The first tender procedure in Denmark in respect of CO2 storage licences was initiated on 15 August 2022 and runs until 1 October 2022.
In 2021, a broad majority of the parties of the Danish Parliament adopted an overall strategy for Carbon Capture and Storage (CCS) in Denmark. The CCS strategy lays down several key framework conditions for carbon storage in Denmark with a view to supporting the development of carbon capture, transport and storage in Denmark.
The tender procedure in respect of CO2 exploration and storage licences is the first tender procedure enabling the use of CCS technology in Danish territory.
Tender method and terms
The tender procedure will be initiated by way of a notice in accordance with s. 23b(1)(ii) of the Danish Subsoil Act (undergrundsloven). Executive order no. 1165 of 11 August 2022 indicates the area for which licences may be applied as well as an annual application period including an application date.
Applications for carbon exploration and storage licences may be filed annually with the Danish Energy Agency in the period from 15 August to 1 October.
The area to be subject to carbon exploration and storage licences is situated west of 6° 15’ E and north of 56° 00’ N in the North Sea. Oil and gas licences were previously offered for the northern part of the said area.
The applicant must fulfil specific minimum requirements as to technical and financial capacity for geological carbon storage in order to be considered a licensee.
In a competitive situation in which several applicants apply for carbon exploration and storage licences in the same area or overlapping areas, the Energy Agency will evaluate and compare the applicants' work programmes based on three overall parameters: 1) data collection, 2) time schedule, and 3) evidence of specific storage potentials in the area applied for.
The detailed terms of the tender procedure and the documentation requirements in respect of applications appear from the Energy Agency's invitation including appendices, which are available at the website of the Energy Agency here.
The licence regime generally follows a methodology similar to that of oil and gas licences
A carbon exploration and storage licence grants the rights holder an exclusive right to inject and store CO2 in the subsoil in a further defined area in the North Sea. The licence is divided into two phases - an exploration and a storage phase.
An exploration licence is generally granted for a period of six years with the option of extension. If the work programme is completed satisfactorily, the rights holder holds a preferential right to be granted a licence for conducting storage activities for up to 30 years (storage phase).
According to the invitation from the Energy Agency, a licence may be granted including a very brief or no exploration phase. This is conditional upon the undertaking being able to provide a report including the evaluations of the carbon storage part forming the basis of determining whether it is fit for purpose as well as an application for approval of a storage plan including, among other things, the planning of operations and the plant to be used for operations.
The carbon storage licences may be delimited in terms of area and depth. Applying for licences in lower or higher soil layers below or above other carbon storage licences is consequently possible.
As part of the contract documents, the Energy Agency has drafted a standard licence (model licence) and a standard Joint Operating Agreement (model JOA), which are similar to those known from the oil and gas licences.
Nordsøfonden to participate in carbon storage licences on behalf of the government
A political agreement of 21 June 2022 on monitoring the Danish CCS strategy lays down that the government must participate as co-owner of all Danish CO2 storage facilities. The governmental participation must be managed by Nordsøfonden, which is experienced in oil and gas co-licensing.
The parties to the agreement decided that Nordsøfonden's share is fixed at 20% in the first licensing round of carbon storage licences. The governmental share will be fixed in connection with storage licensing rounds and may consequently be changed in connection with subsequent licensing rounds.
On 1 July 2022, the Danish Ministry of Industry, Business and Financial Affairs submitted a draft bill for consultation on amendment of the Act on Nordsøenheden and Nordsøfonden (lov om Nordsøenheden og Nordsøfonden). The bill is to enable Nordsøfonden's participation in carbon storage licences. The bill is expected to be passed on 1 January 2023.
As in oil and gas licences, the cooperation between the private players and Nordsøfonden will be governed by a Joint Operating Agreement (JOA), which will be negotiated between Nordsøfonden and the private undertakings and which must subsequently be approved by the Energy Agency.
Advice on carbon storage licences and tender terms
Bech-Bruun has rendered advice on several technologically pioneering projects, including carbon capture and storage projects.
We have profound insight into regulatory issues in the CCS value chain and long-term experience in advising Danish and international companies on oil and gas activities in the North Sea, including the drafting of applications in licensing rounds. We are therefore able to assist companies in connection with the first licensing round and advise on the requirements to be fulfilled by applicants in respect of the Subsoil Act and the terms governing the licensing round.
Bech-Bruun is among the leading advisers in the area of renewable energy. Our specialists are internationally recognised for their significant industry knowledge and advise on all legal aspects of the energy area. With our long-standing experience from major utility projects, complex transactions in the solar and wind industries and extensive contracts, we have built unique market insight to the benefit of our clients' businesses. And with our position at the cutting-edge of the green transition, including multiple carbon capture projects, we provide advice to our clients on the green solutions of the future.