Industry Insights

Equity Research May 19, 2021

Energy Producers
Carbon Capture, Utilization & Sequestration (CCUS) Primer Menno Hulshof, CFA
403 299 8658
CCUS Could Play a Key Role in Net Zero Aspirations [email protected]
Canada Well Positioned to Dominate but Requires Federal Support Josie Ho
403 299 3295
Why should investors care? We believe CCUS has the most potential for [email protected]
accelerated decarbonization of the hydrocarbon business. In turn, this should
Aaron Bilkoski
help mitigate investor funds outflows and preserve access to capital. Not 403 299 3294
surprisingly, we have recently seen a sharp increase in interest levels. In [email protected]
our view, this is being driven by a host of factors including stronger national Aaron MacNeil, CA
climate targets (i.e. "net zero by 2050" pledges), corporate emissions reduction 403 292 1222
[email protected]
goals, and new policy incentives. CCUS costs (capture in particular) are also
Mark F. Luo, CPA, CA, CFA, CBV (Associate)
falling quickly with technological advancements. We believe North America, and 403 292 1274
Western Canada in particular, has the potential to become a dominant player. [email protected]
Keegan Stoyles, P. Geo., CFA (Associate)
Forecasts call for a significant ramp up in development: The IEA's 403 292 1212
Sustainable Development Scenario, which envisions net zero from energy usage [email protected]
by 2070, estimates CCUS operating capacity needs to ramp up to 5.6 Gtpa by
2050 (15% of current global emissions). However, current global capacity is only
~110 Mtpa and represents ~0.3% of what is required under the IEA estimates.
We therefore believe significant financial and policy measures, alongside
technological advancements, will be required to achieve these projections.
North American oil & gas companies currently dominate the global
CCUS capacity footprint: North America accounts for 16 of the 26 currently
operational commercial CCUS facilities globally (or 61% based on capacity). The
largest facilities in operation are predominantly owned by oil and gas companies
where CO2 is used in enhanced oil recovery.

Dedicated storage could be the driving force going forward: Projects in the
construction and development phase are roughly evenly split between power
generation and industry/fuel transformation, and skewed towards dedicated
storage over EOR. We believe this is largely due to dedicated geological storage
often attracting a higher tax credit, thereby rendering it more economic (but
contingent on the tax credit structure of specific jurisdictions).
Big range in costs depending on the process: Carbon capture accounts for
the majority of full-cycle CCUS costs and can range from ~US$60-80/tonne
for coal/petroleum coke/natural gas power plants and ~US$120/tonne for small
industrial furnaces. However, we have seen select private companies guide to
capture costs that are materially lower than this (Svante/Entropy as examples).
Onshore pipeline transportation is generally more competitive than offshore
pipeline and shipping. Similarly, onshore storage costs are lower than offshore.
Western Canada has the potential to become a global leader. The case for
more aggressive development is supported by a) significant industrial sources
of CO2, b) an established pipeline network, c) numerous depleted oil and gas
reservoirs and deep saline formations that serve as potential storage sites, d)
strong technical know-how and an underutilized labour force, and e) federal and
provincial programs and incentives.

Please see the final pages of this document for important disclosure information. Page 1 of 31
 May 19, 2021

Table of Contents
Introduction ............................................................................................................................................................... 3
The Major Global Players and Existing Projects ....................................................................................................... 4
What Makes Western Canada Amenable to Large-Scale CCUS? ........................................................................... 8
• Case Study: Weyburn CO2 EOR Project ............................................................................................... 11
Current Global CCUS Cost Structure Estimates .................................................................................................... 13
The CCUS Process—A Technical Overview .......................................................................................................... 18
• Step 1—Capture/Separation .................................................................................................................. 18
Methods of capture ............................................................................................. 18
Capture technologies .......................................................................................... 20
• Step 2—Transportation .......................................................................................................................... 22
• Step 3—Utilization and Storage ............................................................................................................. 24
Storage ............................................................................................................... 24
Utilization ............................................................................................................ 25

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Introduction
Reaching net zero requires CCUS, in our view: There are certain processes that
are too technically difficult or prohibitively expensive to decarbonize (such as long-
distance transportation and heavy industries like cement and steel manufacturing). We
therefore expect CCUS to help address emissions, not only from existing power plants,
but from numerous industrial processes which represent ~55% of global emissions on
a combined basis. CCUS will also continue to play a critical role in minimizing
emissions from blue hydrogen production (hydrogen derived from hydrocarbons).
Carbon capture, in the most simple terms, is the process of preventing the release of
CO2 into the atmosphere (or removing it in the case of direct air capture), transporting
it to a storage location and finally permanently depositing it underground (commonly
referred to as sequestration). We provide a full overview of the more technical aspects
of each step of the CCUS process later in the report.
While CCUS is not new (in fact, the first commercial project has been in operation
since 1972), we have witnessed growing operational momentum in the space in recent
years. This is clearly shown in Exhibit 1 below. Specifically, the period 2010-2017 was
characterized by a falling number of projects classified as being in "early" or "advanced
development", but, in our view, 2017 marked a point-of-inflection with 30 new projects
announced globally since that time. Most of these projects are in the United States or
Europe. This momentum has further accelerated year-to-date with a big push across
multiple emissions-intensive sectors to issue net zero and other GHG emissions
targets, in addition to stronger national climate targets and new policy incentives.
Finally, we note that full-cycle CCUS costs continue to fall as new technologies
continue to emerge.
As a result, we have seen a sharp increase in CCUS interest levels in recent months
and have prepared this primer to address it. We continue to believe CCUS has the
most potential for accelerated decarbonization of the hydrocarbon business. In turn,
this should help mitigate investor funds outflows and preserve access to capital.

Exhibit 1.Global Large-scale CCUS Facilities (Operating and in Development)

80

70

60
# of Facilities

50

40

30

20

10

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operating Under Construction Advanced Development Early Development

Notes: Includes the Petra Nova coal-fired power plant, which temporarily suspended CO2 capture operations in May 2020 in response to low oil prices
Source: IEA

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Forecasts call for a significant ramp up in CCUS: The IEA's Sustainable

