Why net zero emissions by 2050 cannot be attained if carbon capture and storage is used to pump more oil and gas out of the ground. Talia Baroncelli speaks to Bruce Robertson, energy analyst at IEEFA.

• Transcript

Hi, I’m Talia Baroncelli, and you’re watching theAnalysis.news. I’ll shortly be joined by Bruce Robertson to speak about carbon capture. But first, if you enjoy this content, please go to our website, theAnalysis.news, and hit the donate button as well as the subscribe button. I’ll be back in a bit.

Joining me now is Bruce Robertson. He is an energy analyst at the IEEFA [Institute for Energy Economics and Financial Analysis] and is joining me now today to speak about carbon capture. Thanks so much for joining me, Bruce.

Thank you very much, Talia.

Why don’t we start talking about the history of carbon capture technology and how it first developed?

Well, the fascinating thing about carbon capture and storage is it originally started in the 1970s. Back in the 1970s, climate change really wasn’t much of an issue apart from with some scientists. As far as the social issue goes, it really wasn’t until the 2000s that we saw climate change become a major issue. It started originally as a production technique for getting more oil out of depleted oil and gas wells. In other words, oil and gas wells that had reached the end of their life, what they did was they pumped carbon dioxide underground, and they forced more oil and gas out of the other end, and it was collected by a well. So it was a method called enhanced oil recovery in those days. Then in a neat trick of rebranding, the oil and gas industry named it the more climate-friendly sort of moniker, carbon capture and storage. So originally, it was just an oil and gas production technique.

Okay, so speaking about how they were rebranding it, could we potentially say that it’s become a form of greenwashing? Specifically referring to one of the reports you co-authored recently in September called The Carbon Capture Crux, where you speak about how approximately 73% of carbon capture storage capacity actually goes towards enhanced oil recovery.

Yeah, it is still mainly a method of producing more emissions. I think that’s really the key point. I mean, if you use it to produce more oil and gas, that oil and gas end up getting burnt and producing more emissions. The primary use of carbon capture and storage as it stands today is an emissions production technique effectively. But if we look at where the industry is going, it is actually looking more at pure carbon capture and storage where it doesn’t use it for enhanced oil recovery. It is looking to try and decarbonize what they term the difficult-to-decarbonize industries, such as steel and cement.

Steel probably is less of a difficult industry to decarbonize now because the Swedes are being pretty successful with their hydrogen-based steel-making technique called the HYBRIT technique. Cement still is a difficult industry to decarbonize, and obviously, it’s a very large global industry.

How expensive is it to actually do this carbon capture, storage, and sequestration? I guess that would depend on the different techniques that are used and what exactly is being processed and stored.

Yeah, look in gas– if we have a look at the different types of carbon capture and storage, it really is not just one industry. Unfortunately, it’s not quite that simple. If we have a look at the different types, the most common types that are used today are on gas plants, gas processing plants. When gas is produced, you can’t have too much carbon dioxide in the methane stream. Methane is what you actually burn in your gas cooker or whatever. It’s actually methane, what they term gas.

They need to get the carbon dioxide out of that because if there’s too much carbon dioxide in with the methane, it doesn’t burn very easily, and that creates problems for users of the product. So they remove the carbon dioxide. That form of removal is very common. It’s been around a long time because they have to do it to make the product and sell gas.

If we look at removing carbon dioxide from power plants, which is what a lot of people assume carbon capture and storage is all about, that’s far more difficult. It’s far more difficult because the stream of carbon dioxide is more diluted, so it’s more expensive. What it does is it makes the power that’s produced at the back end of the plant very, very expensive. Apart from that, it really hasn’t been very successful at actually doing what it’s meant to do.

We studied 13 flagship projects in this area, across the board, across all these industries, the gas industry, the power production industry, and others, and we found that only three have performed roughly how they’re meant to. Three had totally failed, pretty much, and seven had underperformed. When they had underperformed, they hadn’t underperformed by typically 10% or 20%; they had underperformed by typically 40% to 50%. They really did not do what they were meant to do– most of the majority of these projects that have been done in the past, and there are lots of examples of that.

Well, why were they underperforming? Is it because the technology still needs to be developed more? Or is it an issue of scale? Like, did they just need to be scaled up in order to be more effective?

