives’ sales pitch: We will provide your energy, then take back the carbon to minimize your footprint.

Carbon capture and storage “is becoming a business rather than just a solution,” Maarten Wetselaar, director of integrated gas, renewables and energy solutions at Shell, recently said, adding that the company plans to include carbon storage as “part of an integrated energy package” to energy customers.

Shell already captures and stores its own carbon at sites in Australia and Canada, and says it wants to develop additional commercial facilities, vastly expanding storage capacity for potential clients.

The Norway project, set to start in 2024, already has waste company Fortum Oslo Varme SA and HeidelbergCement AG as customers. Shell says it has further interest from 10 other companies, including Microsoft Corp. and ArcelorMittal, although no binding contracts have been signed. A Heidelberg cement plant in Romania. Oil companies see such hard-to-decarbonize industries as potential customers for carbon capture and storage services, with a Heidelberg plant in Norway already lined up to store carbon as part of a new project there. Shell and its partners haven’t said how much carbon-capture services will cost, or what the potential profits could be, saying it depends on various factors including volumes. Most carbon-storage projects rely on government funding. Norway is covering about 80% of the $1.6 billion cost of the Northern Lights project, with the rest split equally between Shell, Equinor and Total. Deployed since the 1970s, most of the 26 sites operating carbon capture today are focused on injecting carbon into wells to recover more oil, with a handful dedicated to storing carbon, according to the Global CCS Institute, a think tank that advocates use of the technology. Carbon capture typically works through the use of chemicals, to which the carbon sticks, to filter out emissions from a source like fumes at a power plant.

In the early 2000s, governments saw carbon capture as a way to clean up electricity generated by fossil fuels, but the technology was held back by high costs. Recent moves by governments and companies to reduce emissions are rekindling interest in carbon capture beyond the energy industry. The U.S. offers companies a tax credit of as much as $50 a metric ton of carbon captured, while the U.K., Norway and Australia have collectively committed billions of dollars of funding for carbon-capture projects.

A record 17 new carbon-capture projects were slated for development last year, according to the Global CCS Institute. Many are focused on hard-to-decarbonize sectors like steel and cement making, where manufacturing processes release carbon dioxide. “If [energy companies] can now make the transition from using CCS for the oil and gas industry to selling it as a service to their customers and decarbonizing their own product you scale it up a lot more,” said Irene Himona, an analyst at Société Générale.

Some researchers say the technology isn’t the most efficient way to reduce emissions. “Transitioning energy infrastructure away from fossil fuels as well as planting trees and reducing deforestation is a much better way to address carbon emissions,” said Mark Jacobson, professor of civil and environmental engineering at Stanford University. Mr. Jacobson, who has long advocated for renewable energy, said his 2019 analysis of a U.S. carbon-capture project found that it didn’t reduce overall emissions and that air pollution increased because of the fuel required to power the technology.

Others worry the technology could be used by oil companies “to pretend we can carry on doing what we’re doing without actually changing,” said Kingsmill Bond, a strategist at London-based think tank Carbon Tracker.

Oil executives say they expect the costs of carbon capture to fall over time and that the technology is among a range of the solutions for reducing emissions. There are also concerns about whether storage sites could leak carbon. In Europe, public resistance to land-based storage has led to the use of aquifers and depleted gas fields in the North Sea.

In the Norway project, carbon will be transported by ship around the bottom of the country before being pumped offshore via a 68-mile pipeline and then injected into an aquifer under the seabed.

BP is working on a similar concept for a project it will operate in northeast England, where carbon will be collected from a gas-power plant and various industrial sites, then stored under the North Sea.

“We’ll capture the carbon, we’ll take it offshore, we’ll stuff it underground,” BP Chief Executive Bernard Looney recently said of the project. “Taking the carbon back is what I like to describe it as.”

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