Carbon Capture and Storage (CCS) is a growing strategy to mitigate the impact of climate change. Given Vietnam's prominence in the oil and gas (O&G) sector in Southeast Asia, the need to convert depleted O&G reservoirs to carbon storage is unavoidable. We discuss this approach and the legal issues that grow out of it.
What is CCS?
CCS is a method to capture carbon dioxide (CO2) emissions from industrial processes and power generation, and then store them underground. CCS involves three main steps: (1) capturing CO2 from the gas of industrial processes or power plants using methods like chemical absorption, physical absorption, or membrane separation, (2) transporting the compressed captured CO2 to storage sites, by pipeline, ship, or rail, and (3) injecting the captured CO2 deep underground into geological formations, such as saline aquifers, depleted O&G reservoirs, or unmineable coal seams. CO2 can be trapped in the pores of rocks and minerals and can remain there for thousands of years.
A geological formation is qualified for carbon storage when it comprises certain characteristics, including porous and permeable rock to store CO2, caprock to seal and prevent CO2 leakage, structural stability for safety, and is located at a minimum depth of 800m.
Why depleted O&G reservoirs in Vietnam?
While CCS technology has not yet been implemented in Vietnam, the National Petroleum Group (PVN) has conducted several research projects on CO2 storage. Some were conducted in cooperation with the Asia Development Bank (ADB) and Vietnam Petroleum and Energy Institute (VPEI) in 2010-2012. According to the results of these projects, the total capacity for storage in Vietnam, including saline aquifers, O&G reserves, and coal beds, is estimated to be 12 gigatons (Gt) of CO2.
Vietnam has a large offshore area with significant potential oil and gas reserves. As of 2023, there are over 60 oil and gas fields in Vietnam. Some of these fields, such as the White Tiger, are still producing significant amounts of oil and gas after more than 30 years of operation. Other fields, however, are in decline and are soon expected to cease production or become depleted.
CO2 storage capacity from wells in the four areas currently being exploited (Cuu Long, Ma Lai – Tho Chu, Nam Con Son, and Song Hong basins) is evaluated to be 1.12Gt CO2.1
Several fields from these basins have been evaluated and will have commercial storage capacity (10 million to 357 million tonnes of CO2 storage capacity) when they become depleted or require enhanced oil recovery (EOR). EOR is a way to increase oil recovery by injecting CO2 into the existing wells.
The advantages of utilizing depleted fields/wells include the availability of geological data and existing surface infrastructure to transport and process CO2.
In addition, all major emission sources in southern Vietnam are coal-fired, gas-fired power plants which are located within 300km from oil and gas fields. This is an advantage when considering the need to transport CO2.
Why are we doing this?
Firstly, reducing greenhouse gas (GHG) emissions is part of the commitment Vietnam made at the 2021 UN Climate Change Conference in Glasgow (COP26). By 2050, Vietnam must achieve net-zero carbon emissions. This commitment is extremely ambitious and a real challenge in a growing economy like Vietnam's. CCS is one the most effective solutions to reduce GHG emissions from a wide range of manufacturing industries and power plants.
Secondly, reducing GHG emissions is a global goal. Many international treaties and regulations are focused on achieving a worldwide carbon-reduced environment. They have created mechanisms such as a carbon tax on products that emit large quantities of CO2. These mechanisms will have a negative effect on Vietnamese exports if Vietnam cannot keep up with the pace of the international carbon market.
In particular, the Carbon Border Adjustment Mechanism (CBAM) was introduced by the EU in May 2023. It aims to be fully operational in January 2026 and imposes a carbon price on imports of certain goods from countries that do not have a carbon pricing system in place.
Initially, CBAM will apply to the six following sectors only: iron and steel, cement, aluminum, fertilizers, electricity, and hydrogen. As Vietnam is a major exporter of these products to the EU, it will be heavily impacted if it doesn't put remedial steps in place.
The financial challenges related to CCS in Vietnam
Due to the high risks associated with leakage and the environmental impact of CCS activities, converting depleted O&G wells to carbon storage is a costly process.
When considering the costs associated with this conversion, a detailed breakdown might involve initial assessments, well retrofitting, regulatory compliances, and ongoing monitoring and maintenance.
Initial assessments will be required as a first step to evaluate the storage candidates' geological and technical qualities. Money will be spent on expert consultations, site inspections, data screening, and data analysis.
Next, well retrofitting is a crucial phase and will absorb most of the capital invested. This will include enhancing the structural integrity of the well, installing necessary equipment for CO2 injection and storage, and possibly, constructing additional infrastructure to transport and inject CO2.
