BASIN STRATEGIES FOR LINKING CO 2 ENHANCED OIL RECOVERY AND STORAGE OF CO 2 EMISSIONS

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1 BASIN STRATEGIES FOR LINKING CO 2 ENHANCED OIL RECOVERY AND STORAGE OF CO 2 EMISSIONS David J. Beecy 1* and Vello A. Kuuskraa 2 1 U.S. Department of Energy. Washington, DC USA 2 Advanced Resources International, Inc., Arlington, VA USA ABSTRACT An early, value-added opportunity for productively using and storing captured CO 2 emissions is CO 2 -based enhanced oil recovery (EOR). Earlier work by Advanced Resources, as sponsored by the IEA GHG Program, placed the worldwide CO 2 -EOR potential at 340 billion barrels of technically recoverable oil resources and the CO 2 storage potential at 120,000 million tons, sparking high interest in this dual energy production and GHG emissions reduction strategy. This paper reexamines and updates the CO 2 -EOR and CO 2 storage potential for the U.S. and selected other oil producing countries. It sets forth a series of basin strategies that would stimulate this dual energy and environmental activity in the major oil basins of the world. A field-by-field data base and an updated reservoir and economic model provide the foundation for this analysis. Of particular emphasis in the paper is the discussion of two topics: (1) the impact of incentives, such as carbon credits or tax credits, on the outlook and economics of CO 2 - EOR and CO 2 storage; and, (2) the role that public-private partnerships and progress in technology can and needs to have on expanding the reservoir capacity and fields favourable for EOR and CO 2 storage. BACKGROUND CO 2 -based enhanced oil recovery (CO 2 -EOR) offers an opportunity to combine two high priority national and international objectives, namely: increase world oil supplies and safely store CO 2 emissions. As such, the oil production industry could become a major customer and market for CO 2 emissions captured from electric power plants and industrial sources. While the potential is large, considerable additional information is required to: 1. Establish the nature and size of the CO 2 -EOR and CO 2 storage market, at a sufficiently detailed level for each of the major oil producing basins. 2. Develop an understanding of the price that various CO 2 -EOR basin operators can afford to pay for captured CO 2, reflecting the volume of CO 2, its distance to the oil basin, and the quality of the oil fields in the basin. 3. Examine the needs for public-private partnerships, including policies, incentives, advanced CO 2 -EOR R&D/field demonstration projects, and zero emission hydrocarbon processing plants, that would encourage large scale joint CO 2 -EOR and CO 2 storage activities in each of the major oil basins. This paper examines the currently available information on CO 2 -EOR activities for insights as to how an integrated strategy of policy, economic incentives and advances in technology could accelerate the application of CO 2 -EOR and CO 2 storage. OVERVIEW OF CO 2 -EOR EFFORTS A network of CO 2 sources and pipelines is beginning to emerge for CO 2 -EOR in the U.S., Figure 1. A steadily expanding pipeline network is linking U.S. and Canadian oilfields to natural sources of CO 2, as well as to a growing mix of sources that now provide nearly 10 million tons per year of industrial CO 2 for EOR, Table 1. West Texas. The poster child for CO 2 -EOR is the Permian Basin in West Texas. Purchase of CO 2 in the basin for EOR has averaged about 1.2 Bcfd (23 million tons per year) for the past 17 years, Figure 2. CO 2 -based oil production in the basin is currently about 170,000 barrels per day and accounts for over 80% of total worldwide CO 2 -EOR production, Figure 3[1]. The availability of CO 2 initially from natural gas processing plants and later * Corresponding author: david.beecy@hq.doe.gov

2 from major natural CO 2 accumulations, such as McElmo Dome and Bravo Dome, provided the cornerstone for the CO 2 -EOR industry in West Texas and helped stem the oil production decline in this basin. Figure 1: Current U.S. CO 2 sources, pipelines and projects. TABLE 1: CO 2 -EOR PROJECTS USING AND STORING INDUSTRIAL CO 2. Figure 2: Annual delivery of purchased CO 2 to the Permian Basin.