Development Scenario, which envisions net zero from energy usage by 2070,
estimates that CCUS operating capacity needs to ramp up to 5.6 Gtpa of CO2 by 2050.
This would represent ~15% of current global CO2 emissions of ~36.4 Gtpa (based on
2019). Similarly, BP's 2020 Energy Outlook sees 4.0 and 5.5 Gtpa of CCUS capacity
by 2050 in its "Rapid Transition" and "Net Zero" scenarios, respectively.
However, current global capacity (as of 2020) is only ~110 Mtpa (40 Mtpa in operation
spanning 26 facilities, 70 Mtpa under construction or in early-stage development)
which represents only ~0.3% of what is required under the IEA's estimate. In fact,
under its Sustainable Development Scenario, growth to 5.6 Gtpa of capacity by 2050
would represent an ~140x increase from current levels. We therefore believe
significant financial and policy measures, along side technological advancements, will
be required to achieve these projections.
Additional government incentives will be required for Canada to achieve net zero
by 2050, in our view: While we believe that a combination of higher carbon taxes and
lower CCUS costs (driven by further technological advancements) will drive CCUS
capacity growth in Canada, additional incentives will almost certainly be required for
the country to achieve net zero emissions by 2050. We note that two large existing
CCUS projects, the Alberta Carbon Trunk Line (ACTL) and Quest, both received
significant subsidies from the Alberta government.
We see large companies continuing to have an advantage when it comes to
CCUS development: Existing Canadian CCUS projects are already dominated by
large companies. Canadian Natural Resources (CNQ-T) is a global player and has
exposure spanning three projects (Quest, the Sturgeon Refinery, and Horizon) while
Whitecap (WCP-T) is the operator and majority owner of Canada's largest CCUS
project, Weyburn. We also highlight that Suncor (SU-T) and ATCO (ACO.X-T) recently
partnered on potentially developing an Alberta-based blue hydrogen project with
>300,000 tonnes/annum coming online as early as 2028, with >90% of emissions
captured (see our note). Notably, Suncor is already the largest producer and consumer
of grey hydrogen in Canada and therefore brings significant expertise to the table.
More broadly, we see larger companies (especially those with oil sands operations) as
being the natural leaders for future CCUS development given their very significant free
cash flow generation potential in the current commodity price environment, breadth of
expertise in major project development and strong motivation to decarbonize their
base hydrocarbon businesses.

The Major Global Players and Existing Projects

North America currently dominates the global CCUS capacity footprint: North
America accounts for 16 of the 26 currently operational commercial CCUS facilities
globally and 24 Mtpa of the 40 Mtpa of capacity (17 Mtpa in the U.S., 7 Mtpa in
Canada). The remaining 10 facilities (16 Mtpa) span South America, Asia Pacific, and
EMEA regions.
In Canada, the largest CCUS facility is Whitecap's Weyburn unit (3.0 Mtpa of capacity,
with CO2 sourced from North Dakota). This is followed by the Sturgeon Refinery (1.4
Mtpa), Nutrien (0.3 Mtpa), Quest (1.2 Mtpa), and the Boundary Dam CCUS facility (1
Mtpa), some of which are supported by the Alberta Carbon Trunk Line (ACTL). We
note that ACTL started operating in mid-2020 with maximum transportation capacity
of 14.6 Mtpa. On March 9, 2021, ACTL announced a key milestone in having captured
>1 Mt of CO2 since it began operating.

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Exhibit 2. Breakdown of Global CCUS Capacity by Region

18 12

Number of CCUS Facilities

16
10

Total Capacity (Mtpa)

14
12 8
10
6
8
6 4
4
2
2
- -

China
Norway
U.S.

Qatar
Australia

Saudi Arabia
Brazil

U.A.E
Canada

Capacity (Mtpa) Number of Facilities

Note: Weyburn project is included in Canada because that is where the CO 2 is permanently
stored.
Source: IEA

Oil and gas industry a driving force in CCUS development: Globally, the largest
CCUS facilities in operation are predominantly owned by oil and gas companies. The
largest CCUS facility in the world is ExxonMobil's (XOM-N) La Barge Facility (7 Mtpa)
located in Wyoming, followed by Occidental's (OXY-N) Century Plant (5 Mtpa) located
in Texas. Petrobras' Santos Basin Pre-Salt Oil Field CCUS Facility in Brazil ranks third
(4.6 Mpta). Canada's Quest Facility (1.2 Mpta), which is jointly owned by Canadian
Natural Resources, Chevron (CVX-N), and Royal Dutch Shell (RDS.B-N) ranks eighth
globally.
XOM is the largest global CCUS player with 30+ years of experience. It currently has
~9 Mtpa of capacity in operation (~23% of global operating capacity on an equity
basis). In February 2021, it announced the formation of its Low Carbon Solutions
business with US$3B of capital committed through 2025 (see our note). Opportunities
expected to attract capital include the expansion of the La Barge Facility from 7 Mpta
to 8 Mpta. In early April, XOM proposed the development of a CCUS project in Houston
that would cost at least US$100B and capture and store emissions from the largest
petrochemical complex in the U.S.—the Gulf Coast. The project is expected to capture
50 Mtpa by 2030, and 100 Mtpa by 2040. In Canada, WCP and CNQ are clear leaders
within this sub-sector, with 3 Mtpa and 2.7 Mtpa of gross capacity, respectively.

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Exhibit 3.Global Commercial CCUS Facilities Under Operation

Capture
Operation Capacity
Facility Title Country Date Industry (Mtpa) Capture Type Storage Type
Shute Creek Gas Processing Plant (La Barge) U.S. 1986 Natural gas processing 7.00 Industrial separation EOR
Century Plant U.S. 2010 Natural gas processing 5.00 Industrial separation EOR and Geological storage
Petrobras Santos Basin Pre-Salt Oil Field CCS Brazil 2013 Natural gas processing 4.60 Industrial separation EOR
Gorgon Carbon Dioxide Injection Australia 2019 Natural gas processing 4.00 Industrial separation Dedicated geological storage
U.S.
Great Plains Synfuels Plant and Weyburn-Midale Canada 2000 Synthetic natural gas 3.00 Industrial separation EOR
Qatar LNG CCS Qatar 2019 Natural gas processing 2.10 Industrial separation Dedicated geological storage
Alberta Carbon Trunk Line (ACTL) with North
West Redwater Partnership's Sturgeon Refinery
CO2 Stream Canada 2020 Oil refining 1.40 Industrial separation EOR
Hydrogen production & Oil
Quest Canada 2015 sands upgrading 1.20 Industrial separation Dedicated geological storage
Sleipner CO2 Storage Norway 1996 Natural gas processing 1.00 Industrial separation Dedicated geological storage
Coffeyville Gasification Plant U.S. 2013 Fertilizer production 1.00 Industrial separation EOR
Air Products Steam Methane Reformer U.S. 2013 Hydrogen production 1.00 Industrial separation EOR
Boundary Dam Carbon Capture and Storage Canada 2014 Power generation 1.00 Post-combustion capture EOR
Illinois Industrial Carbon Capture and Storage U.S. 2017 Ethanol production 1.00 Industrial separation Dedicated geological storage
Uthmaniyah CO2-EOR Demonstration Saudi Arabia 2015 Natural gas processing 0.80 Industrial separation EOR
Abu Dhabi CCS (Phase 1 being Emirates Steel
Industries) U.A.E 2016 Iron and steel production 0.80 Industrial separation EOR
Snøhvit CO2 Storage Norway 2008 Natural gas processing 0.70 Industrial separation Dedicated geological storage
CNPC Jilin Oil Field CO2 EOR China 2018 Natural gas processing 0.60 Industrial separation EOR
Terrell Natural Gas Processing Plant (formerly Val
Verde Natural Gas Plants) U.S. 1972 Natural gas processing 0.40 Industrial separation EOR
Core Energy CO2-EOR U.S. 2003 Natural gas processing 0.35 Industrial separation EOR
PCS Nitrogen U.S. 2013 Fertilizer production 0.30 Industrial separation EOR
Alberta Carbon Trunk Line (ACTL) with Nutrien
CO2 Stream Canada 2020 Fertilizer production 0.30 Industrial separation EOR
Arkalon CO2 Compression Facility U.S. 2009 Ethanol production 0.29 Industrial separation EOR
Enid Fertilizer U.S. 1982 Fertilizer production 0.20 Industrial separation EOR
Sinopec Zhongyuan Carbon Capture Utilisation
and Storage China 2006 Chemical production 0.12 Industrial separation EOR
Bonanza BioEnergy CCUS EOR U.S. 2012 Ethanol production 0.10 Industrial separation EOR
Chemical production &
Karamay Dunhua Oil Technology CCUS EOR China 2015 methanol 0.10 Industrial separation EOR