Most importantly, there are many laws, regulations, and guidelines laid down by international organizations and local governing bodies involved in CCS activities. Complying with these laws and regulations will require (i) consulting legal experts; (ii) fulfilling documentation requirements; (iii) obtaining necessary permits and (iv) investing in equipment to comply with thigh technical standards.
Moreover, once the wells are converted, there will be recurring costs associated with monitoring the stored CO2 and maintaining the well's integrity. This might involve setting up monitoring stations, regular site inspections, and data management for reporting purposes. According to the US Environmental Protection Agency's (EPA) Underground Injection Control (UIC) Program, CO2 storage must be monitored for at least 100 years.
Lastly, there might be additional costs involved in community engagement and potential offset projects to manage the related environmental impact.
According to the US International Energy Agency (IEA), the cost of CCS ranges from US$25 to US$60 per tonne of CO2 captured and stored, depending on the CCS technologies, the size of the CCS projects, and the location of the CCS projects. There are also costs to transport CO2 to the storage site.
Because the cost of building CCS projects is so high, they will not be viable in Vietnam without a political and financial mechanism from the Vietnamese government.
In the EU, the financial support for CCS projects is provided partly by the Emissions Trading Schemes (ETS) and partly through private and public funding.
The carbon market is a key tool that provides incentives to reduce the cost of decarbonization.
According to a World Bank Group report in 2023, the average price of one carbon credit in the EU ETS in 2020 ranged from $40-$80 per tonne of CO2. This figure is forecast to increase to $61- $122 per tonne of CO2 by 2030.2
Carbon prices are affected by factors such as (i) type of credits: are they from forestry projects, renewable energy, or CCS; (ii) carbon market in which it is being traded (whether it is a compliance or voluntary carbon market); and (iii) supply and demand for carbon credits.
The price of carbon credits is expected to rise in the coming years, and the cost of CCS is expected to decline as the technology matures and is deployed more widely.
International CCS projects
Norway is a pioneer in initiating various projects to capture and store CO2, particularly in the North Sea, and it has been active since the 1990s. One notable project is the Sleipner project, where CO2 is captured and stored in deep geological formations underwater. This project has been operational since 1996 and is a testament to Norway's long-standing and deep commitment to carbon storage technologies.
The US, Canada, and China also have significant initiatives and projects in the field of carbon capture and storage.
In Southeast Asia, Indonesia, Malaysia, Thailand, and the Philippines have conducted at least 9 pilot CCS projects.
Australia is actively researching and developing CCS technology as a part of its broader strategy to reduce GHG emissions and combat climate change.
One of the largest commercial-scale CCS projects in Australia is the Gorgon Project. Situated in Western Australia, the project captures and stores CO2 from natural gas processing operations. The CO2 is then injected into deep geological formations for long-term storage.
International regulatory frameworks
Internationally, organizations like the IEA and the Intergovernmental Panel on Climate Change (IPCC) have provided guidelines and frameworks to govern the development and operation of carbon storage wells. These frameworks often emphasize safety, environmental conservation, and sustainable development.
In Australia, the regulatory frameworks governing carbon storage are defined at both federal and state levels. These regulations govern aspects such as site selection, project approval processes, monitoring, and verification to ensure the safety and effectiveness of carbon storage projects.
The Carbon Credits (Carbon Farming Initiative) Act 2011 provides a mechanism for earning Australian carbon credit units, which can be used in relation to carbon storage projects.
The National Greenhouse and Energy Reporting Act 2007 mandates the reporting of greenhouse gas emissions, energy production, and energy consumption, encompassing carbon storage facilities.
The Enhanced Greenhouse Gas Reporting Program monitors and manages greenhouse gas emissions data from various sectors, including carbon storage projects.
More particularly, the Barrow Island Act 2003 (the Act), facilitates the Gorgon Gas project and incorporates a significant carbon storage component.
According to the Act, in order to obtain a licence to convey and dispose of CO2 underground on Barrow Island, the applicant must meet all the following conditions:
- have a valid petroleum production licence for Barrow Island;
- obtain all necessary approvals from all relevant government agencies;
- prepare and submit a CO2 disposal plan to the Minister for Mines and Petroleum for its approval;
- implement the CO2 disposal plan in accordance with the Minister's approval; and
- commit to monitor the CO2 disposal site for at least 100 years after the injection of CO2 has ceased.
Whereas the CO2 disposal plan must include provisions for the following:
- design, construction, and operation of the CO2 disposal system;
- monitoring of the CO2 plume movement and leakage;
- protection of human health and the environment; and
- financial security for licensees to meet their obligations under the licence.