3 Figure 3: CO 2 -based enhanced recovery has helped stem the oil-production decline in western Texas and serves as a model for the world. Wyoming. Anadarko announced the initiation of two new CO 2 -EOR and CO 2 storage projects in Wyoming, using industrial CO 2 from the LaBarge natural gas treating plant, Figure 4,[2]. The first project at Salt Creek, a geologically challenging oil field, will inject 100 MMcfd (2 million metric tons per year) of CO 2 to produce a peak of 30,000 incremental barrels of oil per day, provide 150 million barrels of additional oil recovery, and store 25 million tons of CO 2 over its 30 year project life. A new 125 mile CO 2 pipeline extension delivers the CO 2 to the Salt Creek Field. The second project at the Monell Unit (Patrick Draw Field) will inject 50 MMcfd (1MMt/yr) of CO 2 to produce a peak of 10,000 incremental barrels of oil per day. CO 2 storage is estimated (by the authors) at 10 million metric tons. A new 33 mile pipeline spur delivers the CO 2 to the Monell Unit. Figure 4: New CO 2 projects in the greater Green River and Powder River basins of Wyoming.

4 As part of a public-private partnership, the State of Wyoming has: (1) encouraged the capture and productive use of CO 2 from its gas processing facilities, coal-fired power plants and oil refineries; (2) provided incentives in the form of severance tax relief for CO 2 -EOR; and, (3) identified 50 significant oil fields as future candidates for CO 2 - EOR, holding a potential of 1 to 2 billion barrels of recoverable resources and potential for storing several hundred million metric tons of CO 2. Canada. EnCana is operating the largest CO 2 -EOR flood in Canada, at the Weyburn Unit in southern Saskatchewan. The 95 MMcfd of CO 2 used at Weyburn is captured and then transported by a 190 mile (320 km) pipeline from the Dakota Gasification Co., Beulah, ND to the field site. The project anticipates recovering 130 million barrels of incremental oil with a peak rate of 25,000 barrels per day and storing 14 million metric tons of CO 2.[3] An important finding is that it took dedicated work by a public-private partnership to launch this project, particularly for providing royalty relief to the CO 2 -EOR project, and financing for establishing the CO 2 capture and transportation infrastructure. Vietnam. An innovative gravity-stable flood is proposed for recovering over 700 million barrels of oil, equal to 21% of the original oil in-place, from the offshore White Tiger Field, Vietnam. The economic feasibility of this project requires low-cost, post combustion CO 2 capture technology providing 30,000 metric tons per day (11 MMmt/yr) of CO 2 from a 4,000 MW natural gas-fired power generation facility using advanced MHI amines.[4] A public-private partnership, providing a royalty/tax holiday during the initial project years and credits for storing CO 2, will be essential for launching this major oil recovery and CO 2 storage project. AN AFFORDABLE PRICE FOR CO 2 The topic of affordable prices for EOR-Ready CO 2 is a most critical issue. Price is what brings value to the CO 2 captured from industrial process and power plants, while it brings costs to the field operator looking to use CO 2. Each party is seeking to maximize value. Given the geological diversity of oil fields, variations in the performance of these fields under CO 2 -EOR technology, and the distances of these oil fields from the CO 2 source, a great variety of prices will emerge. For example: In some cases, the maximum an oil field operator can afford is free CO 2 at the plant gate. The oil field operator may arrange for CO 2 transportation and storage, helping the plant operator avoid these costs. In other cases, the maximum the oil field operator is willing to pay is the competitive price being offered for natural (or natural gas plant by-product) CO 2, such as in West Texas, Louisiana and Wyoming. A working rule of thumb for the price of natural CO 2 delivered to a West Texas oil field at pressure is on the order of 3% of the oil price. Assuming 5 Mcf of purchased CO 2 (plus 5 Mcf of recycled CO 2 costing 1% of the oil price), the overall costs for CO 2 to the oil field operator would consume one-third of the oil price, once return on capital for purchased CO 2 and for the CO 2 recycle plant are included. SIZE OF THE STRANDED OIL PRIZE The U.S. has nearly 400 billion barrels of oil in-place, remaining stranded after primary and secondary recovery. A preliminary assessment indicates that 30 to 60 billion barrels of this stranded oil may be technically recoverable using CO 2 -EOR, Figure 5. These resources are sufficient to provide 1 to 2 million barrels of additional domestic oil production by The lower numbers reflect application of currently available CO 2 -EOR technology to geologically favourable oil reservoirs. The upper numbers reflect application of advanced, more efficient CO 2 -EOR technology to both the favourable as well as the geologically challenging oil reservoirs. A preliminary review of certain of the mature oil basins in Canada, Mexico, South America and the North Sea, indicate another 60 billion barrels of CO 2 -EOR potential, as tabulated in Table 2.[5] Advanced technology could double these recoverable resource values. Including the CO 2 -EOR potential for oil fields in the Middle East, the Caspian Sea, Siberia and other major international oil basins would add greatly to these totals. An updated estimate (by the authors) for the worldwide potential of CO 2 -EOR is on the order of 600 billion barrels, assuming advanced CO 2 -EOR technology and the ability to efficiently pursue the geologically challenging oil reservoirs of the world.

