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US LNG undeterred by lessons of past as producers embrace carbon capture

Highlights

Moving from aspiration to fruition may be challenging

Broad buy-in encouraged to cover costs, address policies

US liquefaction operators and developers are increasingly embracing as a viable option to reduce their emissions a technology that other energy sectors have tried with mixed success: carbon capture.

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The proposals are green-friendly. They are a nod to the global energy transition toward greater use of clean-burning fuels. And there are federal tax credits for which companies can apply.

The rub? Broad buy-in among producers and policy changes in Washington may be needed for the projects to move from aspiration to fruition, industry experts say. Projects must be completed first for the tax credits to kick in, and under current law the credits only last for 12 years and are not refundable. Even if some projects do get built, only a portion of emissions would get captured, and that may not be enough to satisfy some shale-conscious end-users, which for exporters means buyers in Europe and Asia.

"Commitment would mean real capital. Not just shovel-ready, but shovels in the ground," Ed Hirs, an energy economist at the University of Houston, said in a telephone interview . "The only way that is going to happen is if there is a direct subsidy to these carbon capture projects, or a price placed on carbon emissions."

Acknowledging the challenge

In the energy transition strategy that it outlined April 15, Royal Dutch Shell acknowledged the challenge in developing carbon capture and storage globally as quickly and widely as needed.

" Accelerating the pace of CCS deployment requires continued collaboration between governments, industry and investors, among others, to help unlock financing capacity, accelerate technology development and encourage public support," Shell said.

Such collaboration would seem key for US LNG exporters, given their relatively new interest in the technology and the lessons of the country's other energy sectors.

The 71-MW Petra Nova power generation unit near Houston, which was designed to capture carbon dioxide to be transported through pipelines to mature oil wells, was mothballed, after initially halting operations last year due to low oil prices driven by the coronavirus pandemic. While oil prices have since rebounded, the future of the unit, the only commercially operational carbon capture project attached to a coal plant in the US, is uncertain.

In a bigger failure in 2017, plans for Southern Company 's multibillion-dollar carbon capture project at the Kemper coal plant in Mississippi collapsed amid ballooning project costs and regulatory pushback.

More recently, Enchant Energy and the City of Farmington have struggled to convince potential investors that retrofitting New Mexico's San Juan Generating Station for carbon capture at an estimated cost of $1.5 billion was financially viable, according to a May 27 report from the Institute for Energy Economics and Financial Analysis.

There are some positive signals for US LNG.

Speaking at an Air Liquide hydrogen plant outside of Houston on May 28, Energy Secretary Jennifer Granholm gave a nod to the budding carbon capture movement by the sector. While the world is working to move away from fossil fuels, LNG can remain viable by "decarbonizing," she said.

Storage solutions

Last fall, developers of an underground reservoir to permanently store carbon dioxide in southwest Louisiana said the project was inching closer to reality. The reservoir would be located between Lake Charles and the Sabine River.

The location would be noteworthy for Venture Global LNG, which is building the 10 million mt/year Calcasieu Pass liquefaction terminal nearby.

On May 27, Venture Global said it had launched a carbon capture and sequestration project that would compress CO2 at Calcasieu Pass and its proposed up to 20 million mt/year Plaquemines LNG export facility south of New Orleans, then transport the CO2 and inject it deep into subsurface saline aquifers, where it would be permanently stored.

A statement Venture Global issued provided few details beyond the relatively small amount of emissions that the project would be designed to capture -- 500,000 tons of carbon per year from Calcasieu Pass and Plaquemines LNG. The company said it would expect to use similar infrastructure to capture and sequester 500,000 tons of carbon per year from CP2, a third LNG project that Venture Global has proposed to build adjacent to Calcasieu Pass.

The statement said the project would be "shovel-ready," raising the question of whether and under what circumstances it would be built. A Venture Global spokeswoman declined to answer any questions.

Rio Grande LNG

In the most significant undertaking proposed by the sector, NextDecade announced in March that it was launching development of a project that it expected to capture and store more than 5 million mt/year of CO2 that would be produced by its proposed Rio Grande LNG export facility in Texas.

NextDecade has not yet sanctioned the liquefaction terminal or the carbon capture project.

NextDecade agreed to sell preferred stock to a group of investment firms to help advance work of the carbon capture project. It did not say, however, how it would pay for building the carbon capture project. Including the full benefit of tax credits, NextDecade estimated the breakeven cost at $13-$24/mt.

Whether any of the LNG carbon capture projects in the US happen may ultimately come down to money, said Hirs, the University of Houston instructor.

"The question is, 'Is anybody ready to pay for it?'" Hirs said.