Confidence In Capture – Insurers Stand Ready For CCS

Arjun Sharma

In spite of recent development activity, which saw a 48% increase¹ in Carbon Capture and Storage development, construction and operations between 2022 – 2023, deployment has not been as rapid as some would have expected. But promisingly, there is growth: Current capacity of capture is estimated to be 50 megatonnes of CO2 via 45 commercial capture facilities globally² with a notable 57% increase of CCS projects in development, currently³. Regulatory and legislative support continues, with projects eligible for tax credits under the Inflation Reduction Act in the U.S., and through a number of European initiatives that collectively provided $20billion in project contributions in 2023. 

So, although not a nascent technology, there is still much untapped potential for CCS. Indeed, to meet current Net Zero targets, global CCS capacity must expand⁴ from 120 times the current levels, rising to at least 4.2 gigatonnes of CO2 per annum, by 2050. But beyond seizing an enticing opportunity for emissions abatement, insurers have an opportunity to demonstrate their confidence in the market, encouraging developers and project lenders to invest and build. An adequate, dynamic insurance framework for both developers and existing industrial, oil & gas (O&G), and other high carbon output sectors, may provide some of the much-needed security for CCS to thrive and expand. 

Come clean – how risky are CCS projects? 

As energy infrastructure goes, CCS is much less complicated when compared to the cohort of other relatively novel and innovative technologies in the renewables space – and with a potentially lower risk liability profile than one might think. Much of the technology can be retrofitted to existing O&G plants and facilities at the downstream stage. Risk is calculated by looking at the potential damage to the environment, infrastructure, danger to human life, and the cost of clean-up operations.  However, given the differences in chemical and physical properties between CO2 and natural gas, CCS technologies benefit from both lower risk severity as well as risk likelihood when compared with natural gas. Of course, risks must be analysed and assessed across the entire process; from capturing CO2 exhaust, to purification, to compression, to transport, and finally to permanent storage. 

The technical part – the process; the example of natural gas 

Natural Gas and Carbon Capture

Natural gas is a cornerstone of global energy, contributing nearly a quarter of total generation. Since 2000, its output has more than doubled, making it a reliable and familiar technology. It’s also one of many power generation technologies where the feasibility of integrating carbon capture is a relatively straightforward addition. This process, commonly referred to as “scrubbing,” is a mature and widely deployed technology across industries like shipping and asphalt production.

The Carbon Capture Process: Key Steps and Risks

Using natural gas as an example, the carbon capture process begins with the treatment of residual flue gas from the combustion process. This gas is mixed with an amine solution in an absorber tower, where the CO2 is distilled, recondensed, and purified. The effectiveness of this stage hinges on the quality of the amine solution, which directly impacts the filtration and purity of the CO2. Insurers are particularly concerned with ensuring that developers source these solutions from reliable suppliers.

The ultimate goal of this stage is to produce ‘‘pure CO2’’ by removing impurities via chemical processes, most critically water and oxygen, as well as other potentially dangerous residual trace elements such as sulphates, nitrogen and hydrogen. Owners are mandated to demonstrate their CO2 gas once treated is compliant with ISO 27913 (quality guidelines for pipeline transportation systems), as the longevity and integrity of the pipe transport network is directly correlated to the purity of CO2 passing through. ISO 27913 stipulate the maximum impurity concentrations permitted to avoid any damage whatsoever caused by impurities in the CO2 gas.     

CO2 Transportation and Storage: Ensuring Safety and Reliability

Once purified, CO2 is transported, often through decommissioned natural gas pipelines. Although these pipelines are designed for high-pressure natural gas, feasibility checks are necessary to confirm their suitability for CO2, especially given the corrosion risks associated with the reaction of CO2 with water to form carbonic acid. Maintaining the purity of CO2, particularly by minimizing water content, is crucial to reducing these risks.

In addition to pipeline transport, CO2 may also be moved via shipping, rail, or road. Quality assessments aligned with ISO 27913 standards are critical during transport, as exposure to environmental factors like sunlight could compromise the integrity of the CO2.

The final step in the carbon capture and storage (CCS) process is the secure storage of CO2. This typically involves re-injecting the captured gas into deep-sea sandstone and limestone aquifers, similar to the formations that naturally stored gas for millions of years, similarly applicable on land, also. This method minimizes leakage risks and provides a secure long-term storage solution. However, the risk profile here mirrors that of offshore oil and gas drilling, with potential hazards ranging from physical damage due to storms or human error to environmental impacts and third-party liabilities.

Insurers must consider a wide range of scenarios, including onshore activities like digging that could accidentally breach pipelines, or offshore incidents like an anchor dragging across the seabed and damaging infrastructure. The Baltic Sea, for example, poses unique risks, including unexploded ordnances and potential sabotage, as evidenced by the 2022 Nord Stream incident. 

Moreover, while physical and property damage from a pipeline burst might be limited, the environmental risks are significant when CO2 is released in concentrated amounts. Insurers should also account for financial liabilities arising from Business Interruption or Delayed Start-Up claims related to CO2 storage credits. For developers, accurate mapping of pipelines and notifying local authorities to reduce third-party damage is crucial, a practice that insurers should ensure is in place.

To put this in context…

Provided that developers can reassure underwriters and brokers that core standards are met, and safety mitigations are put in place, there should be no fundamental reason why underwriting capital should stand back from CCS and consider it a riskier asset class than O&G production. Given that much of the existing technology is highly feasible and verified by the same parties they already insure (the hydrocarbon producers), we would hope to envisage a dynamic, well-functioning insurance ecosystem, much needed to help ensure this global, vital carbon reduction system can flourish.

Sources:

1.  Global Status of CCS 2023: Update 23^rd November  ↩︎
2. Carbon Capture, Utilization and Storage, International Energy Agency ↩︎
3. Global Status of CCS 2023: Scaling up through 2030, Global CCS Institute ↩︎
4. https://www.mckinsey.com/industries/oil-and-gas/our-insights/the-world-needs-to-capture-use-and-store-gigatons-of-co2-where-and-how ↩︎