Climate Tech Investment Strategy Essentials For Decarbonizing Natural Gas
November 6, 2023
Natural gas has enormous potential to expedite reduction in global emissions, ensure energy security through the energy transition, and minimize the total cost of reaching Net Zero goals by 2050.
According to Ernst & Young, oil and gas accounts for 55% of global energy consumption. While the shift from coal fired to natural gas fired power plants led to a 32% decrease in total emissions from the US energy sector from 2005-2019, according to the International Energy Agency (IEA), the natural gas industry must substantially decarbonize to mitigate the direst effects of climate change in this century.
Indeed, according to a May 2023 report from the International Energy Agency (IEA), to reach IEA’s Net Zero by 2050 scenario would require a 50% reduction in oil and natural gas emissions, which the IEA estimates will cost $600bn/year or roughly 10% of overall global energy transition investment required to meet 2050 goals.
While this may seem like an immense sum, efficient investment in critical technologies could prove less costly than alternatives. One such group of technologies is CCUS, which refers to the capture of carbon from single point sources or the atmosphere, and associated technologies required to transport, store, and utilize that CO2. According to the IEA, “CCUS is the only solution to address CO2 emissions from natural gas processing.”
Whether or not this is true, if CCUS technology continues to decrease in price, it has potential to reduce the cost of decarbonizing the energy sector. Recent data shows the cost of decarbonizing the US electric sector could be reduced by $300 billion if natural gas-fired power plants came equipped with carbon capture technology. The IEA estimates that without investing in carbon storage, it will cost the US 40% more to achieve the same CO2 emissions reductions.
Similarly, technologies exist that could immediately reduce the cost of decarbonizing natural gas transportation. For example, Sapphire Technologies develops and manufactures energy recovery systems that harness the power of gas expansion to produce reliable and clean electricity. Sapphire’s FreeSpin® In-line Turboexpander (FIT) systems are designed to convert energy wasted in pressure reduction processes into electric power without interrupting operations, and can be used in pipelines, wells, liquefiers, power plants, and energy storage systems.
Each FreeSpin system generates up to 2.6 GWh of clean energy each year, enough to light 700 homes in New York City and offset 2,000 tons CO2e, the equivalent of 4,360 barrels of oil consumed. This enables midstream operators to offset electrical costs and reduce carbon emissions by utilizing 100% green electricity to power their operations.
In addition to minimizing the cost of decarbonizing the energy sector, technology like CCUS and energy recovery systems also have the potential to generate new revenue streams for energy companies. For example, in the case of carbon capture, CO2 has applications for industrial purposes, for production of synthetic fuels, and can facilitate the production of clean hydrogen from natural gas.
A leading investor in CCUS technology, ExxonMobil, which according to their own data account for 40% of all carbon capture activity globally, announced in 2021 that investment in CCUS will be a significant part of their $15bn investment in low-carbon technologies. Chevron similarly announced investment in carbon capture and removal startups Carbon Clean and Svante in 2022. Both Exxon and Chevron cite their investment in CCUS technologies as being a crucial component to supporting their overall hydrogen and biofuel strategies.
Energy recovery systems, like FIT can also help energy companies generate new revenue streams and offset the cost of decarbonizing their infrastructure. For example, Sapphire Technologies announced a partnership with leading US energy infrastructure company, Tallgrass, a leading critical infrastructure company, to collaborate on the largest installation of turboexpander technology in the world. Tallgrass will sell green electricity produced by FIT systems installed throughout their pipelines.
That said, with the possible exception of the application of CO2 for enhanced oil recovery, revenue streams for technology like CCUS and energy recovery systems are still immature. That is why it is important that government incentives also support investment in this critical technology for decarbonizing natural gas. The EU recently announced a €3 billion package for investment in CCUS innovation and development and the creation of an EU-wide carbon storage infrastructure.
In the US, the Inflation Reduction Act (IRA) increased tax credits available for each ton of carbon capture by 70%. Related credits may also prove advantageous to existing natural gas operators looking to incorporate clean technology into existing infrastructure or further invest in their clean energy platforms. For example, the Energy Infrastructure Reinvestment (EIR) program which will “guarantee loans to projects that retool, repower, repurpose, or replace energy infrastructure that has ceased operations, or enable operating energy infrastructure to avoid, reduce, utilize, or sequester air pollutants or anthropogenic emissions of greenhouse gases” according to the Department of Energy (DOE).
The Clean Fuel Production Tax Credit (PTC), Clean Fuel Investment Tax Credit (ITC), and Hydrogen Production Tax Credit could all theoretically be applied to projects that leverage CCUS to help produce green hydrogen or biofuels.
According to a McKinsey analysis, CCUS uptake needs to grow 120 times by 2050 for countries to achieve their net-zero commitments. While this seems a daunting task, the impact of existing investment should motivate energy companies, private investors, and policymakers to double down on strategies to support this critical investment area.
The OGCI, a CEO-led initiative focused on accelerating action to a net zero future consistent with the Paris Agreement which represents 30% of oil and gas companies, recently published a report on the 2022 impact of their members’ clean tech investments. Member companies invested $24.3bn (or 4% of the annual investment the IEA states is needed from the energy industry) in a variety of decarbonization technologies. A portion of that investment was directed to CCUS technology.
The result was the establishment of 40 CCUS hubs have the potential to remove up to 300 million tonnes of CO2 a year by 2030. This is equivalent to shutting down 80 coal power plants or removing the emissions of 67 million cars. If this is what 4% investment can achieve, imagine the global impact of reaching 100% of the investment goals the IEA has challenged our industry to direct toward the energy transition.
