Carbon Capture As A Service With Aker Carbon Capture

In the fourth episode of the Energy Transition Podcast Series, David Phillips, Head of U.K. and Investor Relations of Aker Carbon Capture, joins Marc Bianchi, Industrial Gas & Equipment and Oilfield Services & Equipment Analyst to discuss carbon capture technology, various plant designs, and carbon capture as a service. Press play to listen to the episode.

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 everybody, Mark Bianchi here from the Cowen Energy team. Joining me on this installment of the Cowen Energy Transition Podcast is David Phillips, head of UK and investor relations at Aker Carbon Capture. Aker Carbon Capture, as the name suggests, is solely focused on carbon capture. The company uses their engineering expertise and unique amine sorbent technology to deliver carbon capture facilities, and plans to offer carbon capture as a service. David, thanks for joining us. Before we get into the discussion, could you give us a couple minutes on who you are and what your role is at Aker Carbon?

David Phillips:

Sure, thanks Mark and great to join you on this one. My role, as you nicely phrase, head of the UK and head of investor relations. The UK side is the commercial side so all about promoting our franchise in the UK, and as we’ll probably discuss later on in the list of questions, the UK is a very important market in Europe. A lot of big gas to power, as well as other industries to look at, so a very important part of our European footprint. Investor relations is what it says, is dealing with that. My background, I did work for Aker Solutions some years ago, between 2014 and 2016 when I was also in the IR side there but most of my life, a bit like you, has been on the sales side. I spent a lot of time as an oil and gas guy, mostly at HSBC in the UK, and also a few years in New York. I was head of research there for the last few years before I jumped back over the corporate fence to join Aker in August last year.

Marc Bianchi:

Fantastic, really excited to have you. Aker Carbon is a newer company, I guess, but not a new business coming out of the broader Aker organization in 2020. Can you briefly explain the background on the company, the historical role in CCS, reasoning for listing and what the corporate structure looks like currently, because I think that’s a bit of an unusual setup for some investors?

David Phillips:

Absolutely, that’d be a great question to start with. We often talk about ourselves as being the oldest kid in the kindergarten. It’s a new industry, but we’ve been doing it for 15, 20 years. Now as a public company we’ve only been around since the middle of 2020, and that is part of the Aker Horizons. So Aker Horizons is the investment company in the Aker Industrial System. Horizons own stakes in a number of companies in the green and clean tech space, including ourselves, offshore wind, hydrogen, and so on. They own 42% of us and that’s our link to the rest of the Aker ecosystem. Our role, we’ve been doing it for many decades, or at least two decades. We really reflect the fact that Norway has been on the front foot in terms of looking at de-carbonization for some decades.

              We benefited from a good government push to work with various academic partners in the early 2000’s. Actually, even before that [Statle 00:03:15] using the old name deliberately, the Aker group was involved in top size for the slighter fields, which has been capturing CO2 and storing since 1996 but we did a lot of work historically. I won’t go through great detail on now, but we did a lot of R&D around the solvents, a lot of R&D around the environmental footprint.

              We built a couple of plants already. Many years ago, we built a mobile test unit in 2008. We built the big test center and [inaudible 00:03:39] 80,000 tons a year in 2012. Since then did a lots of engineering and technology work to get where we are now. The spinoff, just to finish the question, finish your answer, the spinoff, as I mentioned was mid 2020, obviously a very challenging time to do anything given the middle of the first year of the pandemic. The real reason was there was a view from Aker that they could wield value by separating the Clean tech and the green areas away from ACA solutions itself. So far that has been proven to be the right move.

Marc Bianchi:

I think part of the listing and the opportunity revolves around some specific policy support and initiatives in Norway, as well as in

[inaudible 00:04:22]

generally. Can you briefly describe what’s going on there and why Aker Carbon may have sort of a head start in winning this work?

David Phillips:

Yeah. As I mentioned before, Norway has been very much on the front foot in terms of developing carbon capture. In this current carbon capture cycle, Norway made some big moves to fund and to accelerate a big industrial cluster called Northern lights. This is aiming to start storing CO2 in 2024. As part of that, one of the main projects, one of the major projects for that is the [Brevicks 00:04:59] CCS project, [inaudible 00:05:01] cement plant in Norway.

