Oil Companies And US Government Are Beginning A Transformative Leap To Control Carbon Emissions

Enhanced Oil Recovery (EOR).

An insightful study of EOR has been made by Bryan Guzman, Director of Global Business Development & Technology, Premier Corex. It provides an important background to what is coming — a transformative change for carbon emissions.

In the 1970s and early 1980s, Chevron
CVX
led an EOR project in the Permian basin. CO2 came from natural gas processing plants and transported over 200 miles to injector. The original 45Q tax deduction for EOR was $10 per metric ton, but was raised on a trend that would reach $35 per ton by 2026. By 2022 The IRA bill raised the tax credit to $60 per metric ton.

From 1989 to 2016 the CCS Technologies Program at MIT reviewed CCS from a technical, economic, and political perspective. An industrial consortium was formed in 2000, and peaked at 19 members both heavyweights and lightweights from the US and International.

In 2003 the DOE setup within the US seven regional carbon sequestration partnerships called RCSPs. Their charter was to implement technology, infrastructure and regulations to promote carbon storage. In the southeast region, called SECARB, I was involved with modeling injection of CO2 into coal seams, which are unique because coal swells significantly as CO2 is absorbed, and its permeability falls which makes it harder to continue injection.

The task in the development phase, the last phase, was to sequester at least one million metric tons of CO2. Perhaps because of the coal seam limitation, SECARB finally injected almost 5 million tons of CO2 in an EOR/Saline storage project in the Interior Salt Basin, Gulf Coast. This was called the Cranfield project.

Two useful outputs from these RSCPs were (1) a series of best-practice manuals for injecting CO2 into geologic structures, and (2) the National Carbon Storage Atlases. The latter showed that the US could inject its total source of CO2, roughly 6 billion metric tons per year, for 23 years. Or they could store half the US source for 46 years, or a quarter of the US source for 92 years. In other words, there is not a limit on potential CO2 storage in the US. This calculation is based only on storage in old oil reservoirs so the storage potential would be much greater if saline reservoirs were included.

Since 2005, US policy on carbon sequestration has been mandated through the DOE, and aimed initially at emissions associated with coal-burning power plants. And the DOE did good work, as described above.

But starting in 2020, things revved up a lot in response to three bills passed by US Congress:

2020: The Energy Act – DOE to establish a large-scale carbon storage program.

2021: The Infrastructure Investment and Jobs Act (IIJA) — $110 billion for new energy and climate infrastructure.

2022: The Inflation Reduction Act (IRA) — $369 billion for clean energy and climate investment.

Energy and climate are now linked hand in hand. In the last two of these years, the 45Q tax credit has been increased significantly, as mentioned earlier, and has guaranteed this period will be forever marked as a game changer for CCS in the USA. Here are the latest 45Q tax credit amounts from the IRA in 2022:

· $85 per metric ton of CO2 permanently stored.

· $60 per ton if CO2 used in EOR projects.

· $180 per ton if CO2 obtained by direct air capture (DAC) and permanently stored.

· $130 per ton for CO2 from DAC if utilized afterwards.

UIC Class VI wells for CO2 injection.

Permits for Underground Injection Control (UIC) Class VI wells for CO2 injection have been mandated by the EPA. But sizeable delays occur to get a permit for UIC Class VI wells, and this is typically 12 months. Such delays are much less been in Wyoming and North Dakota because these states have obtained special treatment called primacy. Wells can be permitted after 3-6 months instead of 12. Other states have applied for primacy.

CarbonSAFE program.

In 2016 it was realized that gaps existed in the knowledge gained from the extensive RSCP program.

Phase 1 was an emphasis on practical issues. Examples are a business-focused strategy, whether storage in stacked zones is feasible, and a possible need for pressure management. Phase 2 was to evaluate initial reservoir characteristics to see if it can hold more than 50 million metric tons of CO2. Phase 3 was to fully characterize a reservoir to demonstrate that an injector well can be permitted under UIC Class VI guidelines and whether the CO2 storage project would be commercial.

Massive budgets.

The budgets in the IIJA and IRA bills are shown in Figure 1. Green colors are assignments to energy and climate, and they are massive amounts of money: $110 billion for new energy and climate infrastructure, and $369 billion for clean energy and climate investment.

Infrastructure funds have been awarded: $251 million to support CO2 transport and storage – mostly large-scale commercial storage projects. Nine projects across six states have been selected, including to universities, corporate hubs, and BP. But this is small potatoes, compared with the next level of funding.

$2.25 billion is offered for proposals under extensions of the CarbonSAFE program. Most of this lies under two specific avenues: site characterization and permitting (up to 40 separate awards), or construction (up to 20 separate awards). As an observer said, it’s a bit like trying to drink from a firehose. There is no question this government funding will kickstart a huge rush of activity in carbon storage.

A transformative leap in carbon control by CCS.

Since the 1970s, EOR has been developed and refined to dredge the last oil residuals from old reservoirs. No great breakthroughs here. Beginning in 1988, partnerships between universities and industry highlighted advantages and problems for CO2 storage.

Then US involvement via DOE became serious over the period 2003 – 2019 with a research emphasis. Many best-practice manuals were written including an atlas of potential storage sites across the US. The capacities of old oilfields exceeded by decades the CO2 storage that will be needed.

Since 2008, when the 45Q tax credit was established, the US government has continued to provide funds for large-scale commercialization in the CarbonSAFE program.

Congressional legislation in 2021 and 2022 has upped the 45Q tax credits and boosted direct funding related to CCS projects by an enormous amount — $479 billion over the next 5 years. This is nothing less than a transformative leap in carbon control by CCS. The beginnings of such a leap can be seen in Figure 2.

Let’s dive into this further. The Paris Agreement offered a plan: carbon emissions to be net-zero by 2050, and this was signed by almost 200 countries at the end of 2015. The general idea was that fossil fuels would gradually go away (to reduce carbon emissions) while renewable energies would increase (to replace the lost fossil fuels). Any leftover emissions would have to be removed, for example by underground storage of CO2.

Some oil and gas majors have adopted such a route, like BP, Shell, and TotalEnergies – all European countries.

Rystad Energy anticipated that, to meet the net-zero goal of the Paris Agreement, the carbon capture industry would need to grow a total increase of 200 times from 2021. This would represent a 20% growth in carbon capture and storage year-over-year—a scenario that’s hard to fathom. The carbon capture industry would grow as big as the present oil and gas industry by 2050, according to Rystad.

Other oil and gas majors, such as ExxonMobil
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and Chevron, have laid their focus on reducing carbon emissions rather than cutting back their fossil fuels. This approach would mean first, the world doesn’t need to build so many wind and solar projects, and second, the world has to work harder to get rid of the continuing carbon emissions from no-cut-back fossil fuels.

The latter would mean a transformative leap in carbon control via CCS. And this would mean a much greater CCS industry than Rystad anticipated. The costs of CCS projects under these conditions would be passed along to the consumer and this implies higher prices at the gas station and steeper electricity costs from coal- or gas-burning power plants.