Carbon capture and storage is increasingly being put forward as a key part of reaching Net Zero. As the technology, regulation and market strategies evolve and new projects are commissioned around the world, Joe Clinton and Mike Campbell assess whether the Gulf Cooperation Council (GCC) can be a key player in capturing, storing and putting CO2 to new uses and how this new industry might develop in the region.

What is carbon capture and storage and what does it involve?

Carbon capture and storage (known as CCS or simply carbon capture) is a way to make fossil fuel industrial processes cleaner by collecting carbon dioxide that would otherwise be emitted into the atmosphere and pumping it deep underground into depleted oil and gas reservoirs and saline aquifers, where it ultimately turns into rock and does not contribute towards climate change.

The processes and the basic technology are well proven and were originally developed decades ago by the oil and gas industry to improve efficiency of extraction by injecting carbon dioxide into subterranean oilfields to increase field recoveries, a process known as enhanced oilfield recovery (EOR).

EOR has formed the use case so far for most of the world’s existing commercial carbon capture facilities but the idea of permanent sequestration of CO2 underground for the sole purpose of reducing carbon emissions was first floated in the late 1970s and put into practice commercially in the 1990s. Since then, the CCS industry has seen various false starts but is being increasingly proposed as a key part of reaching Net Zero by 2050.

The key public concern is around CO2 leakage and here geology is key: provided sites are chosen and operated responsibly, the risk of leakage and seepage of carbon dioxide is minimal, with one study estimating an upper bound for diffusive migration at ‘a few millimetres to a few centimetres on a 1,000-year time scale’¹. The Intergovernmental Panel on Climate Change (IPCC) also concluded as far back as 2005 that ‘the fraction retained in appropriately selected and managed geological reservoirs is very likely to exceed 99% over 100 years and is likely to exceed 99% over 1,000 years’².

Carbon capture’s vital role in decarbonisation

While renewable generation and electrification will be responsible for the bulk of emissions reductions globally, they won’t be able to reduce emissions to Net Zero alone and CCS will need to be part of the story.

The IPCC³ predicts storage of up to 800GtCO2 and sees ‘rapid deployment’ of CCS as characteristic of 1.5C pathways, and the International Energy Agency (IEA) sees a growing role for CCS in the race to decarbonise, estimating that it could account for some 15% of the cumulative reduction in carbon emissions that must be implemented⁴.

Crucially, CCS can play a central role in decarbonising so-called ‘hard to abate’ industries such as steel, chemicals, fertiliser and cement production. These sectors are difficult to decarbonise with electrification and renewables alone, partly because they often have extremely high heat energy requirements and partly because around a quarter of emissions from industrial processes come from chemical processes that are difficult to avoid. CCS will work with existing fossil fuel heat processes and can capture those other process emissions.

Picking up pace but more progress needed

The need for widespread CCS is clear but progress so far has been relatively slow. Today there are almost 40 commercial carbon capture facilities up and running globally, with a capacity to capture and store more than 45m tons of CO2⁵ per year . This is a drop in the ocean compared to the 36.8 billion tons⁶ of CO2 emitted in 2022 from energy and industrial processes. The pace is now picking up and another 200 facilities are planned or in active development (lifting capacity to nearly 300m tons per year), but this is still a fraction of what will be needed to meet the Net Zero target.

In a 2022 report, consultants McKinsey & Company argued that CCS uptake will need to increase by a factor of 120 by 2050 to achieve that goal, with annual investment rising sevenfold to USD150bn in that time.

Encouraging investment on this scale will be a mighty challenge, requiring massive public and private sector financing, accompanied by some far-reaching regulatory change, further improvements in the effectiveness and cost of capture, transportation and storage technology, and innovative market reforms to make CCS a viable decarbonisation tool.

The key challenge to the development of a large CCS industry is a financial one. While EOR provides a business case for pumping CO2 underground, there is no equivalent case for long-term sequestration: currently it is cheaper to emit carbon dioxide than it is to pay to store it and government incentives are needed to overcome this hurdle.

We are seeing progress on many of these issues around the world, but these are still early days and there is a long way to go.

Recent developments globally

The IEA reported:

• the US unveiled major incentives for CCS project development, such as new funding from the 2021 Infrastructure Investment and Jobs Act and improved CCS tax credits from the 2022 Inflation Reduction Act;
• the EU introduced the Net Zero Industry Act in March 2023, setting a 2030 goal of injecting 50 Mt CO2/yr through CCS and streamlining the permitting process for CCS projects;
• the UK announced GBP20bn in its Spring Budget 2023 for the early deployment of CCS projects;
• Indonesia became the first country in the region to adopt a legal and regulatory framework for CCS in March 2023, enabling CCS activities to proceed; and
• in China, three new projects came online in 2023, while Japan chose seven potential projects for funding to help them reach commercialisation

A lens on the Middle East

The GCC already has several significant carbon capture projects in operation, including Qatar’s 2.2 Mtpa LNG liquefaction operations in Ras Laffan, Abu Dhabi’s 800Ktpa Al Reyadah steel project in the UAE and the 800Ktpa Hawiyah NGL CCS project in Saudi Arabia. Those three alone store around 3.7 million tons of CO2 per year, making up a significant proportion of the world’s current storage capacity. There are other facilities capturing carbon on a large scale too, including facilities in Kuwait, Qatar and Saudi Arabia which, instead of storing it underground, use it in other processes (including in the food and beverage industry and the production of urea and methanol): this is known as carbon capture and utilisation (CCU).

