Change Makers: Nick Terrell, Carbon Catalyst Executive Director

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Sam Humphreys:

Hello, you're listening to EnergyCents, an S&P Global Commodity Insight podcast where we discuss all things on the intersection of energy and finance. My name is Sam Humphreys and I'm here as always with Hill Vaden. Oh, no, sorry, Hill. How are you doing?

Hill Vaden:

Yeah, I'm doing all right. As I say in the intro or as we get talking, it's always fun doing these podcasts with people when at least one of us is sitting in the room within the guest, so I'm grateful for that.

Sam Humphreys:

So we were joined by Nick Terrell who was co-founder and executive director of operations at Carbon Catalyst, who came to our lovely studio in London, which I just really enjoyed because it's really nice to see people in real life. And he came in as part of our Changemaker Series, and his company is a pure play CCS company, carbon capture storage company focused here in the UK. So, Hill, have you got some best bits that you want people to be listening out for?

Hill Vaden:

Yeah, it was great, and I think that this is just another interesting example of one the North Sea is this incredible energy province that seems to do everything from make oil, to make gas, to make wind, to potentially be a carbon capture opportunity. And Carbon Catalyst is working on a couple of projects, Poseidon and Orion and a few others, all around transportation and storage of CO₂. So leaving the capture and the potential utilization of CO₂ to other partners and partnership with Perenco, trying to leverage some of the existing infrastructure and then the depleted fields within the North Sea for new and I guess net-zero ways. So a real cool discussion. A bunch of bankers and oil guys put these projects together, so a lot of expertise in the financial and engineering space. How about you?

Sam Humphreys:

Yeah, I mean, like you said, it's really interesting to hear just how far this company has come in this space in the last five years. So it was established back in 2020 and in terms of this is an entirely new industry, so progress from getting the licenses for examples and going through the regulatory hurdles and it was brilliant. We could have talked for hours. I think the project is pretty well publicized over here, so we've heard quite a lot about it. So it's quite nice to give it that international platform. So it was quite nice to have a little chat and I hope everyone enjoys.

All right. Well, hello, Nick. Thank you so much for joining us today and I have the pleasure of having you in the studio in our Ropemaker office. So how are you doing? How's it going?

Nick Terrell:

Yeah, good. No, really excited to see the setup in here. It's pretty fancy. Definitely in the London office anyway, I reckon.

Sam Humphreys:

Sorry, Hill. We're looking at Hill on a little screen in the Houston studio. How's it going, Hill?

Hill Vaden:

It's going well. I continue to have podcast studio envy whenever I do these London podcasts, but I am here in Houston in a very nice, very lonely podcast enjoying the virtual recording process with you guys. So, Nick, thanks so much for joining us.

Nick Terrell:

Yeah, no, great to be here.

Sam Humphreys:

Well, you are joining us from Carbon Catalyst, which is a CCS focused company. And rather than me trying to explain what you folks do, can you give us a bit of a background on the company, maybe when it started and sort of going from there just to set the scene a bit?

Nick Terrell:

Yeah, sure. We're somewhat of a rare breed over here in Europe in that we're a pure play CO₂ transport and storage project developer. So that's what we're in the business of doing is developing transport and storage. And when I say I'll abbreviate it to T&S, right, but that's transport and storage projects. So we got going about five years ago. There was clearly a sense and momentum around technologies and sectors like CCS. We had the UK committing to net-zero in 2019. We had Greta Thunberg bashing everyone over the head and telling us we needed to decarbonize. It was symptomatic, I think, of the rising political support for decarbonization. A bunch of us at the company backgrounds are in a combination of banking and oil and gas. So we brought a lot of expertise around project development, geology, subsurface and investment and funding of projects and recognized that there was really a gap in the small number of projects that were out there.

So we put a team together, we did a big screening exercise across Northwest Europe and in particular the UK, and identified a number of projects in a particular upper siding project that was not really receiving any focus. That led to the application of a carbon storage license to the government, which went in the back end of 2020. And then as that was being reviewed, we then engaged with the market. We're really delighted to bring in Perenco, which is the UK's largest gas producer, produces a lot of gas in there, what we call the Southern North Sea. They operate about 58 fields, thousands of miles of sub sea pipelines to gas processing terminals. So they're a big player. They have about 1,400 people in the UK and that was really a perfect partner and an operator for us. They also operated the depleted fields that we were looking to redevelop as carbon stores.

