Why Texas, Louisiana Are Poised To Win The Carbon Capture Sweepstakes

For the oil and gas industry, the success or failure of a rapidly growing carbon capture, use and storage (CCUS) sector in the U.S. and globally is shaping up to be almost a matter of survival as the world community treads down the path of the ‘energy transition.’ With so much riding on a company’s emissions profile and ESG score, CCUS has become one of the most fit for purpose means of improving those metrics.

Five Factors Hold The Key

The same holds true for companies that operate heavy-emitting manufacturing facilities whose tailgate emissions are slated to become contributors to multi-party CCUS projects at major hubs in specific geographic areas. In a recent report titled CCUS Play Fundamentals, analysts at big energy information and analytics firm Enverus point out that the most successful locations for major projects will be those that can bring a specific set of factors to the table:

• A large number of emitters concentrated in a compact area;
• Close proximity to high-capacity underground pore space;
• Necessary pipeline and other key infrastructure;
• A project lead company with the internal expertise required to manage the project; and
• Supportive regulatory and policy frameworks that incentivize capital to flow to CCUS.

In a recent interview, Graham Bain, vice president at EIR, a business unit at Enverus, pointed to various locations along the Texas and Lousiana Gulf Coast as potential hubs that possess the needed set of factors. “You’ve got, first of all, high volume clusters of emissions,” Bain says, “So if we’re talking about hub, they make a lot of sense. It becomes more economically viable in terms of the infrastructure build out, pipeline connections with these hubs.”

Obviously, cost is a big factor. “The second piece of that is these are all low capture cost emissions,” Bain continues. “They’re all fairly pure streams of CO2 looking at chemicals, refineries, which we view as having a lower capture breakeven. A third piece to that is the the price of electricity to capture the CO2. Electric prices are lower in Texas and across the Gulf Coast region.”

No potential hub along the Gulf Coast serves as home to a more concentrated number of refineries, chemical plants and other manufacturing installations than the Houston/Galveston area. That region, along with the Corpus Christi area further South, are the focus of EIR’s initial report because the Texas General Land Office, which owns the potential offshore pore space where the CO2 would be stored, kicked off a request for proposals process focused on those two areas on March 9.

The synopsis for EIR’s report finds the magnitude of the Houston/Galveston area to be much bigger than that at Corpus Christi, though both rank among the largest potentional CCUS prizes in the U.S. “Regarding project proposals in Texas state waters, EIR believes the Galveston region offers superior subsurface potential. The area can accommodate 7.7 Gt of CO2 at a 4% efficiency factor and maintain injection rates of up to 1.7 Mt/well/year, with an average storage breakeven of $8.70 per tonne. In contrast, Corpus Christi holds capacity for 1.9 Gt of CO2 and can sustain injection rates of 2 Mt/well/year at a slightly higher breakeven of $10.80 per tonne.​​​​​​”

The report also points out that “Galveston is proximate to a higher volume of low-cost emitters. We model 111 mtpa of sub-$65/tonne point source emitters within 30 miles of the lease block, compared to only 12.3 mtpa of the same quality CO2 emissions around Corpus Christi.”

Bain says all the needed factors for CCUS success are also present in the Louisiana Mississippi River corridor that runs from Baton Rouge down to New Orleans. In terms of magnitude, Bain says this corridor is “almost identical” to the Houston/Galveston region in terms of potential.

Legal Clarity Is Essential

All of which helps to explain why both the Texas and Louisiana state governments have been focused on putting a policy environment in place that would help to stimulate private sector interest and investments in major CCUS projects within their borders. That process starts with obtaining a primacy delegation of regulatory authority from the U.S. Environmental Projection Agency (EPA).

Bain points out that both Texas and Louisiana are part of EPA’s Region Six, where a significant backlog of project applications has already developed. Regarding the primacy designations by these states, Bain says “we see that as pretty necessary in terms of improving these project timelines, which can definitely hurt investment in the space and prevent these projects from happening.”

Bain also emphasizes that it is important for the Texas Legislature to clarify the state’s laws governing ownership of pore space in onshore projects, as uncertainties around current law could result in investment-discouraging delays. Increasing subdivision of ownership with each passing generation, combined with potential conflicts between surface owners who own the pore space for CCUS and mineral owners in an uncertain legal environment can result in higher risk factors than for offshore projects in which companies can deal with a single owner, the state.

“We definitely view that as a point of risk,” he says. “We’ve heard from some operators that they’re not going to pursue this unless they have a good understanding of that because they do view it as a risk. It’s something that we take into consideration when evaluating the risk of these projects.”

Bottom Line

There is no question that CCUS projects focused on the massive pore space in the Gulf of Mexico hold world-class potential for the capture and storage of massive quantities of emissions and low breakeven costs in the decades to come. Primacy designations for both Louisiana and Texas are key to avoiding permitting delays and clearing up current backlogs, and this is especially true for onshore projects where an uncertain legal environment, if allowed to linger, could hamper investment.

If all the needed factors can come together, CCUS could become a major growth industry that could significantly improve the future prospects for the domestic oil and gas business.