June 2024, Vol. 251, No. 6


Gulf Coast CCUS Draws New Entrants as Projects Advance

By Anna Kachkova, Carbon Economist 

(P&GJ) — The carbon capture, utilization and storage (CCUS) industry on the U.S. Gulf Coast is evolving as projects slowly progress and new players move in. Their entry could help spur development of the industry, which is already advanced on the Gulf Coast, compared with most other parts of the world, except for the North Sea.

One of the most recent examples of a new player moving into Gulf Coast CCUS is TotalEnergies. In mid-March, the French major acquired 100% of Talos Low Carbon Solutions (TLCS), a subsidiary of Talos Energy, for $148 million, including customary reimbursements, adjustments and retention of cash. 

The acquisition includes Talos’ interests in three CCUS projects along the Gulf Coast: a 25% stake in Bayou Bend, a 65% operated interest in Harvest Bend and a 50% share in Coastal Bend. However, TotalEnergies said it intended to sell the interests in Coastal Bend and Harvest Bend, because they are located further away from its existing assets in the region. 

TotalEnergies noted that Bayou Bend was close to its Port Arthur refinery and its petrochemicals assets in La Porte and would therefore be “instrumental” for cutting direct emissions from its U.S. operations. The project has the potential to enable the storage of several hundred mt of CO2 across 600 sq km of offshore and onshore storage licenses. 

Notably, the other participants in Bayou Bend are also majors. Chevron operates the project with a 50% interest, and Equinor is a 25% partner. This is not surprising, according to Juan Agudelo, the head of energy transition at market intelligence firm Welligence Energy Analytics. 

“It was expected that majors would buy out smaller players, as majors are better suited for CCS projects; they do not need to see the economic benefits of a CCS project in the short term. Smaller players such as Talos can focus on investments that yield quicker returns,” Agudelo said. “This is positive, because majors not only have the balance sheet for such projects, but they can also leverage their vast portfolio to improve the chances of commercial success by capturing their own CO2 emissions.” 

Other majors that have moved in to buy smaller players recently include ExxonMobil, which closed its acquisition of independent Denbury in November 2023, making it the owner and operator of the largest CO2 pipeline network in the U.S., mainly on the Gulf Coast. 

According to Graham Bain, a principal analyst at analytics firm Enverus Intelligence Research, this push by larger players to acquire smaller ones will continue as “operators drive to achieve greater vertical integration within the CCUS value chain and move towards self-sufficiency and end-to-end control.” 

European majors are increasingly moving into the Gulf Coast too, including TotalEnergies with Bayou Bend. 

“The U.S. is one of the most important markets for CCS globally, yet some key European majors, such as Equinor, TotalEnergies and BP were absent,” said Agudelo. “These companies have entered the U.S. market through storage licensing rounds, farm-ins and, more recently, through M&A activities.” 

Slow Progress 

The majors’ growing interest indicates the relative attractiveness of the Gulf Coast when it comes to CCUS development. 

“The Gulf Coast possesses the key elements for successful CCS deployment: tax credits from the 45Q, a significant amount of emissions from industrial sources to create hubs, ample storage capacity, existing oil and gas infrastructure and a diverse pool of companies,” said Agudelo. 

Progress thus far has been limited, however. “It is developing more slowly than we would have thought,” said Bain of the Gulf Coast’s CCUS industry. “There was and still is a rush to acquire pore space. However, emitters seem to be reluctant to partner with pore space owners. Spending a huge amount of capital to slow or halt their operations to install capture equipment is a big risk for industrial emitters. Because emitters are not punished for emitting, there is no rush.” 

Additional incentives for emitters to act could therefore help momentum to pick up. 

“The primary challenge for successful projects is securing sources of CO2 emissions, which means that more attention is needed in capturing CO2 emissions,” said Agudelo. “To achieve this, companies need costs to decrease, improvements or extensions of current incentives and regulation, and additional monetization options, such as the sale of carbon credits at higher prices.” 

Progress could also be spurred by companies planning to use their CCUS projects to capture their own emissions, as TotalEnergies aims to do with Bayou Bend. Given the major role CCUS is seen playing in the decarbonization of the energy industry, those companies targeting net-zero emissions, in particular, could step up efforts to build CCUS infrastructure, as they come under increasing pressure to demonstrate progress. 

Indeed, TotalEnergies sees the TLCS transaction as part of its journey to reach net zero by 2050. While some of the European majors have softened some of their emissions-cutting targets, they are nonetheless still pursuing decarbonization more aggressively than their U.S. counterparts. 

TotalEnergies leads the pack on environmental scores, according to a mid-November analysis by information provider S&P Commodity Insights. It may thus be well-placed to help the CCUS industry on the Gulf Coast to advance. 

First Movers 

Attention will be on the first movers, as others watch how successful they are in getting their projects off the ground. 

“Success and profitability of first movers will be necessary before we see a wave of emitters follow,” said Bain. “We see the opposite in Europe, where emitters are punished (excess pore space in the U.S., excess emitters in Europe). Ultimately, we need to start injecting to de-risk these projects and to fully understand the known unknowns and discover any unknown unknowns.” 

Agudelo agreed the experience of those developing the first projects will be key to spurring others into action. 

“The lessons learned from the initial projects will be crucial for the pace of development and the impact of CCUS on the decarbonization of the economy,” he said. “Some projects will be cancelled, and others are likely to be marginal. However, those that prove successful will be closely monitored and will serve as the platform for CCUS’ global expansion.” 

Agudelo added that, while it was difficult to predict what projects would become operational, given their early stages, the total number of announced capture projects in the region — including enhanced oil recovery — are expected to have a capacity close to 100 mtpa, while the announced storage capacity doubles this figure. 

“We estimate that around 20% of the announced capture projects’ capacity could be operational by the end of this decade,” Agudelo said. 

Things to watch for will include how effective the targeted reservoirs will be at storing CO2. 

“There is concern that highly porous and permeable rock will cause CO2 to migrate up dip quickly into large runaway CO2 plumes, which will create issues around pore space ownership,” said Bain, pointing to Equinor's Sleipner project in Norway, in similar rock, as being analogous. 

“Additionally, a lot of storage volume assumptions are based off the assumption that we can just displace the brine,” he said. “If we consider the Gulf acting more as a closed system, especially in an environment where there will be pressure competition, storage volumes could be cut by ten times.” 

Related Articles


{{ error }}
{{ comment.comment.Name }} • {{ comment.timeAgo }}
{{ comment.comment.Text }}