So that made a lot of sense in terms of having a company with the data and the expertise in the gas production. Then moving across into developing the fields for CO₂ storage. So that was great. We applied for a few other licenses along the way. It took us quite a while to get our licenses landed because often these sort of semi first-of-a-kind type situations, especially in heavily regulated environments like the North Sea, you have to do a lot of stakeholder engagement. You have to commit a lot of people that it's a good idea to develop a massive carbon storage project rather than plastering the seabed with wind farms, for instance. So it's a challenge around what we call co-location. So whilst that stakeholder engagement was ongoing, we applied for a couple of other projects and then ultimately we were awarded three licenses, two project, the Poseidon project, which I just mentioned, and then also the Orion project.

And that happened in the summer of 2023. And then immediate off the back of that, we brought in additional partners. So we brought Wintershall Dea, which was at the time Germany's largest oil and gas producer and also had a number of CCS, carbon capture and storage projects dotted around Europe and was very keen to get into the UK. And they were also doing stuff as well, which was great. They were doing an injection test in Denmark at the time, so they were going to bring in some good expertise and knowledge. So they came into Poseidon and then we had Sumitomo, delighted that they joined us on the Orion project. Sumitomo is a big... I think there's probably many folks know it's a major Japanese trading and investment company and keen to get into CCS and build its portfolio in Europe. And actually they've just recently, I think last week announced a seven and a half billion pound investment into the UK on clean energy and infrastructure projects.

So they've got a lot of momentum and firepower behind them. Anyway, so they came and joined the projects. And then really how it works in the UK is you bid a work program on these licenses. So it's not a financial cash commitment, it's actually doing work. And on Poseidon, we committed to doing the first UK offshore CO₂ injection test on Poseidon, which was a critical piece of data acquisition all funded by the joint venture. And so we completed that this year in fact, which was a major step forward. So that's a sort of a podded history of the last five years. So great partners, exciting projects, moving forward to storage permit submission next year and probably FID at the beginning of 2027 almost.

Hill Vaden:

Thank you for that intro. Can you help a little bit more with color on the assets that Carbon Catalyst owns in the transportation storage side of things? Do you guys have the pipeline, do you guys have the storage cavern and then look for a partner to provide the CO₂? Can you talk a little bit more about the business model itself and the assets under your portfolio?

Nick Terrell:

Yeah, sure. So we focus on the transport and storage bit. So we have the geological storage license. So these are sites offshore, the UK typically between 30 and 50 miles offshore. And these sites are actually heavily depleted and or decommissioned gas fields. So they've been producing gas in the past or at the very tail end of their production. And we are going in and essentially filling them back up. They've been depleted with gas production, so methane, and then we're filling them back up with CO₂, essentially sort of re-pressurizing them back up. These fields come with a lot of infrastructure, so platforms, wells, pipelines, pipelines that run into terminals. And that's really how we describe it as the battery limits. The boundary of the project really is the terminal, the pipelines and then the offshore field. And then we will contract with customers who will capture and provide the CO₂ at the boundary fence of their facilities and get on in a moment.

In terms of the storage sites, so there's two projects, Poseidon and Orion, if I'd focus on Poseidon just for the interest of time maybe. So what we're doing there is we're redeveloping the UK Lemans gas field, and that is or was the UK's largest gas field. So it's about a 15 TCF, trillion cubic feet of gas field. That might not mean a lot to some folks, but that's a world-class gas field. At its peak, it was producing in the early '90s, just over 40% of total UK gas demand. So that's probably 60 million people in the UK at the time. So a big field, it got developed in the late '60s, came online in 1968 and has been developed through 16 platforms, 5 gas export lines, pipelines. So it's a big beast just to give you a few visuals I suppose, on the field. So it's about a hundred thousand acres in terms of area.

So for the metric lock, that's about 375 square kilometers plus or minus a reservoir thickness is about 750 feet thick on average, and it sits about one and a quarter miles below the seabed. So it's down quite a long way down. So it's a big reservoir. And then we have about 2,000 feet plus or minus of what we call Zechstein group salt. So this is essentially thick layer of salt that sits above the reservoir and acts as a really kind of solid top seal. So it's a really solid geologically contained storage site. So that's the reservoir. And then our development concept is to repurpose, redevelop the existing gas production infrastructure and re-utilize it to essentially allow us to inject CO₂ into the reservoir.

