The UK must seize the North Sea carbon storage opportunity

Decarbonisation is precipitating profound geographical reorganisation of Europe’s industrial heartland. As the ability of emitters to freely dump their carbon dioxide into the atmosphere is curtailed and carbon liabilities stack up, access to carbon storage capacity will come at a premium.

Gone are the days when industrial sites naturally clustered around gas pipelines stretching like tentacles out of Russia. Access to cheap Russian gas has evaporated, and so with it the logic of centring in these locations. Those same lands, such as BASF’s Ludwigshafen Verbund site in Germany, are now potentially at a disadvantage. Not only are the Russian pipelines now running empty; clusters such as these do not have easy access to commercially viable CO2 storage sites.

The need for zero-carbon fuels, and to capture and sequester emissions that cannot be avoided, recasts the logic governing the location of industrial activity. More need to be close to those ports in Northwest Europe that can handle an influx of green hydrogen imports. More need to be close to the North Sea and access to undersea, spent oil and gas reserves which can be used to permanently store sequestered carbon.

The UK North Sea could become the go-to market for other parts of Europe.

Just as the natural bounty hidden beneath the North Sea powered Britain’s economy during the 1970s and 1980s, so the same spent reservoirs could power Britain’s future low carbon economy. The UK North Sea could become the go-to market for other parts of Europe. For example, it could enable countries with limited (or more expensive) domestic storage options to ship their captured CO2 for sequestration under the North Sea.

The availability of carbon storage also enables the production of low carbon hydrogen. Steam reforming brings together natural gas and steam to produce hydrogen and CO2. If the CO2 is permanently sequestered, then it is a low- or zero-carbon hydrogen. This ‘blue hydrogen’, as it is known, can then be used to decarbonise other carbon intensive industries such as steel and aviation across Europe and beyond.

Quantifying the opportunity

A recent report from the Clean Air Task Force (CATF), a US-based nonprofit, examined the potential demand and supply of carbon storage in Europe.

CATF looked at a variety of different scenarios exploring the potential demand for CCS, by sector, and by geography. In their 2035 Prioritised Scenario, they outline what they consider as the most likely outlook for industrial and power sector CCS demand.

Industrial demand for CCS is expected to reach 94 Mt CO2 per year by 2035, with cement and lime manufacture accounting for around one-third of industrial demand. The lack of alternative decarbonisation options means that the sector is particularly active in exploring the potential for carbon capture facilities.

Demand from other industrial sectors – refining, iron and steel, waste management, chemicals and others – is likely to be in the 15-20 Mt CO2 per year range, according to CATF. Power sector CCS demand is projected to hit 96 Mt CO2 per year by 2035. The main source of power sector demand is expected to be ‘blue hydrogen’ production, and bioenergy with carbon capture and storage (BECCS).

The UK North Sea is thought to have one of the most favourable geologies for carbon storage, with a theoretical capacity of 25-78 Gt CO2.

Winning the CO2 storage prize

What about carbon storage availability? Well, CATF estimates that Europe has a theoretical CO2 storage capacity of 262-1,520 Gt CO2. The wide range reflects the inherent uncertainty of different estimation methods. The UK North Sea is thought to have one of the most favourable geologies for carbon storage, with a theoretical capacity of 25-78 Gt CO2.

Nevertheless, theoretical storage doesn’t necessarily equal what’s practical. Offshore storage sites can take several years to develop and permit. Detailed geological data is a necessity, often requiring high risk pre-construction investment. Given the short timescales necessary to develop Europe’s CCS infrastructure in time to meet net zero, only the most promising storage opportunities are likely to be developed first.

Nevertheless, theoretical storage doesn’t necessarily equal what’s practical. Offshore storage sites can take several years to develop and permit. Detailed geological data is a necessity, often requiring high risk pre-construction investment. Given the short timescales necessary to develop Europe’s CCS infrastructure in time to meet net zero, only the most promising storage opportunities are likely to be developed first.

CATF considered two scenarios for carbon storage development. The first assumes widespread domestic deployment of carbon storage, while the second assumes that only a few of the most promising storage basins are developed, requiring carbon captured elsewhere in Europe to be aggregated and exported to one of the storage basins.

In this latter scenario, CATF analysis suggests that the North Sea could dominate European carbon storage with 76 Mt CO2 per year sequestered beneath the seabed by 2035, accounting for 80% of carbon stored in Europe.

The coming carbon network

Access to low-cost energy sources will always be important to heavy industry. However, in a carbon constrained future, access to carbon storage is likely to be a key source of competitive economic advantage. The problem many other European countries face is that unless heavy emitters are close to a CO2 export terminal, they will need to be linked with a network of CO2 pipelines. 

The challenge in building this network has become apparent due to recent developments in the United States. Safety and environmental concerns, as well as patchy and ambiguous regulation between states, has led to the rejection of pipeline applications. The challenge involved with laying thousands of miles of CO2 pipelines in densely populated parts of Europe may be much more challenging.

Analysis by CATF has projected the potential future cost of transporting and storing CO2 at different locations across Europe, depending on the degree to which CO2 storage and transportation is developed. If CCS investment continues to centre on existing planned storage sites, then the cost could be as low as €20 per tonne for energy intensive industries based on the UK’s Humber estuary. In comparison, the Rhine-Ruhr, Germany’s industrial heartland and home to companies such as BASF may see carbon transport and storage costs 4-5 times higher.

