Friday, March 31, 2017

Carbon Capture: Beguiles Major Oil and Gas Producers

It is a beguiling idea  -  capture carbon dioxide created by burning fossil fuels before it enters the atmosphere and hide it away, deep in the ground.  No carbon emissions and then no global warming.
Unfortunately, carbon capture and sequestration, as it is called, has been slow to take off.  Beginning back in 2006, the Norwegian government and Statoil (STO:  NYSE), Sasol (SSL:  NYSE) and Royal Dutch Shell (RDSA:  LON, RDS.A:  NYSE) teamed up to plan what they called a world-class environmental project at the Mongstad industrial site in Norway.  The project centered on capturing carbon from Statoil’s existing oil refinery cracker and a new combined heat and power plant planned for the same location.  The capture process was to be coupled with full-scale carbon dioxide storage. 

The original plan was to be in operation by the years 2011.  However, by 2010, the project cost had expanded to $1 billion, and Norway’s leadership was forced to offer a stake in the project to India’s Oil and Natural Gas Corporation.  With heavy reliance on coal India is likely to benefit from proven carbon capture technology.  Unfortunately, cost and financing issues led to further cost overruns, delays and finally an outright halt to work by 2013. 
Although the original project had to be abandoned, that has not stopped some in the original consortium from doing additional development work.  In 2014, Shell began testing its Cansolv carbon dioxide capture process at the Mongstad test center.  Laboratory conditions are always friendlier playgrounds for scientists than the real-world setting of operating refineries and power plants such as Statoil’s Mongstad refinery. 
By 2015, three additional developers had pitched tents at Mongstad.  Carbon Clean Solutions Ltd. began testing its solvent technology.  The chemical solvent is expected o remove as much as 90% of carbon dioxide from flue gas and produce ‘sequestration ready’ CO2.  General Electric (GE:  NYSE) has developed a solution based on amino silicone compounds that can capture and release carbon.  GE went to Mongstad to perform large scale pilot testing.  Alstom Power (ALO: PA) is also at Mongstad for the chance to test its chilled ammonia process to capture CO2 at a large scale. 
Most recently Mongstad has hosted ION Engineering.  ION has also developed a solvent technology and needs to scale up to commercial levels.  The solvent had previously been tested at the National Carbon Capture Center operated in Alabama by Southern Company (SO:  NYSE).  ION does not intend to sequester its captured carbon.  Instead, ION management is targeting the oil industry for enhanced oil recovery.  Injected into oil bearing rock formations underground, CO2 can be used to loosen up the oil and push it toward extraction wells.
Founded in 2008, ION seems an unlikely contender in the carbon capture business.  It is privately held and a small-fry in comparison to GE, Alstom and Shell.  The company has received $16 million from the U.S. Department of Energy’s National Energy Technology Laboratory.  However, with the apparent disinterest in energy or environmental solutions by the current U.S. White House occupant, ION may need to get friendlier with private investors.  The idea of turning a harmful greenhouse gas into a commercial product should play well on a road show.
For those who cannot wait or have no palate for private equity, the options for a play on carbon capture are few.  Several large companies are involved in the idea, but none provide an investor with a pure play.  For example, a stake in Statoil or Shell or Sasol is a stake in oil and gas interests.  Their faltering efforts at carbon capture must serve as a thin band-aid for the environment abrasion of fossil fuel combustion.  Southern still has 29 fossil fuel plants, but the majority of its electrical production is from renewable sources, including hydroelectric, nuclear, solar and wind.  Likewise GE has done much toward cleaning up its operations, describing itself as a ‘digital industrial company’ on its new sustainability web site.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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