Sustainability, Clean Energy, Recycling & ESG

The big news of the week is the massive grant that the Dutch government approved for an offshore carbon capture project that will be focused on the operations of Shell, ExxonMobil, Air Products, and Air Liquide. This looks to be localized within the Port of Rotterdam, where both oil majors operate large refineries, Shell also operates a large chemical site and the industrial gas companies have significant hydrogen capacity. The Dutch government believes that the country cannot achieve its emission goals without carbon capture as it has one of the largest refining and chemical footprints in Europe and the $2.4 billion grant (likely achieved through a series of subsidies) is an indication that the country is willing to invest to make its emission goals a reality. The grant is likely aimed to help close the gap between the current European carbon price – which is just over $65 per ton today and what is estimated to be the full cost of capture and storage under the North Sea, which the linked article suggests is closer to $100 per ton, but this likely underestimates the capture costs – see chart below - even if the CO2 streams are pooled and treated as one stream. Interestingly, despite the high level of subsidy, this project is estimated to store only 2.5 million tons a year and will only last 15 years (likely because of the capacity of the offshore reservoir). For more see today's ESG report.

Source: Global CCS Institute and C-MACC Analysis and Estimates

The big news of the day is the massive grant that the Dutch government approved yesterday for an offshore carbon capture project that will be focused on the operations of Shell, ExxonMobil, Air Products, and Air Liquide. This looks to be focused within the Port of Rotterdam, where both of the oil majors operate large refineries, Shell also operates a large chemical site and the industrial gas companies have significant hydrogen capacity. The Dutch government believes that the country cannot achieve its emission goals without carbon capture as it has one of the largest refining and chemical footprints in Europe and the 2.4 billion grant (likely achieved through a series of subsidies) is an indication that the country is willing to invest to make its emission goals a reality. The grant is likely aimed to help close the gap between the current European carbon price – which is just over $60 per ton today and what is estimated to be the full cost of capture and storage under the North Sea, which the linked article suggests is closer to $100 per ton, but this likely underestimates the capture costs –see chart below - even if the CO2 streams are pooled and treated as one stream. Interestingly, despite the high level of subsidy, this project is estimated to store only 2.5 million tons a year and will only last 15 years (likely because of the capacity of the offshore reservoir).

Source: Global CCS Institute, C-MACC Analysis, 2021

This is another example of a grossly inflated project, in terms of costs and while it may be the best option for the Port of Rotterdam we would make the following observations.

1. It will consume a fraction of the CO2 in the local area
2. It might give the Dutch operators a competitive edge over other European companies – either because they can produce low carbon fuel or hydrogen or other chemicals (which may get a premium price), or because they avoid paying the carbon prices. This may cause issues within the EU
3. It might artificially lower the European carbon price by creating (subsidized) credits – if this project and other government-backed projects (the UK and Scandinavia so far) overwhelm the credit market, they may depress carbon values and discourage other moves to lower CO2 footprints
   • Note that we expect a potential fly up in European carbon prices near-to-medium-term, and these mega-projects will not come into operation for a couple of years
4. Like the ExxonMobil proposal for Houston, the implied cost per sequestered ton of CO2 is extremely high and while it might reflect problems with land rights, pipeline “right of ways” and other constraints specific to The Netherlands, it is multiples of the cost that we would expect US for on-shore sequestration and we would encourage all to check out the plans (currently with the EPA) that Gulf Coast Sequestration has in Louisiana.