Well, no, unfortunately, the answer is no to both of those because the industry is old. It’s an over 50-year-old industry now. It’s not a new technology, and that’s at scale. It’s actually been done at scale since the 1970s. This is the key point. It’s not like we’ve just started doing carbon capture storage. It’s been going for half a century and at scale for half a century.

If we look at some of the big projects, for example, the reasons are always different why these projects don’t succeed. That’s another complicating factor with this technology is that it’s not a technology that can be successful in one field, and you take it up and put it in another and expect it to be successful. It doesn’t work that way. Each time you build one of these plants, it’s a unique engineering feat. That’s one of the key reasons why it’s been unsuccessful is that it’s not something you can just replicate easily.

The best example of this is the largest pure storage, carbon capture and storage project. In other words, they don’t use carbon dioxide to produce oil, and that’s actually at an LNG [Liquefied natural gas] plant in Northwest Western Australia called the Gorgon plant. Now, this plant is owned by Chevron, and the major partners in it are Exxon and Shell. So arguably, you’ve got access to some of the best petroleum engineers on the planet. There are three major oil companies, and it started about five or six years ago. Look, it’s just never been able to do what it said it could do. It’s still having problems today. The reason for that is where they’re putting it into is different from other places. They’ve had trouble with the sand clogging sensors, they’ve had trouble with corrosion pipes, and they’ve had all these different problems that are unique to that particular site. It means that it’s not been a successful project, despite over $3 billion USD being spent on it. We’re not talking about a cheap plant here. It’s a lot of money, a lot of engineering expertise, and it’s failed. This is not uncommon in carbon capture and storage.

Well, it sounds like it really is a deep carbonization pipe dream if it’s not as effective as a lot of industry actors and people investing in it would hope it to be. I think the International Energy Agency, a report that you mentioned in your report, stated that we would need something like 1.6 billion tons of carbon capture storage by 2030 in order to reach net zero emissions by 2050. I mean, what does that even mean? How big are those numbers, and how far away are we from reaching that?

Well, we’re a very, very long way away from reaching it. Look, I don’t want to sit here and pretend to you that the decarbonization and the climate challenge are easy. It’s not an easy challenge. The IEA is looking at this and saying– and other governments, such as the U.S. government, in particular, with the Inflation Reduction Act, and the U.K. government and Europe– they’re all looking towards carbon capture and storage as the solution for a large part of the emissions reductions that they’re looking at. At the moment, that looks to be a very problematic solution, in our opinion.

We entered this study with a reasonably open mind as to what was going to come out of the back end of it. All we were doing is we were actually looking at these projects, and we weren’t actually saying that they should capture so much carbon dioxide. We were looking at what the proponents, the actual proponents of the project, were saying that they were going to do at the beginning of the project. If they said, “we’re only going to capture 50% of the fluid gas coming up,” we used that. We didn’t say, “oh, we want them to capture 90%, 100%, or whatever.” We just used what the proponents said their plant was going to do at the beginning of the process and said, “alright, how did they perform against that, against their actual metrics?” I think that’s really a key point in the way we went about this study. It is actually using the proponent’s framework, and they fell very far short of what would be reasonable. I think that that’s the key point here is that we’re not putting our framework on it. It’s what these companies thought they could do. That is why we think it’s such a problematic technology.

You mentioned the Inflation Reduction Act. I think we all remember the crazy roller coaster ride Joe Manchin took us on leading up to the passing of the Inflation Reduction Act. I mean, it was a mess, but it was passed. There are a lot of climate provisions in it. It puts a huge emphasis on carbon capture storage. Given the doubts that you’ve expressed with regards to this technology, why do you think the IRA, not the Irish IRA, Inflation Reduction Act places such a huge emphasis on this technology?

It is the most curiously named act, isn’t it? The IRA Act.

I know.

We have this terrorist organization [crosstalk 00:13:21].

Is it possibly off carbon bonds? I don’t know.

The whole inflation reduction thing, I don’t really understand why it’s even called that. We won’t go into the finer things of the naming of that act. If we look at why they turn to it, essentially, it’s the same reason that governments all around the world are looking at this. There are two things. One, they’re struggling to work out how to get to net zero without it. That’s the first point. The second point is we should never forget the lobbying power of the oil and gas industry globally and their power globally to try and entrench themselves in the energy system for longer. They used to eat carbon capture and storage as a method of doing this, of entrenching their products, which are oil and gas, in the energy system for longer. Because every time they build one of these, they say, this is the solution, and this is the way forward. But we’ve had that. We’ve gone through that phase. We’ve seen what’s happened with Gorgon’s plant in Western Australia. We’ve seen what’s happened with Shute Creek in the USA, in Wyoming since the 1980s, and its performance, or lack thereof, in terms of a climate solution.

