COLUMN-U.S. bets on producing oil with captured CO2: John Kemp

Mon Jul 30, 2012 11:26am EDT

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(John Kemp is a Reuters market analyst. The views expressed are his own)

By John Kemp

LONDON, July 30 (Reuters) - The United States can extract billions of barrels of otherwise unrecoverable oil by injecting carbon dioxide (CO2) underground and also needs to bury CO2, produced by its reliance on coal for power and industry, to fight climate change.

Until now, the CO2 used for recovering oil has been specially extracted from underground but the government is working to use the lure of oil extraction to encourage the capture and storage of carbon produced from power stations.

Pumping carbon dioxide into depleted fields to recover oil left behind by conventional production methods and waterflooding accounts for more than 300,000 barrels per day (bpd) of U.S. oil output, according to a survey published earlier this year in the Oil and Gas Journal, up from 200,000 bpd in 2004 and less than 100,000 bpd in 1990.

The first commercial-scale carbon dioxide injections to support enhanced oil recovery (EOR) began at Scurry County, Texas in 1972. Since then, the United States has become the largest employer of CO2-EOR technology in the world.

In 2012, CO2 injection was being used to support EOR at more than 100 projects across the United States, up from around 50 in 1990 ("Miscible CO2 now eclipses steam in U.S. EOR production" Oil and Gas Journal, April 2, 2012).

Ironically, given that policymakers are worried about global warming as a result of man-made emissions, almost all the CO2 being used in EOR projects comes from natural sources.

CO2 is produced from underground formations where it occurs naturally, transported by pipeline, then pumped back into depleted oil fields to support oil extraction. There is no net benefit in terms of reduced atmospheric CO2.

Most CO2-EOR projects are concentrated in Texas, Wyoming, Louisiana and Mississippi, close to natural CO2 sources. In contrast, California's depleted oil fields mostly inject hot steam, producing around 300,000 bpd by this technique in 2012.

Shortages of CO2 from natural sources at reasonable prices have emerged as the main constraint on producing more oil by this method.

"The single largest barrier to expanding CO2 flooding is the lack of substantial volumes of reliable and affordable CO2," according to a comprehensive survey prepared by Advanced Resources International (ARI), a consultancy firm.

According to the authors, in the Permian Basin of west Texas, as well as Wyoming and Mississippi, EOR output "is constrained by CO2 supply, and CO2 production from currently supply sources is fully committed" ("U.S. oil production potential from accelerated deployment of carbon capture and storage" March 2010).

RECOVERING STRANDED BARRELS

EOR through CO2 injection offers the perfect combination for policymakers concerned about the cost of curbing global warming and anxious to wean the United States off dependence on foreign oil.

From an energy perspective, it promises to extend the life of existing oil fields, and help recover billions of barrels of oil that would otherwise remain "stranded", unavailable for commercial use.

Most oil fields go through three phases of production during their lifetime. During primary production, oil is produced using the natural pressure of the reservoir. In secondary production, sometimes called "improved oil recovery" (IOR), water or sometimes natural gas is pumped into the reservoir to maintain output as natural pressure falls.

But even after waterflooding, 60 percent or more of the oil originally in place (OOIP) is still typically left in the reservoir. CO2 injection (and other EOR methods) can recover an addition 5-20 percent, depending on the type of oil and the reservoir geology.

The potential for gleaning extra oil from aging fields is therefore enormous. Excluding the deepwater areas of the Gulf of Mexico, the United States was originally endowed with 596 billion barrels of oil, of which 175 billion had been produced by 2008, and another 21 billion had been booked as proved reserves, according to ARI.

That still leaves 400 billion barrels "stranded" after primary and secondary recovery ("Storing CO2 with enhanced oil recovery" May 2008).

According to the Department of Energy's National Energy Technology Laboratory (NETL), the Wasson Field in West Texas began producing in 1938, and production peaked in the mid 1940s. As natural field pressure and output declined, waterflooding began in 1965 and continued through 1982, by which point the wells were producing far more water than oil.

CO2 injection commenced in 1983. By 1998, the field was still producing 31,500 barrels per day, of which nearly 29,000 were "incremental" barrels attributable to CO2 injection.

