The regulatory, commercial and technical hurdles for carbon capture and sequestration projects are significantly underestimated, according to consultancy Wood Mackenzie, which notes discussions it has had with both existing and aspirational CCS operators in Asia-Pacific convey a clear message: hitting targets will be very challenging.
There are a variety of applications and drivers for CCS, but for Indonesian projects the goals are the same: to find technical solutions to develop discovered but non-commercial high-carbon dioxide gas resources, sequestering the CO2 — or providing it for industrial use, in CCUS — and allowing the resultant clean gas to be monetised.
“One of the biggest problems facing the growth of CCS is the lack of relevant legislation and regulation,” Angus Rodger, Wood Mackenzie research director, upstream Asia-Pacific tells Upstream.
"A gulf is growing between the OECD countries with ambitious decarbonisation goals that are starting to actively facilitate CCS projects, and the rest of the world."
This facilitation comes in two critical forms, says Rodger: specific regulation for CCS and government funding.
CCS projects require government policy and support to proceed. However, most countries lack a legal and fiscal legislation framework covering sequestration, licensing, carbon accreditation, incentives and ultimate liability for leakage risk.
“Where elements of the above are missing — such as in Indonesia — it will slow down operators keen to implement CCS," he says.
"Indonesia has no fiscal or regulatory framework for CCS, including liability, and CCS spend would not be cost-recoverable under current production sharing terms."
Rodger continues: “If the operator has to bear the brunt of the costs of sequestration alone, under our models these projects become very marginal.
"There are added complexities if, as with Kali Berau Dalam" — Repsol’s giant gas discovery on the Sakakemang block on the island of Sumatra — "the storage site and source field sit on different PSCs, with different ownership.”
He adds that while CCS might soon, if not already, be the only way upstream players can develop acid gas fields with high CO2 content in many areas of the world, CCS — at least for now — remains a “loss leader”.
“Due to the lack of a clear economic incentive for CCS, virtually all projects operational today have required significant levels of government support," says Rodger.
"For projects in Indonesia to get off the ground, the government, national oil company and/or regulators will have to decide what incentives they can offer to operators to develop CCS that help to offset the additional cost.
“Another factor that makes CCS investments commercially challenging is the scale and uncertainty of the cost of implementation.
"With so few projects developed in recent years, relevant benchmarks are rare. And with huge variance in project scope, estimates vary widely,” he adds.