Now, Shute Creek has been a successful project from the point of view of the company because it’s made money and it has used carbon dioxide byproducts successfully to produce more oil and gas. But as a climate solution, it simply fails. I think that this is the key differential. What are you aiming to do with carbon capture and storage? Are you actually aiming to solve the climate problem, or are you aiming to keep oil and gas in the energy system for longer? Really, when you look at it, it’s pretty much the industry trying to keep oil and gas in the system for longer.

There are some exceptions to this, and the exceptions to this are industries like cement, where so far, we haven’t really got a solution for dealing with the emissions from the cement industry. Cement is something that is very widely used, as everyone knows, all around the world in concrete, building, highways, and all sorts of other infrastructure. At the moment, decarbonizing cement is immensely difficult, and that’s why some people are turning to carbon capture and storage for these types of industrial emissions, hoping that they can get these projects to work. That’s a pretty big leap of faith at the moment, given the history and history of failure in the industry.

Do you think climate disclosure would be another way to tackle some of these issues? I don’t know if you’ve been following the U.S. SEC, the Security Exchange Commission’s proposal on climate disclosure. Basically, the proposal was to make companies disclose their greenhouse gas emissions. It was met with a lot of consternation from big companies such as BlackRock, one of the leading asset management firms in the world. They were obviously not very happy with this proposal because then they would have to disclose the financial risk and scope three emissions, which are basically downstream emissions. How important is this type of disclosure?

It’s incredibly important, especially the scope three. Just to sort of go through a very quick basic explainer about what scope one, two, and three are. Look, if you look at oil and gas, for example, scope one and two emissions are when you produce the oil and gas, and scope three is when you burn the oil and gas.

Now, the big problem we have at the moment is greenwashing of gas and LNG. There are terms used like carbon-neutral LNG, and it’s companies trying to basically take only the production emissions, the scope one and two emissions, and say, “well, we’re offsetting all those emissions either by buying carbon credits on the international carbon credit market or maybe electrifying part of their process instead of burning gas.” Now, the problem with that is approximately, and it depends on the product, approximately 85% of the emissions occur when you actually burn the product. So there are scope three emissions. So these guys are saying, “we’re producing carbon-neutral LNG,” but that’s only for the 15%. Even if that claim is correct, and there’s a lot of controversy over carbon credit units, as I’m sure you’re aware, but that’s a whole other podcast topic. It’s not really for today, but the efficacy of those units has been called into question.

Even if they were good and were genuine offsets, and even if the companies did electrify processes and managed to produce in that production stage, LNG that wasn’t carbon neutral, the big problem is when you actually burn the product. That’s when most of the emissions occur. The burning of the product can’t occur without the production of the product. This is the whole disconnect in carbon accounting.

Global warming is a global problem, and often people that don’t like the idea of reducing emissions use that phrase, but it’s very true. If you produce a product, you’ve got to know that at the end of the process, it’s going to get burnt and create emissions because, let’s face it, we’re never going to capture the carbon that comes off the back of your car for example, or your gas stove in your house. We have to take what’s called product stewardship, and that’s what the SEC was actually looking at. It was saying, “well, what are your scope, one, two, and three emissions? What are the emissions of when they burn your product?”

Much like the tobacco industry, for example, could claim that no harm was made in the production of their cigarettes. Well, it’s quite frankly a bit irrelevant because the damage occurs when you smoke the cigarette. This really is the problem with carbon accounting at the moment, is it’s all done on national view and on national carbon accounts.

For example, where I come from, which is probably one of the worst offenders of this, so I’m allowed to talk about it; we don’t take the scope three emissions of all the LNG that we produce into account. So we produce this and go, “well, we’ve got a net zero target for 2050, and we’re still opening up new oil and gas fields all over the shop and new coal mines and everything else and claiming that we’re going to meet net zero by 2050.” Well, it’s quite frankly dishonest because we know that if we open up the oil and gas fields, we can’t reach net zero by 2050. It’s a really basic thing. We just can’t reach net zero by 2050 if we open up new oil and gas fields. It’s all to do with this carbon accounting. Carbon accounting is, quite frankly, quite misleading.