Source: Global CCS Institute

Looking at the current global pipeline, projects in the construction and development
phase (at the bottom of Exhibit 4 below) are roughly evenly split between power
generation and industry/fuel transformation. What is perhaps more interesting is that
when we look at these projects on the basis of "use/storage" type, they are skewed to
dedicated storage over EOR. We believe this is largely due to dedicated geological
storage often attracting a higher tax credit, thereby rendering it more economic (but
contingent on the tax credit structure of specific jurisdictions). This also appears to be
the case in Canada, as the federal government's April 2021 budget explicitly indicated
that the investment tax credit dedicated to CCUS projects is not intended to be made
available to EOR projects. It is therefore possible that the majority of projects currently
under evaluation also ultimately fall into the dedicated storage category.

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Exhibit 4.Global CCUS Projects Under Development (by Application and Storage Type)

Use/Storage type
Operating

Application
In Construction and

Use/Storage type
development

Application

0 10 20 30 40 50 60 70 80 90 100

Power Generation Industry and fuel transformation Dedicated EOR Under Evaluation

Note: Includes the Petra Nova coal-fired power plant, which temporarily suspended CO2 capture operations in May 2020 in response to low oil prices
Source: IEA

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What Makes Western Canada Amenable to Large-Scale CCUS?

In our view, Western Canada has the potential to become a global CCUS leader.
The case for more aggressive development is supported by a) significant industrial
sources of CO2 (Alberta, Saskatchewan and British Columbia accounted for a
combined 57% of Canada's total GHG emissions in 2019), b) an established pipeline
network, c) a number of depleted oil and gas reservoirs and deep saline formations
that serve as potential storage sites, d) strong technical know-how and an underutilized
labour force, and e) potential for strong federal and provincial programs and incentives.

Exhibit 5.There is an Abundance of Large Emitters in Western Canada

Source: Government of Canada

In the sections below, we dive deeper on each of these key factors:

a) Significant industrial sources of CO2, particularly in Western Canada:
In Exhibit 6 below, we map out the key Canadian industrial emitters by sector
in 2019. Oil and natural gas production accounted for 26% of Canada's total
GHG emissions.

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Exhibit 6.Key Canadian Industrial Emitters by Sector

Waste and
others
7%
Agriculture
10%
Oil and gas
26%

Heavy industry
11%

Electricity
8%
Transport
26%
Buildings
12%

Source: Government of Canada

b) An established pipeline network: Canada has 720km of CO2 pipeline

infrastructure, all of which is located in Western Canada. ACTL is 240km in
length and has capacity of 14.6 Mtpa but what makes it interesting is that it
is currently only ~10% utilized and therefore provides significant runway for
future CCUS development. ACTL is connected to the Sturgeon Refinery and
Nutrien Redwater Fertilizer Facility, two large emitters in Alberta. The
Weyburn project has 330km of associated CO2 pipelines, connecting to a
CO2 source in North Dakota, which is also home to the Williston Basin. There
is still very significant upside to capturing, transporting and storing additional
CO2 from hydrocarbon production in the region, in our view.
c) Depleted oil and gas reservoirs and reservoirs with deep saline
formations both serve as potential storage sites: Depleted oil and gas
reservoirs are generally considered the least expensive type of CO2 storage.
Canada, and Alberta in particular, has abundant theoretical storage capacity
given its long history of hydrocarbon production. Below we highlight the
Weyburn oilfield in Saskatchewan as a case study in CCUS.
The Global CCS Institute estimates that Canada has 2,400 Mt of CO2
storage capacity from oil and gas fields. This is >300 times Canada's current
CO2 capture capability of ~7 Mtpa and >3 times its CO2 emissions of ~730
Mtpa.
d) Technical know-how and an underutilized labour force: With decades of
experience in hydrocarbon production, Alberta's engineers, geologists, and
field crews clearly have the requisite expertise to construct major projects
(surface facilities, pipelines) that permanently sequester CO2 underground.
With the 2020 oil price collapse, Alberta's unemployment rate has risen from
recent lows of 6.3% in mid-2018 to 9.1% effective March 2021. In our view,
this nascent but growing CCUS sector is perfectly suited for this underutilized
workforce given its largely transferrable skillsets, especially when we
consider falling projected global oil demand in the coming decades. In fact,
many major industry participants believe that global oil demand peaked in
2019. Two key exceptions are the IEA and Rystad which are both forecasting
peak oil demand in the 2026 timeframe.

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e) Federal and provincial programs and incentives: Given ongoing ESG

headwinds in recent years (for the oil sands in particular), many companies
have been aggressively introducing corporate initiatives to drive down GHG
emissions intensities (GHGi), in addition to setting a host of targets spanning
numerous timeframes. In our view, with the mainstream view being that oil
and gas demand will decline over the coming decades, hydrocarbon
producers that are able to demonstrate significant environmental
performance improvements and remain cost competitive will likely remain
market relevant for longer. This is a long way of saying that producers
already have tremendous incentive to have as much CO2 captured as
possible. However, we believe the introduction of new, more aggressive
programs and incentives at the government level can materially accelerate
this decarbonization process.
There were two updates that we were looking for heading into the April 19
announcement of the Canadian federal budget (refer to our note here). The
first was tax credits akin to the 45Q tax credit in the U.S. (US$50/T for
permanent sequestration and US$35/T for EOR). The good news is that the
Canadian government did propose a tax credit for implementation beginning
in 2022—and notably it did highlight that direct air capture (DAC) and
hydrogen production would also qualify. Its goal is to reduce emissions by a
minimum of 15 Mtpa. Having said that, we do not know how large these
credits will be, and will have to wait at least 90 days for the government to
consult with the various industries that would want to take advantage of this
(oil sands, refining, cement, fertilizer, power generation, direct air capture
etc.). Therefore, presumably the size of the tax credit will be announced
sometime in the fall at the latest—which would be in time for 2022 industry
budgeting.
One negative potential wrinkle is that EOR may not qualify—so again, unlike
in the U.S. where sequestration thru EOR is worth US$35/T, that may not be
the case in Canada. This would be disappointing for those that have active
EOR projects or were contemplating new ones. Examples include CNQ at
Pelican Lake and WCP at Weyburn.
The second key component was direct funding of CCUS. Here the federal
government fell short, in our view, with only $319mm committed to CCUS
R&D over seven years.
Other key developments that are worth highlighting include:
o $1.5B of funding over five years to Natural Resources
Canada to establish a Clean Fuels Fund to support
low-carbon/zero-emission fuels, including hydrogen
and biomass.
o $228mm over eight years to the Treasury Board
Secretariat to implement a Low-Caron Fuel
Procurement Program within the Greening
Government Fund.
o A $750mm federal government emissions reduction
fund (ERF) first announced in April 2020. The fund is
broken out into onshore ($675mm) and offshore
($75mm). On April 9, 2021, the federal government
announced that the ERF onshore program was on
track to cut methane emissions equivalent to 3.1 mt of
CO2 in its first year.
o The federal government's updated climate plan was
introduced in December 2020, which proposed to
increase carbon price from $40/tonne currently to

