Share this article：
The number of views：136
■ Date: Oct 20, 2023
【The CCUS Hub: An Essential Business Model to Reach Carbon Neutrality】
Author of this article
[Snapshot]
1. With the number of CCUS demo projects increasing in China, oil companies take the majority of demo projects now, taking the sole operator role under vertically integrated CCUS mode. It is expected that value chains will be broken down and allocated to various kinds of market participants in the future.
2. Under the demo stage, emitters even get paid by the operators to help develop CCUS. However, in the future, emission trading schemes will develop, so emitters are expected to pay for all the services including capture, transport, and storage.
3. CCUS hub mode provides shared storage facilities so that the construction cost per captured CO2 is brought down and small-sized emitters can join with ease. Operators in the future can provide carbon credit validation services other than offering their expertise.
4. By selling the products together with the bundled credit (carbon credit insetting), emitters as the credit issuer can claim their product as a “green product” to get a premium from the buyer.
Keywords: #CCUS #carbon credit #business model #carbon capture #carbon storage #CCUS hub #carbon registry #VCU #green product
If you like this article, please also refer to our comprehensive analysis report "CCUS in China" and our article "CCUS in China: Unlocking the Potential Opportunities of Carbon Utilization and Storage"
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
Current situation of CCUS in China
Figure 1. CCUS application potential in China
CCUS is a critical decarbonization method with a wide range of industrial applications. By 2060, CCUS adoption potential in China is expected to reach 1.4 billion tons per year to achieve carbon neutrality.
According to the China CCUS Annual Report 2023, there are altogether 98 (estimated) CCUS-related demo projects in China, and more than half of them have been put into operation. Meanwhile, the scale of China's CCUS demo projects has expanded significantly. There are more than 40 projects of 100K tons and above, including more than 10 projects of 500K tons and above, and several projects of 1M tons and above are under construction. More and more large-scale (>1 M) CCUS full-cycle projects have emerged and may become a trend in the future.
Figure 2. CCUS demo projects in China
Different CO2 utilization technology is under intense development, with geographical utilization (mostly EOR) and chemical utilization (mostly urea production) taking the lead. Other chemical utilization, mineralization, and biological utilization are going through R&D and industrial demo phases, preparing for commercialization, which shows a good momentum for the development of the CCUS full value chain in China. Saline aquifer storage, due to its astonishingly large potential storage amount (160~2,420 billion tons), will become one of the main CO2 consumption methods. (For more detailed information, please refer to our report: CCUS Industry in China)
Since CCUS seems to have a good development momentum in China, potential investors and project developers paying attention to the CCUS field can take the right opportunity to get into the game. But how? The following part will deep dive into the current and future promising CCUS business models, including the CCUS hub, in China to help you have a deeper understanding of the blueprint of CCUS business in China.
Current business model and promising future business model:
Generally speaking, at the initial stage when carbon prices are low and demand for low-carbon products is nascent, the business model for CCUS is likely to require government support. With the market getting more mature and commercialized, the government gradually withdraw and private companies gradually step in.
In China, like in other countries, oil companies take the majority of projects in the demo stage since EOR is the most economical CO2 utilization method now and they try to make the oil business sustainable by exerting carbon storage and EOR on their oil fields. Meanwhile, in China, most oil companies are SOEs, so they are pressured to do the CCUS with the government’s support to achieve the carbon-neutral goal.
Figure 3. Overview of the project owner
At this demo stage, oil companies are not mainly for profit. However, in the future, oil companies may be able to charge quite a lot of service fees concerning CO2 capture, transport, and storage from the emitters.
Figure 4. CCUS business model overview
Companies from other industries such as the power industry and steel industry are also conducting the CCUS demo projects. Among these demo projects, we can summarize three main business models: Vertically integrated CCUS mode, CCUS operator mode 1, and CCUS operator mode 2.
As a demo project, most sectors of the CCUS value chain are taken by one group company or entity, following Vertically-integrated CCUS mode. Starting from CCUS Operator mode 1, the value chains start to fragment and be allocated to various market participants. It is further fragmented in CCUS Operator mode 2. In the future, value chains will be broken down thoroughly and various kinds of market participants will form a complete CCUS ecosystem like CCUS hub mode.