Currently in Vietnam
Decision No.38/2020/QĐ-TT by the Vietnamese Prime Minister promulgates a list of high technologies prioritized for investment and development and a list of high-tech products encouraged for development. CCS technology is listed as Technology No. 33 of the Decision.
Following that, Article 139 of the Vietnamese Environmental Protection Law 2020 provides the legal framework to establish and operate Vietnam's domestic carbon market. It provides that GHG-emitting facilities are only allowed to emit GHGs within the allocated quotas. If they wish to emit GHGs in excess of the allocated quotas, they must purchase quotas from other entities through the domestic carbon market.
Decree No. 06/2022/ND-CP on The Mitigation of GHG Emissions and Protection of Ozone Layer established a framework for the management of greenhouse gas emissions from industrial processes, including those that are emitted from CCS facilities. The regulations require businesses that emit GHG to report their emissions to the government and to implement measures to reduce their emissions. The regulations also set out requirements to monitor and verify GHG emissions.
Further, Decision No. 01/2022/QD-TTg of the Prime Minister sets out a list of sectors and establishments that emit greenhouse gases and that must conduct greenhouse gas inventories. The list spans most sectors including energy, construction, transportation, industrial processing, agriculture, forestry, land use, and waste disposal.
A domestic carbon market is expected to play an important role in helping Vietnam achieve its climate change goals by creating incentives for businesses to reduce their GHG emissions and invest in clean energy technologies.
With respect to the development of CCS technology and the conversion of O&G wells to carbon storage wells, however, Vietnam has not finalized any supporting policy mechanisms.
Way forward
There are some steps that Vietnam might consider to convert depleted O&G wells to carbon storage, starting with continuing to support CCS research and development. There are a number of CCS projects that are underway; however, additional investment is needed to accelerate the development and deployment of these projects.
To attract more investments, Vietnam must finalize a national CCS strategy that would provide a clear roadmap, identify key CCS projects, establish national technical standards aligned with international standards, establish a supportive policy framework, and financial incentives for CCS projects.
Firstly, the technical standards should be very stringent to govern the technical aspects of CCS projects. CO2 can react with underground formation and is sensitive to various temperature and pressure changes downhole, making it challenging to predict its behavior in the long run. There are products and expertise in the market to predict stored CO2 behavior during periods of 100 years and longer. These products, of course, must be validated by a board of qualified technical experts.
Technical standards should specifically address well integrity, well monitoring, and should create verification procedures to ensure the safe and effective implementation of CCS initiatives. The standards should also define the validation process applied to technologies proposed for CCS activities.
Secondly, Vietnam can work closely with ISO TC 265, a technical committee of the International Organization for Standardization (ISO) that is responsible for developing standards for CCS, to have better input to:
- establish a common framework for CCS projects, which can help to reduce costs and improve efficiency;
- conduct CCS projects in a safe and environmentally friendly manner;
- transfer CCS technology and expertise between countries; and
- build public confidence in CCS technology.
Thirdly, legal frameworks are needed to govern contracts and agreements in the CCS sector. With the rising application of international arbitration to resolve cross-border disputes, the frameworks should also address issues such as liability, dispute resolution, cross-border collaboration, and enforcement of international awards.
Fourthly, financial incentives including tax breaks, subsidies, and grants are crucial to attract O&G operators and new investors.
Finally, CCS is a relatively recent concept in Vietnam, so it is important to build public awareness and support for it. This can be done through public education campaigns and engagement with existing and potential stakeholders.
The above steps cannot be taken without the collaboration of international organizations. There are a number of international organizations that are willing to assist Vietnam to promote the development and deployment of CCS technology.
Conclusion
On the path to implementing the climate commitments it made at COP26, Vietnam has considerable potential to build a healthy domestic carbon market, starting with a careful consideration of converting depleted O&G reservoirs into carbon storage.
With CCS technology being well understood internationally, the Vietnamese government can get support from international experts and learn how to apply it successfully in Vietnam.
The conversion of Vietnam's depleted O&G wells to CCS wells should receive more attention from the Vietnamese government. Moreover, conversion should be carried out by utilizing research institutes, local universities, O&G companies, carbon trading entities, and various international resources. In that way, Vietnam can align its O&G sector with the global sustainability goals, meet the public commitments it has made and attract investors.
Footnotes
2 World Bank. 2023. State and Trends of Carbon Pricing 2023. Washington, DC: World Bank. doi: 10.1596/978-1-4648-2006-9. License: Creative Commons Attribution CC BY 3.0 IGO.
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