5 Figure 5: Much of the domestic oil resource is stranded because of limits in traditional oil recovery technology. TABLE 2: CO 2 -ENHANCED OIL RECOVERY POTENTIAL IN SELECTED MATURE INTERNATIONAL OIL BASINS. BARRIERS FACED BY CO 2 -EOR The current level of success with and interest in CO 2 -EOR and CO 2 storage is impressive, particularly given the major economic barriers this process faces. CO 2 -EOR requires a more costly and front-end loaded investment than traditional primary/secondary recovery of oil, due to the investment capital needs for field development and purchase of CO 2.[6] The economics are also hampered by the still relatively inefficient nature of the currently available CO 2 -EOR technology. While certain of the high quality oil fields, or oil fields close to low-cost sources of CO 2, are being produced with CO 2 -EOR, for the great majority of oil fields the CO 2 -EOR process remains uneconomic under current conditions and oil price risks.

6 Contributing to the problem is the imbalance in the risk-reward structure. The oil industry assumes the entire investment risk of the CO 2 -EOR project while Federal and State governments capture the bulk of the rewards, as illustrated below for a typical CO 2 -EOR project in the U.S.: Under a $25 per barrel oil price case, Table 3A, the Federal, State and local governments capture revenues of $5.00 per incremental barrel of oil, through royalties, production and ad valorem taxes, and corporate income taxes. The oil company receives $3.30 (per barrel of oil) from the CO 2 -EOR project, which provides an insufficient return on the $8.50 (per barrel of oil) capital investment and cost for CO 2. Rebatement of the $5.00 per barrel of transfer payments, through a combination of carbon credits, royalty relief or tax rebates, would increase the cash flow and enable this CO 2 -EOR project to realize an adequate return on investment. Should oil prices drop to $15 per barrel, Table 3B, the CO 2 -EOR project generates stranded assets and costs even with lower cost CO 2, producing a loss for the oil company. However, the Federal, State and local governments continue to receive significant revenues. Should the oil price increase and remain at $35 per barrel, Table 3C, the CO 2 -EOR project is economic and provides a reasonable return on investment to the oil company. However, the Federal, State and local governments still capture the majority of the net revenues. TABLE 3A: FOR CO 2 -EOR, THE OIL INDUSTRY ASSUMES THE RISK; FEDERAL AND STATE GOVERNMENTS CAPTURE THE MAJORITY OF PROFITS. AT MEDIUM OIL PRICES, THE CO 2 -EOR PROJECT DOES NOT PROVIDE AN ADEQUATE RETURN OF INVESTMENT. TABLE 3B: AT LOWER OIL PRICES, THE CO 2 -EOR PROJECT INCURS A LOSS TO THE OIL INDUSTRY; FEDERAL AND STATE GOVERNMENTS STILL RECEIVE REVENUES.

