Bright outlook for carbon capture investment
20 October 2023
Commenting publicly this week, officials from some of the world’s biggest publicly traded international oil companies (IOCs) and national oil companies (NOCs) have made it clear that one of their preferred sustainable technologies is carbon capture.
Ahead of the Cop28 climate change conference due to start in the UAE at the end of November, senior figures from several high-profile oil companies made the promotion of carbon capture and storage (CCS) technology a key part of their messaging.
The appeal of carbon capture technologies to oil and gas companies, which see this technology as a way to extend the life of their existing facilities, is likely to translate directly into investments in the technology.
Great solution
Speaking at an oil and gas conference in London, Ahmad al-Khowaiter, executive vice-president of technology and innovation at Saudi Aramco, said he thought carbon capture was a “great solution” for the oil and gas industry as it could be applied to the existing industry to ensure that facilities do not have to be shut down for environmental reasons.
He said the technology could potentially mean the “tremendous investment” already made in existing facilities would not have to go to waste.
Al-Khowaiter spoke about carbon capture a day after the chief executive of Aramco, Amin Nasser, talked about CCS and urged world leaders to shift their focus away from goals that limit oil production in favour of goals that focus purely on limiting emissions.
“The idea is we need to reduce emissions [and] build more carbon capture and storage,” he said, calling for leaders to give more incentives to the conventional energy sector to implement CCS technologies.
He added: “The focus should be on reducing emissions. Incentives should not only be for renewables; they should be for supporting conventional energy and supporting carbon capture.
“We cannot meet our net-zero 2050 [target] without carbon capture and storage, so some incentives should go to carbon capture and storage.”
Nasser also said: “We need to work in parallel … not to call for shutting down our conventional energy today, increasing the prices and costs for everybody around the world.”
CCUS investment
Similarly, Nawaf al-Sabah, deputy chairman and chief executive of state-owned Kuwait Petroleum Corporation (KPC), commented on the significant planned investments in carbon capture, utilisation and storage (CCUS).
KPC aims to cut its Scope 1 and Scope 2 emissions to zero by 2050 and plans to invest $110bn in decarbonisation as part of its long-term plan for the oil sector.
Referring to the planned cuts to Scope 1 and 2 emissions, Al-Sabah said: “A big portion of that will be through CCUS. I think that is one of the technologies that we all, as humanity, need to invest in because it removes carbon that would otherwise dissipate into the atmosphere.”
In the case of KPC, it plans to take carbon from its refineries and inject it into its oil and gas reservoirs to stimulate production.
Critical technology
The enthusiasm for carbon capture from the NOCs was equalled by senior executives from publicly traded IOCs, who also said they were looking to invest heavily in the technology.
Richard Jackson, president of US onshore resources and carbon management at Occidental, said CCS was “central” to his company’s strategy.
Shell’s CEO, Wael Sawan, described carbon capture technology as “critical for the future of the decarbonisation journey”.
Problematic issues
Despite the enthusiasm from oil companies, it remains to be seen whether carbon capture technologies are the best way to invest capital to achieve effective emissions reductions.
This is mainly due to challenges with effectively scaling the technology, as well as issues relating to the technology’s business model.
One of the problematic aspects of a carbon capture business model has been clearly illustrated by Saudi Arabia’s Jafurah blue hydrogen plant project.
Engineering is nearly completed for this project, which is estimated to be worth around $1bn and will use carbon capture technology to remove carbon emissions from a facility that will produce hydrogen by processing natural gas.
Despite the project nearly being ready for the final investment decision, Aramco has warned that it is struggling to find offtake agreements for the product produced by the plant due to high pricing.
Aramco has asked governments in South Korea and Japan to step in to subsidise the use of blue hydrogen to make the project viable, and says it will not approve the project for execution until offtake agreements have been signed.
Economically challenged
This comes as some critics say that investments in carbon capture compare poorly to other decarbonisation solutions that use technologies proven to work at scale with functioning business models.
In a report published earlier this year, the consultancy McKinsey said: “Many, if not most, CCUS projects are economically challenged today, with high costs of capture for dilute point sources and a limited number of revenue streams available.”
While it remains unclear whether or not carbon capture is the most effective way of spending money to reach a net-zero world, oil companies have made it clear that it is one of their preferred technologies.
The fact that it could potentially allow oil companies to continue broadly using their conventional business models and existing facilities should mean that this technology receives significant funding from the oil and gas sector over the coming years.
