Is carbon capture the energy sector’s answer to a net-zero future?

Morgan Stanley Research

04/07/22

Summary: Carbon capture and storage could represent one of the best solutions for achieving a net-zero future while still meeting the world’s growing energy needs.

As the world struggles to wean itself off fossil fuels, carbon capture and storage (CCS) could represent a viable solution for transitioning to a net-zero future.

While the idea of preventing carbon—a common byproduct of energy-related and other production processes—from being released into the atmosphere isn’t new, the urgency many governments, corporations, and interest groups feel to decarbonize by 2050 is creating opportunities for alternative applications, such as direct air capture.

The push is also opening doors for established players—namely energy companies—to improve their CCS capacity and efficiency, create new revenue streams, and lower their own emission footprints.

Natural gas processing currently accounts for most carbon captured

Chart displaying CO2 capture by source million tonnes per annum

Source: Global CCS Institute, Morgan Stanley Research


US energy leads the way

The US energy sector is already ahead of the curve when it comes to carbon sequestration. In fact, for decades the gas industry has captured carbon and transported it by pipeline to oil fields to be used for enhanced oil recovery.

Consequently, more than 50% of the world's carbon capture capacity is in the US, and that share could increase. “CCS has received a wave of investment from US energy building on already established market leadership," says Devin McDermott, Morgan Stanley Research Equity Analyst and Commodities Strategist. “The sector is well-positioned to scale CCS, underpinned by key competitive advantages, including geologic expertise and ample access to sequestration capacity."

The US represents more than half of global carbon capture capacity

Chart displaying global carbon capture capacity

Source: Global CCS Institute, Morgan Stanley Research


Creating a new category of clean

One of the biggest potential customers could be the energy companies themselves. At the same time carbon capture could create a new category of “sustainable” oil and gas, it provides additional avenues for growth related to synthetic fuels, aggregates, and chemicals.

In fact, one underappreciated opportunity is to apply carbon capture at large stationary sources, such as fossil fuel–fired power plants. They account for 50% of US carbon emissions and some are well suited for CCS. “While these sources are distributed across the country, many are located near geologic formations suitable for storage," says McDermott. Clusters of stationary emissions, such as in the Gulf Coast, offer the opportunity for large-scale carbon hubs that use shared infrastructure and storage facilities.

The next frontier: Direct air capture

Capturing carbon at large stationary sources addresses only part of the problem. Sequestering carbon from planes, automobiles, commercial buildings, and other sources will require different technologies.

Direct air capture (DAC), while still nascent, may hold the key to carbon neutrality. Generally speaking, DAC pulls in atmospheric air and uses a series of chemical reactions to extract carbon dioxide and convert it into a pure, compressed form that can then be stored underground or reused.

Sourcing from ambient air, which has a low relative concentration of carbon, requires expensive and sophisticated technology than traditional CCS. Exactly how costly is still not clear, but progress toward commercial development provides visibility—and viability.

“As corporations increasingly pledge to reduce emissions, we believe the carbon offset market could become a growing source of monetization for DAC," says McDermott.

The source of this Morgan Stanley article, Is Carbon Capture the Energy Sector’s Answer to a Net-Zero Future?, was originally published on March 4, 2022. Claims and data are based on the full Morgan Stanley Research report, “The Turbulence of the Transition” (November 8, 2021).

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