Unexpectedly, in the current demo stage, emitters may even get money from capturer (CO2 purchase fee), which can increase their reliability on outsourcing the carbon capture service and refrain from developing the emission reduction method by themselves. As carbon price rises and regulations kick in, emitters are expected to pay for capture, transport, and storage services to avoid paying for emissions that exceed limits. (For more information about emission transactions, please refer to our blog - China's Emissions Trading: The Opportunities Ahead)
- Vertically-integrated CCUS mode
Figure 5. Vertically-integrated CCUS mode
Vertically integrated CCUS mode allows for smooth business flow in revenue and risk management among departments, thus resulting in lower transaction costs, which can adapt well to the initial CCUS stage. Currently, in China, it is the main CCUS business model, in which the full chain is operated by oil companies, such as SINOPEC, CNPC, and CNOOC through EOR projects.
Here, emission companies are usually oil company’s subsidiaries. Emitters may even get paid (CO2 sales) from CCUS operators. The operator’s revenue is generated from the oil recovered and a direct subsidy for CO2 storage from the government. So far China’s CCUS project funding is achieved through the company's funds as well as a high proportion of grant funding. There is a need for government incentives and more comprehensive market schemes such as the carbon market and investment to support future progress.
Projects example: SINOPEC Qilu - Shengli Oilfield CCUS project
Figure 6. Sinopec Qilu-Shengli Oilfield CCUS project
This project is the first one-million-ton CCUS project in China where Qilu Petrochemical, a subsidiary of SINOPEC, built a new 1 million tons/year liquid CO2 capture unit in Shandong province. The project has started operation in August 2022. Qilu Petrochemical, the emission company, is located around 110km away from the Shengli Oilfield. The captured CO2 is then sent by truck or the newly built pipeline to do the EOR. The recovered oil amount has reached 300k tons per year.
- CCUS operator mode 1
Figure 7. CCUS operator mode 1
CCUS operator mode 1 is not as highly integrated as the vertically integrated CCUS mode since CCUS operators capture CO2 from different independent emission companies. Operators usually have strengths in the utilization aspect, like geographical utilization such as EOR, chemical utilization producing high value-added final products, such as PPC and methanol, and mineral utilization such as CaCO3. Starting from the utilization expertise, they gradually develop their ability in carbon capture and transport.
Project example: Zhongke Jinlong Taizhou CO2 PPC Polyol Project
Figure 8. Zhongke Jinlong CO2 PPC Polyol ProjectZhongke Jinlong, a private company that focuses on PPC chemical product production, first captures CO2 from local alcohol plants, steel plants, and power plants in Jiangsu. Then it transports the CO2 to its factory to do the chemical utilization. Each ton of PPC can consume 0.2 to 0.4 tons of CO2 in the production process. It produces and sells 50,000 tons of PPC polyol, and PPC-based final products like 10,000 tons of biodegradable plastic masterbatch, and 6.5 million square meters of flame-retardant panels per year. In addition to revenues from these high-added-value final products, they would be able to gain revenues from capturing services in the future.
- CCUS operator mode 2
Figure 9. CCUS operator mode 2
Though EOR projects nowadays are still dominated by giant oil SOEs as mentioned, it seems still possible for private or foreign companies to access the market by providing advanced technologies such as low-cost chemical absorption technology, carbon capture facilities, supercritical CO2 pipelines, corrosion inhibitors, etc. In this context Operator mode 2 emerges, which is more partial, and the CCUS operator mainly focuses on capture and sometimes transport service. Expertise in carbon capture wins them opportunities to sell the purified and processed CO2 to big oil companies and some chemical/ mineralization/ biological CO2 utilizers. Some operators with capture expertise like Dunhua even develop transport ability.
Project example: Karamay Dunhua Green Carbon Technology - Xinjiang Oilfield EOR Project
Figure 10. Dunhua-CNPC CCUS project ecosystem
Dunhua Green Carbon Technology, situated in Xinjiang, is a good example of a private company entering EOR projects with oil companies by providing CCUS full-cycle technology and service with an emphasis on carbon capture. Dunhua has established a full value chain of CCUS technology including low-concentration CO2 capture (self-developed amine solvent), carbon transportation (supercritical CO2 transport pipeline), EOR injection technologies, CO2 recycling technologies, etc.
In the Xinjiang Oilfield EOR project, Dunhua captures 100,000 tons of liquid CO2 per year from the CNPC Karamay methanol plant and then trucked for EOR in the Junggar basin operated by CNPC Xinjiang Oilfield Company. By the end of 2021, Dunhua has conducted more than 1,500 EOR injections, with a cumulative injection amount of nearly 500,000 tons of CO2
- CCUS hub mode
Figure 11. CCUS hub mode
CCUS hub mode is a promising future business model in which different market participants play various roles throughout the value chain. This mode centers and relies on the shared carbon storage facilities which are built by large companies, joint ventures with or without intervention from the government. Emitters need to pay for the capture service, transport service, and storage service provided by different service providers.