              Our appearance, if that’s the right phrase to use, in the middle of 2020 was just ahead of the contract awards for working with that. When it was awarded a 1.7 billion Croner award for us, project itself has a fantastic ambition long term. It’s storing a few million tons per year starting 2024, then scaling up over multiple levels and certainly has the ambition to be a hub that will take, in the long term, will take cot for other parts, other emissions, both in Norway and potentially also in Europe.

Marc Bianchi:

Okay, great. If I were to, maybe just from a high level, for people that might not be as intimately familiar, but if I were to sum up your capabilities around all this, it’s around engineering carbon capture projects where you have prior experience sort of sitting within the broader Aker organization as we discussed, you’ve got this special aiming solvent, that’s got some competitive advantage around it. Then you’ve got these go to market offerings, as it stands today, with different sizes of carbon capture, right? You’ve got a big catch and you’ve got just catch and with the just catch offering, you’re trying to offer that as a service rather than a sale of plan. Is that sort of a good overview? Would you change anything with that description?

David Phillips:

No, it’s a great top of the mountain summary. I think we can add a few little comments in that. Your comments about engineering, as well as the science is spot on, because really we see ourselves as a technology and engineering company. To be a player in carbon capture, which is all about chemical process engineering, you have to have the science, so you have to be able to have a good view around what the actual material is, what the solvent is and what the chemistries behind that, how efficient it is, how much CO2 can it capture, how can it scale up, very important. Then of course the environment footprint. What does it do while it’s been used? Does it sort of escape or any side products and so on? There’s lots of work around that.

              We spent a good number of years working on that in the early 2000s and that’s, maybe we’ll come onto this, but we certainly think the HSE side of our signs, of our technology position is very strong indeed and potentially market leading. The engineering side, super important because that’s really what brings the cost down. When we talk about, “How do you get a nice idea from the science lab to pilot plant, to a commercial plant, to building something in Norway right now,” which we are doing, that’s the engineers and that’s the engineering skills to design something, to deliver it, to modularize it, to make it simpler, to modularize it again. Just as a soundbite, you mentioned Just Catch, our smaller units. That is effectively the great-great grandchild of the test plant, and it’s 90% smaller and 90% cheaper in terms of a CapEx.

              You really have to have both the science and the engineering to get there, but your comments around are offering are spot on. We have modular, which is the just catch, and you can sell that more like product than a project. We can offer that as part of a service along with some counterparties to cover the transport and storage. I’m sure we’ll come onto that bit later. Of course big catch is the big one. It’s whatever size is needed, that is a less modularized design right now, but there is going to be some work. We are working on that cost position right now.

Marc Bianchi:

David, can you talk about the sizes of big catch and just catch and why those are maybe optimal and what might be the differences in application between the two?

David Phillips:

Absolutely. Between the two, just catch is the modularized solution. It comes in sort of smaller, medium size, and a small one is 40,000 tons per year with CO2 and the medium size is a 100,000. Now the 100,000 is a good match with the smaller end of the, if you like the medium size emitters that we see on the radar screen. Some of the smaller waste to energy, some of the smaller smelters car, some of the work with, for instance, engineered charcoal, pub and paper, and so on. You can have more than one. You can, for instance, look to address 200,000 tons per year by having more than one. Of course, if you wanted to scale up and have, let’s say five of them, then that makes more sense to go for the larger one.

              In particular, when you look at most of the plants on the larger end of the scale, cement blue hydrogen, and gas to power, and also the larger waste to energy as well, those are also the 5000,000 to million and certainly for the gas power up towards two million, so that’s the large end. That’s where the big catch comes in typically also as part of a new built [Greenfield 00:09:41] plant as well. Most of the just catch inquiries you’re looking at, a lot of them tend to be more brownfield bolt ons. You just need space in your parking lots to connect it up with a facility.

