A surge in solutions for decarbonisation

Rachel Schelble, Head of Corporate Carbon Management and Infrastructure, Wood Mackenzie, USA, discusses the ways in which midstream operators can fuel the energy transition.

The midstream oil and gas sector is doing more than just transporting CO2 from A to B in the race to decarbonise. The industry is at the forefront of developing new value chains and evaluating novel business models as they facilitate the shift to new low-carbon energy sources. They are testing the limits of their pipelines for CO2 transportation, developing new pipelines to decarbonise the US Midwest, and driving innovative solutions for CO2 extraction and storage. They are doing this all while balancing fiscal discipline and sustainable investment principles in a nascent new business with no tried-and-true returns.

Midstream early movers in decarbonisation Companies with existing CO2 transportation and processing infrastructure – like Occidental Petroleum, Denbury, and Kinder Morgan – are natural early movers in the race to decarbonise. Oxy stores up to 20 million tpy of CO2, with over 2500 miles of CO2 pipelines, 13 CO2 recovery plants and more than 6000 CO2 injection wells across 34 Permian Basin EOR projects. Oxy is progressing technology to extract CO2 directly from the air, a process known as direct air capture (DAC), with its first plant operational in the Permian Basin in 2024.

Kinder Morgan is the largest transporter of CO2 in North America, shipping up to 1.5 billion ft3/d of CO2. Its 1500 mile pipeline system in New Mexico and Texas is connected to natural CO2 sources at McElmo Dome, Doe Run and Bravo Dome, which have consistently provided CO2 for Permian Basin enhanced oil recovery (EOR) projects, previously for conventional fields, but now also for unconventional resources. Kinder Morgan’s CO2 business has consistently generated positive returns, and it is evaluating carbon capture, utilisation and storage (CCUS) opportunities along its entire infrastructure footprint.

Denbury has over 1300 miles of CO2 pipelines, and a strategically important CO2 infrastructure footprint in the US Gulf Coast. It has executed agreements for over

7 million tpy of CO2 for transportation and storage, and are working to repurpose water injection wells for CO2 injection into the subsurface. Denbury has pipeline expansion projects planned for 2023 that will grow their CCUS business into the future.

New CO2 pipeline projects The economics supporting the CO2 value chain are at an early stage. Tax incentives like the 45Q tax credit in the US are encouraging some companies to build new CO2 transportation infrastructure. The 45Q tax credit provides US$35 - US$50/t of CO2 to companies that build infrastructure to capture CO2 and store it in the subsurface. There are three planned pipelines that will connect CO2 emissions from industrial plants in the Midwest to subsurface geological storage.

Summit Carbon Solutions is developing the Midwest Carbon Express CO2 pipeline that will span over 2000 miles across Iowa, Minnesota, Nebraska, North Dakota, and South Dakota with an estimated cost of US$4.5 billion. The pipeline aims to collect 10 million tpy of CO2 from 31 industrial CO2 sources and store the CO2 subsurface in North Dakota. 2022 will be a pivotal year for Midwest Carbon Express as it works to get permits approved for the project. Recent investors include Continental Resources and Tiger Infrastructure Partners.

Blackrock and Valero partnered with Navigator Energy Services in 2021 to build the 1200-mile Heartland Greenway CO2 pipeline, which is estimated to cost US$3 billion. Open season commitments on the pipeline were sufficient for the project to reach Final Investment Decision (FID) approval in 2021. Additional Midwest industrial facilities continue to sign up for transportation on the pipeline which will transport up to 15 tpy of CO2. Construction will begin in 2024 along approved routes, and the pipeline will be fully operational in 2025.

Less details have been released regarding the collaborative pipeline project being designed by Archer Daniel Midlands (ADM) and Wolf Carbon Solutions. The 350 mile pipeline will be dedicated to ADM’s industrial CO2 waste and is planned to have a capacity of up to 12 million tpy of CO2. CO2 will be transported for subsurface sequestration in Illinois.

The limits of repurposing infrastructure and the power of partnerships Repurposing existing infrastructure is an obvious opportunity for midstream operators. CO2 must be transported in a super critical phase, which can place limitations on the types of infrastructure that can be re-purposed. This constraint requires CO2 pipeline pressures to be in the range of 1200 - 2200 psi. Crude pipelines are designed for pressures that generally range from 600 to 1000 psi, which makes them less than ideal candidates for CO2. Natural gas pipelines are generally designed for pressures between 500 and 1400 psi, which leaves more opportunity for converting these pipelines for CO2 transportation.

Naturally, there will be a cost associated with re-purposing midstream infrastructure, and without a price for carbon, it will be a challenge for midstream operators to build confidence in the investment case. Converting natural gas pipelines for CO2 transportation may be possible in some cases, but the trade-off is that natural gas sales generate revenue, while CO2 sales do not, unless the CO2 is being used for EOR. It may be that creative partnerships between upstream and midstream companies help to crystallize the value proposition. The midstream sector provides much needed transportation expertise to an upstream oil and gas industry trying to decarbonise.

Enlink Midstream and Talos announced a Memorandum of Understanding (MoU) in February 2022 to jointly develop the River Bend carbon capture and sequestration (CCS) project in Louisiana’s Mississippi River Corridor. The project will leverage Enlink’s Midstream expertise and existing pipeline infrastructure to provide decarbonisation solutions for industrial CO2 emitters in Louisiana, with subsurface storage at the River Bend CCS facility. Enlink plans to repurpose natural gas pipeline infrastructure to facilitate the project, which is already signing up CO2 shippers.

In September 2021, Enterprise Product Partners announced plans to partner with Chevron New Energies on CCUS opportunities for joint development in the US Midcontinent and Gulf Coast. The partnership started with a six month evaluation phase looking at opportunities for collaboration. Enterprise has an extensive midstream pipeline and storage network, which combined with Chevron’s subsurface knowledge, is poised to deliver new and innovative decarbonisation solutions.

In Canada, Enbridge has partnered with Lehigh Cement to progress CO2 storage solutions in Alberta. At Lehigh’s Edmonton plant, it is working to develop full-scale CCUS solutions for the cement industry. Captured emissions will be transported and stored in the subsurface by Enbridge, with a goal of capturing up to 780 000 tpy of CO2. The project could be in service as early as 2025.

Carbon sequestration economics and carbon offsets As companies work to tackle the economics of CCS, they are testing every lever that they may have available. The 45Q tax credit is one option available to companies, but the evolving carbon markets offer another potential economic pathway. New methodologies for carbon sequestration have recently been approved for carbon offsets. Both Verra and the Gold Standard have approved methodologies for CO2 sequestration in concrete building materials. Updated methodology to support offsets for CCUS projects that store CO2 in oil and gas reservoirs was approved by the American Carbon Registry in September 2021.

Final thoughts The midstream oil and gas industry can provide infrastructure solutions that will enable the energy transition. The economics of the nascent CO2 value chain are still largely untested. But early indications show that there is enough incentive for the midstream to act. Tax incentives like the 45Q tax credit, the carbon markets, and creative partnerships with the upstream are catalysing an entrepreneurial mindset amongst midstream operators. Making the connections between the different parts of the CO2 value chain will propel the industry to surge ahead with solutions for decarbonisation well into the future.