The
carbon capture, utilization and storage (CCUS) industry on the U.S. Gulf Coast
is evolving as projects slowly progress and new players move in. Their entry
could help spur development of the industry, which is already advanced on the
Gulf Coast, compared with most other parts of the world, except for the North
Sea.
One of the most recent examples of a new
player moving into Gulf Coast CCUS is TotalEnergies. In mid-March, the French
major acquired 100% of Talos Low Carbon Solutions (TLCS), a subsidiary of Talos
Energy, for $148 million, including customary reimbursements, adjustments and
retention of cash.
The acquisition includes Talos’ interests
in three CCUS projects along the Gulf Coast: a 25% stake in Bayou Bend, a 65%
operated interest in Harvest Bend and a 50% share in Coastal Bend. However,
TotalEnergies said it intended to sell the interests in Coastal Bend and
Harvest Bend, because they are located further away from its existing assets in
the region.
TotalEnergies noted that Bayou Bend was
close to its Port Arthur refinery and its petrochemicals assets in La Porte and
would therefore be “instrumental” for cutting direct emissions from its U.S.
operations. The project has the potential to enable the storage of several
hundred mt of CO2 across 600 sq km of offshore and onshore storage
licenses.
Notably, the other participants in Bayou
Bend are also majors. Chevron operates the project with a 50% interest, and
Equinor is a 25% partner. This is not surprising, according to Juan Agudelo,
the head of energy transition at market intelligence firm Welligence Energy
Analytics.
“It was expected that majors would buy
out smaller players, as majors are better suited for CCS projects; they do not
need to see the economic benefits of a CCS project in the short term. Smaller
players such as Talos can focus on investments that yield quicker returns,”
Agudelo said. “This is positive, because majors not only have the balance sheet
for such projects, but they can also leverage their vast portfolio to improve
the chances of commercial success by capturing their own CO2 emissions.”
Other majors that have moved in to buy
smaller players recently include ExxonMobil, which closed its acquisition of
independent Denbury in November 2023, making it the owner and operator of the
largest CO2 pipeline network in the U.S., mainly on the Gulf
Coast.
According to Graham Bain, a principal
analyst at analytics firm Enverus Intelligence Research, this push by larger
players to acquire smaller ones will continue as “operators drive to achieve greater vertical
integration within the CCUS value chain and move towards self-sufficiency and
end-to-end control.”
European majors are increasingly moving
into the Gulf Coast too, including TotalEnergies with Bayou Bend.
“The U.S. is one of the most important
markets for CCS globally, yet some key European majors, such as Equinor,
TotalEnergies and BP were absent,” said Agudelo. “These companies have entered
the U.S. market through storage licensing rounds, farm-ins and, more recently,
through M&A activities.”
Slow
Progress
The majors’ growing interest indicates
the relative attractiveness of the Gulf Coast when it comes to CCUS
development.
“The Gulf Coast possesses the key
elements for successful CCS deployment: tax credits from the 45Q, a significant
amount of emissions from industrial sources to create hubs, ample storage
capacity, existing oil and gas infrastructure and a diverse pool of companies,”
said Agudelo.
Progress thus far has been limited,
however. “It is developing more slowly than we would have thought,” said Bain
of the Gulf Coast’s CCUS industry. “There was and still is a rush to acquire
pore space. However, emitters seem to be reluctant to partner with pore space
owners. Spending a huge amount of capital to slow or halt their operations to
install capture equipment is a big risk for industrial emitters. Because
emitters are not punished for emitting, there is no rush.”
Additional incentives for emitters to act
could therefore help momentum to pick up.
“The primary challenge for successful
projects is securing sources of CO2
emissions, which means that more attention is needed in capturing CO2 emissions,” said Agudelo. “To achieve this, companies need costs to decrease,
improvements or extensions of current incentives and regulation, and additional
monetization options, such as the sale of carbon credits at higher prices.”
Progress could also be spurred by
companies planning to use their CCUS projects to capture their own emissions,
as TotalEnergies aims to do with Bayou Bend. Given the major role CCUS is seen
playing in the decarbonization of the energy industry, those companies
targeting net-zero emissions, in particular, could step up efforts to build
CCUS infrastructure, as they come under increasing pressure to demonstrate
progress.
Indeed, TotalEnergies sees the TLCS
transaction as part of its journey to reach net zero by 2050. While some of the
European majors have softened some of their emissions-cutting targets, they are
nonetheless still pursuing decarbonization more aggressively than their U.S.
counterparts.
TotalEnergies leads the pack on
environmental scores, according to a mid-November analysis by information
provider S&P Commodity Insights. It may thus be well-placed to help the
CCUS industry on the Gulf Coast to advance.
First Movers
Attention will be on the first movers, as
others watch how successful they are in getting their projects off the ground.
“Success and profitability of first
movers will be necessary before we see a wave of emitters follow,” said Bain.
“We see the opposite in Europe, where emitters are punished (excess pore space
in the U.S., excess emitters in Europe). Ultimately, we need to start injecting
to de-risk these projects and to fully understand the known unknowns and
discover any unknown unknowns.”
Agudelo agreed the experience of those
developing the first projects will be key to spurring others into action.
“The lessons learned from the initial
projects will be crucial for the pace of development and the impact of CCUS on
the decarbonization of the economy,” he said. “Some projects will be cancelled,
and others are likely to be marginal. However, those that prove successful will
be closely monitored and will serve as the platform for CCUS’ global
expansion.”
Agudelo added that, while it was
difficult to predict what projects would become operational, given their early
stages, the total number of announced capture projects in the region — including
enhanced oil recovery — are expected to have a capacity close to 100 mtpa,
while the announced storage capacity doubles this figure.
“We estimate that around 20% of the
announced capture projects’ capacity could be operational by the end of this
decade,” Agudelo said.
Things to watch for will include how
effective the targeted reservoirs will be at storing CO2.
“There is concern that highly porous and
permeable rock will cause CO2 to migrate up dip
quickly into large runaway CO2 plumes, which will
create issues around pore space ownership,” said Bain, pointing to Equinor's Sleipner project in
Norway, in similar rock, as being analogous.
“Additionally, a lot of storage volume assumptions are based off the assumption that we can just displace the brine,” he said. “If we consider the Gulf acting more as a closed system, especially in an environment where there will be pressure competition, storage volumes could be cut by ten times.” P&GJ