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The global body representing airlines, the International Air Transport Association (Iata), was equally downbeat when it released its latest financial outlook on 8 June. The organisation now expects the global airline industry to achieve a combined net profit of $23bn in 2026 – roughly half the $41bn previously projected and about half the $45bn estimated for 2025. The net profit margin is forecast at 2%, compared with the earlier projection of 3.9% and last year’s 4.2%. Net profit per passenger is expected to be $4.50, down from $9.10 in 2025.
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The insurance market adds another layer of complexity. Aviation policies typically grant insurers the right to cancel cover during active conflict, and the terms on which cover is being extended in a region that has seen airports repeatedly targeted are likely to be materially more expensive than before.
Jet fuel prices are expected to average $152 a barrel for the year – an increase of almost 70% on the $90-a-barrel average recorded in 2025
Carrier optimism
The Gulf’s airlines are more optimistic about the future. Abu Dhabi’s Etihad Airways said in early June that it is operating at 90% of its pre-war available seat kilometres – the key industry capacity metric – and that by 15 June the airline will surpass 100%. Planes are 84% full, and crucially, fares are back at pre-war levels. Officials at the airline say that demand for transit through Abu Dhabi from Paris to Asia is running so strongly that the airline is laying on two of its A380 aircraft a day on that corridor from July.
While the expectation in the industry outside the Gulf had been that carriers such as Etihad and Emirates would need to discount heavily to entice passengers back after the ceasefire, Etihad has said that it does not expect prices to come down.
The airline will not be entirely unscathed. Etihad had been on course to deliver a 10% operating margin in 2026, up from 8% in 2025, but that target will now be missed. The airline was badly hit in March, April and May and will not be fully back on track until August.
Dubai’s Emirates Group released its 2025-26 annual results in May, which confirmed the airline’s status as the world’s most profitable carrier for the reporting year. The group posted a record profit before tax of AED24.4bn ($6.6bn), up 7% year-on-year, on revenues of AED150.5bn, also a record.
Unprecedented situation
The context is important: the results cover the financial year to 31 March 2026, meaning only the final month of March was affected by the conflict. For the first 11 months, the group was surpassing its targets every month. March then brought what Emirates’ chairman and chief executive Sheikh Ahmed Bin Saeed Al-Maktoum described as an “unprecedented situation”. Emirates was flying just 58% of its capacity by 31 March.
Despite the disruption, the results illustrate the depth of the financial cushion the group has built. Emirates also announced a 20-week salary bonus for employees – far exceeding the 13-week payout that had been linked to performance targets. For the year ahead, Sheikh Ahmed said Emirates would continue taking aircraft deliveries and pressing ahead with its retrofit programme, without resorting to “knee-jerk cost control measures”. The group has hedged its fuel exposure through to 2028-29. “Our fundamentals are strong,” he said.
On 8 June, Riyadh Air – the airline backed by Saudi Arabia’s Public Investment Fund – announced five new destinations: Cairo, Dubai, Jeddah, Madrid and Manchester, coinciding with the arrival of its first three Boeing 787-9 Dreamliner aircraft. The airline also moved up its inaugural London flight from 1 July to 10 June.
The airline will play a key role in delivering Saudi Arabia’s ambition to develop Riyadh into a global aviation hub and to position the kingdom as a major connecting point between East and West. The carrier has set a target of connecting Riyadh to more than 100 destinations worldwide by 2030. Pressing ahead with new routes and aircraft deliveries amid regional turbulence sends a signal that Saudi Arabia’s aviation ambitions are not for deferral.
Future direction
Looking ahead, there appears to be diverging fortunes for the sector. Globally, analysts say point-to-point leisure airports are typically better positioned than large hubs reliant on transfer traffic and international corridors, and this may also play out across the Middle East. Airports with a large share of local origin-and-destination demand may prove better insulated compared with the major connecting hubs whose business models depend on stable long-haul routings.
For the Gulf’s flagship hub carriers, including Emirates, Etihad and Qatar Airways, state ownership and strong backing mean that the question is less about survival and more about how long it will take to restore the full confidence of international airlines and their passengers.
Much remains uncertain. A ceasefire is in place and, as Sheikh Ahmed noted in the Emirates annual report, there are hopes for “a clear resolution to the hostilities soon, and a return to market stability”. But the drone attack on Kuwait shows that the threat from Iran to the region’s aviation infrastructure has not been neutralised. The coming months will be crucial in determining the long-term trajectory of Gulf aviation.
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