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$170/tonne by 2030 (note). Supreme Court of

Canada hearing in March 2021 found federal
government's carbon pricing regime constitutional
(see our colleagues' note).
o The Alberta Technology Innovation and Emissions
Reduction Regulation (TIER) Program became
effective on January 1, 2020 (replaced its
predecessor Carbon Competitiveness Incentive
Regulation, CCIR). TIER applies to ~60% of Alberta's
emissions, and it takes a hybrid benchmarking
approach, allowing facilities to take either the high-
performance benchmark or the facility specific
benchmark approach. See our ESG Report – Part 2
for further details.
o The Alberta government has committed $1.24B to two
CCUS projects through 2025 (Quest at $745mm, and
ACTL at $495mm). Quest is operated by Shell and
jointly owned by Canadian Natural, Shell, and
Chevron; ACTL is owned and operated by an Alberta-
based private company called Enhance Energy.
o Finally, the federal government proposed reduced
federal corporate tax rates for eligible zero-emission
technology manufacturing and processing income, at
7.5% for corporations, and 4.5% for eligible small
businesses (vs. 15% and 9% otherwise).

Case Study: Weyburn CO2 EOR Project

Background: The Weyburn unit in Saskatchewan is recognized as the world’s largest

underground geological CO2 storage project. It has been producing since the 1950s
(primary recovery) and current rates are ~22 mboe/d. CO 2 EOR commenced in 2000
with the original objective of being one of the first scientific tests for assessing the
effects of CO2 injection in reservoir intervals. Industrial CO2 is transported via pipeline
from the Great Plains Synfuels Plant in North Dakota and the Boundary Dam Unit #3
power plant in Saskatchewan. To date, the project has sequestered ~36 Mt CO2, which
is the equivalent of taking ~7.8mm vehicles off the road for one year.
What are the benefits of CO2 EOR? For the current operator (WCP), not only does
CO2 EOR result in lower declines and incremental oil recovery without expanding the
surface footprint, it also lowers the emissions intensity of Weyburn production. Based
on company disclosures, we estimate Weyburn's emissions intensity is ~82% lower
than a conventionally produced barrel of oil on a net basis (Exhibit 7). The emissions
stored here also make WCP a net sequester, offsetting its corporate Scope 1 & 2
emissions (gross operated; 2019 data not adjusted for recent acquisitions as data is
not available).
But what about the emissions from the incremental oil production? Admittedly,
the emissions associated with the estimated recoverable oil from the CO 2 flood is
greater than the current CO2 storage capacity (~105 Mt CO2 emissions produced vs.
86 Mt CO2 of storage capacity). However, WCP sees the potential to expand beyond
the current capacity through the development of other oil intervals or evaluating the
storage potential in EOR reservoirs after end of oil life as well as saline formations—
the latter of which requires an economic incentive to do so as CO2 injection is currently
a cost to WCP. At the very least, this project has sequestered CO2 from man-made
industrial sources (while most EOR projects source CO2 from naturally occurring
deposits) and has created a small revenue stream for the emitters.

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Exhibit 7.EOR Can Help Reduce the Emissions Intensity of a Conventionally Produced
Barrel of Oil
Weyburn Unit
Project properties
Current CO2 storage capacity 86.0 Mt CO2
Potential CO2 storage capacity 115.0 Mt CO2
Total CO2 sequestered to-date 36.0 Mt CO2
Annual CO2 sequestered (2019A) 2.0 Mtpa CO2
API gravity 29.8 °API
Current production (2019A) 23,400 bbl/d
Original oil in place (OOIP) 1,481,250 mbbl
Est. incremental recovery from CO2 EOR 237,000 mbbl
Recovered oil to-date 95,000 mbbl
Recovery factor (CO2) 16 %

CO2 emissions associated with incremental EOR production

Total well-to-wheels emissions from EOR production 104.5 Mt CO2
Less: CO2 sequestration capacity 86.0 Mt CO2
Net CO2 produced from EOR 18.5 Mt CO2
Emissions intensity of an
Net well-to-wheels emissions intensity 78.2 kg CO2e/bbl EOR barrel is 82% lower
than conventional oil
Well-to-wheels GHGi for conventional oil 441.0 kg CO2e/bbl
(w/o CCUS)

Source: Company reports, TD Energy Advisors

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Current Global CCUS Cost Structure Estimates

The CCUS cost structure is broken down in the same way as the process itself—
capture, transportation, and storage. Costs are quoted in $/tonne of CO2, which
correspond to carbon tax credits (e.g. U.S. 45Q, California Low Carbon Fuel Standard)
and carbon taxes. There is a wide range of costs depending on the source of CO 2,
process utilized, stage of development, infrastructure availability, and other
considerations. However, costs will likely trend down as projects scale up and as
emerging technologies advance.
Carbon capture accounts for majority of full-cycle CCUS costs: Estimates vary
significantly depending on the technology, industry, and scale of the capture plant. As
outlined in Exhibit 8 below, the Global CCS Institute estimates that the cost of carbon
capture ranges from ~US$180-300/tonne for aluminium smelting on the high-end, to
just under US$50/tonne for a steel COREX plant on the low-end. The oil and gas
industry (petroleum coke and natural gas power plants) has an estimated capture cost
of ~US$60-80/tonne although Canadian private companies like Svante Inc. and
Entropy Inc. are both guiding to capture costs that are in line (Svante) or lower than
this (Entropy).

Exhibit 8.Cost of Carbon Capture Range Across Different Sectors

300
Cost Difference at Various Scale of Plant
Cost of Carbon Capture (USD 2020 per tonne of CO2)

Cost at Maximum Studied Size of Capture Plant

250

200

150

100

50

CO2 Partial Pressure in Flue Gas (kPa)

0
1 2 3 4 5 6 8 10 12 14 18 22 26 30 35 41

Petroleum Coke / Cement Kiln Plant:

Aluminum Smelting; Natural Gas Power 0.18 to 1.8 Mtpa CO2
0.02 to 0.2 Mtpa CO2 Plant: 0.12 to 1.2 Mtpa Captured
Captured CO2 Captured
Steel Plant NGCC/Steel Sinter Biomass Power Coal Power Plant: Steel Hot Stove Steel COREX
Dedusting Plant: 0.07 to 0.66 Plant: 0.13 to 1.3 0.15 to 1.5 Mtpa Plant: 0.2 to 2.0 Plant: 0.2 to 2.0
Chimney; 0.04 to Mtpa CO2 Captured Mtpa CO2 Captured CO2 Captured Mtpa CO2 Captured Mtpa CO2 Captured
0.4 Mtpa CO2
Captured

Source: Global CCS Institute

To quote another source and per Exhibit 9 below, the IEA estimates capture costs of
~US$60/tonne for coal-fired power generation (relatively in line with the estimate in the
chart above), and ~US$120/tonne for small industrial furnaces. By 2040 and under its
Sustainable Development Scenario (SDS), it sees these costs falling to ~US$50/tonne
and ~US$90/tonne, respectively. Based on recent industry conversations and as
alluded to above, we see potential for sub-US$50/tonne capture costs over time.