While there is a firm foundation for CCS and CCU in the region, there are plans for millions of tons of new capacity to be developed. All GCC countries have either included the use of carbon capture in their national determined contributions to meet their Paris Agreement commitments or else included it in their official Net Zero strategies. Some of the region’s leading state-owned national oil and gas companies (NOCs) have also made carbon capture a key pillar of their individual sustainability strategies and large projects have been announced in Qatar, Saudi Arabia and the UAE.

This focus on CCS in the GCC is for two main reasons: first, there are clear benefits to developing CCS infrastructure for the region’s hydrocarbon exporting economies and, second, the region is well suited to CCS.

The benefits of carbon capture storage

CCS offers many benefits for GCC countries, including the possibility of reducing emissions from oil and gas production, which are already low compared to other producers, to stay ahead of the competition as customers demand ever cleaner energy and decarbonising the GCC’s ‘hard to abate’ industries so they can be competitive in increasingly regulated markets while still allowing exploitation of the region’s plentiful and accessible gas reserves. There is also the possibility of exploiting those gas reserves cleanly to create low carbon blue hydrogen by applying CCS to existing carbon-intensive H2 production processes. Finally, CCS can form an industry in its own right, allowing GCC countries to develop proprietary technology and specialist skills and creating employment opportunities for GCC nationals.

An excellent place for carbon capture storage

The Middle East region has natural advantages when it comes to implementing CCS, including geology ideally suited to storing carbon deep underground in saline aquifers and depleted oil and gas fields at depths of 800 metres or more. These are prime sites for reliable storage.

These storage sites are also often located close to established industrial zones including Jubail, Ruwais and Ras Laffan, which incorporate pipeline corridors already, and this should make it easier to build pipeline grids to collect emissions from many different emitters and transport them to the storage site, thereby lowering overall development costs and providing a pathway to reducing emissions to wide segments of industry.

The region also has an obvious wealth of skills and experience in building and operating energy infrastructure, treating and transporting gases and in subsurface operations, not to mention a long history of successfully deploying project finance to develop large projects and of providing a supportive regulatory environment for foreign expertise.

Finally, many countries in the region are able to implement new laws and regulatory frameworks and to approve new projects relatively swiftly (in the U.S., delays of seven years for permits are not unheard of).

How will CCS develop in the region?

The shift from EOR to long-term storage seen elsewhere in the world is beginning to play through in the region too. GCC countries have set themselves ambitious decarbonisation targets and have announced large investments and ambitions for CCS. A range of outcomes is possible, from individual projects and partnerships sequestering their own carbon to carbon clusters based in industrial zones.

Industrial hubs and carbon clusters

Inevitably, much of the focus for future projects is likely to be on established industrial areas like those already mentioned, potentially leading one day to significant CO2 grids in industrial hubs across the region, connecting emitters by pipeline to storage sites. This could be similar to the clusters we are seeing planned in the UK and to the networks being developed to link dozens of ethanol plants in the U.S.. Under this model, emitters in particular areas could be offered access to transport and storage services in exchange for paying a transport and service fee.

National oil companies (NOCs) at the centre of storage

Given CCS’ genesis in EOR, it is no surprise that the region’s NOCs have been the key players on large developments so far and, as a result of their expertise, subterranean knowledge, operational ability and centrality to the economies of the GCC, NOCs are likely to remain at the forefront.

Substrata rights are a very sensitive matter for GCC countries and NOC management of underground storage (in particular) may very well be a non-negotiable requirement of GCC governments even if capture and transport can ultimately be put out to tender by the private sector.

We might therefore see state-owned NOCs in each country effectively providing storage as a service to emitters, in contrast to the licence-based storage models seen in the U.S. and the UK, for example.

Economic incentives

As there is no intrinsic benefit to storing carbon dioxide underground, government action is needed to ensure that CCS projects go ahead and emitters are incentivised to capture emissions.

There are many ways governments can do this, from direct capital grants (such as those provided by the UK government) and other forms of direct and indirect subsidies for both capex and opex to tax credits (which form the foundation of the incentive model in the U.S.).

