Every carbon capture and underground storage (CCUS) project is unique and requires customized engineering designs, procurement strategies, construction approaches and management systems. However, despite comprehensive analysis and skilled management processes, CCUS projects remain susceptible to technical and non-technical risks. This happens at each stage of the value chain, during construction and during operation. Complications can be linked to the location, emission source, technology employed, commercial business models, government involvement and applicable laws. These complications can have severe consequences, including:
property damage
well control issues
third party liability and business interruption losses
project delay
higher capital expenditures (CAPEX) costs
loss of revenue or underutilisation of assets
increased operating expenses (OPEX) costs
penalties requiring corrective measures
withdrawal of the permit because breach of regulatory and contractual requirements
project abandonment
To avoid such outcomes, in this article Lockton’s dedicated CCUS team discusses the main risks CCUS projects face during their life cycle to create solutions protecting your investment.
CO2 capture
CO2 capture is the costliest investment of CCUS projects because the significant deployment and energy expenses involved. There are currently two main processes available: on point source capture through pre-combustion, post-combustion and oxy-firing applications, and direct air capture. Irrespective of the CO2 capture configuration and technology, there are inherent risks during the construction, the commissioning, and the operation of the capture facility. These risks can be associated with:
the layout and design of the capture facility,
its integration with the existing emitting plant or plants,
the material selection based on the technology used for CO2 extraction and condition for transport,
specific flue gas and required CO2 purity,
the application of both mature and unproven technology,
accidental discharge of CO2 and impurities contained in the CO2,
solvent handling including monoethanolamine (MEA) degradation due to CO2 presence,
scaling up deployment,
mechanical integrity,
equipment failure,
overflow or backflow,
fire from machinery,
high pressure incidents (70 bar plus), and
loss of containment, both during the CO2 capture/conversion and well injection process.
All these inherent risks can impact the performance objectives of a CO2 capture facility and the CCUS value chain. Notably, most technology providers do not offer process guarantees on key performance parameters, which needs to be taken into consideration when developing insurance solutions.
CO2 transportation
CO2 can be transported through various means. Pipelines, vessels, road tankers, or railway tankers are viable, however, most of the projects rely on pipeline and vessel transportation.
CO2 pipeline transportation has been thoroughly understood since the 1970s, primarily for enhanced oil recovery. While liquefied CO2 is currently transported by vessels, the volumes are relatively minor in comparison to what is anticipated for the CCUS value chain. As CCUS projects multiply, larger quantities of CO2 will need to be transported from numerous capture facilities. This will make CO2 transportation risks become more relevant.
Despite being non-flammable, the integrity of CO2 pipelines and equipment on CO2 vessels can be compromised by impurities that affect its thermodynamics and phase behavior. Corrosion can also occur due to carbonic acid forming from free water, which is highly corrosive to carbon steels. Other potential risks include:
dry ice formation
degradation
embrittlement
fracture
blockage
scaling
collision
fire
There is also a risk of leakage during the loading and offloading of CO2 from vessels, including the return of boil-off gas to the CO2 vessel and collision damage during transport.
The risks associated with the transportation of the CO2 will also vary. For example, if the CO2 is offloaded onshore at a port with subsequent pipeline transportation from shore to offshore, or if it is offloaded offshore at a floating injection and storage platform. The latter will require further conditioning of the CO2 once it is offloaded or alternatively onboard the CO2 vessels for direct injection into the well.
CO2 storage
CO2 can be stored as liquid in a tank at the CCUS site. Suitable locations include saline aquifers, depleted oil and gas reservoirs, or unmineable coal beds. The risks primarily revolve around the possibility of leakage. Not all storage sites are suitable for long-term CO2 storage, but the gas can be effectively trapped through various mechanisms. The CCUS include:
structural/stratigraphic
residual/capillary
dissolution, and mineral trapping, including up to multiple impermeable caprock layers
In addition, experience from hydrocarbons, gases and fluid trapped underground for millions of years with hardly any leakage to the surface suggests that injected CO2 can also remain safely stored in geological formations. However, even if CO2 plume migration is well monitored, several risks remain present. These are usually associated to:
gradual leakage
inaccurate leakage rate estimation
undetected faults
reactivation of inactive faults because of over-pressurization
fracture development in the cap rock,
hydrate formation,
seismic activity,
well equipment breakdown, or
interruption in the expected continuous injection of CO2 impacting casings and the well barrier materials.
Interdependency risks of CCUS hubs
The development of CCUS hubs can create economies of scale and increase capital and operational cost effectiveness. By sharing infrastructure costs, such hubs can make the development of capture facilities economically viable even when storage is distant from the emission or capture site. CCUS hubs also enable each participant to focus on their individual expertise within their facility and provide smaller scale emitters to connect to the same network for the treatment and transportation of CO2 for storage. However, these hubs are susceptible to interdependency risks. A prolonged or complete shutdown, reduced capacity, reduced or abandoned utilization caused by an event affecting one facility within the CCUS value chain, can have repercussions on another facility or the entire value chain, both during construction and operational stages of a CCUS project.
Change of law
The safety of CCUS developments is supported by a robust regulatory framework designed to address potential risks. However, while projects develop and regulatory frameworks are continuously being revised, gaps that fail to address particular risks remain. Changes in regulation may affect the viability of a CCUS project and create hurdles for long-term strategic planning and financial stability.
A tailored risk management approach
It is crucial that any CCUS project implements a contractual risk and CO2 ownership allocation at a very early stage of the development. This needs to be paired with a robust risk management strategy that may need to be reviewed regularly, not least because technology will continue to evolve. Tailored insurance solutions are required to ensure the sustainability of a CCUS project. Standardised CCUS facility wordings tend to leave clients vulnerable to gaps in coverage that may not be apparent until a claim is filed.
Lockton has studied two large scale projects, each of them involving the injection of CO2 at a rate of approximately 1 MT/y. Both projects involved a natural gas field located in a thick sandstone formation with low permeability and similar geological characteristics. They both required the CO2 to be removed and reinjected in a saline aquifer below a gas producing well. Both projects were conducted by experienced oil and gas market players.
However, whilst one of the projects has so far resulted in minimal pore pressure and encountered no real operational issues, the same can’t unfortunately be stated for the second project. Pore pressure increased significantly, leading to significant geomechanical deformation and subsequent induced seismicity.
This study shows that specialized engineers need to get engaged from the outset in CCUS projects to identify any potential failures. The result of this assessment needs to flow into the design of the insurance program. In addition to their contractual and regulatory responsibilities, Lockton’s dedicated team of CCUS experts can conduct a comprehensive analysis of a participant’s individual first and third-party risk exposures associated with CCUS operations and interdependence.
Lockton’s risk engineering unit can assist by reviewing construction designs and working with you to get the requirements for insurance cover correct during the construction (saving redesign costs or post commissioning rework).
For further information, please contact the author of this article or your Lockton representative.
