Containment Risks and Insurance Implications for a Notional CO2 Store
Only those carbon storage projects where there is no significant risk of leakage or of harm to the environment or human health will gain regulatory approval. Nevertheless, even these projects will have residual risks of loss of containment. These risks need to be managed and the liabilities reduced to ensure T&SCo stability. Insurance for low-probability but high-impact containment events is critical for investor confidence to achieve FID. Insurance can also provide an economically efficient financial security enabling a carbon storage permit to be awarded (UK and EU).
In the UK, financial close has been reached recently for both its ‘Track-1’ projects (HyNet Liverpool Bay, and NEP’s East Coast Cluster). Critical to these milestones is the Supplemental Compensation Agreement (SCA) within the Government Support Package (GSP). The SCA enables the management of leakage risks at the storage site during operations and the post closure period. The SCA provides certainty that high-impact low-probability risks at a storage site will not impact debt repayment or result in excessive losses for developers. This in turn allows the risk-reward profile for projects to be rebalanced at rates of return lower than traditional hydrocarbon projects. Through the SCA the UK government has a maximum liability of £9Bn for both Track-1 clusters, with a ‘Reasonable Worst Case’ liability of £0.4Bn.
As reported in the IEA GHG 2024 report ‘Insurance Coverage for CO2 Storage Projects’, Aon brokered a new commercial insurance product for NEP and HyNet. Commercial insurance will respond to a claim in advance of the UK governmental SCA. As the SCA exposure will only be invoked after commercial insurance policy limits are exhausted, actual governmental exposure is significantly less than the maximum liability. The ambition is that commercial coverage for future CO2 stores will develop, reducing reliance on the SCA as the market matures.
To be able to estimate liability a comprehensive understanding is required of both the probability of occurrence and impact of loss of containment at each storage site. Whilst there are strong analogues to insurance offered for oil and gas operations, there are areas where further data is required, the following table indicates factors affecting probability of occurrence for containment-related liabilities.
The Containment Certainty Report provides estimates of containment probabilities at two notional or ‘typical’ storage sites on the UKCS (a saline aquifer and a depleted oil and gas field). Leak paths considered include both geological (for example via faults, lateral migration of the CO2 plume) and mechanical (for example active and legacy wells) pathways. This poster will discuss the risks through time at such stores, highlighting the impact of the SCA and commercial insurance on the risk profile of an operator of the typical stores and present additional considerations for insurance that are of wider relevance to other CO2 stores.