Marc Bianchi:

We talked a little bit about competitive advantage already. One of the things that investors are asking a lot is, “Well, this carbon captures stuff, it looks like other industrial processes. We build refineries, we build chemical plants and there isn’t necessarily a technology advantage that anybody has in doing those things, and this looks a lot like that. Why is there really any kind of advantage here?” Maybe you could try to set the story straight for us on that and maybe rank what you view as your competitive advantages and help us understand how the solvent IP fits into that. Would it be in one of the top one, two or three that you would list off?

David Phillips:

Absolutely. No, it’s a very important question. There really are two parts to it. One is how you rank the science and the other one is how you rank the company in terms of being able to actually deliver the projects. The latter is actually really important when you’re looking at chasing real work, and this is purely speaking from experience. This is the technology. There are two angles to it. One angle you look at, for instance, how much energy does your system need to release the CO2, because as you probably know, it’s a reversible chemical reaction. It picks up CO2 and one side, and then you heat it and it releases it and you take it off on the other. Partly the system is how efficient is the system, how much energy does it need per cycle to pick up and release the CO2?

              The second point is the environmental footprint and studying the aiming system. The off the shelf aiming roots do have a certain risk of side products and also leakage into the atmosphere. Studying how much of a side product formation there is in this reaction and are studying how much of the solvent escapes is super important. Also within that is how robust it is. Does it last for a week, a month, half a year, et cetera, in different conditions.

              Now we know how we rank versus the main players in this space, because we all use the same test facility in Norway, so we have a very good idea that in terms of the HSC footprint, the environmental numbers I talked about or topics, we are a leader in that, and that’s quite clear. Energy efficiency, I will say one or two may be slightly better, but it’s not an enormous step change, but certainly the environmental footprint is that one we tend to lead on and that’s really where I think is our strongest distinguishing feature.

              The other part of the competitive advantages comes from the engineering side. I mentioned that we’re about technology and engineering and the technology side is what I mentioned. The engineering side is down to, are you credible and can you actually deliver what you say? When you look at the big products we chase in the UK for instance, the criteria you get when you go in as part of a consortium, is that, firstly, are you actually able to do this? You’re going to deliver this in three years like you say, or it’s going to be four and a half and, “Oh, sorry, we didn’t really see this problem coming.”

              Secondly, you say you can capture 95% of the CO2 in the flu gas. Is that actually 95% and can you verify that, or is that going to be 85% or 70% or something? Then the whole point of CO2 is to improve the environment and if you take away CO2 and replace it with something else, that’s a bigger risk or a different risk, clearly that has to be very, very well studied. A big focus on what is the environmental picture you’re adding by having a CO2 capturing facility, rather than simply having a CO2 venting to the atmosphere.

              Then you have things like local content and costs, but I can tell you in the work we secured recently in the UK, environmental footprint, super important part of the discussion, also the performance, and particularly with gas to power, huge capacities. I mentioned two million tons a year, also to be able to capture 95% of that two million tons and to be able to verify is a very, very important point. There’s lots of parts in this, but it’s not just purely the science, it’s also the engineering credibility of being able to actually deliver what are effectively big projects as well.

Marc Bianchi:

Right. The plan, as I understand it, is to kind of get to 10 million tons of capture per year by 2025. There’s a portion of that, I think it’s 500,000 tons that’s in backlog right now and then there’s others that are in various stages. You talked about before you’ve got the cement waste to energy, gas to power and blue hydrogen as kind of the pillars of what you’re going after. Maybe talk to us about how you get to that 10 million tons. Maybe if there’s any way to say, “Well, this much is going to be cement. That much is going to be waste of energy,” and how that ranking looks now versus what it might look over the next few years.

David Phillips:

Yeah. That’s a really good question. I think there’s one other layer you in that chart we had in our Q4 presentation. There’s no 0.5 million tons that’s, as you mentioned, fixed, then the four million tons in feeds and that’s half the BP net 0T side, and the other half of other stuff we’ve not disclosed as yet. Then there’s also three million tons of what sort of studies and tenders. These are the ones that are maybe, yeah they’re not guaranteed to come through as work, but they’re ones that there’s more engagement, more discussion around the potential for the projects. To be honest, when we do engage in studies and tenders, and obviously we do have summer selectivity. When we look at all the projects coming in that engage with us, some of them are very interesting. They’re not too far from industrial clusters. They’re they’re industries. We know are very well.

