In our ESG piece yesterday we talked about the competitive edge that Canada now has with respect to both natural gas (because of lower prices versus the US) and CCS, both because of relatively low costs but also because of the clear value on carbon. Yet today we see an announcement in the US!
We are big believers in the need for natural gas, blue hydrogen, and CCS, as we have covered extensively in our ESG and climate work, with several reports liked below and yesterday’s, which is very relevant, linked here. However, we do see a potential bottleneck in CCS availability. Neither the Denbury nor the Air Products announcements talk about where the carbon will be sequestered but mention multiple locations within Louisiana. While Louisiana is seeking Primacy for CCS approvals from the EPA (as is Texas) - see link - neither has been granted primacy yet and Class IV well approvals still sit with the EPA and there are apparently very few live applications today in the queue. These hydrogen/ammonia projects may find that the CCS sequestration piece - which is arguably the least expensive from a capital perspective (see Air Products diagram below) - is the rate-determining step. We are advocates of more CCS more quickly - not just in the US but globally and the process may speed up considerably if the states are granted primacy sooner rather than later.
Source: Air Products, October 2021
As shown with the investments in Canada and now this investment proposal for the US, we see CCS as a driver for new investments and well as a driver of clean-up projects and while Air Products may be betting on a higher US incentive for CCS at some point, getting clarity here is important for all industrial companies with emission issues, and as we pointed out yesterday, the US may lose investment opportunities with its lack of carbon clarity. Ammonia is a special case as Japan is much more interested in securing blue or green volume than the local carbon incentives.