It has the potential to work internationally to tackle global warming. For example, six South Korean industrial companies are working with Petronas, an oil company in Malaysia, to internationally transport CO2 to oilfields in Malaysia.
With scalability that is achieved by aggregating emissions from various carbon emitters, such as cement plants, fertilizer plants, power plants, refineries, etc., establishing the CCUS hub can reduce the cost of constructing a facility per captured CO2 amount like pipeline and thus contribute to the further commercialization of CCUS. It can also help small-sized emitters participate in CCUS with a lower threshold: capital investment cost. Each emitter is responsible for developing facilities in their plant to capture, purify, and for getting CO2 to a pick-up point.
Nowadays in China, big oil companies such as CNPC and CNOOC are constructing the CCUS hub. For instance, CNPC is planning to build three to five CCUS hubs in China by 2030. CNOOC launched a 10-million-ton CCS hub project in Huizhou Guangdong. Most CCUS hubs will be based around industrial clusters, where emission sources are close together, as in China’s first CCUS hub in the Junggar Basin which is under construction by CNPC.
Incoming Project example: CNOOC Guangdong CCUS Hub Vision
Figure 12. CO2 storage potential and emission situation in China
CNOOC launched a 10-million-ton CCS hub project in Huizhou Guangdong, planning to transport the onshore captured CO2 to Pearl River Mouth Basin for storage. Around the area, inland storage resources are scarce despite massive emissions (Guangdong in 2022: 6.698x108 tons). As the largest sedimentary basin in the northern part of the South China Sea, the Pearl River Mouth basin offers the most potential for CCS. A recent report issued by the South China Sea Institute of Oceanology shows that deep saline formations in this basin could store up to 136.8 billion tonnes of CO2. This CCUS hub vision provided a feasible solution for rapid carbon reduction in the Daya Bay Area and even the whole country.
This CNOOC initiative is supported by Shell and ExxonMobil under a joint study agreement, which commits these enterprises and local Guangdong authorities to evaluate the potential for world-scale CCS projects in the Daya Bay area. CNOOC’s more ambitious plan involves building three more CCS hubs outside of Guangdong, centering around CNOOC’s production hubs in northern China’s Bohai Bay, the Yangtze River Delta region around the East China Sea, and Hainan province. In the future, CNOOC will be able to gain revenue from offering services like storage and transportation.
CCUS x Carbon credit
Figure 13. Carbon credit (VCU) insetting by CCUS
Under the future CCUS hub mode, the carbon market will play a vital role with a higher carbon price. CCUS can deliver high-quality credits to the market. Unlike afforestation, CCUS facilities measure precisely how much carbon is captured and stored.
Emitters can be the main carbon credit issuer. It pays for the capture, transport, and storage service. After the emission reduction (CO2) amount is validated by the registries (e.g., CCER, VCS), the emitter can get the according carbon credit. Then, the emitter can sell its products bundled with credit (carbon credit insetting) and claim the product as a “green product” to get a premium. (About more information regarding carbon credit insetting, please refer to the blogs: China’s Emission Trading: The Opportunities Ahead, and Unlocking the Potentials of Hydrogen Credits: See How Chinese Companies are Leading the Change in Bringing Hydrogen to Carbon Trading)
Once an emitter chooses to sell credits and products respectively, its product should no longer be considered “green” in carbon accounting, which would otherwise lead to double-counting of emission reductions between the credit retiree and the physical product buyers.
CO2 capture companies and CCUS storage operators can generate extra revenue by informing the registry platform of the capture or storage amount. This will be an added-value service for emitters.
Reference:
[1] 天风证券，2021，什么是碳中和背景下的 CCUS？
[2] Northern Lights official website.
[3] Business Models for Carbon Capture, Utilization and Storage Technologies in the Steel Sector: A Qualitative Multi-Method Study
[4] 跨界投资人：CCUS商业模式：来自百年石油工业史的智慧
[5] THE CCUS HUB: A playbook for regulators, industrial emitters, and hub developers 2023
[6] CCUS Business Models and Incentives | ICSC Webinars
[7] Shell official website
[8] VCS website
[9] Verra website: Methodology framewerk for CCS
[10] 生态环境部:《温室气体自愿减排交易管理办法(试行)》
[11] CNOOC explores offshore carbon capture schemes in southern China, 2022-11
[12] 中国二氧化碳捕集利用与封存 (CCUS) 年度报告 (2023)
[13] 敦华绿碳： 助力实现“双碳”目标 , 2022-8
( Member registration is free. After registration, you can view and download reports in our database)
We welcome your comments and questions regarding this article! Please fill in the comments below.