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Carbon capture – building a new ­value chain from a ­contractual perspective

10/06/2024

With its history and extensive experience with CO2 management as an oil and gas nation, Norway is a leading country in building a new CCS value chain in the fight against climate change.

Carbon Capture and Storage (“CCS”) is an important platform for the further development of green industry for a low-carbon future, both in Norway and across the globe. Norway already has extensive experience in the field and since 1992 has been managing and storing CO2 under the seabed from gas production at the Sleipner-Vest field, and since 2008 at the Snøhvit field. Moreover, Norway is home to the world’s largest facility for testing and development of carbon capture technologies, Technology Centre Mongstad, located outside Bergen.

In 2020, Norway made an ­extensive investment in the Longship project. This is a full scale CCS-project, where CO2 is intended to be captured, transported and permanently stored at a subsea storage site offshore Norway. An essential part of this project is the Northern Lights storage license awarded by the Ministry of Energy in 2019, being the world’s first commercial multinational carbon storage project. Northern Lights is scheduled to be ready to receive CO2 at its terminal in Øygarden, Bergen from the end of 2024 upon completion of construction of the storage infrastructure.

This currently positions Norway as the world’s leading storage hub for CO2.

Capture

It is not only the desire to combat global warming which is incentivising the establishment of CO2 ­capture facilities. It is also that the escalating prices of climate quotas are exerting financial pressure on companies globally and the ­adoption of carbon capture ­technology can potentially be a less costly alternative in comparison to continuously paying for climate quotas. That said, a report from Oslo Economics and SINTEF Energi published 27 March 2024 states that the price for greenhouse gas emissions quotas must be quintupled before capturing CO2 becomes profitable. Measures beyond the EU’s quota system and the domestic CO2 tax are therefore necessary to realise CO2 capture from emitters, even though the future costs for carbon management is expected to be somewhat reduced due to learning effects.

The emission sources can be industry or waste incineration facilities, however, CO2 may also be captured from smaller emission sources such as individual ships. The Norwegian Pollution Control Act section 11 stipulates that a company wishing to establish a CO2 capture facility must obtain a permit license for carbon capture and temporary storage of CO2. The requirements for applications are regulated by Chapter 36 of the Norwegian Pollution Control Regulations which amongst other things requires an Environmental Impact Assessment (EIA) to be performed.

Transport

CO2 is typically not captured, liquefied and stored in one place. It therefore needs to be transported from the capture/liquification site, and to the storage facility. Transport can be carried out by various means, including in pipelines, by vessels, and by trucks/trains. In the early phases the development of CCS value chains, it is likely that seaborn transportation will be the predominant transportation method for CO2 intended for subsea storage. The reason for this is that the use of vessels is a relatively flexible and scalable option. 

In relation to the transportation of CO2, it is important that the entities involved have a good overview of the regulatory and contractual challenges and opportunities. Amongst other things, it needs to be verified that cross border transport is possible according to international law, in particular under the London Protocol. Further, different contractual arrangements need to be considered, including transportation and storage agreements and charter parties. For a more detailed overview of transportation aspects related to CCS, we refer to our separate article on “Transportation of CO2 – an emerging market”, which is ­included in this SO Update. 

Storage

The Ministry of Energy, demon­strating its commitment to CCS, has awarded seven CO2 storage licenses since 2019 (as of May 2024) and there are currently other ongoing licence processes. However, only one licence, issued to Northern Lights in 2019, has made a final investment decision. 
The EU Directive 2009/31/EC on the Geological Storage of CO2 (the Storage Directive) sets the legal framework for environmentally safe storage of CO2 within the EEA. Norway has implemented the directive through the CO2 Storage Regulations of 2014 and through amendments to the Petroleum and Pollution Regulations. Whilst the Pollution Regulation applies to all forms of CCS, the Petroleum Regulation only applies if the CCS is linked to a petroleum activity and the Storage Regulation applies when CCS is conducted on a standalone basis. The Ministry of Petroleum and Energy noted in the proposal to the Storage Regulation that difficult issues of a financial and legal nature would arise if the existing petroleum production-­related CCS operations came under the new regulations.

All CCS operations must obtain a permit from the Ministry of Climate and Environment under section 11 of the Pollution Control Act with respect to the drilling activity and under section 35(4) of the Pollution Regulations for the injection and storage. While operators of CCS connected to a petroleum activity must obtain from the Ministry of Petroleum and Energy an exploitation permit under section 30(e) of the Petroleum Regulations, operators of standalone CCS must obtain the corresponding permit under section 4(1) of the Storage Regulations.

Authors
Profile image of Christian James-Olsen
Christian James-Olsen
Partner
E-mail col@wr.no
Profile image of Knut Hausken Magnussen
Knut Hausken Magnussen
Specialist Counsel
E-mail khm@wr.no
Profile image of Kristine Engevik
Kristine Engevik
Associate
E-mail keg@wr.no

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