Yahoo Finance Why fossil fuel dinosaurs may still have life in them yet
Just as high finance and elite opinion writes off the fossil fuel industry as irretrievably doomed, a fresh twist in the global energy saga is again starting to upset all calculations.
The oil and gas fraternity has embraced carbon capture with the zeal of the converted, betting that this neglected technology can be made cheap enough - quickly enough - to head off the seemingly unstoppable march towards electrification and the green hydrogen economy.
The British Government has had its own eureka moment, seeing it as a path to net-zero and economic revival at the same time. “We want to lead on carbon capture and storage, a technology I barely believed was possible, but I am now a complete evangelist for,” said Boris Johnson at the Tory party conference.
Big Oil & Gas has become an advocate of a high carbon price, calculating that it can turn the price signal to advantage, mobilising its engineering muscle to beat renewables at their own game in the net-zero arms race.
Sceptics dismiss the dash for carbon capture, and storage (CCS) as a belated redemption play, an attempt to resuscitate an idea that has never delivered on its promise, and has since been leapfrogged by post-fossil technologies.
“Oil and gas companies are being forced to go for CCS because they face an existential threat if they don’t,” said Ben Gallagher from the energy group Wood Mackenzie.
“They weren’t at the table because of their strategy of climate denial for so long, leaving the greens to set global policy. Now it may be too late. CCS is logistically complex and still very expensive,” he said.
Costs are shrouded in corporate secrecy. Large claims are made but details are often elusive. What is clear is that the next generation of projects will be a far cry from amine retrofits tacked onto existing power plants that lose a fifth of their output from so-called ‘parasitic load’ and - say critics - almost double the cost of electricity.
The new ventures are radical, on the cutting edge of materials science, and tied to the top US laboratories. Public money is flooding in from the US Department of Energy. Private money is chasing the federal 45Q tariff for captured CO2: $50 a tonne when sequestered underground, and $35 when used in enhanced oil recovery for declining wells.
The big beasts - Saudi Aramco, ExxonMobil, BP, Shell, and Total among others - have joined forces in the Oil and Gas Climate Initiative (OGCI) to turbo-charge new inventions and lift carbon capture to critical scale.
Pratima Rangarajan, the OGCI’s chief executive, said costs are poised to plummet, tracking the same dramatic curve that she lived through working on wind power and battery storage for Vestas and GE.
“By the fourth or fifth project you see a significant gain in costs, and then the technologists do the rest. Costs in battery storage came down much faster than we ever thought possible. It blew us away,” she said.
Once markets see the direction of travel, the process turns into a cascade. This inflection point may now be close in America, where a whole ecosystem is nurturing carbon capture, not surprisingly since the US is the world’s oil and gas superpower and has powerful interests to defend.
The International Energy Agency concluded in its latest opus on carbon capture that CCS (or CCUS with ‘utilisation’) is finally gaining traction after perennial disappointments. Furthermore, it argued, CCS must be the twin pillar of decarbonisation if there is to be any chance of averting runaway climate change - a view shared by the United Nations.
The IEA sees capture as the path to so-called ‘blue hydrogen’ - generated from gas and coal - for ships, trucks, heating, and industry, as well as a feedstock for synthetic jet fuels, fertilisers, and carbon bricks in buildings, promising massive CO2 abatement in sectors hard to reach.
Reaching the Holy Grail of zero-carbon power
It flags the Texas start-up NET Power as a radical disruptor that could potentially achieve the Holy Grail of zero-carbon electricity from gas or coal at little or no extra cost, a breath-taking thought.
The technology is based on the Allam Cycle developed by Britain’s Rodney Allam, an inventor of the old school who does his sums with a pen, paper, and slide rule. He discovered the concept in the Thirties in notes of Russian scientists later killed in World War Two.
His cycle harnesses CO2 itself as a fuel for ‘oxy-combustion’ in a closed-loop system that burns natural gas with pure oxygen rather than with air. There are no smokestacks. The heat is retained.
NET Power founder Bill Brown told this journalist in 2016 that he was running into a wall of incredulity because the technology “sounded too good to be true”.
