BP (NYSE: BP) Bets on Climate Change

Brian Hicks

Written By Brian Hicks

Posted April 9, 2013

Several powerful Big Oil companies, including BP (NYSE:BP) and ConocoPhillips (NYSE:COP), are placing their hopes in new startup Skyonic Corp., which is pushing the carbon capture agenda lately on oil and gas companies’ minds.

In fact, the company is all set to receive $119 million in funding for its first commercial project located at a Texas cement facility.

The venture is estimated at $125 million, and Skyonic is to receive $80 million via loans and $39 million in equity. Skyonic’s aim is to collect 75,000 metric tons of CO2 emissions annually from the cement facility, which belongs to Capitol Aggregates Inc.

Carbon capture technology is a new trend that is sweeping the energy sector internationally, and Skyonic is clearly hoping to ride the bandwagon. Both the U.K. and the U.S. are pushing efforts to advance this technology and make it much more ubiquitous, whereby polluting emissions can either be converted into—or “mineralized” into—chemical byproducts that can subsequently be sold elsewhere or be stored underground.

Carbon Capture Benefits

The technology has not yet reached commercial-scale acceptance, and that’s the larger goal here. Bloomberg reports, for example, that Skyonic’s process ends up producing hydrochloric acid as a byproduct, which is very good, since that acid is a crucial component of shale operations. In fact, prices have more than doubled for the acid due to high demand from North American shale operations.

Skyonic’s technology also produces sodium bicarbonate, which can be provided to the animal-feed industry. The company has 10-year offtake agreements implemented for these products.

Skyonic’s technology and the concept of carbon capturing is something that needs to be promoted to the industrial world at large. Just by treating part of the Capitol facility’s flue gas, Skyonic’s technology stands to reduce emissions by 15 percent. Of the gas treated, more than 90 percent of emissions are removed.

Skyonic has clearly impressed the right people—they’ve received $9 million in funding from Northwater Capital Management Inc., BP, and ConocoPhillips, and the U.S. Department of Energy has provided $28 million via grants.

Skyonic expects the first facility to be wholly operational by 2015, and is already looking to expand beyond by entering into discussions with Canadian, Russian, and Chinese companies.

Companies Using Carbon Capture

Carbon capture technology, as mentioned earlier, is part of a broader trend emerging primarily in the energy sector. Since companies in this sector frequently face widespread opposition from environmental agencies (and those complaints are often taken up by politicians for political causes), it stands to their benefit to seriously research a technology that, for a relatively cheap cost, can make their operations dramatically greener.

For example, Royal Dutch Shell (NYSE: RDS.A), Marathon Oil (NYSE: MRO), and Chevron (NYSE: CVX) entered into a joint agreement late last year. The companies stated that they would implement carbon capture technology at their operations in the Athabasca Oil Sands project in Canada.

That move means the operations would lower emissions levels by nearly 225,000 barrels each day. By the time the system is completed in 2015, some 1 million metric tons of CO2 each year would have been captured to be injected deep underground.

Oil sands operations happen to be the victim of some of the most withering criticism from environmental agencies. This is due to the fact that they are more carbon-intensive than other sources of oil, since the raw sludge needs to be refined and made lighter before it can be transported.

That upgrade requires more amounts of heat than conventional operations—hence a larger carbon footprint. It’s from this excess carbon that is used that the joint effort will siphon off significant amounts of CO2 emissions and trap them underground between layers of impermeable rock. As a result, nearly 35 percent of emissions will have been removed.

However, despite the potential of carbon capture technology (namely, that it could improve relations between the energy sector and environmental agencies while also making energy operations actually greener), there are some drawbacks.

For one, there are emerging concerns about the long-term consequences of burying massive amounts of CO2 underground, often close to residential centers. For another, there is a movement to make energy companies fund their own carbon capture and storage (CCS) operations.

The Financial Times reports that the EU may be the first to do something about this, since the European Commission has just opened up a public consultation on the topic. We’ll have to see how this goes, but carbon capture technology is definitely something that is here to stay—and it’s just getting started right now.


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