              Others are just in the wrong place. If there’s an obvious transport challenge and sometimes we have to prioritize and think, “Well actually, is this going be relatively a project that we will do in the next two or three years, or is it going to be something for the second half this decade?” We have to sometimes, given we’re a small company, fast growers, but we’re still small. We have to have some prioritization there, but in that conversion funnel, how do we turn those three million tons of tenders and studies and 20 plus of products into real work? Well time will tell, but I think we still see a very realistic plan to get to that 10 million tons by 2025.

              That is just Northern Europe, so we were not thinking about any other regions contributing to that. Maybe we’ll talk about North America a bit later in this, but that’s not included in that 10 million tons. There is always going to be a challenge in that 10 million tons because of the storage timing and ultimately if a storage timing doesn’t deliver, then people don’t order the carbon capture. That’s a pretty obvious deduction. Looking at how that mix is working out to get to 10, you need to have a good delivery in the UK because there are some big projects. There’s big gas power. Mentioned one with BP. There are a number of other ones in the UK where we are pre-qualified and hopefully have some news in the next six, 12 months or so on those, but imagine you’ll see gas to power being an important part of that.

              Waste to energy is important. Cement’s important and after that, there’ll probably be quite a mixture. I think at the moment, I don’t want to double guess too much on what the precise mix will be, but certainly just given the size of the big contracts, you can’t get to 10 without a big contribution from gas to power and also from the waste to energy side in the UK. One just quick follow up comment. If you think about, if you asked me that question a year ago or six months ago, what has changed I think now is that we have firstly, a lot more waste to energy that’s popped up, especially in the UK. Secondly, we’ve also had a lot of inquiries from other industries, so maybe outside the big four that we talk about. As I mentioned, pub and paper, smarting, and so on. There are a number of other industrial emitters that are maybe medium size, but are very keen to look to a solution to capture their CO2.

Marc Bianchi:

We’ve talked about the carbon captures of service and I think of that 10 million tons, your target, something like 10% to 20% of that to be as a service. What’s behind that target? How did you come up with that? Is there any reason that you’d want to limit your exposure to carbon as a service? I’m thinking of perhaps having a lot of capital tied up in those types of projects. What are the thoughts around that?

David Phillips:

Yeah. The capture the service model, that 10 to 20% of that 10. Given it’s based around just catch 100, that’s 10 or 20 projects. That really reflects what we see in terms of potential incoming work. I would say it’s not particularly any limitation. We’re not aiming for max of 20, if it’s 25, that’s fantastic, but it’s more just that’s what we see on the radar screen looking at the number of industries out there that could fall into this type of model.

              The capital deployment side. We always targeted this to be a capital light structure for us. The capital deployment, whereas we talked about when we launched this last year, we wanted to have a seller lease back with a financial partner so when we turn up with a consortium, it’s not only us and someone to handle transport and storage, it’s also someone to look at the financing as well. Infrastructure fund, maybe if it’s an external option or internally, there’s a development to, it’s not fully finalized yet, but looking at maybe having an Aker company as a counter party to help fund this as well.

Marc Bianchi:

Okay. Then what you’re targeting there, what are the industries that make the most sense for capture as a service?

David Phillips:

It’s more a certain size of industry rather than a particular end market. As you discussed before, the aiming approach is quite broad brush. You can handle a lot of different industries from a mid single digit CO2 up to 25% plus. The issue with the carbon capture to service, we thought about this in our initial plan back in 2020, but sort of saw this as a cherry on the cake we could look at maybe in a second half this decade.

              We accelerated it last year because certainly in the first half of 2021 and to be honest, it continued through H2 as well. A lot of inquiries from mid-sized emitters across a number of areas, waste to energy, cement, and others that just come from companies that do not have a lot of engineering skills under their hood, maybe they’re not too sure about how to chase funding. Is it government? Is it something else? Is it green bonds? Is it asset based or corporate center? Also aren’t familiar with process engineering, not familiar with how to work out, manage a project for our carbon capture plant. When we talked about, “What if we did turn out with some counterpart and offered you a price per ton basis on a 20 or 25 year contract? Would that be helpful?” The overriding answer was yes. Now we haven’t signed the contract yet, but hopefully that won’t be too long before we can talk with a bit more detail around that.