Four years on, his natural gas pilot plant in Texas - developed with McDermott, 8 Rivers, and Exelon - has hit the jackpot and led to a pipeline of planned projects in the US, the Middle East, and in Europe - including Teesside, home to Britain’s chemical companies and on its way to becoming the Europe’s first zero-carbon industrial cluster.
“We proved what we set out to prove, that the entire cycle works. We are now convinced that we make the cheapest clean hydrogen in the world at 0.57 cents a kilo,” he said.
That is roughly half the cost of other forms of blue hydrogen using fossil fuels with carbon capture, and far lower than ‘green hydrogen’ from wind and solar using electrolysis - rapidly falling in cost. But is still a decade away from plausible parity.
“We can make clean ammonia that can be transported anywhere (like crude oil). We can go totally carbon negative and suck out 1.8 tonnes of carbon for every ton of biomass we burn,” he said.
Britain out in front in race to remove carbon
Mr Brown said it is not good enough if CCUS is viable only with an exorbitant carbon price. It must be competitive on its own terms. “We have to produce energy that the entire world can afford, not just rich people in California, and we can,” he said.
He said British support for the Teesside project kept him going when times were rough. “When the history of all this is told, the role of the British Government will loom large,” he said.
“I could feel that they wanted to be more proactive on climate change but kept running into EU state aid rules. People can say what they want about Brexit but it is the Brits who are going to move faster on this than Europe,” he said.
Prof Niall MacDowell, a Government adviser on carbon capture at Imperial College, said the oxy-combustion approach holds real promise. “There is a lot of enthusiasm for the Allam Cycle, but we are going to need other technologies, so let a thousand flowers bloom,” he said.
The NET Power design is built into the system from scratch. It cannot easily tackle the world’s existing stock of gas and coal plants, many with 20 or 30 years of smokestack life ahead. ExxonMobil - top villain in green demonology - thinks it has cracked that nut.
Exxon has teamed up with FuelCell Energy to extract CO2 using carbonate fuel cells. The joint venture claims that it can capture 90pc of the carbon at a marginal extra cost of $0.02/kWh, and can generate extra power rather than losing it through parasitic load.
Hedging bets
If validated on a full-sized power plant in Alabama, the technology offers a way to clean up the ever-spreading nexus of coal plants in China and developing Asia. But FuelCell Energy did not respond to requests for information.
Exxon is hedging its bets, collaborating on another option with the US energy department’s National Laboratory in Berkeley, California. It uses a ‘metal organic framework’ based on magnesium that is six times more efficient than amine solvents. The team published a peer-reviewed paper in Science this year suggesting a credible break-through.
Prof Jeff Long, the lab’s director, said this porous material gets around two core difficulties with amine carbon capture: wastage of valuable stem to heat up the CO2; and the need for higher pressure. His tetramine variant avoids both.
“It has a huge advantage. A small change in temperature means that it can fully load up on CO2 and then fully unload it. I don’t know where we are going to end up but this could eventually lead to very low costs in power plants. It all depends on whether governments want to make it a priority since it needs staggering scale,” he said.
Grants awarded by the Department of Energy offer a fascinating preview of what may be coming in the 2020s. They also show an extraordinary range of uses for CO2 in what is now known as ‘circular carbon economy’.
CO2 is already used in agriculture: piped into Dutch polytunnels for plants; or to grow algae for biofuels; or for animal feed. It is a staple of the chemical industry. The next wave will bring such things as ‘green Co2 concrete’ that can - according to the University of California - replace Portland cement in buildings at comparable cost.
Underground carbon stores are goldmines
Imperial’s Professor MacDowell said the sheer volume of CO2 emissions means that most carbon will have to be sequestered underground, and those countries sitting on storage sites can turn this into a valuable money spinner as climate targets tighten.
The UK happens to have saline aquifers close to east coast industries, and a network of pipelines and disused wells in the North Sea, all supported by an offshore industry.
“It’s a perfect storm for Britain. The continental shelf is shallow and we can price carbon capture lower than almost anybody else. We can take the CO2 from countries that don’t have proven sites and sell them a negative carbon service. The scale could be huge,” he said.
European oil majors are already swarming over the potential bonanza of offshore sequestration, switching their engineering skills from the creation of CO2 to the suppression of CO2. These converts are no longer so clearly the enemy for environmentalists. They are becoming part of the solution.
