Forget the Cost of Carbon Capture. It’s Time to Think about Its Profitability
Last year, the Biden Administration announced their commitment to the reduction of greenhouse gas pollution in the United States, proposing a carbon-pollution-free power sector by 2035.
For some energy executives, this announcement feels like the addition of a new cost center as leaders determine how to extract carbon from the atmosphere or capture byproducts from industrial processes. However, forward thinkers and disruptive startups, treating the reduction of GHGs as possible profit center, have the chance to make lemonade from lemons.
In fact, an article for Forbes outlines that 90% of the high concentrations of carbon produced by industrial processes could be captured in relatively simple ways that drastically reduce the greenhouse gases entering the atmosphere – and possibly turn a profit.
So, instead of talking about the cost of carbon capture, we wanted to explore the ways some industry pioneers are integrating carbon capture solutions into their portfolio as a way of staying ahead of the curve and retaining profitability.
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Turning Direct Air Capture into Raw Profits
Is there money to be made by sucking CO2 from the atmosphere? Oxy Low Carbon Ventures, a subsidiary of Occidental Petroleum Corp, and Enterprise Products Operating LLC, a subsidiary of Enterprise Products Partners LP, seem to think so. The two organizations have begun to explore the concept of commercialization of carbon capture within their businesses, developing sequestration hubs along the Gulf Coast by building 70 facilities over the next 13 years.
With their ambitious goal, both enterprises intend to extract one million tons of CO2 using direct air capture and process an industrial gas for use in enhanced oil recovery for upstream oil and gas firms. The gas would be transported by pipelines throughout the region, complying with low-carbon goals while making a profit.
For those organizations intrigued by this type of opportunity, the key to success is likely through a sort of symbiotic relationship. Established oil and gas enterprises can partner with more agile startups, availing the creators of carbon sequestration technology with the capital and infrastructure they need to thrive. All organizations involved in the resulting partnership can overcome their shortcomings and share in untapped revenue.
Increasing Pipeline Efficiency with Gas Compression Technology
In the process of creating an additional industrial use of greenhouses gases, doesn’t that also increase the need for greenfield pipeline projects? With the backlash against the Keystone XL pipeline, there’s a risk that such projects can run afoul of public relations nightmares or development cancellation, long after extensive investment is made. Potentially motivated by this threat and other reasons, Kinder Morgan has been exploring a gas compression technology which can increase the daily capacity of their Permian Basin pipelines by 1.2 billion cubic feet per day.
As a midstream organization, Kinder Morgan is seeing their own opportunity to help other members of the energy sector to hit goals for reduced greenhouse gas emissions and earn a surplus from existing pipelines. They are planning new greenfield projects to address the increased earning power, thanks to this gas compression technology, but will still earn advanced profitability on existing pipelines while the 18-month project is completed.
Businesses eager to book space for their product in the so-called Permian Highway Pipeline to take advantage of the expanded capacity can do so now. However, organizations that are looking to take their own cut of this midstream market are still early enough in the technology adoption life cycle that they too can explore this type of margin-boosting project.
Monetizing Carbon Storage with Current Unused Assets
There’s also a question of where all the excess carbon, as well as any energy produced due to the expanded pipeline capacity, will end up. Though carbon sequestration might seem like far more of a cost center than any element of the process thus far, there are even elements to turn this into profitability – if your business acts fast enough.
Let’s start with carbon storage. Once CO2 is extracted from the atmosphere, the challenge is finding a permanent location to inject it underground. Experts suggest subterranean reservoirs with low permeability and little to no seismic activity. Additionally, there’s a long-term liability that organizations need to navigate, working with regulators to create a clear framework for assigning obligations and stewardship.
Often, the target locations for storage are saline formations or disused oil and gas fields, the latter of which provides larger organizations with options to transform disused and depleted oil assets into modern storage facilities. Depending on the size of the site, enterprises may find opportunities to sell land or sell storage space to organizations without the capital or infrastructure to build their own carbon storage sites.
Additionally, there is an opportunity for corporations to build in-house expertise, training team members to monitor storage sites and keep them within regulatory requirements, offering consultants to clients (or even paying competitors) in search of carbon capture experience to avoid legal noncompliance.
Going Beyond Carbon Capture
Beyond carbon capture and increased pipeline efficiency, growing incentives and federal support for renewable power sources are growing. Texas is already at a point where 29% of the state’s energy is produced by wind farms, and Louisiana lawmakers are exploring the feasibility of a wind energy pilot project in the Gulf. On the solar front, more innovative organizations are investing in solar production (Space X is constructing more solar farms in their South Texas facility) and metropolitan areas like San Antonio have risen to fifth in the nation for solar power generation. The market is naturally moving in the direction of renewable energy generation and those organizations willing to invest now can pioneer techniques and tactics that earn them profits in the long run.
If the cost of carbon capture is a concern, so should be the reliance upon fossil fuels. Though technology has advanced the ability to extract harder to obtain fossil fuels, many of these practices can result in natural disasters that cost millions or more in regulatory noncompliance fees, legal expenses, PR campaigns, and other hidden costs. Even with current tax subsidies, the changing tides of public perception can cause a major offset to disappear in a short time.
On the other hand, the transition to renewables now not only eliminates legal liability from a dangerous and accident-prone extraction process, but also results in more incentives now to make the change. An International Renewable Energy Agency (IRENA) study shows that 62% of the renewable energy built last year had a lower cost than “the cheapest new fossil fuel options.” Acting with urgency to make the transition lowers the financial bar for adoption now to enhance profits for years and years down the line.
We monitor than the challenges to and opportunities of overcoming the cost of carbon capture. Follow our blog for the latest insights into the energy sector, hiring challenges, and other topics.
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