Marc Bianchi:

That kind of leads to the next question that I had. If I showed up today and said, “I want to sign up for capture as a service.” You guys have this range of cost or price, I guess, it’s more of price because it includes some margin for you all, but sort of 70 to 150 Euro per ton of CO2. That’s sort of the number that you have out there is the range. Is that the number that, like I could come to you today and tell you, “Take my carbon away,” and that’s the range that you’d be quoting me? Just to make sure we’re on the same page, because I’ve heard some other analysis or seen some other analysis where they’re doing some funny business with discounting for future inflation and what might be 100 is 130 in 2025. That’s not what’s going on here, right?

David Phillips:

Correct. Yeah, this is what it is now. It is a levelized cost, so to get those numbers it is a discounted calculation over the life of the contract, but the cost levels are where we are now. Those numbers effectively reflect what’s on our radar screen and if you look at the breakdown, we actually have updated this since we first published this back in September last year, and if you look at the difference, putting it very simply, the CapEx has gone up, the OPEX has come down a bit and the transport storage sort of stays where it is, so net. There’s not been a big change. Now maybe we can discuss some of the components a bit more detail in a second, but it’s a real time measure and hence that update last week.

Marc Bianchi:

Yeah. I want to hear more about that, but so the components as you mentioned, and there’s a great slide in Aker’s investor deck that has this all broken out, so I’m going to run through it right now, but anybody listening, if you want to go back and look, just pull that slide deck up, it’s pretty helpful. There’s this CapEx component that’s 30 to 45 Euro. I’m assuming that’s essentially your equipment, your kit that you offer. There’s another 10 to 45 Euro from OPEX. Then the final 35, as you mentioned, is that transport or final 30 to 60, excuse me, is the transport and storage. My understanding is the cost to capture generally depends on the purity of the CO2 stream, so the higher, the purity of the CO2, the lower the capture cost.

              I think of things like fermentation and gasification at the low end, maybe power generation is in the middle and direct air capture is at the very high end. Then the transport and storage is kind of agnostic, because it’s already CO2 in some sort of liquid form and it doesn’t care where it came from. Really the CapEx and the optics portions, if it put them together, that’s 40 to 90 Euro spread. Is that range largely explained by that purity that I mentioned or are there other things that you would point to that drive the difference?

David Phillips:

Yeah. That doesn’t include anything to do with direct air capture on that, so that’s very much off the end of our… That’s not something we do. We do look at it in a long term view with our binocolars, but it’s nothing we’re looking at in this calculation. The way you’ve broken it down is pretty sensible. Yes. If you look at what goes into those numbers, the CapEx is, as you guessed, the key equipment. It’s also the financing cost as well, so given we talk about having this as a finance partner as part of the carbon capture as a service model, part of it does include the finance cost in that. To see the CapEx move up, the old version, it was between 20 and 40 and now it’s between 30 and 45.

              I wouldn’t go from midpoint to midpoint spread. That’s not quite right because there’s a bit of a scatter of numbers in that range but something like 10, 15% inflation in pure CapEx in the last few months is probably a good measure. Now, to your point earlier, the question about future numbers, we hope next time we talk to be able to talk maybe in six months or a years time, to show how we can bring that down again. There’s still, even though we modularized the just catch quite a bit, we do see still some room to bring the cost down further. We hope to be able to offset the pure CapEx side anyway, but the good news in the OpEx, and as you correctly stated, between 10 and 10 and 45, before it was 25 to 45, so that’s come down quite a bit, at least the low end has.

              What’s really driven that is more around the way you recycle heat in the system. This is really classic lessons from learning from doing the actual job in real life, so talking to customers, see how their systems work, how their actual emitting plants work. If you can recycle more heat, because energy cost is a bigger single chunk of OPEX. If you can recycle more heat, you can do a lot to bring that OPEX down. We really found some very good examples of additional ways to bring that OPEX down.

