Support for carbon capture and storage (CCS) is accelerating with the Australian government stepping up approvals of offshore storage sites as part of a strong push to get oil and gas companies to ratchet up decarbonisation investment and clean up the traditional energy sector.

CCS has long been misunderstood and often viewed negatively despite being a proven technology that has been in use for around five decades.

The process involves the capture of carbon emissions, transporting it to a storage site – typically an underground geological formation, and depositing it where it will not enter the atmosphere.

Brad Lingo, chairman of Pilot Energy (ASX:PGY) – which is progressing one of Australia’s first significant offshore CCS projects, told Stockhead CCS was a proven process that could be very economic.

“The economics of CCS work particularly well if you always contemplated from the time of developing the field that there was going to be some kind of enhanced oil recovery with reinjection into the field,” he explained.

“Because not only do you have the production lines that come from the field, but you also have the reinjection lines and the injection wells.

“Those may have initially started focusing on reinjection of produced water but at the end of the day you can then turn your attention from water to CO2.

“It is something that I have been focused on for quite some time and as I look at it, all industrial activity produces a degree of waste, and it is really about good industrial hygiene.”

The Australian government is getting behind CCS with the recent approval of two carbon storage sites in Western Australian and Northern Territory waters. They are the first permits to be granted since 2014.

Federal Minister for Resources and Northern Australia Madeleine King says CCS has a vital role to play to help Australia meet its net zero targets.

“Australia is ideally placed to become a world leader in this emerging industry, with large, stable offshore geological formations for greenhouse gas storage,” she said.

“Australia has the capacity to continue to be an energy export leader, at the same time as developing a domestic offshore carbon capture and storage (CCS) industry. CCS is a safe, key proven technology that can support the petroleum sector in its low carbon transition.”

S&P Global Platts says CCS is emerging as one of the most viable off ramps from fossil fuels in a deep decarbonisation regime.

Lingo agrees the decarbonisation method will form an important part of the transition to a net zero economy.

“It is one of the tools in the toolkit to transition to a much cleaner energy economy. Some of it is going to be fuel substitution where you can, or substitute sources of energy as part of the method to become cleaner and more sustainable in what we produce,” he said.

“There are other processes that we don’t have the commercial solutions yet. That doesn’t mean we don’t put a lot of focus on taking care of the waste produced by those processes we haven’t figured out how to make cleaner.”

“CCS is part of that solution.”

Pilot Energy has a detailed three-part strategy encompassing CCS, renewable energy generation, and hydrogen and ammonia production.

The company plans to provide clean and competitive energy by leveraging its existing oil and gas assets in Western Australia.

“In the Mid-West, we have the mature depleting Cliff Head oil field and going back to 2009, the Commonwealth government supported a very detailed report commissioned to inform a carbon task force, which was chaired by Santos chairman Keith Spence, to review 26 major geologic basins across Australia for their potential in the commercial and technical prospective to provide CCS solutions,” Lingo explained.

“It so happens that the offshore North Perth Basin was identified number five of the top basins as being both a technically and commercially attractive area for CCS.

“We already identified that as a future opportunity for where the Cliff Head oil field and associated infrastructure gets used further down the track.”

Cliff Head is the only end-of-life offshore reservoir located in the WA Mid-West region with a Commonwealth regulatory pathway to CCS.

Studies have demonstrated that Pilot could safely and permanently store up to 16 million tonnes of CO2 storage at an injection rate of up to 1.1 million tonnes each year at Cliff Head.

The studies also confirmed that the existing Cliff Head wells and facilities are suitable to be converted to CO2 injection with minimal modifications.

To prepare the Cliff Head Oil Field for CO2 injection and convert the existing Cliff Head production wells and facilities to CCS operations would require about $110m in initial capex with completion slated for mid-2025.

The net funding requirement for the CCS project will be in the order of $70m (100% project basis, ~$40M net to Pilot), after taking into account the net cashflow from oil production during the pre-injection phase.

And the return on that investment would be significant, with the project estimated to have a gross project real pre-tax net present value of around $110-$210m and an internal rate of return of about 30-40%.

Over the next 12 months Pilot plans to complete the necessary works – including securing regulatory approvals and commercial offtake arrangements and completing a bankable feasibility study – required to enable a final investment decision on the Cliff Head CCS project.

The CCS project, which will be owned 60% by Pilot and 40% by Triangle Energy (ASX:TEG) will also provide a strong foundation for future clean hydrogen and ammonia production.

“How CCS fits into that overriding theme of providing clean and competitively priced energy is that ultimately, we see CCS as being a key enabler of being able to produce and supply blue hydrogen with a view that blue hydrogen is the ultimate transition step to an overall focus on green hydrogen,” Lingo said.

He says Pilot’s focus is very much on blue hydrogen as being a proven technology using steam methane reformation, a method that is currently used to produce 98% of the world’s hydrogen.

“Since the 1980s, there are a number of instances where the hydrogen production plants have also had associated with it carbon capture and storage,” Lingo said.

“Not only is the production technology for producing hydrogen proven, so is the CCS component of it.”

This article was developed in collaboration with Pilot Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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