CCUS: a viable business model in Asia-Pacific?

Carbon capture, utilization and storage (CCUS) has been identified as a key technology to enable the decarbonization of the global industrial economy and support the growth in energy demand. Momentum to advance more CCUS projects has been established, given the significant gap being recognized between the current scale of carbon removal capacity and the emissions that will need to be abated to achieve net-zero targets.

Governments have started to build policies around CCUS and are pushing for a wide-scale implementation. Most companies are also implementing strategies to support the energy transition, with CCUS seen being a key component as a base, and extending to CCUS capacity ownership targets at a peak. With CCUS policy frameworks in Asia-Pacific mostly at an early development stage and incentives remaining relatively low compared to those offered in North America and Europe, initial projects have been geared toward monetizing lower emission hydrocarbons, either through the implementation of enhanced oil recovery (EOR) techniques, such as CO2 injection in mature basins, or implementing carbon capture as a cost component for integrated gas projects.

Progress of CCUS also varies if we look at specific countries in the Asia-Pacific region.

CCUS development in Asia-Pacific

Australia

Australia’s commitment to developing a robust CCUS framework is evident through its legislative measures and strategic investments in key projects. Australia has a legal and regulatory framework, plus incentives, to support wide-scale CCUS implementation, which could lead to the establishment of multi-industry injection hubs.

As it hosts one of the largest upstream integrated carbon capture and storage (CCS) projects globally, Chevron’s Gorgon CCS facility provides a good perspective on saline aquifer storage. Despite challenges, the project has already injected more than 7 million metric tons of CO2. Similar to Europe, a CCS acreage licensing system has also been established in Australia, which could promote CCS hub implementation.

Offshore greenhouse gas exploration permits have been awarded, which will enable further assessment of storage potential, looking at both aquifers and depleted fields, in the North West Shelf area. However, offshore CCUS approvals face delays due to landowner rights issues and unaddressed rights questions, complicating permitting in areas open for CO2 exploration with underlying mineral permits.

Despite not having carbon tax credits like the US, CCUS projects in Australia can qualify for an incentive called the Australia carbon credit unit, which has a crediting period of 25 years. This was a key enabler for Santos’ onshore Moomba CCS project reaching a final investment decision in 2021. The project aims to commence injection in the second half of 2024 at an initial capacity of 1.7 MMt/year of CO2, utilizing nearby depleted fields for storage to lower transportation and storage costs.

China

China leads the region in the number of projects in CO2-EOR pilot or demonstration stage. Significant growth of CCUS projects has been achieved since 2022 as China’s carbon emissions reduction pledge has been translated into action by major emitting sectors. The three Chinese national oil companies – China National Petroleum Corporation, CNOOC and Sinopec – have positioned CCUS as a core component of their energy transition strategies, expanding deployments from a few pilot projects to encompassing most domestic branch oilfields for EOR.

Incentives backed by legal or regulatory framework are key components toward commercialization.

Concrete CCUS policies are expected to ramp up as the country seeks to achieve its emissions targets for 2030 and 2060. Although direct subsidies are unlikely to be provided in the short term, the country aims to expand available financial instruments and streamline financing channels to increase the deployment of CCUS projects while driving down the cost of CCUS technologies.

China’s National Emissions Trading Scheme, launched in 2021, initially covered only the power sector. It is now expected to include other major emitting sectors in the coming years. Storage hubs are also being assessed in China at an early stage by the three NOCs, in collaboration with their integrated oil company partners, includingShell and ExxonMobil.

In Guangdong province, Shell and ExxonMobil are partnering with CNOOC to decarbonize their downstream assets at the Dayawan Petrochemical Industrial Park. The hub has an intended capacity to capture up to 10 MMt/year of CO2.

Indonesia

Since 2023, Indonesia has released two regulations related to CCUS, demonstrating the government’s intent to position the country as a regional storage hub, and also to bolster oil and gas production for energy security through CO2-enhanced recoveries.

Indonesia hosts mature basins suitable to potentially generate key CO2-EOR or enhanced gas recovery (EGR) projects. Pertamina is leading the effort by commencing CO2-EOR pilots in the country. BP is also looking to implement CCUS for its next phase development in the Tangguh LNG project. Around 25 MMt of CO2 reinjected back to the field’s reservoir would help remove up to 90% of the reservoir associated CO2.

A recent presidential regulation permits CCS operators to allocate up to 30% of their storage capacity for imported CO2, provided that it meets specific conditions. The government has set up structures to monetize CCUS activities via carbon

trading or storage fees for CO2 emissions captured from industries other than the upstream oil and gas sector, allowing CCUS projects to generate carbon credits for trading on the national carbon market, although the market framework is not yet fully established.