              Really when you look at what drives that 40 to 90 per ton spread across CapEx and OPEX, yeah, some of it is the CO2 concentration and some of it is also the amount of heat you can recycle. Some of it, I forgot to mention earlier, CapEx is a little bit about what some emitters need a bit of extra equipment. If the fluid gas, if the exhaust gas has a lot of moisture or other pollutants in it, you have to take it out first to avoid corrosion risks, so sometimes a little bit more front end spend to get the stuff ready to go into the carbon capture plant, but effectively it is the CO2 concentration and it’s also the OPEX, the heat recycling part.

Marc Bianchi:

From a longer term perspective, right, I know you’ve talked about this 50% reduction in CapEx that you’re targeting, I think by 2025. We can do the math on what that means for these three categories that we’ve discussed, but as you think about the whole cost, the 70 to 150, where does that go by 2025 or 2030? What’s the target here?

David Phillips:

That’s a very interesting topic. The 50% reduction, that’s really targeting the big catch, the big units, because very simply those have not been modularized yet to any great degree. They’re still quite bespoke. Purely the CapEx phase is quite a bit more per ton for those than it is for the just catch. As I mentioned just catch is 90% cheaper than it than effectively it’s great grandfather plant back in 2012. We still see some room to reduce the cost for just catch, but clearly it’s had a lot of the modularization work already, but 10%, 15%, 20% over time, particularly as we get better at making them because we hope, given the point of a modular product, we’re going to make a lot of them so assembling, working with a supply chain, there should be ways to optimize that further.

              The big catch, the modularization part is going to be a big step forward. It’s often hard to get exact numbers for engineers, as you probably know, but whenever we talk to our colleagues in this team, looking at big catch you, if you were to have, and this is a very simple scenario, one that was modularized versus one that wasn’t, you’re talking someone like 20%, 30% targeting for the CapEx side, just by having it simpler and partly that is just because you can use cheaper components, partly also it’s because you can de-risk the construction phase because on site you are just effectively bringing in baby Lego chunks to stick together and to hook up, whereas when it’s not modularized, it’s proper adult level [Macono 00:27:58] with nuts and bolts lying around everywhere. The construction risk is different, which means it’s priced differently as well.

Marc Bianchi:

Dreaming about the carbon capture Lego project that I’m going to get my son for his birthday. I want to switch over to blue hydrogen now, because that’s a bit of a new area for you, I guess, with this collaboration that you’ve got with Syntap, which I want to hear more about, but that collaboration is targeting 95% capture using auto thermal reforming, so ATR. Just to take a step back to give, give the listeners a little background on all this stuff. Typically when you’re going to make hydrogen from fossil fuels, you’re using an SMR process, steam methane reformation and actually we talk about this in quite a bit of detail in our other podcast with air products, if you want to get into the chemistry of it, but basically SMR is taking fossil fuel and doing a process to it to create hydrogen.

              If you want to capture the CO2 off of that, there’s a very pure stream that comes from the chemical process of creating the hydrogen and CO2. Then it’s pretty cheap to capture, but then there’s this whole other piece of the process that is generating the heat and burning the natural gas, where that’s just like power gen and it’s going to have a higher cost of capture. Then you move over to ATR and the whole test of creating a hydrogen and CO2 is actually where most of the CO2 comes from, and that’s a cheaper form of capture. Where this is all going is if you were to capture or, or I guess the first question is how much CO2 do you target capturing off of an SMR? Then if you were to capture 95% off of an SMR, how much different cost would that cost be versus capturing 95% off of an ATR?

David Phillips:

I think where the cryogenic technology that we talked about at our last week with the ATR that we’re doing with Syntech, it’s a little bit immature to talk about exact cost position, but in terms of performed, as you mentioned we’ve already done some work to show, but it can capture 95% plus so it clearly works very well. The SMR route, yes, we’ve also have good experience to show that our aiming technology works well with that as well. We routinely talk about our approach as having 90% to 95% capture as a typical aim. Now you can tune that. If you want to capture 99%, you can, it just costs more energy. It really comes down to a bit of a trade off between high capture rate and your energy inputs to get the CO2 out the other end.

