An Introduction to Carbon Capture

Marc Bianchi, Sustainability, Energy Transition, and Oilfield Services & Equipment Analyst, introduces his energy transition podcast series. He provides an overview of the carbon capture market, including emissions reduction targets, growth rates of capture, and the major drivers of cost structure. Cowen’s unique ESG offerings including sector specific ESG research coverage, a dedicated ESG & sustainability policy analyst, and ESG scoring on all research reports.

Transcript

Speaker 1:

Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Marc Bianchi:

Hi, this is Marc Bianchi from the Cowen energy team. Today, we’re kicking off a new podcast series around the energy transition with a focus on carbon capture and storage. So in today’s discussion I’m going to give you a background on the topic of carbon capture and storage. I’m going to define the major functional areas. I’m going to talk a little bit about the cost structure and I’m going to present some of the high level numbers in terms of carbon emissions, what’s expected in terms of carbon capture ramp up, and what some of the challenges are going to be around that. Before I get into that, I just want to quickly introduce Cowen’s energy transition research and how we’re sort of positioning our efforts around the topic, because I think it’s a bit unique and I really do believe it’s the right way to approach this.

Marc Bianchi:

So we’ve taken the view that you need to cover both sides of the transition to be effective. So you need to have expertise in fossil fuels, as well as all the new energies that are going to be on the other side of the transition. So we’ve got, in addition to already strong coverage in clean tech, we have fossil fuel analysts such as myself who continue to cover the fossil fuel industry, but are also added coverage in new areas, such as hydrogen, and EV charging, and batteries, and the battery supply chain and so forth. So we’ve got this sort of dual coverage with a foot on both sides of the transition that we think gives us a better perspective for how the transition is going to evolve. We’ve also recently added energy policy research, but not just energy policy, that person also does ESG, which again is sort of an appreciation of you’ve got to cover the whole spectrum of transition from old energy to new energy.

Marc Bianchi:

And we think that we’ve really designed the research effort around that central view. I just want to spend another few seconds talking about ESG more broadly because it’s not just in the energy transition side of our work, where Cowen’s focused on ESG. The ESG topic really permeates all of our fundamental research and simply stated we intend to make ESG investible, whether it’s the energy analyst team that I sit on or other industries within Cowen’s coverage. We’re all focused on providing bottom up stock ideas for investors that are focused on ESG and sustainability. Cowen was the first major Wall Street firm to place company specific ESG scores on the cover of all of our research reports and Cowen analysts incorporate ESG into our fundamental analysis. We’ve got a bunch of conferences that are all focused on ESG. We’ve got a dedicated sales team for ESG and a dedicated corporate access team for ESG. So really we believe we’ve got this comprehensive offering around ESG that can help our clients outperform.

Marc Bianchi:

So switching over to the focus now of this first few episodes that we have, it’s on carbon capture. And I think this real really exemplifies the interconnection of old and new energy. If you think about what carbon capture is in essence, you’re collecting CO2 from an industrial process or a power plant that’s then being transported through a pipeline and then ultimately injected into some kind of underground storage, usually a depleted oil and gas field. So all of those things are things that the energy industry has done for many years, but they serve an important part of the energy transition.

Marc Bianchi:

We’ve got that group of mature technologies that are being employed. And then along with it, there’s a host of very interesting emerging technologies that we’re going to talk about that look to lower the cost of capture. And that’s going to be really important in driving the adoption of carbon capture and meeting some of these climate targets that we have. So during the series, we’re going to cover all of that. We’ve got a great lineup of companies, companies such as Air Products, Baker Hughes, Talos Energy, Chart Industries, just to name a few. So look forward to embarking on this learning experience through these podcasts. Along with the start of this series, we also put out a carbon capture primer. That carbon capture primer includes a lot of background on what carbon capture is, how it works, the different types of capture, some growth rates around it.

Marc Bianchi:

So if you’re looking for a really handy reference for all these things around carbon capture, that’s a good document. It’ll also be helpful to review before the several podcasts that we have, because some of the discussion is going to get into some nitty gritty technical stuff. So it’s good to have a little bit of an appreciation going in. So what I’m going to do now is just kind of provide an overview of the main points in that primer report. Hopefully save you the time of reading through it.

Marc Bianchi:

So let’s start with some numbers. Currently there’s about 40 million tons of CO2 captured per year. Climate research suggests that the world needs to get to net zero by 2050 to avoid the worst consequences of climate change. And this is stuff that the Paris agreement and the Intergovernmental Panel on Climate Change, which aggregates a lot of climate research. This is all what those groups have said. And there’s a lot of buy-in for this from many governments that have announced net zero pledges by mid-century as well as a whole bunch of corporations that are targeting net zero by 2050.

