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The North Sea basin is emerging as a global hotspot for carbon
capture and storage (CCS) development on the back of strong policy
momentum.
Over the several years, the North Sea hydrocarbon producers have
accelerated efforts to develop offshore CCS based on their
extensive upstream expertise. Norway and the Netherlands are on
track to launch full-scale facilities by 2024, while the UK could
have its first project commissioned by mid-decade. Government
policies are focused on securing a resilient role for the oil and
gas industry (including the service industry) in the ongoing energy
transition and reaching ambitious emissions reduction targets over
the longer term.
In Denmark, Norway, the Netherlands, and the UK, broad political
consensus underpins supportive policies aimed at unlocking the CCUS
potential of their respective offshore areas. Each host government
is committed to using offshore oil and gas infrastructure and
depleted reservoirs for the transportation and storage of carbon
dioxide.
Figure 1: North Sea Carbon Capture, Utilization and
Storage
Norway remains a regional leader
Norway has been a consistent proponent of CCS projects, and
successive governments have played a major role in providing policy
support for the oil and gas sector's efforts to deploy the
technology at scale. Both of Norway's largest political players,
the right-wing ruling Conservative Party and left-wing opposition
Labor Party, recognize the state's key role in developing the CCS
sector through direct operational and financial participation.
State-owned enterprise Gassnova is tasked with advising the
government on CCS as well as integrating and streamlining the CCS
chain. The enterprise also owns a majority stake (77.5%) together
with partners Equinor (7.5%), Shell (7.5%), and Total (7.5%) in the
Technology Centre Mongstad (TCM), the world's largest research
center for the development and testing of carbon capture
technology. In October 2020, the minority Conservative-led
coalition proposed to invest around USD1.8 billion the Northern
Lights CCS project, the country's first full-scale offshore CCS
facility, which is scheduled for commissioning in 2024.
Shifting funding priorities have undermined UK CCS
policy
The UK's ruling Conservative Party has made investment in CCS a
key pillar of its effort to decarbonize the economy. Opposition
parties also support the technology, and the Scottish National
Party (SNP) is spearheading efforts to develop a CCS industry in
the region. Although the UK government has regularly provided funds
for CCS research and demonstration projects, progress on launching
full-scale developments has been limited so far due to significant
and frequent shifts in state funding.
The deprioritization of budget spending on CCS by the Treasury
in 2015 took over USD1 billion of potential CCS funding off the
table, prompting the cancellation of two projects - White Rose
(Capture Power Limited) and Peterhead (Shell) - that had already
signed front end engineering design (FEED) contracts. Progress on
another facility, Summit Power Group's Caledonia Clean Energy
Project, has stalled since 2018 due to protracted government review
and the lack of financial support beyond an initial USD5 million
for research and feasibility studies. In the first half of 2020,
the government announced a further USD1 billion for future CCS
projects, but the amount could be revised, particularly as the
government prioritizes efforts to mitigate the economic fallout
from the COVID-19 pandemic.
Netherlands and Denmark ramp up efforts to capitalize on
offshore carbon potential
In the Netherlands, state-owned enterprises - Gasunie and EBN
together with two port administrations - have played a key part in
the implementation of the first full-scale CCS projects (Porthos
and Athos) and are likely to remain the drivers of such
developments in the foreseeable future. In addition, the government
has developed a competitive mechanism to allocate budget funding to
CCS projects. However, the magnitude and duration of the
Netherlands' subsidies will be limited to encourage cost
improvements, and CCS project performance is likely to be subject
to close government scrutiny to ensure efficient spending of budget
funds.
In June 2020, the Danish government and major political parties
concluded a national climate agreement that outlines measures to
reach long-term emission reduction targets, including the
deployment of CCS technology at scale. The government plans to
facilitate the construction of offshore CCS projects through a
combination of state financing and green taxes to incentivize
carbon capture in the industrial sector, although it has yet to
detail the process for allocating government funding, initially set
at around USD554 million for the period from 2024 to 2030.
Supportive CCS policies in the North Sea basin could attract new
investment from upstream companies with existing infrastructure and
new investors that are seeking to benefit from the energy
transition. Clear policy and regulatory frameworks coupled with
durable government commitments to incentivize offshore carbon
storage through budget funding and state operational participation
are likely to remain crucial factors in the development of a CCS
hub in the North Sea.
