CCS
10Gt of CO 2 annually , the construction of more than 200,000km of pipelines 14 , significantly increasing the demand for carbon steel ( the primary material used in constructing CO 2 transportation pipelines today ). 15
Pipelines also suffer from potential corrosion risk , because CO 2 dissolves in water to form carbonic acid , which is highly corrosive for carbon steel . Corrosion risk is increased by variables such as the presence of other chemicals or impurities , the composition of the carbon steel material , as well as conditions associated with the source of the CO 2 . Flue gas , for example , which would be the source of CO 2 in postcombustion carbon capture processes , can introduce contaminants such as sulphur dioxide and nitrogen dioxide , which increase corrosion risk . The Gorgon LNG Project in Western Australia is a prominent example of CO 2 ‘ s corrosive nature . The US $ 54bn project includes a significant carbon capture and storage element , and water entering the pipeline that injected the CO 2 underground resulted in corrosion that required equipment to be replaced , contributing to the three-year delay to the facility ’ s operations . 16
To mitigate this corrosion risk , pipelines for CO 2 transport need to operate at higher pressure , while requiring low levels of impurities 17 , in contrast to natural gas pipelines . Further , when variables such as impurities cannot be controlled , there may be a need to consider constructing pipelines from corrosionresistant alloys , which can increase the cost of construction . 18
The role of project finance As with the CCS technologies themselves , financing of projects with a CCS element is not new . There is , however , an increasing focus on , and significance of , CCS to businesses in the context of the evolving regulatory and commercial landscape of the energy transition . The foundation for any successful project financing is appropriate mitigation and allocation of risk and that is no different with CCS projects .
For each category of CCS project , the mitigation and allocation of risk will be different , and will also change over time as the technologies mature . For example :
• CCS as a key element of a project – Mitigating environmental risks and pollution are not new to the project financing world . For example , the Equator Principles , which include various requirements in relation to environmental and social impact assessment and mitigation , apply to the vast majority of projects financed by Western banks and institutions in recent years . However , the implementation of a material CCS element in a project has the potential to raise additional challenges . This is especially so where emission mitigation involves an absolute contractual or regulatory obligation – for example , a condition of the environmental or other permits granted to the project – to either capture a specified quantity of CO 2 from the project or not emit more than a specified quantity of CO 2 .
Given the nascent nature of CCS technology , lenders may require an enhanced diligence process in order to get comfortable with the risk of the proposed CCS technology not being able to meet those targets . Accordingly , detailed negotiations are likely to take place between the lenders , sponsors and contractors / providers of the CCS technology regarding the appropriate allocation of risk if the project fails to meet its targets . While projects that fail to fully discharge their CCS obligations are likely to still be able to generate revenues and repay their debts , lenders may also be concerned with the potential reputational harm of being associated with a project that fails to meet its environmental obligations and are likely to impose strict requirements regarding these matters .
• Retrofit projects – Unlike new projects , retrofit projects are less likely to involve concerns of reputational harm if the CCS technology does not fully meet expectations , since they would be acting to reduce existing emissions . However , the revenues of such projects are likely to be fully , or at least largely , tied to the CO 2 that is captured by the project . For example , in the absence of additional government grants or incentives , which many jurisdictions are considering , but few have implemented , any revenues are likely to be based on the carbon credits generated and / or related savings received by the retrofit CCS project or underlying infrastructure – eg a gas-fired power plant – as a result of the CCS technology .
A key concern will therefore be whether the technology proves sufficiently successful to capture the necessary quantity of CO 2 , as well as the price or cost of those emissions to the project had they not been abated . In many cases , there would be reasonable expectation on the owner of the underlying infrastructure , to which the CCS technology is retrofitted to assume some of the risks associated with the retrofit project and to help ensure a steady flow of revenue to service the project ’ s debt .
• CCS networks and hubs – CCS networks and hubs are very appealing for the future of CCS because they can capitalise on economies of scale and support a wide array of CCS activities . However , in the early days of the development of CCS networks and hubs , the structure of any project financing is likely to be heavily reliant on the applicable regulatory regime and government incentives or strong commitments from ” anchor ” users of these networks and hubs . This issue is not unique to the CCS industry as , historically , government support and direct investment have been pivotal in de-risking and initiating infrastructure-heavy industries such as rail , telecommunications and electricity generation and distribution . 19 The historic experience of
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