Malaysia

CCS is critical to maintain Malaysia’s production outlook and develop the next wave of high-CO2 fields. Petronas’ offshore Kasawari CCS project, containing more than 20% reservoir CO2, is targeting to inject and store over 3 MMt/year of CO2 in an offshore depleted carbonate reservoir. The project will be implemented as part of the second phase field development, requiring a dedicated CCS platform, a new pipeline and new injection wells.

Another key project incorporating CCS is the recent large Lang Lebah discovery by PTTEP, with a fast-track development planned. Unlike Kasawari, the carbon removal facility here will be situated onshore. Both Kasawari and Lang Lebah have importance for Malaysia’s MLNG facility utilization, which would drop below 100% if these projects do not push through. Like in many countries in the region, carbon pricing has not yet emerged in Malaysia and key regulations for CCUS are still pending. In its National Energy Transition Roadmap released in 2023, Malaysia is prioritizing the creation of a CCUS framework, including cross-border CO2 transport.

Companies involved in CCUS activities or supporting services qualify for a 10-year investment tax incentive and

import duty exemptions. The government is also considering amending the Petroleum Income Tax Act to introduce additional tax incentives and allow for cost recovery for CCUS projects. Loans are available for CCUS equipment, targeting small and medium enterprises.

Thailand

Thailand’s CCUS policies and regulations are geared toward achieving the country’s long-term goal of carbon neutrality by 2050.

Thailand is undergoing closed consultations on the amendments required to its Petroleum Act, which could provide a framework for CCUS projects. The process is expected to be opened to the public in the second half of 2024.

On tax incentives, an eight-year corporate income tax exemption is provided for petrochemical production facilities and natural gas separation plants implementing CCUS projects.

Enabling CCUS hubs in Asia-Pacific

When compared to Europe and North America, Asia-Pacific currently presents fewer hub project developments and more single source-sink projects, although hubs are being targeted for the next wave of investment by governments and operators. This

initial divergence has been driven by the interplay of policies, assets and capabilities that influence the development of commercial CCUS models.

Developments of hubs in Europe and North America offer valuable insights for the Asia-Pacific region. Upcoming CCUS projects in Europe are focusing on developing hubs targeted toward multi-industry emission clusters, utilizing integrated offshore

facilities for CO2 transport and storage. These hubs are incentivized by market support mechanisms and substantial government infrastructure funding.

Similarly, North America promotes hub development with one to two anchor emitters, short-distance transportation and onshore or near-shore storage. Multi-party value chain coordination is supported through transportation fees and carbon credit transfers, with additional incentives from tax credits, low-carbon product compliance markets and government infrastructure grants.

The significant storage capacity potential and the existence of several high-emission clusters offer a strong basis to support hubs development in Asia- Pacific. The region has high potential in terms of storage capacity through either depleted fields or saline aquifers in mature basins. Depleted fields will be utilized for the initial projects in the region but saline aquifers offer larger storage capacity potential.

Key emission clusters in the region are often located at significant distance from key areas with high storage capacity. Cross-border shipping of CO2 would also be key in driving hub development in the region. Japan and South Korea, both of which have high emission clusters and low storage capacity, have already started to assess exporting CO2 via liquefied CO2 carriers to other countries in the region.

To support cross-border movement of CO2, the countries in the region are working on removing regulatory obstacles and are collaborating on CCS projects.

Australia has adopted amendments to allow cross-border movement of CO2 for sub-seabed storage. Japan’s Ministry of Economy, Trade and Industry and the Japan Organization for Metals and Energy Security have signed agreements with

Malaysia’s Petronas to explore CCS projects and the transboundary movement of liquefied CO2. Indonesia has permitted allocating 30% of storage capacity for imported CO2 under specific conditions, and signed a letter of intent with Singapore to

collaborate on cross-border CCS projects, which will involve the transportation and storage of CO2 between the two countries, showcasing a model of regional cooperation.

Significant progress has been made in the deployment of CCUS in the Asia-Pacific region, driven by strategic collaborations, incentives and advancements in business models. Hubs are taking shape, connecting emission clusters with storage

capacities across countries, while cross-border CO2 movements are increasingly on the agenda. However, challenges such as cost reduction and regulatory readiness persist.

These developments reflect the region’s commitment to leveraging CCUS as a critical component of its climate strategy, while addressing the regulatory and economic barriers to broader implementation.

This article first appeared in the latest edition of Commodity Insights Magazine 2024.