Importance of 45Q and Large- Scale CO 2 -EOR and Storage

Transcription

1 Importance of 45Q and Large- Scale CO 2 -EOR and Storage Prepared for: 2018 CO 2 -EOR Carbon Management Workshop Presented by: Michael Godec, Vice President Advanced Resources International, Inc. Arlington, Virginia USA December 3, 2018 Midland, Texas 1

2 Introduction As we have heard through the day -- potentially -- we stand at a crossroads that may be unique The stars may be aligning and if we cannot take advantage of this opportunity, we may not get another like it. However, taking advantage of this opportunity is not without many challenges. Tomorrow s session is designed to explore how new incentives can potentially lead to providing a vital role in carbon management, while producing more domestic oil. 2

3 Presentation Outline Making Carbon Management Economically Viable Quick Review of Incentives and Regulation Highlight Barriers and Opportunities to be Discussed Tomorrow 45Q and CO 2 -EOR s Vital Role in Carbon Management 3

4 The CO 2 -EOR Prize Importance of 45Q and Large-Scale CO2-EOR and Storage In the U.S., primary recovery and water flooding have recovered about a third of the 624 billion barrel oil endowment, leaving behind 414 billion barrels. Much of this left behind oil, equal to 284 billion barrels, is technically favorable for CO 2 -EOR and is widely distributed across the U.S. Original Oil In-Place: 624 B Barrels Remaining Oil In-Place: 414 B Barrels Conventional Domestic Oil Resources Favorable for CO 2 -EOR Target for EOR 414 Billion Barrels Proved Reserves 20 Billion Barrels Cumulative Production 190 Billion Barrels *Does not include tight oil production or reserves. Source: Advanced Resources International, Source: Advanced Resources International internal analysis, 2016 JAF2016_052.PPT 4

5 U.S. CO 2 -EOR/CO 2 Storage Potential Next Generation CO 2 -EOR technology, applied to conventional oil fields offers a demand (and storage) of 37 billion metric tons of CO 2. Only a small portion of this CO 2 demand can be met by existing natural sources of CO 2. Basin/Area Oil In-Place Favorable for CO 2 -EOR Recoverable with "Next Generation" Technology* Economic Demand for CO 2 with "Next Generation" Technology** (Billion Barrels) (Billion Barrels) (Billion Metric Tons) Lower-48 Onshore Alaska Offshore GOM Total JAF2018_019.xls *At an oil price of $75/B, a CO2 price of $30 per metric ton and ROR (before tax) of 20%. **Assuming 0.45 mt of CO2 per barrel of recovered oil. Source: Improving Domestic Energy Security and Lowering CO2 Emissions with Next Generation CO2-Enhanced Oil Recovery (CO2- EOR), DOE/NETL-2011/1504, July 2011, prepared by Advanced Resources International, Inc., V. Kuuskraa, T. Van Leeuwen and M. Wallace, updated by Advanced Resources International, Inc. in

6 Current Efforts to Incentivize CCS FUTURE Act (Enhancements to IRC Section 45Q) California Low Carbon Fuel Standards (LCFS) Rule to reduce carbon intensity in transportation fuels. CCS projects under the LCSF must meet Protocol Ethanol production with CCS allowable mechanism Stringency as proposed will likely may limit industrial participation State Incentives 6

7 FUTURE Act Enhancements to IRC Section 45Q Previous 45Q 75 million metric ton cap Credit based on captured qualified CO 2 $20/metric ton for CO 2 stored and not used for EOR $10/metric ton for CO 2 stored and used for EOR Credit rate is indexed for inflation beginning in Available to facility with capture equipment capturing at least 500,000 metric tons CO 2 /year. Credit available until the 75- million-ton cap is reached. FUTURE Act Eliminates 75 million metric ton cap; applies to new facilities that break ground by EOY After enactment, credit based on captured qualified carbon oxide (CO 2 and other carbon oxides) $50/mt for geologic storage and $35/mt for EOR (each rate phases up over 10-year period from 2017 to 2026). Existing qualified facilities would continue to receive the original inflation adjusted $20 and $10 credit rates. Credit rates indexed for inflation beginning in Capture > 500,000 metric tons CO 2 /year for electric generating units; > 100,000 metric tons CO 2 /year for other. Credit goes to the owner of the capture equipment. Available to direct air capture and beneficial use Credit available for 12 years from the date the carbon capture equipment is placed in service. 7

8 FUTURE Act Other Provisions Other provisions include: Changes the taxpayer that receives the tax credit from the owner of the industrial facility that emits the CO 2 to the owner of the capture equipment that captures the CO 2 Allows the taxpayer to transfer the all or a portion? of the credit to the entity that: Disposes of the qualified CO 2 Utilizes the qualified CO 2 Uses the qualified CO 2 as a tertiary injectant (for EOR). EPA GHGRP Rule (Subpart RR) basis for certifying storage The devil will be in the details as implementation guidance is developed by IRS 8