Total, Shell, and Equinor are part of the Longship project in Norway that plans to take CO2 from Europe’s industrial heartlands and funnel it into North Sea storage sites, locking in eight million tonnes a year by the mid-2020s.
It is not charity: they will charge a fee. The value of that service will rise as Europe’s carbon price ratchets up to €60 a tonne or more, a mechanical effect of diminishing permits. Memoranda already signed with ArcelorMittal and HeidelbergCement, among others, suggest how lucrative this could become.
BP’s Andy Lane is leading a team of oil companies under the auspices of the OGCI to develop a variant for the Teesside industrial cluster, with plans to inject CO2 into storage by 2026.
“I am a lifer in BP gas. We’re using the same skills we used in oil and gas and applying them here. British firms have drilled up and down the North Sea and already know the structures, so we have a head start,” he said.
BP, and rival Shell, are trying to innovate after coronavirus accelerated the world’s transition away from oil - dramatically reducing their dividends in the process.
Carbon will be captured from local gas and biomass plants, and also extracted from industries that generate CO2 from the chemical process itself. Clean dispatchable gas will be used to match lulls in offshore wind power.
“The two compliment each other. They combine to give us 24/7 baseload power. We think it is the cheapest way to get to low carbon power and could generate savings of £20bn a year by 2050.”
“Teesside is unique because we have a very dense cluster within a stone’s throw. We can use CCS to go all in on clean hydrogen, or for fertilisers and heavy industry where there is no other choice,” he said.
It is part of the OGCI’s push to tackle pollution in sectors such as cement, less visible to the public but nevertheless responsible for 8pc of global emissions, half of it the chemical process itself.
It has invested in Solidia, which uses CO2 rather than water to cure concrete, breaking down the CO2 molecules and turning the carbon into a glue for the limestone. “It gets a 70pc reduction in CO2 and an 80pc reduction in water use.” said Mrs Rangarajan.
“We have all these skill sets for industrial emissions from things that people use every day but can’t be reached by electrification,” she said.
Profits to be found for nimble oil giants
There is undoubtedly a profitable niche for the more nimble oil and gas companies redeploying their engineers as agents of CO2 abatement. Natural gas with CCS has a reasonable future as a bridge fuel until the mid-2030s. Blue hydrogen - BP’s big bet - will play its part.
Whether that extra lease of life continues much beyond that date depends on a scissor effect of costs: will carbon capture be cheap enough in time to preempt the plummeting cost of renewables and ultimately hydrogen from electrolysis.
The IEA predicts blue hydrogen will make up half of supply over the long run.
“I think that green hydrogen is going to pose a systemic risk for CCS, and the idea that there is going to be a huge market for liquefied natural gas is just fanciful,” said Daniel Quiggin, an CCS expert at Chatham House.
“A lot of companies are promising governments that they can go carbon neutral but when you delve into their R&D behind the paywall you find that they can’t technically deliver,” he said.
“Investors mostly think wind, solar, lithium and other renewables are already there and are going to get even cheaper, and that is where the money is going. The horse has already bolted,” he said.
What seems clear is that CCS is not going to protect crude oil against the onslaught of electric cars and light trucks, or against hydrogen-based energy for long haulage and container shipping. It makes little sense to put carbon capture on a car - although a Swiss institute is trying to do exactly that - and what is the point once EVs conquer range angst and reach cost parity around 2023?
The hard-core petroleum majors are hoping to offset the emissions of combustion engines with direct air capture of CO2, an even harder technology to master at viable cost. To do that on a global scale beyond biomass is a very tall order. They are running out of time in any case.
Big Gas may live on and even thrive for a generation with carbon capture. Big Oil as we know it seems condemned to slow run-off.
Read more in our Future of Big Oil series:
Introduction: How Big Oil's beasts risk being reduced to the role of dinosaurs
Part one: Why fossil fuel dinosaurs may still have life in them yet
Part two: Big Oil's big bet to avoid extinction
Part three: The oil giant that went from dirty fuel to clean energy in a decade
Part five: Peak oil is coming - it's just a question of when
Part six: Energy giants face end of an era as peak oil demand dries up