So we will repurpose existing gas wells, we will repurpose existing platforms and ultimately pipelines as well. And that allows us to drive down the capex very low, but we'll do it step by step and we'll do it safely monitoring as we go. But that will allow us really to put away a lot of CO₂. So the total size of the field is just under one billion tons of CO₂, so it's a big storage site. It's probably Europe's largest geological storage site at this stage. And we will basically develop it step by step, so we'll develop bits of the field incrementally. And so as the supply grows and builds as our customer base grows and builds, we'll then develop incrementally more and more bits of the field basically. So it allows us to deploy capital incrementally in line with our CO₂ supply.

Sam Humphreys:

So if we look then to the CO₂ supply, I believe a lot of the UK is focused on industrial clusters and industrial hubs to provide that CO₂. Are you looking initially in the short term at domestic CO₂ from UK sector or are there contracts in place to transport from international parties as well?

Nick Terrell:

Yeah, so we have an initial phase one of around about a million tons per annum, maybe as low as half a million, or maybe as high as one and a half million tons per annum. That's the current plan, and that is a shipped transport and storage project. So we will ship CO₂ from the terminals, which are adjacent to our initial phase one anchor emitters, which will most likely be energy from waste plant and plants. And then we'll bring that online in 2029.

So FID, final investment decision construction begins 27. We'll start injection 2029, and then we'll ramp it up ultimately through the '30s, 5 million tons, 10 million tons per annum, and then probably at the back end of the '30s or in around 2040, we'll reach hopefully full plateau injection rate of 40 million tons per annum, which is just to put it into context, is about 13 14% of current UK total emissions. That initial phase, that sort of half a million to one half million tons per annum will be sourced from UK CO₂. The field is on, or the store should I say, is on the very southern end of the Southern North Sea. And so it's one of the largest, and it's the most proximal store to a range of different industrial and power generation emissions across in the UK, London, and the Southeast. We also have adjacent gas-fired power plants that we're looking to develop or support. But one of the really big prizes is continental Europe.

We have countries like France and particularly Northern France, but also Belgium, the Benelux region, and ultimately Germany who have very significant industrial emissions, hundreds of millions of tons per annum of emissions, clear, strong political support and plans to decarbonize but no geological storage. So we're a very strategically located asset in that respect, in that we set 150 miles or so off the continental European coastline. At the moment, we can't transport CO₂ across the median line, so that obviously has been an issue. However, we are now really starting to see the cross-border legislation coming in. So across European nation states, we're seeing CO₂ cross-border flow occurring quite a lot with bilateral agreements. And now earlier this year we had the UK, EU Reset Summit, which was a wider kind of post-Brexit thawing, should we say. And off the back of that, a very clear commitment from both the UK Prime Minister, Keir Starmer and Ursula von der Leyen, the European Commission, wanting to build and develop a cross-border CO₂ arrangement for both EU emitters and the UK.

So that's really positive. The timeline on that is we expect an agreement to be signed spring next year, and then that will be enacted ultimately in the late '20s. So that's really, really encouraging. There's some good studies out there to show that, and this is looking at the kind of continental European side of things in terms of CO₂ markets is that if you open the borders between EU nation-states, European economic area nation-states like Norway, but also UK as a third country, if you open up the borders, then you get an average cost reduction of around about 28% for EU emitters. So there's compelling argument to open up the boundaries basically because from an EU perspective, there's lots of emissions, but actually a lot of the storage sits in the UK and in Norway and our project is on the far Southern end of the UK, most proximal to EU emissions. So it's a good thing.

Hill Vaden:

So Sam and I love talking about the North Sea for a lot of reasons. I think Sam got her start covering the North Sea, but how much of this, of your project, it sounds like you've just got a perfect situation in terms of existing infrastructure, conducive geology, able to potentially meet a lot of surrounding governments. And you mentioned the word first of a kind, how much of this is very unique or that you're able to leverage the existing kit that's sitting there in the North Sea that allows this project to move forward more quickly than say doing it someplace else?

Nick Terrell:

Yeah, sure. So when I talked about first of a kind, that was in reference to this injection test that we just carried out for the UK, and actually it's the first time that we've as a sector that we've injected liquid phase CO₂ into an ultra depleted reservoir offshore and also at inverted commas commercial scale. So it's sort of one million ton per annum plus type rates. There's been a lot of modeling and a lack of data generally in CCS because we don't have so many projects. We have some early movers like Sleipner in Norway and Quest in Canada and others, and we've now got more projects coming through, like Northern Lights is now taking CO₂ and mineralization DAC projects like my Orca and Mammoth in Iceland, and that's not even going across the Atlantic over into North America, into Canada and the US in particular where we've seen a lot of projects.