Yeah, well, let’s pivot to where you’re from, to your corner of the world, Australia, and speak about some of the really exorbitant gas prices there, because Australia is one of the largest LNG exporters, and the industry is highly subsidized. Why are gas prices so damn high in Australia?

Well, the funny thing is they are, and they aren’t, Talia. This is the amazing thing because the country is actually divided in two. We have a state-based system, much like the U.S. In Western Australia, prices are very cheap, and there’s no problem in the energy system at all in terms of electricity or gas prices. In Eastern Australia, it’s totally the reverse. We have very high gas prices. At times, since 2014, gas prices have been above international prices. This came about prior to 2014. The East Coast really didn’t produce that much gas; it only supplied the domestic market. Then, in 2014, we discovered large coal seam gas fields, which is getting gas out of coal seams using fracking. In Queensland– and they built three big export terminals. Now the East Coast market is over 70% exports, and only a small amount of gas is used domestically.

What happened was that the three consortiums that built those plants took over a lot of smaller companies. They signed all these contracts with the smaller companies that had exclusivity provisions in them that they could only supply the export plants. Effectively, now these three consortiums control 90% of all the known reserves on the east coast of Australia. What they do is they manipulate the price. They formed a cartel, a gas cartel, and they manipulate the price and keep it extraordinarily high.

There’s a lesson here, actually, in going so heavily into exports for the U.S., and this is what’s really interesting because the model to make gas prices high is Australia for the oil and gas industry, and the U.S. is actually following that model.

Is that because the U.S. presumably also has a very low tax burden on the industry, as well as a monopoly or oligopoly?

No, in the U.S., it’s slightly different because you do actually have a market for gas. We don’t have a market for gas in Australia because you just got these three people controlling the price. In the U.S., you do have a market for gas, but how the U.S. is following what Australia did is it is overbuilding LNG plants and what that will cause. Look, if there was a small, medium-sized LNG industry in the U.S., it wouldn’t be a problem, but they are continuing to build a lot of plants. And what that’s going to do over time is force up gas prices in the U.S. more to international levels, more to the levels of gas prices you see in Europe and Asia, which are exorbitantly high. I think that that’s the key point. The key point is that you have this ability to reprice your domestic gas to the international market, and that’s the big prize for the U.S. oil and gas companies. It is not the expensive export market, but it’s making those expensive prices go into the domestic market.

One thing I’ve always wondered– why is gas labeled a transition form of energy? I mean, that word is somewhat confusing to me because it’s still emitting tons of greenhouse gas emissions, and yet it’s considered to be a kind of clean form of energy.

Well, put simply, gas is just another fossil fuel. When we look at global emissions, 25% of all emissions are methane, which is natural gas. So 25% of all emissions are methane, greenhouse gas emissions. Methane emissions are growing so fast. In the COVID recession-affected year of 2020, they grew at the fastest rate in history. In 2021, after COVID ended, they grew faster. So in 2022, they grew faster again. So we’ve got this accelerating trend in methane emissions, and that’s because, basically, the expansion of the oil and gas industry, particularly the gas industry in the U.S., in Qatar, Australia, in all these nations, and we are still seeing very large expansion projects get put in.

As I said before, we all know that if any new oil and gas fields open up, we can’t meet our net zero commitments. We all know that gas fields around the globe are being opened up at a very rapid rate. That’s why you’re seeing the continued rise in greenhouse gases. It’s driven by the gas industry. It’s driven by the gas industry. There’s been this pivot from the oil and gas industry and the fossil fuel industry, basically from oil and coal into gas, and that’s driving climate change at the moment.

Well, I wanted to speak about Europe very briefly. I mean, even before Russia’s invasion of Ukraine, there were really high energy prices in Europe. Recently, a lot of European politicians have been saying that they’ve managed to avert an energy crisis and that, I guess, they were expecting prices to be even higher this winter, but because temperatures haven’t been all that cold, they maybe were able to avert this crisis. So what does that mean? Have they been able to diversify or just find other countries to give them more gas, or what’s going on?