7 TABLE 3C: AT HIGHER OIL PRICES, THE OIL INDUSTRY RECEIVES AN ADEQUATE RETURN OF INVESTMENT; FEDERAL AND STATE GOVERNMENTS STILL CAPTURE THE MAJORITY OF THE PROFITS. PUBLIC-PRIVATE PARTNERSHIPS AND BASIN STRATEGIES As introduced above, variety of actions could help correct the risk-reward imbalance for CO 2 -EOR. These include: (1) reduction (or elimination) of royalties on Federal and State lands for CO 2 -EOR projects for a period of time; (2) reduction (or elimination) of State or local production and ad valorem taxes for CO 2 -EOR projects, again for a period of time; (3) Section 29 like tax credits for incremental oil produced from CO 2 -EOR; and, (4) buydown (using Federal cost-sharing) of the basin-entry and technology risks faced by the initial CO 2 -EOR demonstration projects in each basin. In all cases, the policies and incentives should be performance-based. A unique combination of these actions and incentives for CO 2 -EOR may be required for each oil basin, depending on the royalty mix, level of State production taxes and the geological/technical risks inherent in the oil basin. In addition to the economic incentive options, a series of other actions could significantly accelerate the application of CO 2 -EOR with CO 2 storage: One action would be to conduct joint research and field demonstration projects of advanced, more efficient CO 2 -EOR technology, adapting the research and field projects to the geological challenges posed in each basin. By making the oil recovery process more efficient, the operator would use more CO 2 and also be able to afford a higher price. A second action that would greatly expand the supply of affordable CO 2 is developing lower-cost technology for capturing CO 2 emissions from all hydrocarbon processing and upgrading facilities, as well as from all high volume, high CO 2 concentration industrial vents in proximity to the high potential oil basins. A third action would be establishing the backbone for a set of transportation systems that would optimally deliver CO 2 to each of the high potential oil basins. This is one area where the CO 2 -EOR program and the entities interested in carbon sequestration should work together. Similar large scale CO 2 transportation systems have been studied for the North Sea by Kinder Morgan and European entities. Each of these actions, whether it be the structuring of policies and incentives, the sponsorship of research on CO 2 - EOR, the development of lower-cost CO 2 capture technology, or the design of a regional CO 2 transportation network, calls for a public-private partnership, including Federal, State and local government as well as private royalty owners, and the molding of this set of options to the special needs of each basin. PATH FORWARD Work is underway to examine the EOR and CO 2 storage potential in key U.S. oil basins. The work involves examining the geological characteristics of major oil fields, testing alternative flooding technologies; examining the available CO 2 sources, volumes and costs; calculating CO 2 storage capacity; and, estimating economic feasibility. Developing a more rigorous path forward for CO 2 -EOR and CO 2 storage requires three steps:

8 First, assemble the baseline geological and reservoir data essential for assessing CO 2 -EOR oil recovery and CO 2 storage capacity on a field by field basis for the major oil basins of the world. Second, examine how advances in CO 2 -EOR technology, such as the use of gravity-stable flooding and horizontal wells among other innovative practices, could dramatically increase CO 2 storage capacity as well as oil recovery efficiency. Third, pursue technologies that would enable a much larger class of oil reservoirs, particularly the geologically complex and heavier oil reservoirs, become viable candidates for CO 2 -EOR, further expanding CO 2 storage capacity. Preliminary results from the basin assessment work in the three main California oil basins San Joaquin, Los Angeles and Coastal/Ventura indicates that up to 6 billion barrels of oil may be recoverable with state of the art technology and up to 1 billion tons of CO 2 may be stored with advanced CO 2 -EOR technology. Previous work reflecting traditional technology had provided a mixed outlook for the CO 2 -EOR and CO 2 storage potential for California [7, 8]. A second area being addressed are the oil fields in Louisiana, Mississippi and East Texas, an area with a high concentration of electric power plants, refineries and other industries with high rates of CO 2 emissions. An up-todate data base has been assembled for the major fields in this region. The preliminary results from the basin assessment work indicates that up to 9 billion barrels of oil may be recoverable from these three areas with state of the art CO 2 enhanced oil recovery technology, providing storage for over a billion tons for CO 2. The third area to be addressed will be the mature oil basins of eastern Oklahoma and central Illinois, as well as the challenging oil reservoirs of the North Slope of Alaska. Each of these basins will most likely require its own basin strategy, including a unique public-private partnership to launch CO 2 -EOR and CO 2 storage. Economic studies will accompany these resource studies to determine how much of this technically recoverable resource will be economically feasible to pursue as a function of world oil price and CO 2 costs. The study will also examine alternative public-private partnership strategies involving field demonstrations of CO 2 -EOR, lower-cost technology for capture of CO 2 from zero emission hydrocarbon processing, basin-opening R&D/pilot projects of advanced CO 2 flooding technology, and royalty/tax incentives and policies. Of particular interest will be assessing what combination of actions would help launch an accelerated application of CO 2 -EOR and CO 2 storage in the major oil basins of the U.S., and by analogy of the world. CONCLUSIONS The major findings from this paper are: 1. There is compelling logic for a symbiotic working relationship between CO 2 -EOR programs and carbon sequestration programs in all areas of the world. One of the goals of carbon sequestration is developing technology for lower cost capture of CO 2, thus providing lower-cost CO 2 supply. One of the goals of CO 2 - EOR is to expand the application and thus the use and value of CO 2. These are mutually supportive goals. 2. The benefits of CO 2 -EOR are shared by many. CO 2 -EOR provides a market for captured CO 2 emissions, helping defray some, to an important portion, of the costs of CO 2 capture. It provides substantial revenues from royalties, production taxes and income taxes on the incremental oil production to Federal and State governments. For the U.S., assuming a CO 2 -EOR target of 2 million barrels per day, these sources would provide $4 billion of annual revenues to Federal and State treasuries. Finally, CO 2 -EOR would provide increased world oil supplies, helping mitigate otherwise higher oil prices. 3. Successful application of CO 2 -EOR will bring substantial jobs and regional economic benefits, as well as environmental benefits of lower carbon intensity, less land disturbance and lower water use. 4. In the great majority of cases, particularly for joint CO 2 -EOR and CO 2 storage projects, new policies, investment incentives and public-private partnerships will be required to launch the projects. Equally important will be the construction/expansion of CO 2 transportation systems, linking all CO 2 sources, natural and industrial, to the high priority oil basins of the world. As the need for CO 2 capture and safe storage moves to the forefront, such public-private partnerships and infrastructure development will become even more essential.

9 REFERENCES 1. Moritis, G EOR continues to unlock oil resources, Oil and Gas Journal, Vol. 102, No.14: Anadarko Operations Report, First Quarter. July 29, Adair, R EnCana The Weyburn CO 2 flood (Saskatchewan) performance update, presented at the 2003 CO 2 Conference, Society of Petroleum Engineers/The University of Texas of the Permian Basin, December Imai, N. and S. Reeves Feasibility study on CO 2 EOR of White Tiger Field in Vietnam (CO 2 capture from Phu-My Power Plant), presented at Third Annual DOE Conference on Carbon Capture and Sequestration, Alexandria, VA, May Stevens, S Sequestration of CO 2 in Depleted Oil and Gas Fields: Barriers to Overcome in Implementation of CO 2 Capture and Storage (Disused Oil and Gas Fields), IEA Greenhouse Gas R&D Programme, IEA/CON/98/ Jarrell, P., C. Fox, M. Stein, and S. Webb Practical Aspects of CO 2 Flooding. SPE Monograph Vol. 22, Henry L. Doherty Series, 214p 7. Parsons Coal-based Power Generation for California with CO 2 Removed for Enhanced Oil Recovery. Report No. EJ , Jeschke, P.A., et al CO 2 flooding potential of California oil reservoirs and possible CO 2 sources. In: Proceedings of 2000 SPE/AAPG Western Regional Meeting, SPE Paper 63305, June 19-23, Long Beach, California.