So there's been a lack of empirical data for our type of store. And so we went out there, this is not state grant funded stuff, this is funded by the joint venture. We've gone out there and bought 4,000 tons of CO₂, set up a whole supply chain, bringing CO₂ from a CO₂ production plant operated by [inaudible 00:17:46] in the Netherlands, shipping it over into the UK, pumping it into a tank farm, a set of tanks on a jack-up rig next to an old gas production platform, and then injecting into the reservoir.

So no one's really done that before. And we were able to, I think, verify a lot of our models, but also understand the boundaries, but also to demonstrate that we can inject liquid, so dense phase CO₂ into a reservoir at this type at over a million tons per annum, stably, safely, and then we can monitor it through things like fiber optic sensing, and then also that we can permit and do this stuff because we operate in a very heavily regulated environment in the North Sea. So we were the first to receive a safety case for CO₂ injection in the UK, which took us about a year to get permitted, but we got there. So now there's a template. The safety regulators understand CO₂, now they know how to model it. So it's all part of building momentum around the sector and actually going out and getting stuff done.

Sam Humphreys:

I'm sure I heard you say once that during your injection test you were injecting champagne grade CO₂ into the ground. I just wanted to make sure I hadn't made that up, but I'm sure, I liked the phrase anyway.

Nick Terrell:

I think so. Yeah, so it's food, its food grade. So there's the CO₂ market is an interesting one. So the UK is a net importer of CO₂. So when we went out to the market in the UK and said we want to buy 4,000 tons of liquid, we didn't really have that many responses, which is a bit of a shame. So we had to go over to Europe to buy the stuff, it's food grade because a lot of this stuff goes into the kind of food and beverage industry. So with [inaudible 00:19:28], they have a facility in Southern Netherlands where we were trucking the CO₂ over and then shipping it out, they supply most of their CO₂ or a lot of their CO₂ to the German beverage industry.

And actually we had to do the operations in winter because they couldn't guarantee our CO₂ beyond the end of March because that's when the Germans start drinking their lager beer. So we were kind of constrained by the market in that respect. But it's very high concentration CO₂. Ultimately in the commercial phase, it will not be food grade. We will have some impurities in there, so some water [inaudible 00:20:07], so some of these impurities. But again, I think the kit that we're looking to put in, we will deal with a lot of that stuff.

Hill Vaden:

Can you talk a little bit more about the business model itself and what your customers pay you for? And so it's the storage and the transportation, so there's no utilization impact on it. Is there some sort of contracted offtake? Can you talk a little bit more about just the revenue-earning model within the company and the profit-earning model?

Nick Terrell:

Yeah, yeah, sure. So the revenue model is we will charge a transport and storage fee with our customers, the customer being the emitter essentially, and the capture of CO₂. So it's a fairly simple model in that respect. The challenge really around CCS is that you need a full-chain solution. So there's no point us turning up with a ship and a store at the other end and a pure kind of merchant contract with an emitter that's not ready or is not able to finance their capture plant, for instance. When we look at the sort of the full-chain CCS model, so at one end we have the capture side, in the middle we have the transport, and then on the other side we have storage. Capture is typically plus or minus, and it depends on the facility, but it's around about currently around about 70% of the costs.

So we can really drive down and provide a really cost-effective merchant transport and storage fee and service. However, ultimately we're beholden to capture technology and evolving capture technology, which we can touch on, and the ability for the emitter to finance this. For the emitters, these are typically energy from waste, gas, fire, power plants, cement, steel. These are very risk-averse, of course, to say conservative, lower-margin businesses. And I hope I'm not offending anyone when I say that. I'm just talking kind of in relative terms here. So they need help typically. So in the UK and also the EU, we have carbon pricing mechanisms in place. Of course, we have the emission trading system, the ETS, and we have a UK one and we have an EU one. And actually there's plans to link those two schemes actually between the UK and EU, which is a good thing.

But that price is, I mean, at the moment it's about 50, 50 to 60 pounds per ton. That is not enough to finance a full-chain project. And so there's a gap, and that's really where the market failure has really kind of been historically. There are a number of projects across Europe, Northern Lights in Norway, we have Porthos in the Netherlands, and we've got two big projects in the UK, Northern Endurance or the East Coast Cluster. And then also HyNet, which is in Liverpool Bay. These are two multi-megaton initial phase projects, and they have been able to take FID over the last six months and move forward. They'll be operating in 2027, 2028 timeframe, which is great, but they've only really been able to take sanction on their projects because of significant state funding support. So the UK committed 21.7 billion pounds for the first wave of projects.