Look, Europe’s essentially, well, Russia has essentially precipitated a global gas crisis. What happened was that Putin turned off the taps, literally. Big pipelines that went to Europe and supplied them with their winter fuel were basically turned off. Obviously, this was a disaster for Europe because they relied on Russian gas for a large part of their energy system. The crisis has been averted for now in Europe, principally because of the weather. Very warm winter for no other reason. If you had a very cold winter, we wouldn’t be saying this. I’m sure it would be a lot more marginal. Europe did build a lot of gas storages. It imported as much LNG as it could get its hands on. But most LNG is sold on long-term contracts. So there isn’t a lot of spare LNG out there in the globe. So when this happened in Europe, they soaked up all the spare, the short-term cargoes of LNG they possibly could, and all the LNG plants all around the globe ran as fast as they possibly could because there was this massive profit-making opportunity for them. You saw the combination of those two things occur.

What did that actually do to gas? It made it prohibitively expensive in other countries. Countries like Pakistan, Bangladesh, and India, they simply couldn’t afford the fuel. They had relied on the short-term market because, historically, the short-term market was cheaper than long-term contracts. They had relied on that for their power systems. What it meant was that it became so expensive they couldn’t afford to buy it because they knew if they sent out the electricity bills that would run off that high-cost gas and high-cost LNG, people wouldn’t pay them. So literally, you had rolling blackouts in countries like Pakistan and Bangladesh caused by the LNG crisis that was precipitated by Russia turning off the taps to gas to Europe. So that had this amazing effect on these countries. So what higher LNG prices have done is they’ve actually lowered demand in what were expected to be growing markets for the LNG industry. In the medium to longer term, they’ve killed those markets with high prices.

But has that affected their margins and their profits because if they’ve essentially lowered demand, people aren’t consuming as much of that gas? Will that inevitably mean that these companies will then lower their prices over the long term, or you don’t see it working out that way?

In the short term, Europe is soaking up all the gas it possibly can because the amount of gas it was buying out of Russia was very large. So in the short term, LNG prices are still strong. They’re coming off a bit now because the gas storages in Europe are still quite full and because it’s a warm winter. But it’s only a seasonal thing. It’s only a short-term seasonal thing. In the medium term, what you’re seeing in Europe is the rapid electrification of a lot of houses that previously relied on gas. They’re turning to heat pumps, and they’re manufacturing a lot of heat pumps right now and installing an awful lot of heat pumps. So they’re electrifying their systems, which means long-term demand destruction for gas. Once you put an electric boiler in your house to heat your home, you don’t buy gas again. It’s a long-term demand destruction. The high gas prices are causing demand destruction globally. In Europe, high gas prices and mainly the fear of lack of availability rather than the actual lack of availability have meant that there’s been long-term demand destruction by people turning to electrify their homes.

In Asia, in developing Asia, it’s just too expensive, so they’re turning to alternative forms of fuel, whatever they can, just not gas. Coal is very expensive as well on the globally traded market. So that’s also facing similar issues to gas long term. You are seeing a burn in renewables globally on the back of this. So it’s kind of perverse how such a great event for the LNG industry is turning into one that, long term, will lower their demand.

So how important is it that big industrial powers like the U.S. or supernational entities like the E.U. work with China to meet these climate goals, despite some of the differences that they have geopolitically?

Global warming is a global problem, as I always say, and we have to work together. Now, the classic example is the treatment of China. A lot of people see China as a global pariah in the climate thing for whatever reason. But we have to look at why emissions in China have risen. They’ve risen because the Western world, Europe, the U.S., Australia, we’ve all basically deindustrialized a lot of our economies and sent that manufacturing to China. We’ve exported our emissions essentially to China. So we can’t complain about Chinese emissions rising when phones, computers, and many products are now made in China that weren’t before. So we have to work together to solve this emissions problem. We did it before with CFCs. We worked globally, and there were big issues between Russia and the U.S. at the time, but we managed to do that and solve that problem. Working globally has been done before to solve global environmental issues that are threatening us. We can do it again. We must do it again. We must realize, as a starting point, that the Western world has exported a lot of its emissions to China and to developing Asia.

Well, thank you, Bruce, for joining us for this really enlightening discussion on decarbonization.

Thank you very much, Talia.

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“Bruce Robertson has been an investment analyst, fund manager, and professional investor for over 36 years. He has worked with Perpetual Trustees, UBS, Nippon Life Insurance, and BT. He has appeared as an expert witness before a number of government inquiries into energy issues.”