Under a cluster model with storage provided by NOCs, an indirect government subsidy could be provided by NOCs effectively providing their services at a discount as an alternative to direct subsidy to support initial capital costs upfront or over time.

Other incentive measures include environmental regulation and government mandates on emission levels, cap and trade schemes and carbon pricing, which could increase the costs of emitting to make storage more attractive and could be imposed by GCC states themselves (in support of their own ambitious Net Zero plans).

Border adjustments and tariffs in target export markets (such as the EU’s carbon adjustment border mechanism or CBAM) and increasing international regulation could also provide a need for GCC producers to capture and store their emissions if they want to continue to compete in other markets with home producers who are required by their own governments to reduce their carbon footprints.

The recent introduction of corporate taxation in many countries in the region has put in place institutions and mechanisms that might one day allow the possibility of providing tax credits to incentivise CCS (perhaps similar to 45Q tax credits under the Internal Revenue Code in the U.S. which currently provides an incentive of USD85 per ton sequestered).

Given that CBAM payments on imports may be reduced by carbon taxes paid in the home jurisdiction, GCC governments may one day take the view that it is better to impose emissions-based taxes themselves rather than see tariffs imposed by other countries.

External financing and expertise

The large-scale operating storage projects in the region so far have been carried out without using external financing. While the GCC’s economies can deploy enormous amounts of capital, it is likely that we will see external financing being provided on at least some of the future CCS projects in the region. There is a long tradition of large-scale financings in the GCC to spread the capital cost of large developments and to maximise the impact that available funds can have within the oil and gas industry and across society more broadly.

Beyond providing finance, external involvement is likely to be important in other ways too. There is now a long history in GCC markets of tendering power and water and, more recently, social infrastructure projects to the private sector. Typically these are structured on availability-based tariffs and this might provide a relevant model for capturing and processing emissions and then for transporting CO2 by pipeline.

Foreign partnerships could also provide technology and expertise, as evidenced by MOUs entered into by various NOCs with certain international energy companies, wider industrial companies and CCS technology providers.

Regulation and risk allocation

As noted previously, the risk of leakage and seepage from well selected and managed sites is low. Nonetheless, a clear framework for allocating risk and liability would no doubt be welcome and various GCC governments are working on draft laws to provide clarity. CCS laws in other jurisdictions include criteria for site selection as well as clarifying liability for leakage and seepage, particularly over the longer term, given the intention is for emissions to be stored for many decades, if not centuries.

One way of addressing this latter issue that has been adopted in other countries, including the UK, Norway and EU jurisdictions, is for the state to assume liability for fugitive carbon dioxide for a certain number of years (typically 15-20+) after storage sites are closed and provided certain handover conditions are met, often including the provision of financial support and there being no evidence of any leakage. A similar regime could be introduced in certain GCC countries (though many NOCs could of course comfortably assume these risks).

Clearly a role in addressing the perceived leakage and seepage risk will also develop for insurance providers (including NOCs’ well capitalised captive providers) in future as data continues to be collected and the likelihood and impact of risks become ever better understood.

As a final note, the private sector would no doubt also welcome streamlined and fast track permitting procedures to prevent project delays and overall clarity on what role it can play within the sector.

A bright future for carbon capture in the region

Carbon capture forms a core part of strategic energy transition planning for the major economies of the GCC. CCS will allow NOCs to cut their emissions over the coming decades and to maximise value from reserves by being among the most price- and carbon-competitive producers of the hydrocarbons that will continue to be needed in almost all transition scenarios. It also offers an opportunity to develop export industries which can comply with increasingly strict environmental standards and border mechanisms, while continuing to leverage the region’s natural gas supplies.

For these reasons, the CCS pipeline in the GCC is only likely to grow.

Footnotes

1 Kivi, I. R., Makhnenko, R. Y., Oldenburg, C. M., Rutqvist, J., & Vilarrasa, V. (2022). Multi-layered systems or permanent geologic storage of CO2 at the gigatonne scale. Geophysical Research Letters, 49, 2022GL100443. https://doi.org/10.1029/2022GL100443
2 https://www.ipcc.ch/site/assets/uploads/2018/03/srccs_summaryforpolicymakers-1-1.pdf
3 https://www.ipcc.ch/sr15/ Rogelj, J., D. Shindell, K. Jiang, S. Fifita, P. Forster, V. Ginzburg, C. Handa, H. Kheshgi, S. Kobayashi, E. Kriegler, L. Mundaca, R. Séférian, and M.V. Vilariño, 2018: Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development. In: Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 93-174, doi:10.1017/9781009157940.004.
4 https://www.iea.org/reports/about-ccus
5 https://www.iea.org/energy-system/carbon-capture-utilisation-and-storage
6 https://www.iea.org/news/global-co2-emissions-rose-less-than-initially-feared-in-2022-as-clean-energy-growth-offset-much-of-the-impact-of-greater-coal-and-oil-use