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Exhibit 9. IEA SDS Forecast for Cost of Carbon Capture Over Time in Power and Industrial Sectors

12,000 120

10,000 100

8,000 80

USD/tCO2
MTCO2/yr

6,000 60

4,000 40

2,000 20

0 0
2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070

Power Capacity SDS Industrial Capacity SDS Industry Cost - without spillover
Industry Cost SDS Power Costs - without Spillover Power Cost - SDS

Note: SDS = Sustainable Development Scenario. Solid line for technology costs represents the cost trajectory under the Sustainable Development Scenario while the
"without spillover" case is a counterfactual that shows the slower price decline that would be observed if the technology could not benefit from the experience gathered in
different applications.
Source: IEA

Pipeline transportation generally more competitive than shipping

Onshore: Based on the U.S. DOE's latest study (2014), the cost of onshore pipeline
transportation (per 250 km) ranges from just under US$6/tonne assuming 3 Mtpa of
capacity, falling to ~US$2/tonne at a scale of 30 Mtpa. For reference, the ACTL is
240km in length so presumably the cost is typically in the mid-single digit range (note
that this is not publicly disclosed to our knowledge).
Not surprisingly, onshore pipeline transportation costs are generally lower than
offshore pipeline transportation costs on any scale, due to the higher-cost nature of
the offshore environment. Studies done by the Intergovernmental Panel on Climate
Change (IPCC) and the Zero Emissions Platform (ZEP) both highlighted this cost
difference which is summarized in Exhibit 10.
Offshore: Offshore transportation can be achieved via offshore pipeline or ship, and
the cost difference depends on the capacity of the CCUS project and distance
transported. In general, an offshore pipeline has a cost advantage for larger scale
projects with transportation over shorter distances, while shipping works better for
smaller CCUS projects with longer distance requirements (Exhibit 11).
A good example is the Norwegian Northern Lights CCUS project. It transports CO2
sourced from industrial plants via ship to a secondary onshore temporary storage
facility, and then via offshore pipeline for permanent offshore storage. The distance via
ship is ~600km and the distance via offshore pipeline is ~100km, which corresponds
to the relative economics of the two transportation methods.

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Exhibit 10.Onshore Pipeline Costs Generally Lower than Offshore, Both Fall with Scale on Normalized Basis

18
16
14
USD/tCO2/250km

12
10
8
6
4
2
0
3 Mtpa 10 Mtpa 30 Mtpa 3 Mtpa 10 Mtpa 30 Mtpa
Onshore Offshore

IPCC (2005) low IPCC (2005) high ZEP (2011) USDOE (2014)

Note: IPCC = Intergovernmental Panel on Climate Change; International ZEP = Zero Emissions Platform; USDOE = United States Department of Energy
Source: IEA, Based on Rubin, E.S., Davison, J.E. and Herzog, H.J (2015), The cost of CO2 capture and storage.

Exhibit 11.Offshore Pipelines More Competitive Than Shipping for Smaller Scale Projects and Shorter Distances

80 80
Offshore Pipeline Ship
USD per tonne CO2
USD per tonne CO2

60 60

40 40

20 20

0
0
0.5 Mt/year 1 Mt/year 2 Mt/year 5 Mt/year 10 Mt/year
100 500 1,000
Offshore Pipeline Ship kilometers

Notes: Left-hand chart assumes distance of 1,000 km. Right-hand chart assumes capacity of 2 Mt/year.
Source: IEA, IEAGHG (2020b), The Status and challenges of CO2 Shipping Infrastructure

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Exhibit 12.Shipping Costs Become More Competitive Over Longer Distances

0.140

0.120

Ship
EUR per tonne per km
0.100
Offshore pipeline
50% utilisation
0.080
Onshore pipeline
50% utilisation
0.060

0.040

0.020

0.000
0 500 1,000 1,500 2,000
Transportation Distance (km)

Note: X-axis = transportation distance (km), y-axis = EUR per tonne per km. 10Mtpa capacity assumed.
Source: Zero Emissions Platform

Storage costs can vary significantly across the different types: The primary
storage sites are currently depleted oil and gas reservoirs. The location of the site,
injection rates and other factors also impact costs. Not surprisingly, the cost of onshore
storage tends to cost materially less than offshore storage.
Specifically and per the chart below, the IEA (see September 2020 report) highlighted
that ~60% of U.S. onshore storage costs were expected to be <US$10/tonne, while
~60% of U.S. offshore storage costs were expected to be <US$35/tonne. Note the
cost distribution can initially be negative, net of incremental revenues from oil
production. The higher costs further out on the curve represent reservoirs that have
less favourable characteristics for storing CO2. The study also indicated that similar
cost curves are expected in other parts of the world, but further research will be
required.

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Exhibit 13.IEA Indicative U.S. CO2 Storage Cost Estimates

Onshore
60

50

40
USD/tonne

30

20

10

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

-10
in %

Offshore
60

50

40
USD/tonne

30

20

10

0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

-10
in %

Source: IEA

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 May 19, 2021

The CCUS Process—A Technical Overview

Carbon capture, in the most simple terms, is the process of preventing the release of
CO2 into the atmosphere (or removing it in the case of direct air capture), transporting
it to a storage location and finally permanently depositing it underground (commonly
referred to as sequestration). We describe these three key steps in greater detail
below.
1) Capture or Separation: There are several distinct capture technologies that
are being commercially deployed today which can separate and capture
CO2, both on a pre- and post-combustion basis (defined below). The most
common techniques for capture involve either absorption with amine-based
solutions, or adsorption.
2) Transportation: Once the CO2 has been captured, it needs to be safely
transported to a site where it can be safely sequestered or used in other
applications (such as combining it with hydrogen to create fuel or in building
materials). The most common large-scale transportation method is pipelines,
while ships and trucks are typically for smaller scale projects. We believe
North America is currently advantaged relative to Europe with respect to
existing pipeline infrastructure, which has real implications for relative cost
competitiveness.
3) Sequestration or Disposal: This is commonly achieved via underground
geological formations. These formations are required to meet several
stringent criteria so that CO2 can be safely stored and therefore permanently
removed from the atmosphere (i.e. with negligible risk of seepage to
surface). Another method of permanently sequestering CO2 is through
industrial applications.

