UK awards first round of carbon storage licences

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The UK has awarded its first round of carbon storage licenses as the country looks to take the global lead in growing technology.

Spirit Energy, owned by British Gas parent company Centrica, is among 12 companies offered 20 licenses to store carbon dioxide in depleted oil and gas fields off the British coast.

Sites include areas near Aberdeen, Teesside, Liverpool, Lancashire and Lincolnshire.

The awards mark a step forward for the efforts to develop an industry to capture and store carbon dioxide emissions from factories and others struggling to move away from fossil fuels.

Several companies have used carbon capture and storage to extract oil from depleting fields, but using the technology to reduce emissions is still in its very early stages.

There are currently no activated carbon storage sites in the UK, but the government wants around 30 million tonnes, around 9% of current emissions, to be stored each year by 2030.

The strong appetite for licenses – 19 companies have applied – reflects growing commercial interest in the technology given a five-fold increase in the price UK polluters have to pay for carbon dioxide emissions over the past five years.

The developers also hope to eventually store imported carbon dioxide from polluters in mainland Europe and elsewhere, making the most of the UK’s declining oil and gas fields.

Lord Martin Callanan, Minister for Energy Efficiency and Green Finance, said Britain was “in a unique position” to “grow our economy to become a world leader in this developing sector”.

Stuart Payne, chief executive of the North Sea Transition Authority, the industry regulator, said it was an “important day”.

“As a nation, we cannot achieve our decarbonization goals without carbon storage. This is zero net delivery in action,” he said.

However, the industry remains in a very early stage and there is no certainty that the storage sites will be built.

The developers who obtained the 20 licenses can now physically evaluate the sites, but will need other permits and leases before commercial archiving can begin.

The government has pledged £20bn to support the industry over the next 20 years but has yet to work out the details. But the developers are still waiting for the exact form of that help before hitting the button on the investment. They estimate that the large sites will each cost billions of pounds to install and run.

Many of those licenses being offered are oil and gas producers looking to reuse depleted fields.

Neptune Energy, a private company chaired by Sam Laidlaw, and EnQuest, listed in London, confirmed they were among the winners.

However, the environment has changed for oil and gas producers since the licensing round opened in June 2022.

The government raised the tax rate on oil and gas producers for the second time in January, meaning it’s now at 75%. Meanwhile, gas prices are down from last year’s record highs.

“The windfall tax is having an impact,” said David Whitehouse, managing director of Offshore Energies UK, which represents oil and gas producers.

“It’s basically taking away the ability of organizations to invest.”

Regulators have not released a list of the companies that have been offered the licenses, as there are still conditions to be met before the awards are confirmed.

Spirit Energy, which Centrica owns with Germany’s Stadtwerke München, confirmed it had won a license as part of its plans to reuse its gas fields in Morecambe Bay in northwest England to store carbon dioxide.

Chris O’Shea, chairman of Spirit Energy and chief executive of Centrica, said the project could create “thousands of jobs in the north of England”.

He said Centrica was “ready to invest over £1bn”, depending on the extent of government support to the industry.

While some carbon storage licenses have been awarded ad hoc in the UK and Norway in recent years, Thursday’s announcement is the first round of carbon storage licenses in Europe.