9 Is the FUTURE Act Enough? Continued RD&D to reduce costs of CO 2 capture Continued RD&D on next generation CO 2 -EOR; especially targeting carbon negative oil Restructured/reformed regulations that do not inhibit CCUS/ CO 2 -EOR applications at commercial scale Further incentives beyond 45Q? Tax-exempt private activity bonds Master limited partnerships Incentives for CO 2 pipelines/pipeline expansions/buildout Ensuring Parity for Carbon Capture in the Power Sector E.g., CCS included in Renewable Portfolio Standards State incentives USE IT Act introduced: Expand R&D Coordinate development of permitting guidance Establish regional task forces to address infrastructure challenges. 9

10 U.S. Regulation of Storage with CO 2 -EOR From 15 years worth of R&D, a significant foundation of experience regarding CO 2 storage has been established. In 2010, U.S. EPA promulgated Underground Injection Control (UIC) well (Class VI) requirements for non-eor geologic storage of CO 2. EPA guidance confirms that CO 2 -EOR can result in stored CO 2 ; conversion to Class VI is not required for assuring storage. Concerns that legal and regulatory obstacles exist to allow CO 2 - EOR to be viable source for what is very likely the largest scale CO 2 emissions reduction. 10

11 U.S. Regulatory Experience Class VI From 15 years worth of R&D, a significant foundation of experience regarding deep saline CO 2 storage has been established. Little of this experience existed at the time the Class VI regs were issued. At time of promulgation, EPA recognized that adaptations may be warranted as more research is conducted, data are acquired, and experience is gained. Official CO 2 injection projects for storage have been permitted, both before and after the promulgation of the Class VI rule. All CO 2 storage wells permitted to date have been associated with R&D projects; the rule was not originally intended to apply to R&D projects. Most of the CO 2 storage wells permitted to date and in operation are associated with CO 2 -EOR projects. To date, the timeline for obtaining Class VI permits approval has been too long as much as four years or more. Prior to final Class VI rule, permitting for Classes I and V wells also took a long time; processes hindered while Class VI regs were being developed. 11

12 U.S. Regulatory Experience Class VI (Cont.) Class VI regulatory uncertainty is a challenge facing potential new CCS projects. Operators are not pursuing CCS projects that could otherwise be viable given current uncertainties, liability risks, and potential burdens. All current and new projects under consideration are Class II/EOR. Class VI is believed to be too onerous to pursue based on experience to date. Anecdotal evidence is that no further Class VI wells will apply for permits, with the possible exception of a few more research wells. The process for allowing states to acquire primacy for Class VI well permitting has been very slow. Though North Dakota primacy application approved after many years in review. 12

13 CCS-Related Source Categories for Subpart RR of the GHGRP Subpart UU: CO 2 Received Subpart RR: CO 2 Sequestered Subpart PP: CO 2 Supply CO 2 received CO 2 injected EL&V CO 2 produced EL&V CO 2 entrained In fluids CO 2 source M M M Facility Fence line CO 2 surface leakage, if any Key M = Meter EL&V = Equipment Leaks and Vented Emissions Geologic Formation 13

14 Greenhouse Gas Reporting under Subpart RR Storage certification under 45Q may be established by EPA Subpart RR reporting Operators are required to submit a monitoring, reporting, and verification (MRV) plan 5 MRV plans approved to date; three for CO 2 -EOR, one for saline storage, one for acid gas disposal. Most significant concerns include: Process for and timeliness of EPA approval of MRV plans What constitutes new activity -- and thus a new MRV plan Extent to which MRV plans are subject to litigation Conflicts w/ state mineral property/resource conservation law What happens if the rules of the game change? 14

15 Alternative Frameworks for Quantification of Geologic Storage of Carbon Dioxide GHGRP Subparts UU + W Best Practices: Monitoring, Verification and Accounting (MVA) for Geologic Storage Projects DOE/NETL ISO Standards for CO 2 Capture, Transportation, and Geological Storage Geological storage Quantification & verification (under development) California Air Resources Board -- CCS Protocol Under the Low Carbon Fuel Standard (LCFS) American Carbon Registry (ACR) - Methodology for Greenhouse Gas Emission Reductions from CCS Projects States? 15

16 DRAFT June 11, 2015 Importance of 45Q and Large-Scale CO2-EOR and Storage What to Expect Tomorrow Full Day Seminar -- 45Q and CO 2 -EOR s Vital Role in Carbon Management AM Session: What is 45Q and What is Different Now? Can the Worlds of CCS and CO 2 -EOR Merge PM Session: Qualifying and Using 45Q: A Look into The Future 16

17 Office Locations Washington, DC 4501 Fairfax Drive, Suite 910 Arlington, VA Phone: (703) Advanced Resources International Houston, TX Wickchester Ln., Suite 200 Houston, TX Phone: (281) Knoxville, TN 1210 Kenesaw Ave. Suite 1210A Knoxville, TN