Step 1—Capture/Separation

Methods of capture
There are three primary methods of capture in existence today than can remove and/or
separate CO2 at the source and at different parts of the combustion process. The
different phases of the combustion process include post-combustion, pre-combustion,
oxy-fuel combustion, and a fourth emerging method called direct air capture (DAC).
Exhibit 14 provides a visual summary of each capture methodology.
▪ Post-combustion (or air combustion): Post-combustion
processes are used to separate CO2 from a flue gas stream,
which is a by-product exhaust gas from burning fuels. Flue gas
streams commonly contain 5-15% CO2 by volume. Post-
combustion is the most common capture method and is
frequently used at powerplants, in addition to other industrial
applications. One of the key advantages of post-combustion
technologies is that they can be retrofitted into existing plants.
▪ Pre-combustion (or gasification): As the name suggests,
pre-combustion removes the CO2 before combustion has
occurred. This is typically done through coal gasification, a
process that involves oxidizing coal (although other feedstocks
may also be used) in steam under high pressure and
temperature to form synthesis gas, or 'syngas'. Syngas is
primarily a mixture of hydrogen and CO2 (upwards of 20-40%),
where both streams can be captured and stored or used in
other applications.
▪ Oxy-fuel combustion systems: In oxy-fuel systems, nitrogen
is removed from the air in an Air Separation unit and a pure
oxygen stream is used to oxidize a fuel such as coal. This

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produces a CO2 rich flue gas that does not require solvents or
adsorbents, making it practical for use with CCUS. This is the
least common of the three methods we've summarized so far
and, to our knowledge, does not have many commercial
applications.
▪ Direct Air Capture (DAC): DAC technologies have been
developed using both absorption techniques (such as
Squamish-based Carbon Engineering) and adsorption
methods (such as Climeworks). In either case, DAC begins
with an intake fan that captures air directly from the
atmosphere, followed by the CO2 being removed using the
applicable technology.
The absorption technique used by Carbon Engineering begins with an intake fan that
captures air directly from the atmosphere and passes it through a PVC membrane. A
chemical solution passes through the membrane and reacts with the CO2 resulting in
a CO2-rich solution. This solution is then placed into a pellet reactor which produces
calcium carbonate pellets. These pellets are then are heated up to around 900 degrees
Celsius to produce CO2 that can be transported to a desired location for sequestration,
or they can be used as a building block in the manufacture of specific products.
Carbon Engineering can also combine the CO2 with hydrogen, creating a synthetic fuel
that is considered carbon neutral. It can be combusted by cars, which releases the
CO2 back into the atmosphere, which can then be recaptured through the same
process (hence the carbon-neutral characterization). The company estimates that its
current plant development cost is ~$200/tonne and that if it can achieve a cost
reduction to <$150/tonne, then DAC becomes commercially viable.
Climeworks has developed a form of DAC which uses an adsorption technology. As
the fans pull air into the system, the CO2 then sticks/adsorbs to the filters contained
inside the unit. Once the filters are at capacity, the system is closed and the filters are
heated up to 80-100 degrees Celsius which releases a pure CO2 stream that can be
captured. The system is then opened back up again, and the process is repeated.
One of the downsides of direct air capture is that the CO2 concentration of air is
significantly lower than from exhaust flue gas streams. This requires a much higher
surface area to process more CO2 and requires a significant amount of land to produce
at a commercial scale.

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Exhibit 14.The Three Primary Forms of Existing Capture

Source: Global CCS Institute

Exhibit 15.How CO2 is Captured Through Using Direct Air Capture

Source: Carbon Engineering

Capture technologies
Now that we've established the four key existing and emerging types of capture, we
dig down on capture technologies. They can broadly be broken out into two sub-
groups: those that use absorption, and those that use adsorption.
▪ Absorption: Under absorption, flue gas is exposed to an
aqueous solution that contains amines (such as
ethanolamine). The amine solution serves to absorb CO2 and
forms another compound which, in turn, is transported to a
desorber which is used to extract the CO2 that is maintained at

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much higher temperatures than the absorption system. These

higher temperatures drive a chemical reaction that separates
the CO2 from the amine. The separated CO2 is then considered
captured while the amines can be recycled back into the
absorption system.
o One of the key disadvantages of this system is that a
significant amount of energy is required to maintain
the high temperatures required to drive the separation
process in the desorber.

Exhibit 16.How CO2 is Captured Through Using Absorption

Source: Global CCS Institute

▪ Adsorption: Adsorption is a process whereby a flue gas

passes through either filters or membranes and the CO2
molecules from the flue gas adsorb or 'stick' to the surface of
an adsorbent.
o While this results in a weaker chemical bond than the
absorption process described above, the advantage
is that less heat is required to remove or extract the
CO2 from the adsorbent surface. One example of this
technology is Svante Inc.'s carbon capture filtration
system which we address in more detail later in the
report.
Regardless of the type of capture and technology used, captured CO2 must then be
compressed so that it can be transported to a site where it can be sequestered or used
in commercial applications. We cover this in more detail in the next section.

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Step 2—Transportation

Methods of transportation: The two primary methods of large-scale CO2

transportation are pipeline and shipping. For smaller volumes, truck and rail can also
be used—but like transportation of crude oil, these methods are more costly on a
$/tonne basis.
Pipeline is the least expensive method of transporting large volumes of CO 2 onshore,
and depending on the specific characteristics of a project, it could also be the least
expensive method for offshore transportation. There are ~8,700km of existing CO2
pipelines globally, of which an overwhelming ~8,400km (96%) are located in North
America (Exhibit 17). The U.S. alone has ~7,700km of CO2 pipelines (88% of the global
total) concentrated on the USGC (primarily in the Permian), Rocky Mountains and
Midcontinent regions (Exhibit 17 and 18). The largest operational CO2 pipeline in the
world is in western Canada and is called the Alberta Carbon Trunk Line (ACTL). ACTL
came into service in June 2020 and has capacity of 14.6 Mtpa. The pipeline is currently
only ~10% utilized and therefore provides some infrastructure runway if CCUS
development in western Canada were to accelerate.
While the least expensive way to add CO2 pipeline capacity would arguably be to
convert existing oil and gas pipelines, this largely isn't feasible given significant
differences in technical specifications, such as design pressure and pipeline thickness,
not to mention the lack of excess capacity on existing oil and gas pipeline
infrastructure, and an extremely challenging regulatory environment for getting
infrastructure of any kind approved and constructed.
That having been said, and to corroborate our point on relative cost above, the Acorn
CCUS project in the U.K. suggested the conversion of existing onshore/offshore
pipelines to CO2 pipelines could cost as little as 1-10% of a new build (but again
specific to the Acorn project). Although the cost differences between converted and
newly built pipelines will clearly vary significantly across projects, the Acorn project
signals significant potential savings on the build-out of CCUS transportation
infrastructure in certain jurisdictions. Another advantage of pipeline conversion is that
oil and gas pipelines, by their very nature, are fully integrated into oil and gas
reservoirs. They are therefore ideally located for CCUS projects since most CO 2 is
currently stored in depleted reservoirs.

