UK awards first round of carbon storage licences

The UK has awarded its first round of carbon dioxide storage licences as the country seeks to take a global lead in the growing technology.

Spirit Energy, owned by British Gas’s parent company Centrica, is among 12 companies offered 20 licences to stash carbon dioxide in depleted oil and gasfields off the British coast.

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

The awards mark a step forward for efforts to develop an industry to capture and store carbon dioxide emissions from factories and others struggling to abandon 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 at a very early stage.

There are currently no active carbon storage sites in the UK, but the government wants about 30mn tonnes, about 9 per cent of current emissions, to be stored each year by 2030.

The strong appetite for the licences — 19 companies applied — reflects the growing commercial case for the technology given a fivefold surge in the price UK polluters have to pay for carbon dioxide emissions over the past five years.

Developers also hope to eventually store carbon dioxide imported from polluters in continental Europe and elsewhere, making best use of the UK’s waning oil and gasfields.

Lord Martin Callanan, minister for energy efficiency and green finance, said Britain was in “prime position” to “grow our economy by becoming world-leaders in this developing industry”.

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

“As a nation, we cannot meet our decarbonisation targets without carbon storage. This is net zero delivery in action,” he said.

The industry remains at a very early stage, however, and there is no certainty the storage sites will be built.

Developers awarded the 20 licences can now physically appraise sites, but they will need other permits and leases before they can start commercial storage.

The government has pledged £20bn to support the industry over the next 20 years but has yet to finalise details. But developers are still waiting on the exact shape of that aid before pushing the button on investment. They estimate that large sites will each cost billions of pounds to set up and run.

Many of those offered licences are oil and gas producers looking to repurpose depleted fields.

Neptune Energy, a private company chaired by Sam Laidlaw, and the London-listed EnQuest 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 increased the tax rate on oil and gas producers for a second time as of January, meaning it now stands at 75 per cent. Meanwhile, gas prices have fallen from the record highs hit last year.

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

“It is basically taking away the capacity of organisations to invest.”

Regulators did not release a list of the companies offered licences, as there are still conditions to work through before awards are confirmed.

Spirit Energy, which Centrica owns with Germany’s Stadtwerke München, confirmed it had won a licence as part of its plans to repurpose its gasfields in Morecambe Bay in north-west England to store carbon dioxide.

Chris O’Shea, chair of Spirit Energy and Centrica chief executive, 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 for the industry.

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