Marc Bianchi:

So there’s a lot of buy-in and there’s going to be a lot of investment around this. Whether or not we get there remains to be seen, but certainly there’s a big push for this now, and there’s going to be a lot of investment dollars and activity around trying to get there. So to put what it takes to get there in perspective right now, the world, humans produce about 35 to 40 billion tons of CO2 per year. So that’s 35 to 40 billion. I just mentioned the carbon capture number was 40 million. So of that 35 to 40 billion that needs to go to zero, estimates one from the IEA says that to get to net zero, we need to capture about 1.7 billion tons in 2030, and then over seven billion tons in 2050.

Marc Bianchi:

So going from 40 million today to 1.7 billion in 2030 and seven billion, or over seven billion in 2050. So that’s a huge increase in the amount of carbon capture and that IEA analysis involves everything else that’s going on with energy transition, right? Like nuclear power, and renewables, and electric vehicles and so forth. So this is just what they solve for as the carbon capture components to get there. Most of that capture is occurring at what’s called point sources. So if you think about industrial activities or power generation where there’s some sort of CO2 exhaust coming out and you can capture that. There’s another smaller portion of the capture that is pulling CO2 out of the atmosphere. And that’s a much more expensive process if you’re doing it mechanically because the CO2 is more diluted. The concentration of CO2 is really the largest driver of the cost to capture.

Marc Bianchi:

So things on the low end of the cost to capture spectrum are things like natural gas processing, fermentation is very low cost, gasification of fossil fuels that’s used to make syngas, that has a pretty low cost of capture. And then you move into more diluted streams of CO2. That’s things like flue gas from a power plant. And then there’s the direct air capture, which is the atmosphere. That’s much more expensive. There’s another case of carbon removal from the atmosphere, which is known as BECCS stands for Bioenergy with Carbon Capture and Sequestration. What BECCS does is use photosynthesis to pull CO2 out of the air through growing biomatter. So if you think of trees intentionally planted for this purpose, the trees grow throughout their life and they capture CO2, and then the trees are harvested and used for power generation.

Marc Bianchi:

So you combust, you burn the wood to generate power. And in that process, you’re also capturing the CO2 and sequestering it. So the whole lifecycle pulls CO2 out of the atmosphere and generates power. BECCS is still a bit of a science project. It’s part of many climate models because the thought is that we need to get to negative emissions in the second half of the century, because we’re not going to get to net zero fast enough. We’re going to overshoot our emissions budget over the next couple decades. So we need to compensate for that in the back half of the century by having negative emissions and BECCS is viewed as one way to do that, but it’s not widely deployed today.

Marc Bianchi:

The other sort of subset of BECCS I guess, is just planting forests without the power generation side of it. Afforestation, both BECCS and afforestation have problems where we’re not sure what the ecological impacts are going to be. You’re potentially reducing biodiversity through this systematic planting of the same type of tree or same type of plant. So there’s concerns that that could create problems. There’s water concerns and lots of things that go along with deploying this at scale, that the world just doesn’t really know how it’s going to work.

Marc Bianchi:

Now, let’s talk about the cost structure for a minute and the categories within carbon capture. The capture piece, we’ve talked a little bit about already, that is really determined by the purity of the CO2. And this also brings up another point about pre-combustion and post combustion. So you can capture CO2 in a lot of chemical processes. So I mentioned the fermentation, I mentioned gasification. Those are pre-combustion applications where you’re in the case of the gasification, you’re creating a syngas, which is usually what you’re doing to try to produce hydrogen. Ultimately, the hydrogen goes on to be combusted, but in this initial step, you’re capturing the CO2 before the product gets combusted. So that’s sort of the low end of the cost curve, those types of things. And they’re going to have costs anywhere from the 20 to $50 per ton range. That includes compression. All of this stuff needs to be compressed to go into a pipeline and ultimately be stored.

Marc Bianchi:

So that’s the low end, high purity, 20 to 50. Middle of the range is stuff that is generally combusted. So if you think about the power plant, examples, natural gas and coal, and this is post combustion. So we’re talking about a flue gas coming out of the power plant and capturing that. Those costs are going to be in the ballpark of 50 to $100, a ton of capture. And then when you get into the direct air capture stuff, where we’re talking about pulling CO2 out of the atmosphere, and that’s a much more dilute concentration, you’re talking in several hundred dollars, anywhere from 150 to 300 plus dollars for the capture. So that’s the capture piece.

Marc Bianchi:

The other two categories, as I mentioned, you’ve got transport and storage. Both of them are fairly small. Their contribution to the total cost obviously is larger for the higher purities, because the capture cost is so much smaller, but in general, the transport and storage is fairly low and it doesn’t care how the capture was done, right? A CO2 molecule is a CO2 molecule. So the storage and transport are really independent of what type of capture we’re talking about.

