Transitioning to Net-Zero: CCUS and the Role of Oil and Gas Producing Countries

In addition to diversifying into new sectors, oil and gas exporters could pursue policies to increase the resilience of their core energy sector in a world transitioning to net-zero emissions by competing on reducing emissions. This Energy Insight argues that technologies related to geological storage of CO2 could play a key role in these countries’ near- and longer-term, low-emissions development strategies. Carbon Capture, Use and Storage (CCUS) is a climate mitigation action through which some oil and gas exporters could establish a competitive advantage given their natural (e.g. geological storage capacities, depleted hydrocarbon reservoirs, existing infrastructure) and technical resources (e.g. the expertise in subsurface technology). Also, the deployment of CCUS could provide oil and gas exporters with an opportunity to continue to monetise their reserves more sustainably and retain the competitiveness of their energy intensive industries in a net-zero emissions world. Although some believe that the combination of clean electrification and green hydrogen can deliver net-zero emissions by 2050, the uncertainty surrounding the speed of the transition coupled to the variations in transition strategies likely to be adopted by different countries means many scenarios still project that oil and gas will remain an important part of the energy mix in many countries for the foreseeable future. Also, from the perspective of achieving net-zero emissions, CCUS is a key mitigation technology needed to achieve governments’ ambitious net-zero targets. For some energy intensive hard-to abate sectors such as steel and cement, technical options to reduce emissions without CCUS are currently limited.

Large oil and gas reserve holders, either individually or as a group, may have the interest to implement projects to prove CCUS technology at scale, reduce its costs, and develop sustainable business models. This requires exporters to take a more active role in developing and scaling up CCUS through investments in the sector. However, it should also be recognised that producers’ economies would have to undergo some of the deepest transformations and adjustments and shifting the costs to producers alone is not viable.  Also, if costs are too high or domestic competition from other sectors for the use of hydrocarbon revenues intensifies during the transition, then scaling CCUS to levels that are needed for it to be an effective mitigation strategy will not materialise in these countries. Multilateral agreements such as the Paris Agreement and global policies to incentivise emissions reductions should take these trends into account. Policies should aim to distribute its costs across the supply chain, but also between importers and exporters so the burden is shared more equitably. This requires developing frameworks and mechanisms that complement existing instruments with policies that assign value to CO2 storage. This poses various challenges, but the benefits could be substantial. From the perspective of achieving net-zero emissions, this could enable a key mitigation strategy to help countries achieve their ambitious targets. From a producers’ perspective, it allows producers to play a more active role in climate change negotiations and encourages them to be part of the solution through utilising their own expertise and financial and geological resources. It could also help these countries diversify into new sectors which could ease the burden of the transition. This reinforces certain key principles such as the emphasis on national circumstances, common but differentiated responsibility and just and inclusive energy transition.

By: Bassam Fattouh , Wolf Heidug , Paul Zakkour