So these are heavily subsidized, heavily regulated projects. So there's a regulated rate of return and that allows them to get off the ground and get going. We sit outside that, so we're the next wave of projects. And our angle here really is that the transport and storage side of things can be significantly lower than anything really else out there at the moment in terms of the North Sea and the emitters, I mean, the reason why I mentioned that we're taking our first phase sanction with using energy from waste as customers is because they're coming onto the emission trading scheme in 2028. So there's a motivation for them to find a carbon solution for their waste incineration, but they have an additional revenue stream, which is... So in the UK there's about 20 million tons of CO₂ emitted from the energy from waste sector just over 10 million tons. So just over 50% of that typically is biogenic CO₂.

And so they can develop a carbon dioxide removal, they can trade on the CDR market, which is really helpful because that really helps plug the gap. And so if you layer on the ETS and you layer on the carbon removal credit revenue stream, you get pretty close to being able to sanction a project. So we'll see where we get to. It would be lovely if we could just move forward on that model, but there may be additional support that some of these plants need, but it's significantly less than anything else out there in Europe.

So this is really... We're kind of blazing a trail here in terms of being able to take FID on a large scale CCS project with minimal government support. Now that's the revenue side. The revenue is in certain ways easier to articulate and find a solution on. But what the other big challenge though that we have is around ensuring that everything turns up on time. And if it doesn't, then what do we do? Obviously we've got no intention of getting into that situation, and we all have lots of experience in terms of developing projects, but there is a lot of project on project risk here.

So we can finance our part of the project with equity, and that's fine, but emitters will need infrastructure finance behind them. And for that to flow and for the bankers to be willing to invest, they need certain guarantees. And those really in the early stages when we have these sort of first of a kind projects where there's a lack of data on performance and operability, it does mean that the government probably will need to provide some form of guarantee so that we can fund these full chain projects. But I'll just add that we've got four FIDs, big FIDs in Europe in the North Sea in the last 18 months.

We've got more coming. We're going to have a whole bunch of projects up and running in 2026, 2027, 2028. So we're going to get a lot more data. And then the insurance sector, the finance sector can get more comfortable with this solution with the technologies. And then really the government can step out and then we can really liberalize the model and really get after it. Because at the end of the day, globally, under the net-zero pathway from the EIA we need to be storing 6 billion tons of CO₂. And today we're in and around 50 million tons. So I believe strongly that the government needs to ultimately step out. There isn't a magic money tree, and we need to have a more sustainable, market driven liberalized system to get these projects scaled and to meet our targets.

Sam Humphreys:

All right. Well, you've already talked about some of the things that we should be looking ahead to do, particularly with Carbon Catalyst, your projects that are going on. But as we just sort of finish off the conversation today, are there any particular things that you would like to highlight for folks to be watching out for say, within the next six months, either from your company, Carbon Catalyst's perspective, or maybe from a policy government perspective?

Nick Terrell:

Yeah, I mean, so on the project level, I mean, I've talked a lot about Poseidon, I haven't given Orion much, but no, with Poseidon, so we've completed this injection test. It's been a huge success. We're actually being quite public and really sharing a lot of the data because it's hugely important only for our project, but also for the sector as a whole. But I think with this data now, there's a lot of integration. We are moving to feed, we're looking to submit a storage permit in around 12 months time and wait for some announcement on carbon offtake agreements, which is really the crucial one for that initial phase.

So that's the project, I guess, sector wide, I think watch the other early mover projects across Europe come online. So Porthos in the Netherlands, Northern Lights ramping up with the UK projects to follow shortly thereafter. And I think the other one is really just the opening up of the UK, EU border in terms of alignment on the ETS systems and starting to see legislation coming in on us being able to move CO₂ across international boundaries. I think there's political support for that now and the market is really rising and stepping up. So yeah, I think we'll see some announcements on that, certainly within the next 12 months anyway.

Sam Humphreys:

Well, thank you so much for coming in to talk to us today. This was brilliant.

Nick Terrell:

Great being here. Lovely spending time with you both. And looking forward to getting more projects FID in the sector growing and really demonstrating that it can find a solution or play its role in decarbonizing global CO₂ emissions.