CO2-EOR produced an extra 120 million incremental barrels from Wasson between 1983 and 2008 that would not have been produced if the field had been allowed to decline naturally, according to NETL ("Carbon dioxide enhanced oil recovery: untapped domestic energy supply and long-term carbon capture solution").

In 2010, ARI estimated that employing current best practices, EOR-CO2 could enable an extra 85 billion barrels of oil to become technically recoverable (72 billion barrels in the Lower 48 states). At an oil price of $70 per barrel and a delivered CO2 cost of $15 per tonne, 48 billion barrels would be economically recoverable (38 billion in the Lower 48).

Estimates for both recoverable reserves and cost are subject to uncertainty; most of these studies may have erred on the side of optimism since the Energy Department and others are keen to promote the benefits of EOR. Nonetheless the potential is obvious, and CO2-EOR is competitive with other forms of oil production, at costs well below current oil prices.

EARLY ACTION PATHWAY ON CCS

From a climate perspective, carbon capture and storage (CCS) remains an essential part of policy in the United States and Europe, despite the lack of commercial projects on any significant scale to capture emissions from power plants.

CCS is crucial to ensuring the continued viability of coal-fired power generation (and to a lesser extent natural gas) while meeting CO2 reduction targets.

Coal reserves are simply too large a part of the total hydrocarbon base to write them off for climate reasons. The policy problem is especially acute in the United States, which has the world's largest coal reserves, and where coal is vital to the economy of several politically contested states.

Burning coal therefore has to be made politically and environmentally acceptable, even if there is still scepticism about the seriousness of the "clean coal" mantra, which many environmental groups and policy analysts still regard as little more than clever branding campaign. The same problem applies albeit to a lesser extent to natural gas.

EOR cannot sequester all the CO2 being produced in the United States each year. At most it can make a small contribution. Total U.S. CO2 emissions from industrial sources are about 100 trillion cubic feet per year, according to NETL. So far the cumulative amount of CO2 injected under EOR programmes since 1972 is just 11 trillion cubic feet, about 10 percent of one year's CO2 emissions.

Even if CO2-EOR is scaled up massively in the next 20 years, most CO2 emissions would still have to be stored in other formations such as salt-water aquifers.

For policymakers, the real significance of CO2-EOR is its potential to act as a catalyst or "early action pathway" to overcome barriers to a wider roll out of CCS infrastructure.

CO2 capture and storage is capital intensive and immensely costly at every stage: technology for stripping it out of the combustion exhaust; pipelines for transport; wells for injection; and an appropriate monitoring, compliance, legal and regularly framework. In practice the costs are often prohibitive. But if the captured CO2 that is a by-product of combustion can be given a value as an input into EOR, the effective costs are reduced.

Crucially, there are significant scale and network economies. Once pipelines have been built to transport CO2 to EOR projects, it is much cheaper to build out the network to store additional volumes in other non-oil bearing formations.

HEAVY TECHNOLOGY FUNDING

Advocates and policymakers hope successful CO2 injection in EOR projects can win public and regulatory acceptance, and sort out legal issues such as long term liability and who actually owns the empty space in the rock formations that the CO2 is being injected into.

If this all sounds very ambitious, it is. But CO2-EOR is such an obvious win-win technology with the potential to transform the oil industry and climate policy, that policymakers are betting heavily on it.

The Department of Energy is busy rebranding carbon capture and storage (CCS) as carbon capture utilisation and storage (CCUS).

CO2-EOR already benefits from an extensive array of federal and state tax incentives (most introduced in the late 1970s and 1980s to boost flagging national oil production). Now the Energy Department is funding advanced research on CO2 capture technologies, sequestration and EOR.

The federal government is currently part-funding seven advanced "Next Generation" CO2-EOR projects, including publicly available software to help operators assess whether CO2 injection would be economic in small fields.

It is the sort of small-scale, early-stage funding the government provided to help commercialise infant fracking technology in the 1970s-1990s, transforming the oil industry.

The U.S. government is betting that early-stage technology backing for a big expansion of CO2-EOR could have an even bigger pay off in terms of climate change and future energy security. (Editing by Anthony Barker)

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