Although the energy industry is starting to ramp up carbon-capture and storage projects as a possible solution to solving the environmental problems the world is facing regarding climate change, government action is needed to accelerate this build out.
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Quick Review
Carbon capture and storage is not a new technology, and has been around for many years, but it has taken on a sense of urgency now that world politics have shifted in favor of dealing with this problem. Carbon dioxide is released into the atmosphere when fossil fuels are burned, and carbon capture entails removing the carbon dioxide during some part of that process and then storing the carbon dioxide in various naturally occurring locations. These locations include underground oil and gas fields that are depleted, or in rock formations deep underground either off or onshore.
First Project
Statoil ASA (NYSE:STO) built the first operational carbon capture and storage operation in 1996 at Sleipner Vest located in the North Sea. The company discovered natural gas in that area, but it had a high content of carbon dioxide in the gas stream. Statoil ASA decided to develop the field, using carbon capture and storage.
The company was also motivated by financial reasons, as the Norwegian government instituted a carbon tax at around that same time. The carbon dioxide is removed from the natural gas and injected into a naturally occurring geological formation beneath the ocean floor.
Statoil ASA has another project operational at Snohvit in the Barents Sea. The carbon dioxide is removed from natural gas prior to it being liquefied. Statoil ASA is the operator of this field, and is partnering with several other companies on its development including Total SA (NYSE:TOT) and Hess Corp (NYSE:HES).
Closer to Home
American Electric Power (NYSE:AEP) just started up a carbon capture and storage project at the Mountaineering coal-fueled plant in West Virginia. The company is now capturing 100,000 metric tons of carbon dioxide per year and injecting it underground. This will be scaled up to as much as 1.5 million tons per year by 2015 by using a grant that American Electric Power has applied for from the U.S. Department of Energy.
In North Dakota, the Dakota Gasification Company operates a Synfuels plant where it converts lignite coal into natural gas. During this process, the company removes the carbon dioxide, and transports it in a pipeline to Saskatchewan, Canada. Once it arrives there, Apache Petroleum (NYSE:APA) and EnCana (NYSE:ECA) inject the carbon dioxide into their fields as part of an enhanced recovery project. The Dakota Gasification Company has captured more than 16 million tons of carbon dioxide since starting up this process.
The Bottom Line
The common denominator of all these projects is that the companies built these projects because of a financial incentive, either to avoid a tax, to offset the cost with government subsidies or to earn revenue from selling carbon dioxide to others.
Carbon capture and storage is a effective and workable process to clean the environment, but for profit companies will usually only act in its own self interest, making government action necessary for carbon capture and storage to make a difference. (To learn more, see our Oil And Gas Industry Primer.)
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