Marc Bianchi:

They will vary depending on where you’re storing the CO2. How far does it need to travel in a pipeline for instance, and what the storage application is. So there’s a lot of storage that will take place on shore, and that’ll be lower costs than the storage that takes place offshore. It’s just like what you see in the oil and gas world where offshore costs can be more expensive than on shore costs. In terms of some rough numbers, the transport piece is probably in the seven, eight, nine, $10 range per ton on a 250 kilometer average distance. The storage piece is pretty consistent, especially if you’re looking at onshore storage. In the US in particular, there’s a lot of storage in the five to $10 per ton range. If you get offshore, the cost curve is a bit steeper, but there’s still a bunch of storage available in the sort of 10, 15, $20 per ton range.

Marc Bianchi:

So if you think about the components then you could look get the high concentration CO2, having that call it 20 to $50 capture cost, plus another $20 of transport and storage. You’re talking about something like 40 to $70. If you move into the lowish concentration CO2, so we’re talking about the post combustion power plant stuff. If you’re capturing for say $70, and then you’ve got another $20 of transport and storage maybe you’re $90 a ton all in, on a levelized basis for that. And then the direct air capture, as I mentioned, could be several hundred dollars for the capture piece and then you’re talking about just putting another 20 bucks of transport and storage on there.

Marc Bianchi:

And again, this is all generalizations. Every situation is going to have, you might be closer to a storage point for your facility than something else. And that’s going to add a few bucks, but we’re really talking about single digit dollars that are the differences in storage and transport. Whereas the type of capture can be tens of dollars or hundreds of dollars. So hopefully that gives a little bit of a flavor for the differences in the cost buckets. So before we wrap up, I just want to spend a couple minutes talking about hydrogen. Hydrogen occupies this interesting cross section of the whole carbon capture and energy transition discussion. Many people when they think about hydrogen, especially if you’ve sort of first heard about it in the past couple years, you think about it as part of the energy transition and part of the so-called hydrogen economy, where we’re going to use hydrogen to store and ship electricity all over the place.

Marc Bianchi:

It’s going to be used to power fuel cells and all these other sort of fossil fuel replacement activities that people see hydrogen being used for. And we think a lot of that will happen, but there’s also a big hydrogen economy today that people don’t talk a lot about. And that’s just where it’s used in industry for things like refining, in ammonia production for fertilizers and methanol. So there’s already a lot of hydrogen being produced today for things that we need for our daily lives. But most of that hydrogen production, almost all of that hydrogen production is produced using fossil fuels. It’s known as gray hydrogen, and that production process emits a lot of CO2. It’s about 10 tons of CO2 for every ton of hydrogen that’s produced. So the hydrogen market today is about 75 million tons. So that means that there’s about 750 million tons of associated CO2 emission from that hydrogen production process. That works out to about 2% of the 35 to 40 billion tons of human cause CO2 emissions that I mentioned.

Marc Bianchi:

So there’s a huge opportunity here to capture that CO2 from gray hydrogen, and really lower the emissions profile of just our current activities in hydrogen. Then there’s this idea that we can do Greenfield projects for hydrogen, where we purpose built a hydrogen facility and capture the CO2 to make blue hydrogen. And that can be intermediate step until green hydrogen is available down the road. So blue hydrogen is taking a fossil fuel process and capturing the CO2 to make a low carbon hydrogen molecule, and then green hydrogen is sort of the future, which is a totally different process. It involves electrolysis of water, which is essentially using electricity to split water into hydrogen and oxygen. And you can create a hydrogen molecule from that that if the electricity is from a zero emission source, then it’s a zero emission hydrogen molecule.

Marc Bianchi:

If the electricity comes from renewables, it’s called green hydrogen. If the electricity comes from nuclear, it’s called pink hydrogen, but both would be sort of a zero CO2 emission hydrogen. So that’s the future. And the thought is that costs will come down and we’ll be able to produce green hydrogen competitively, but that’s maybe 2030. So the thought is we can develop a bunch of blue hydrogen between now and then to build the infrastructure out to build the end market demand. So municipal bus fleets running on blue hydrogen some day down the road get converted to green hydrogen, and that’s sort of where the transition comes into play.

Marc Bianchi:

So I’ll stop there. Thanks a lot if you’ve listened this far. The report is out there with all of these things explained in more detail with lots of charts and reference for you to look at. We’re going to follow this up with some other commentary after we’ve had all the podcasts and come back to you with some conclusions. Feel free to reach out if you’ve got any questions. I’m Marc Bianchi from the Cowen energy team. And thanks a lot for listening.

Speaker 1:

Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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