              In terms of working with SMRs, yeah, it’s not, given the higher CO2 level in it, it’s generally a nicer target than for instance, gas to power, which as you know, is at the other end, more like 3%, 4%, 5% CO2. That’s obviously where there’s a technical challenge to capture a good level of CO2 consistently and thankfully we managed it, which is an important part of our store in the UK, but the back to the hydrogen topic. Yes, we have good confidence that we can have two complimentary technologies here that can handle SMRs and ATRs, and for both we’ll be able to show a good mid nineties capture rates, but I said it’s a little bit too early to talk about costs so far.

Marc Bianchi:

I want to ask one more on just blue hydrogen in general, and I’m sure you’re well aware of some counterpoints or studies that have been done that say, “Well, after you include fugitive methane, and after you adjust for the CO2 equivalents, all this blue hydrogen stuff is really not capturing as much CO2 as we think we are because there’s other methane leakage it’s occurring throughout the whole supply chain.” What’s the thought and what’s the possible solution on all that?

David Phillips:

No certainly, we read all those too. The easy answer is to say, “Well really you should ask our customers in this space and see what their pushback is,” but to be honest, the easy test from our angle is, are the customers still moving ahead and wanting to engage to discuss blue hydrogen? Yes, absolutely. From that point of view, we see a good level of interest from the customer base. Also note there’s been some supportive commentary from the EU taxonomy discussions around this as well.

              Yes, I think the blue hydrogen story overall, we’re not so worried about the methane side, the methane leakage side. I think this is a well discussed point, but some of the studies that maybe take historic methane leakage from other industries and other projects, and look at it in terms of, that’s not a good comparison with a modern hydrogen plant and the level of process detailing you’ll see in that, but in terms of the blue hydrogen markets, yeah I mean it clearly is a question in the future as to to when green will be dominant, but we still see a good 10, 20 years, or a good few decades ahead where there’s a very good market for blue hydrogen.

Marc Bianchi:

Great. Over to the chicken and egg discussion of takeaway and storage capacity. The company’s been pretty consistent in discussing the limiting factor to FID and to projects coming into backlog is going to be off take. There’s a bunch of hubs and clusters that are coming together in the north sea. Maybe you could talk to those and give us sort of an overview of what all those are, but also maybe from a generic perspective, if a hub project is coming on in say, 2025, if you work your way backwards from that start update, when would you need to start delivering a project, when would you need you to be doing a feed, when would you get that award? Set that timeline up for us if you could.

David Phillips:

Absolutely. Other timelines around storage are super important and I think often they are maybe mis, or let’s say are underestimated or underappreciated by the markets, because if the storage timelines aren’t credible and don’t have good supports, then whatever the carbon price is, people are going to be a little bit reluctant to actually order the plant and make their capital commitment, so to have a good visibility around that. It’s probably one of the most important parts, if not the most important parts of the value chain for governments to support, to really push that forward. If you look across Europe and I think if you look at the projects that are fairly well, not developed, maybe sort of mid-level development and further forward, they’re around 20 in the world and something like 13 or so those are in Europe, so there’s a good crop of these moving forward.

              The timing wise, the very first one is Northern lights in Norway in 2024 for their first CO2 two storage. Then you have a Green Sand in Denmark and [Portos 00:34:46] in the Netherlands also targeting ’24, ’25. Then you have the UK track one. It’s a bit bigger and starting 2026. Then after that you have a second phases of Northern lights, scaling up Green Sand, second phases in Netherlands, a few other projects elsewhere, and of course the Track Two in the UK, which is another two or three clusters, including the Scottish cluster which just missed out on the track one decision last year. Overall there’s a good wave of storage coming up between ’24, ’25 and ’26 and then a second wave probably between ’28 and 2030.

              Now just looking for the European perspective the first couple of years are not all that big, so there’s a certain expectation management around how much is going to go targeting 2024, so there’s a few million tons that’ll be going in the first one or two years, that really scales up to sort of 20 or 30 and then 30 or 40 in the years after that. The real, the larger wave of work really comes targeting that 2026 timeline and then the next one for sort 2028. In that they’re looking, you can look back at the timelines quite easily. If you’re wanting to build a big plant, a big plant, a big catch takes about three years to deliver so if you’re targeting 2026, you will design it now and you will order it probably in 2023. This that’s what we’re seeing in the UK. Hence we’re involved in feed work now, I’m sure there’s going to be more coming and then we’ll hopefully see some progress towards the real awards in 2023.