Exhibit 17.Existing Global CO2 Pipelines—North America Dominates

Country Region Length (km)
U.S. Permian 4,180
Other USGC 1,190
Rocky Mountains 1,175
Midcontinent 770
Other 345
Total U.S. 7,660
Canada ACTL 240
Quest 84
Saskatchewan 66
Weyburn 330
Total Canada 720
Norway Hammerfest 153
Netherlands Rotterdam 85
U.A.E. Abu Dhabi 45
Saudi Arabia Uthmaniyah 85
Total Rest of the World 368
Total 8,748

Source: IEA

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Exhibit 18.CCUS Projects (Operating/Under Development) and CO2 Pipelines in the U.S.

Source: IEA

Shipping: Shipping of CO2 only applies to offshore transportation and has yet to be
demonstrated by a commercial CCUS project, but this is set to change in short order
(see below). Further, shipping of CO2 is considered to have broadly similar
requirements to that for Liquified Petroleum Gas (LPG) and Liquified Natural Gas
(LNG) where there are many examples of commercial projects to point to.
With respect to the commercial potential, we highlight that the Norwegian Northern
Lights CCUS project (Phase 1 with 1.5 Mtpa of planned capacity is expected to come
onstream in 2024) is slated to transport compressed liquified CO2 from onshore
industrial plants via ship to a temporary onshore storage facility, before being further
transported via offshore pipeline and permanently stored within offshore storage
(Exhibit 19).
Notably, shipping has a cost disadvantage vs. pipeline over shorter distances
(<400km), and a cost advantage vs. pipeline over longer distance (>700km). As an
illustration, ACTL is 240km in length whereas the distance that CO2 has to be shipped
for the Northern Lights CCUS Project is ~600km.

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Exhibit 19.Flow of CO2 for the Northern Lights CCUS Project

Source: Equinor

Step 3—Utilization and Storage

Storage
How it works: Once the CO2 has been captured, it can be compressed into a liquid
and injected into a deep underground geological reservoir characterized by porous
rock, at a depth of at least 800m. Overlying impermeable rock is required to seal the
reservoir and prevent CO2 seepage.
CO2 can be permanently trapped through several mechanisms: 1) with a structural
seal, 2) dissolved into pore space water, 3) residual trapping in individual/groups of
pores, or 4) reacting with reservoir rocks to form carbonate minerals.

Exhibit 20.The Primary Geological Options for CO2 Storage Are Saline Formations and Depleted Oil and Gas Reservoirs

Source: The National Academies Press

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 May 19, 2021

Storage capacity is not an issue: Deep saline formations (porous formations filled
with brine, or salty water) and depleted oil and gas reservoirs have the largest storage
capacity and can be found onshore and offshore. The total potential capacity on a
combined basis is ample with estimates ranging from 8,000-55,000 Gt (onshore
capacity 6,000-42,000 Gt or ~76% of this total at the midpoint, offshore 2,000-13,000
Gt or ~24%).
For perspective, the IEA Sustainable Development Scenario forecasts 220 Gt of CO 2
stored through all mechanisms over the period 2020-2070. While this would only
amount to <1% of the combined capacity referenced above, the portion of storage
capacity that is considered technically and commercially viable will likely prove to be
far lower. We elaborate on this below.
What are some of the drivers of limitations on storage? As mentioned above, while
the theoretical capacity is substantial, what ends up being technically and
commercially viable will likely prove far lower and depends on numerous factors. They
include proximity to the CO2 source (e.g. industrial facilities), availability of CO2
processing and infrastructure (e.g. pipelines), and geological characteristics (e.g.
fractures and faults, permeability of storage formation, and trapping mechanisms).
What are the risks associated with CO2 storage? A primary concern for CO2 storage
is if injected volumes can escape back into the atmosphere or contaminate ground
water over time. The probability and potential impact have been found to be very low
based on decades of experience and data collected from large-scale projects—we
note that EOR has been utilized in North America for ~50 years. In support of this, a
2018 study published in the journal Nature Communications (link) found CO2 storage
to be safe with minimal leakage. Nevertheless, extensive modeling, ongoing
monitoring, and effective stakeholder engagement/education is required to garner
public acceptance of CCUS, in our view.
In the next section, we highlight some of the technologies and processes that utilize
CO2 as an input, which can also result in the permanent storage of carbon.

Utilization
CO2 utilization (a proxy for demand) is small in the context of global emissions
but a key component of the CCUS emissions reduction strategy, in our view: At
a high level, utilization as a means for sequestration can be characterized as
complementary to traditional storage, in our view.
Even though CO2 demand represents only a tiny fraction of total global emissions
(currently ~230 Mtpa which represents <1.0% of total global emissions of ~40,000
Mtpa), finding new uses for CO2 is a part of an "all technologies" approach to tackling
GHG emissions, in our view. New potential applications for CO2 can create a new
revenue stream or a differentiated product (e.g. carbon neutral, or net negative
products) that could support further deployment of CCUS, CO2 transport infrastructure,
and support technology refinement.
How it works: CO2 can be used as a direct input without alteration (non-conversion)
or through transformation (conversion). In Exhibit 21 below, we summarize the various
CO2 utilization pathways and some of the resulting end-products which are far more
numerous than many appreciate.

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Exhibit 21.There are Numerous Potential Pathways for CO2 Utilization

Mineralization
Create new building
materials (aggregates,
cement, concrete)

Chemical
Conversion Create synthetic fuels,
chemical intermediates,
polymers

Biological
Algae converted into
proteins, fertilizers,
biomass for biofuels
Sources of CO2
Fossil fuels, industrial
processes, biomass, Yield boosting
underground deposits, air
Used in greenhouses

Solvent
Used in enhanced oil
recovery, decaffeination,
dry cleaning
Non-conversion
(direct use)
Heat transfer fluid
Used in refrigeration,
supercritical power
systems

Other
Food and beverages,
welding, medical uses

Source: IEA, TD Securities

Who are the largest consumers of CO2? Currently the largest global consumers of
CO2 account for ~91% of total demand. They include the fertilizer industry in the
production of urea (~57% of current total demand), followed by enhanced oil recovery
(EOR) in oil and gas development (~34%). Other applications include food and
beverage production, metal fabrication, process cooling, water treatment, and
application in greenhouses to spur plant growth. The transformation of CO2 can be
used to produce the inputs to create fuels, chemicals and building materials.
The next logical part of the carbon utilization conversation is which technologies
support it. We therefore summarize some of the existing and emerging technologies
in Exhibit 22 below. We include how impactful they could be, the stage of development,
and key advantages and disadvantages.

