As the world transitions towards a greener future, carbon capture and storage (CCS) is finally being deployed in Europe after two decades of studies and testing. Rystad Energy estimates that there could be as much as 75 million tons of CO2 captured and stored on an annual basis in the continent by 2035.
In Europe, there are around 10 large CCS projects that are planned, likely to be operational by 2030. Most of these are located around the North Sea in Norway, UK, Denmark and Netherlands, but there are also some projects on the drawing board in Ireland and Italy.
With the 10 planned projects in Europe, we expect that 3 MTPA capacity will be added each year from 2021 to 2025, which would then jump to 7 MTPA for the next five-year period from 2026 to 2030. By 2035, we could be looking at a total installed capacity of around 75 MTPA in Europe, almost 80% of which will come from projects based in the UK.
Figure 1: Capacity of CCS projects in Europe by start-up year
Although most of the planned projects will be operational from mid-2025, investments and contract awards for suppliers will start rolling in from 2021-2023 as most projects have a three to five-year development timeline. In total, we expect $30 billion worth of capital investments and $5 billion worth of operational expenditure to be made from 2020 to 2035. About 50% of the spending will be consumed by the capture facilities’ infrastructure at the source, wherein CO2-capture equipment and facility construction would be the most investment intensive part of the development. Storage investments will make up 15% of the total spending and will utilize well-related services to store CO2 safely in underground deposits. Transport and Operations will make up the remaining 35% of the spend and will relate to trunk lines, shipping and maintenance costs of the infrastructure.
Figure 2: Spending related to CCS projects from 2020 to 2035
However, the long-term business potential will be determined by how successful countries across Europe are in driving down their CO2 emissions especially via CCS. There are several competing renewable alternatives for reducing emissions that are being looked at such as “green” hydrogen, where hydrogen is produced from water with zero emissions. CCS projects are also bound to compete for investment from standard renewable technologies that are already in operation in Europe such as offshore wind and solar energy which are increasing in popularity by the day.
In other part of the world, China is stepping up efforts to increase the share of renewable energy sources in its domestic power generation mix. Fire generation, mainly coal-powered, still makes up the major share of the market, but renewable sources are quickly catching up with 9.5% year-on-year increase in total generated power in 2019.
The rapid development of renewable projects opens up new possibilities for the country’s supplier industry. China’s biggest renewable investments have for years been directed towards hydropower generation and mega-projects such as the Three Gorges Dam. In recent years, the country has started diversifying, and offshore wind in particular has seen steady growth in terms of installed capacity thanks to China’s rich wind energy sources in coastal waters, especially in the southeast part of the country. China’s total installed offshore wind capacity grew 23% in 2019 to around 2 gigawatts (GW), including nine fully commissioned wind farms and more than 530 turbines with an average size of 3.94 megawatts (MW) in capacity added on the mainland. Rystad Energy expects new installed capacity could nearly double to 4 GW this year and reach nearly 7 GW in 2021.
Figure 3: New Chinese offshore wind power generation capacity added by year
Foundations for offshore wind turbines installed in China in the past five years are mainly split between monopiles (67%), multiple (20%), and jackets (13%). We expect monopiles to keep the major share of the market, while jacket foundations could increase their share. Regardless of the foundation concept, the construction of offshore wind foundations will directly impact the sourcing and supply of steel plates. Total steel plate consumption used in the Chinese offshore wind market is likely to reach 600 kilotonnes (kt) this year and is set to more than double to 1.5 million tonnes (MT) next year, based on our projections for additional turbine growth. While the offshore wind market brings attractive tonnage demand and opportunities for Chinese steel plate producers, the offshore wind boom is even more welcome for steel pipe producers. The substrate/plate producers are not particularly burdened with oversupply, but pipe mills will be keen to take advantage of opportunities that can make use of excessive capacity in their longitudinal submerged arc welding (LSAW) production facilities. We believe the total market size for LSAW in the Chinese offshore wind sector could multiply from less than 200 kt in 2019 to between 950 kt and 1Mt in 2021.
Figure 4: Expected steel consumption in the Chinese offshore wind industry
Overall, we expect that some pipe producers will seek to transition into the renewables market as demand continues to grow, leaving other LSAW pipe mills to become more dedicated to supplying the oil and gas pipeline market, which is also seeing growth in demand for large OD LSAW pipes. Either way, the expanding offshore wind market could help improve steel mills’ utilization rate in the long run and give them an opportunity to enter the clean energy arena.