              If you are in Norway, you are targeting ’24 and you probably want to make sure that you’re already up and running. Hence the Norway cement project is already ongoing and we are very busy with that. Now it’s a real landmark project as you know. There are a number of other smaller projects in Norway that are also chasing that we hope to have some news on the next one or two years, but we’re targeting that 2024 timeline. Again, a just catch delivery is 15 to 18 months. If you’re modular, year and a half, if you’re big three years and you work back from the storage timelines.

Marc Bianchi:

That’s a great overview. That’s Europe and you’ve discussed and been pretty open about an intention to enter, is it North America or the US?

David Phillips:

It’s North America.

Marc Bianchi:

North America. Okay. You’ve got this intention to enter there with some kind of partner. I guess first question is why with a partner, why not just on your own and what are the limiting factors? What’s the checklist that you’re looking to fill out before you’re able to make that decision?

David Phillips:

Well, so there are a number of questions here. It is north America. It’s a very good clarification to make. Someone did challenge us recently and said, “Well, if you say North America, you mean Canada.” It’s like, “Well, not necessarily. We just mean both,” because both have different types of very substantial opportunities to get involved in this industry. I think right now, there are perhaps things we won’t do. It’s easy to go through that list. It’s unlikely we’re going to get involved in capturing CO2 coal fired power. It’s unlikely we’re going to get involved in working with oil sans. I think if we work with EOR, we’ll have to have a very particular view in terms of the timeline for the EOR piece becoming permanent storage. That said, there’s a lot to do in the US and Canada as you know very well.

              I think for us the aim is really to find which routes make the most sense. There are a number of parts of the value chain we can look at. Do we go upstream and partner with someone who’s more an EMP guy with access to storage, or do we look someone who owns pipelines and maybe it can be the in between guy? Do we work with someone more who’s in a supply chain, someone who works with power generation, for instance, or do we just go straight and work with a larger oil company? There are a number of options out there.

              We always tell ourselves that the danger is you can spend some years working out the best route and then miss out on some opportunity, so I think we are rather keen to take some steps in the next one, two years, and to really get some boots on the ground and start to see some work coming through. My suspicion is there are a number of answers, all of which are going to be favorable for us to partner. I just think, as we discussed in terms of some of the pushback from customers, if we can get out there and in a few years be part of a real development, I think that’s going to help the whole industry, to see some of the plants up and running to show they do work and at a good cost as well.

Marc Bianchi:

That’s all the questions. I just have one more, and this is something that we’re asking everybody to do, to make a prediction. This is something, it’s three to five years out or more, and we’re not looking to hold you accountable for it. It’s more about providing something that’s thought provoking and maybe off the radar for investors. With that, what’s what’s your prediction, David?

David Phillips:

Yeah. Well, I think on a three to five year view, I think you’ve got to go 2030 and beyond really, because there’s really… I think for us long term success is firstly building a more diversified technology portfolio because there’s going to be other routes out there, there’s a lot of competing technology already, early stage. I think partnering with, building a portfolio to handle different industries is going to be very important, but more to the point, I think looking at life beyond industrial carbon capture, it’s going to be a very interesting target.

              Moving into direct tech capture, thinking about carbon removals, making those into formal certificates to formalize carbon removals, carbon offset and so on. The development of that market is really interesting and I think as a carbon removal company, looking at a truck behind me in the picture, as a carbon removal company, we got to think about how our world will change. I think having the direct route and also being able to play into the actual carbon market itself could well be the more exciting long term opportunity as well as optimizing how we work with industrial emitters.

Marc Bianchi:

Do you mean stuff like Becks as you’re thinking?

David Phillips:

Yeah, yeah absolutely. Yeah. As a company, we aim to be carbon negative by 2030, but that’s just us. In terms of working with carbon negative solutions that could be quite an exciting business opportunity long term.

Marc Bianchi:

Super. Well, this has been great. Thank you so much, David, really appreciate it and look forward to catching up again soon.

David Phillips:

Thank you.

Speaker 1:

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


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