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Exhibit 22.Existing and Emerging CO2 Utilization Technologies and Their Potential Impact
Potential & Stage of
Technology Description Permanence Development Advantages Disadvantages/Barriers
Concrete curing Waste CO2 flue gas from 30-300 Mtpa; Already operating • Lower cost and doesn't • High capital cost to
concrete plants used to permanent on commercial require water vs. retrofit existing curing
cure precast concrete scale traditional curing processes
• Offset opportunity for
(CO2 is stored as
emissions intensive
unreactive limestone)
cement industry
• Differentiated low carbon
product
Mineralization

Bauxite residue Used in aluminum mining 5-30 Mtpa; Already operating • Mature technology • Cost of concentrating
carbonation to reduce the alkalinity of permanent on commercial • Can reduce closure and and sourcing CO2
slurry scale reclamation costs at
mines
Carbon mineralization CO2 reacted with a >300 Mtpa; Early stage • Differentiated low carbon • High energy use
(carbonates) mineral or other industrial permanent products • High cost of minerals
waste products resulting • Provide alternative and processing
in a new compound that carbon sink in CSS
can be used in
construction, consumer
product, agriculture, or
Conversion

alternative to CCS
Algae cultivation Microalgae absorbs CO 2, >300 Mtpa; Early stage • 1 tonne of microalgae • Cost of controlling
which can be converted non- can fix 1.8 tonnes of CO 2 growth and drying
permanent conditions
Biological

into proteins, fertilizers,

biomass for biofuels • Requires large area and
sunny climate to grow
algae)
• Non-permanent storage
as products breaks down
Urea yield boosting Ammonia and CO2 5-30 Mtpa; non- Already operating • Mature technology • Non-permanent storage
converted to urea fertilizer permanent on commercial • Reduces emissions as CO2 re-emitted when
scale intensity of process urea breaks down as
fertilizer
Liquids fuels - methanol, CO2 and hydrogen >300 Mtpa; Commercially • Synthetic hydrocarbon • Energy intensive
Chemical

other synthetic fuels catalytically converted to non- available (but that is less emissions process
methanol and blended permanent requires low-cost intensive when • Higher costs vs.
with gasoline renewable energy combusted conventionally produced
and CO2) equivalents
Polymers/chemical CO2 used as an 5-30 Mtpa; non- Demonstration • Large potential use of • Relatively small market
feedstock alternative to permanent phase CO2 to produce a variety
hydrocarbons of products
Enhanced oil recovery CO2 injected into oil 30-300 Mtpa; Already operating • Mature technology • Limited availability of low-
conversion

reservoir for tertiary permanent on commercial • Permanent storage • cost and reliable CO2 in
Non-

recovery scale Increases oil recovery proximity to oil fields

factors • Facilitates additional
hydrocarbon use

Source: IEA, TD Securities

Emissions reduction potential driven by CO2-derived products/services may be

limited over the mid-term due to economic limitations: Taking all of the current
and emerging technologies listed above into account, the IEA's high-level assessment
of the theoretical potential global demand for CO2 utilization ranges from <1.0 Gtpa to
7.0 Mtpa (or ~2.7%-19.0% of current total global emissions). However, the IEA sees
the higher end of this range as optimistic and potentially unattainable primarily due to
current economic limitations of certain of these emerging technologies.
Many of the conversion technologies listed above often require inexpensive and
reliable sources of CO2 and/or hydrogen and/or renewable power in order to be
competitive with respect to cost structure, in our view. According to the IEA, production
costs associated with CO2-based fuels and chemicals (costs that are largely
associated with hydrogen production) are still higher than for more conventional
means of production. However, the IEA also acknowledges that certain building
materials produced from CO2 and minerals/industrial waste are competitive today.
In addition, CO2-derived products or services may not necessarily reduce emissions
on a net basis. This ultimately depends on a host of factors including:
1) The CO2 source: CO2 can be sourced from hydrocarbons, industrial
processes, biomass, or the air. Some processes use CO2 from natural

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occurring deposits and therefore would not serve to reduce atmospheric

emissions.
2) How long the carbon is sequestered in the product (permanent vs. non-
permanent): Carbon-fixing can be permanent or non-permanent, depending
on how the carbon is used and/or transformed. Sequestration within CO2-
derived building materials is considered permanent, whereas sequestration
within synthetic fuels and chemicals is not since they are ultimately
consumed—although they are often still less emissions intensive than their
conventional hydrocarbon-based equivalents.
3) The type of energy and the quantity used to convert CO2: Transforming
CO2 is an energy-intensive process. Clearly a net emissions/climate benefit
cannot be realized if the energy source creates more emissions than it
saves. That is why many of these technologies require an inexpensive
source of renewable power.
4) What the product or service is displacing: CO2-derived products can
deliver climate benefits if they displace a high-carbon alternative.
5) Scalability: The potential market for CO2-derived products depends on
demand (i.e. are products commoditized, like fuels, or specialized for niche
markets) and supply factors (i.e. availability of key inputs such as low-cost
renewable energy, CO2, hydrogen, and/or other raw materials).
Therefore, a full product lifecycle greenhouse gas emissions analysis should be
considered when determining the climate benefits. Notably, the U.S. carbon capture
tax credit program (45Q) requires this analysis for those claiming credits for CO 2
utilization.

Government policies and incentives have strong potential to support market

growth for CO2-derived products: For example, the U.S. carbon capture tax credit
program (45Q) currently offers US$50/T for CO2 permanently stored in geologic
formations and US$35/T for CO2 used in EOR. A new bill in the U.S. Senate seeks to
increase these credits to US$120/T and US$75/T, respectively. In addition to policies
that support CO2 storage, policies that recognize the emissions mitigation potential or
provide incentives for manufacturing of low-carbon products could play a major role in
stimulating the development of CO2 markets, in our view. Public procurement (e.g. for
major government infrastructure projects) could also create demand for CO 2-derived
products with verifiable climate benefits. In addition, it can also assist in the
development of technical standards.

Page 28 of 31
Industry Insights
Equity Research May 19, 2021

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REDUCE - 0.6% 74.29%

75%
NOT RATED - 0.3%

50%
BUY - 70.9%
HOLD - 28.1%
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0.71% 0%
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BUY HOLD NOT REDUCE
RATED

Current as of: May 19, 2021

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ACTION LIST BUY: The stock's total return is expected to exceed a minimum of 15% (with higher thresholds for less liquid, more risky securities) over the next 12 months and it is a
top pick in the Analyst's sector.
BUY: The stock's total return is expected to exceed a minimum of 10% (with higher thresholds for less liquid, more risky securities) over the next 12 months.
SPECULATIVE BUY: The stock's total return is expected to exceed a minimum of 30% over the next 12 months (with higher thresholds for less liquid securities); however, there is material
event risk associated with the investment that could result in a significant loss.
HOLD: The stock's total return is expected to be between 0% and 10%, (with higher thresholds for less liquid, more risky securities) over the next 12 months.

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TENDER: Investors are advised to tender their shares to a specific offer for the company's securities or to support a proposed combination reflecting our view that a superior offer
is not forthcoming.
REDUCE: The stock's total return is expected to be negative over the next 12 months.
SUSPENDED: Due to evolving circumstances, we can no longer generate what we consider a defensible target price and rating at the current time.
UNDER REVIEW: Our rating is under review pending additional information and/or analysis. The prior rating should not be relied on.
NOT RATED: We do not currently produce a recommendation and a target price on this security.
Risk ratings are relative to other companies in the TD Securities Equity Research coverage universe. In order of increasing risk, our risk ratings are LOW, MEDIUM, HIGH, and
SPECULATIVE. These risk ratings are not meant to be compared to ratings on other securities and asset classes outside our Equity Research coverage universe.
Overall Risk Rating in order of increasing risk: Low (6.0% of coverage universe), Medium (40.9%), High (46.5%), Speculative (6.6%)

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