Why All the Fuss Over CCS?

Carbon capture and storage (CCS) is a high-risk gambit, not a promising solution. Steep costs that necessitate massive government support mean CCS will, at most, be the temporary backbone of an energy segment much smaller than the turf now held by fossil fuels. Solar is cheap, popular and, along with wind and batteries, capable of providing most electricity in most places. Electricity, in turn, will at minimum take over most road transport and space-heating. CCS has only a reasonable shot at what’s left, primarily “hard-to-decarbonize” bits. So why are big oil players — from US and Mideast governments to Western majors — plugging CCS and its blue hydrogen adjunct so hard? It plays to their technical and management strengths, and just might work for a while for a few. But not for long or for many. The important thing CCS does is buy time, no small thing amid rapid, existential change.

The broad outlines of a post-carbon energy industry are now visible. At the big, broad base is renewable electricity. Solar’s already-low cost looks set to fall by another 40% or more in the years ahead. China is rapidly expanding its prodigious solar manufacturing capacity, positioning itself to supply a power-hungry world. The US is aiming to rebuild its now miniscule domestic solar manufacturing, as are Europe, India and others. The speed of solar installation is outpacing expectations in most places. An exception is the US when it rejects Chinese imports.

Wind, by comparison, is starting to miss targets, as costs rise and manufacturers complain of low profits. There are exceptions to this, too. In windy, cloudy Britain, wind overtook gas in first-quarter 2023 as the leading generation source. But in most places — China and India included — wind looks increasingly like an evening extender to solar as daylight fades and breezes pick up. But that’s no small thing, and batteries are being installed in tandem for times when neither solar nor wind is available. This powerful threesome could easily supply 80% of electricity in many places. Hydro and nuclear would compete with gas and coal for what’s left.

On the demand side of the electrification equation, transportation will form the big, broad base, along with space-heating and cooling. As with solar, both electric vehicles (EVs) and heat pumps are spreading as fast as manufacturing capability allows. EVs look set to capture roughly 20% of the new car market this year and more than half within a decade. EVs also are poised to make major inroads on buses, vans and delivery vehicles. These markets account for roughly 50% of current oil consumption.

Fighting for Leftovers

What does that leave for CCS and hydrogen? A little electricity, heavy road haulage, hard-to-decarbonize industrial processes like steel and concrete, and the oil industry’s own activities, including refining, petrochemicals and plastics. And maybe a few other bits and pieces.

In its Net Zero by 2050 report, the International Energy Agency (IEA) notably excluded carbon credit sales outside the energy sector, to the industry’s irritation. But the IEA was relatively optimistic in its allocation of markets to biofuels, CCS and hydrogen. Pointedly not a forecast, this “road map” of one route to net- zero emissions shows biofuel use nearly quadrupling by 2030 and, by 2050, covering nearly half of aviation fuel requirements, and substantial amounts of shipping and cement production. Given heightened controversy over land-use issues, it’s easy to imagine CCS-treated hydrocarbons taking on some of these roles instead.

That bit of upside potential for CCS is more than balanced by downside risks. Take heavy trucking. Several of the world’s major truck manufacturers are still hedging their bets by keeping R&D going in both battery and hydrogen fueling, although most studies now tilt in favor of batteries. A similar competition between electrification, CCS installation on existing equipment, and hydrogen from CCS (blue) or renewable electricity (green) is taking shape to decarbonize manufacturing of steel, concrete and several other common construction and industrial materials.

Geopolitically driven fragmentation is another risk. With its Inflation Reduction Act (IRA), Washington has swung full force behind CCS and blue hydrogen, providing tax credits of $85 per ton of CO2 removed by CCS — right about how much Exxon has said the technology requires. The Biden administration also appears to be relying heavily on CCS and blue hydrogen in a regulatory structure for decarbonizing power generation published in early May. But this will be held up for years by litigation, as Obama and Trump administration versions were, and probably wouldn’t change much anyway. It’s more a political gesture than a serious policy move.

The US is well behind China in its build-out of both renewable generation and EVs, and it’s likely to fall further behind for at least a couple more years given Washington’s new-found determination to rely on domestic manufacturing that doesn't yet exist. The US’ status as a top oil and gas producer goes far in explaining its tilt toward CCS and away from renewables technologies where China holds a clear lead.

The split could easily spread into hydrogen. China produces over half of the world’s steel and its concrete, as well as its solar panels. Not surprisingly, recent studies suggest China’s top steel producers are leaning toward green hydrogen for decarbonizing. India could easily follow, given its low solar power costs. This points to a potentially limited role for clean hydrogen Middle Eastern states may hope to export in the future.

Nonetheless, Abu Dhabi National Oil Co. (Adnoc) head Sultan al-Jaber, in his capacity as president-designate of the next annual UN climate conference (COP28), is pushing hard for CCS as part of a program to eliminate fossil fuel emissions, and not necessarily the fossil fuels themselves.

Coping With Uncertainty

There are huge dollops of uncertainty in all this, and uncertainty creates potential as well as risk. At the corporate level, Exxon is positioning itself to seize this potential, which it calculates could be huge — a global market for “CCS as a service” that is roughly half the size of the gargantuan electricity industry. The idea that merchant CCS could be that big seems somewhat fanciful, given that it assumes governments would cover most of the bill for carbon removal from conventional fossil fuels, even as renewable electricity costs fall.

Still, the market might be big enough to support Exxon if it has first-player advantage. And as a corporate strategy, it may have considerable appeal compared with involvement in electrification. Indeed, a vague suspicion on Wall Street that CCS may help the US remain hooked on oil and gas longer than Europe, could help explain Exxon and Chevron’s stock market premium over their European competitors.

At this stage, much of the omnipresent posturing within the energy world boils down to playing for time. Change is coming, and what’s coming won’t be advantageous for dedicated oil and gas players. But how much worse the future will be, and who will lose most, aren’t so clear. So why not stretch things out as long as possible, hoping the winds will shift in a more favorable direction? One reason not to stall is that windows of opportunity may close. Still, it’s tempting.

Sarah Miller is a former editor of Petroleum Intelligence Weekly, World Gas Intelligence and Energy Compass. The views expressed in this article are those of the author.