While pipeline operators, power producers, and asset owners involved in oil and gas production and transportation are seeing a wealth of opportunities emerge for carbon capture, utilization and storage (CCUS) technologies, long-term planning is critical to avoid a stranded asset.
CCUS encompasses different technologies designed to extract and capture carbon dioxide (CO2) from the emissions of point sources, often including refineries, power plants and ethanol production facilities. The CO2 is compressed and transported, typically via pipeline, before it is injected into underground storage reservoirs and depleted oil wells.
The Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) are prompting an infrastructure boom not seen in decades and CCUS technology will play a growing role in the energy industry. The IIJA allocated $1.2 trillion toward transportation and infrastructure spending and $12 billion of that funding is dedicated to advance carbon capture technologies. Section 45Q of the IRA also increases tax credits for each metric ton of CO2 captured.
The incentives provided by the federal government are compelling, but these projects are complex. To proactively avoid stranding assets, CO2 pipeline and facility owners can prioritize the following business and operational practices:
- Conduct a thorough feasibility study. Executing a thorough and comprehensive feasibility study is a critical first step before committing funds to a pipeline venture. Focusing on both the current and future viability of carbon capture and sequestration, asset owners can evaluate market demand, the regulatory landscape, potential customers and infrastructure requirements. Assessing the potential risks to projected revenue is especially helpful for projects that are facilitated by government subsidies.
- Diversify revenue streams. Pipeline operators that rely on a single customer or a specific type of gas or liquid are at greater risk of becoming financially stranded. Unfortunately, a fully interchangeable product pipeline would be constructed using stainless steel, which is considerably more expensive than carbon steel employed for most CCUS projects. While very few operators are looking for this option, operators and owners who secure initial rights-of-way and easements for future pipelines could mitigate costs related to land acquisition and scheduling delays. Additionally, by establishing multiple long-term contracts with various customers, catering to different industries or considering alternative uses of the pipeline infrastructure, owners and operators can diversify their revenue streams. In 2023, several new CO2 pipeline projects have shown how a pipeline operator can work with power plants, ethanol plants and even proposed hydrogen hubs to diversify revenue while removing unwanted emissions.
- Engage relevant parties and secure commitments. Developing robust relationships with relevant parties, including government entities, industrial customers and infrastructure operators, can help with project execution and asset maintenance. Active engagement with state and federal regulators, including the Pipeline and Hazardous Materials Safety Administration (PHMSA) and the Federal Energy Regulatory Commission (FERC) can facilitate long-term growth of CO2 pipelines and ancillary assets. Any information provided to PHMSA, FERC, and pipeline organizations like the American Gas Association or the Interstate Natural Gas Association of America will result in improved knowledge-sharing so new pipeline operators can construct safe and reliable assets.
- Prioritize safety through engagement and regulatory compliance. CO2 pipeline ruptures can happen but are uncommon. These unlikely incidents can impact public health in surrounding communities. Establishing relationships with emergency response professionals, especially in communities with geological risks, can help local leaders prepare for potential hazards. Geotechnical engineers who support site planning and development can help identify uneven or vulnerable ground. While natural gas operators have been adding odorant to pipelines for decades, there currently is no requirement for CO2 pipeline operators to do the same. By supporting research in this area, CO2 pipeline operators can facilitate safe operations and develop rupture identification strategies.
- Develop strategies to withstand scrutiny from advocacy groups. Environmental advocacy groups may raise concerns through protest or legal action before or during a CO2 pipeline project. This could forestall a pipeline project, without any net positive results. Being prepared to explain the potential benefits of CCUS technologies and presenting it as one tool of many to further reduce carbon emissions can help the larger public understand the health and environmental benefits.
- Monitor and adapt to policy changes. Learn about and monitor pertinent policy developments or regulatory shifts, because changes in emissions reduction targets, carbon pricing mechanisms or government incentives can significantly impact the long-term viability of the pipeline. Staying attuned to these changes and adjusting the pipeline’s operations accordingly can mitigate financial and operational risks.
- Future-proof the pipeline infrastructure. An owner or operator can improve a pipeline’s long-term viability by designing the pipeline for potential shifts in demand, product or emerging technologies. Considering multi-pipe and multi-product easement language throughout right-of-way and land acquisition negotiations can future-proof your route for new pipes or product transportation. A hydrogen pipeline, for example, could be designed to transport other gases or blends. This forward-thinking approach will help owners and operators adapt to evolving market environments while meeting future challenges effectively.
- Plan for repurposing or decommissioning. Create contingency plans for potential repurposing or decommissioning of the pipeline if the pipeline no longer is economically viable. Having contingency plans and understanding the costs associated with repurposing or decommissioning can help minimize financial losses and facilitate a smooth transition.
- Evaluate and manage risks. While the pipeline is under construction, owners and operators can perform routine risk assessments to support the project’s smooth progression while minimizing adverse impacts. Owners and operators can assess technical, financial, regulatory and market risks to implement effective mitigation strategies. Owners and operators can further mitigate risks by building compressor stations in rural areas and outside of city limits. When CO2 is compressed into its supercritical or dense phase, it can maintain a consistent and efficient flow through the pipeline. Locating these critical facilities in remote areas can provide security for the site, safety benefits by avoiding higher consequence areas, and, hopefully, a longer-term hedge against potential nearby metro area geographic growth.
- Engage in ongoing monitoring and evaluation. When the pipeline is operational, owners and operators can track market trends, industry developments and technological advancements to identify potential risks and make proactive decisions. Assessing the pipeline’s performance and evaluating the economic viability of a current business model are critical for aligning with changing market conditions.
Although CCUS technology has existed for more than a decade, the passage of both the IIJA and IRA is spurring more development. To support a viable CO2 pipeline, owners and operators can conduct comprehensive feasibility studies, diversify revenue streams and engage relevant parties. Engagement with relevant parties can do more than improve permitting and business outcomes; it also can help inform the public about safety issues associated with CCUS and assuage community concerns. By engaging relevant parties, planning for repurposing and managing risks, potential owners and operators can build CO2 pipelines that are economically viable while addressing carbon reduction goals.
A hub-and-spoke approach for CCUS helps companies overcome challenges associated with developing a viable CCUS program. This approach can establish partnerships to share risks while leveraging capabilities.