Regulatory friction

One company that recognises the potential benefits of CCS access is INEOS, the British multinational petrochemical giant. Earlier this year the company unveiled what it claims would be the “largest investment in the European chemicals sector for a generation”. The Belgian chemical arm of INEOS raised €3.5bn to build a new ethane cracker in Antwerp.

The facility, known as Project ONE, would have the lowest carbon footprint of any ethane cracker in Europe – three times lower than the average ethane crackers in the region and less than half that of the top 10% best performing plants. Project ONE was designed to be powered by blue hydrogen and would have been fitted with a carbon capture facility.

Unfortunately, in July 2023 a regional court in Belgium overturned a permit after residents and environmental campaigners opposed the development. INEOS’ plans for Project ONE are now uncertain, which  could set an unhelpful precedent for future projects.

Corporations seeking to invest in new ventures that will thrive – not just survive – in a carbon constrained future must see a consistent regulatory environment. Otherwise investment will be diverted to other countries where policy is more supportive. 

The vital role of policy

In March 2023 the European Commission (EC) introduced the Net-Zero Industry Act (NZIA) in response to America’s Inflation Reduction Act (IRA). The NZIA aims to encourage the development of an EU-based supply chain for clean technologies including CCS. It sets a target of 50 Mt of annual CO2 storage capacity by 2030.

The first major full chain European carbon storage project based on captured industrial emissions is the Northern Lights in the Norwegian North Sea. The project will initially offer 1.5 Mt of annual CO2 storage capacity and is due to start operations in 2024. Although the technical implementation is led by a consortium of oil and gas companies, most of the funding is coming from the Norwegian government.

Policymakers are understandably concerned that government funding alone cannot deliver the carbon storage required. Article 18 of the NZIA hopes to rectify this by requiring all suppliers of oil and gas in Europe to contribute to carbon storage capacity investment. The allocation is thought to be based on a pro rata share of the fossil fuels they supplied during the period 2020-23.

The UK is further behind Europe (particularly other North Sea countries) in the development of CCS, but it arguably has more ambitious targets, at least relative to the size of its economy. The UK Government’s 2021 Net Zero Strategy calls for the delivery of four CCS clusters, capturing 20-30 Mt CO2 per year across the economy, including 6 Mt CO2 per year of industrial emissions by 2030. 

In summer 2022 the North Sea Transition Authority (NSTA) awarded six CO2 storage licences to projects within the “Track-1” East Coast CCS cluster. The results from the UK’s first-ever carbon storage licensing round were announced in September, adding a further 21 CO2 storage licences. The NSTA estimates that up to 100 carbon storage licences will be needed to meet the CCS targets.

Making a market

However, carbon storage availability doesn’t matter if there isn’t sufficient incentive to capture it, transport it, and finally inject it into the well or aquifer. Developers of carbon storage facilities still need a signal that future demand for CCS is strong. Government policy has a crucial role to play here too.

The EU emissions trading scheme (EU ETS) provides one lever to incentivise demand for CCS. The recent agreement to gradually phase out free ETS emissions allowances (EUAs) to industrial emitters by 2034, coupled with an expectation that carbon prices will remain high, is leading to increased interest in carbon capture by many of Europe’s heavy industries.

If the captured CO2 is stored within the European Union and the European Economic Area (EEA) then the CO2 is considered as “not having been emitted” under the EU ETS. But if stored outside of the EU, emissions still count as being emitted under the EU ETS – which could complicate the export of CO2 to the UK North Sea following the UK’s departure from the EU.

The EU also wants to incentivise carbon removal – for example via BECCS or direct air capture. One option is to incorporate carbon removal credits into the existing EU ETS. However, this could send conflicting signals to the market. The onus must be on prioritising emission reductions, while paving the way for CCS to eliminate the residual emissions necessary to meet net zero.

The alternative is to develop a dedicated carbon removal credit market. This could work by placing an obligation on companies based on their historical emissions. Obligated companies could then either invest in certified carbon removal, or purchase removal credits, much like the current EU ETS. The advantage of this approach is that it doesn’t interfere with the incentive to cut emissions.

In addition, it also supports the business case for investing in CCS technology and storage – which often require significantly higher carbon prices than is present in the EU ETS. Discussions by European policymakers to develop such a market are still at a very early stage, and as such no concrete proposals have been developed. If such a market was launched, it would be the first of its kind anywhere in the world. In the recent consultation response on reform of the UK ETS, the UK government also outlined an intention to incorporate technology-based carbon removal credits in the UK’s carbon market, “subject to further consultation”.

Breaking down barriers

Finally, policy also has a role to play in encouraging collaboration between countries bordering the North Sea and across the rest of Europe. Collaboration is essential in enabling cross-border CO2 transportation. The first international cross-border CCS trade was achieved in 2023.

Project Greensand, a consortium of 23 organisations, successfully shipped captured carbon from one of INEOS’ plants in Belgium and then injected it into a depleted oil field under the Danish North Sea managed by Wintershall Dea. However, this trade was only possible because of an agreement between Belgium and Denmark authorising a temporary amendment to the London Protocol (LP) on CO2 export. The LP prohibits the transhipment of wastes between countries for the dumping at sea.

Europe’s carbon storage market is still at a nascent stage in its development. But it will need to grow and mature quickly if the UK and Europe are to meet their net zero commitments. The UK North Sea is in a strong position to benefit from future demand for carbon storage. Strong policy commitments and collaboration between the UK and its trading partners is crucial if the UK is going to be at the forefront of this new and emerging industry.

The UK’s future economic competitiveness depends upon it.