Nobody Is Announcing New CO2 EOR Projects—Here Are Some Reasons To Consider One Anyway

There are two ways to inject CO₂ in the ground and make money. One is to put it into storage—hopefully forever. The other is to inject the gas for enhanced oil recovery (EOR), which leaves a lot of injected CO₂ in the ground.

Vladimir Vikalo is an engineer who has done it both ways. When asked which he likes doing more, he answered, “I’m an old fashioned guy, I like making money.”

The senior staff engineer for Whitecap Resources explained that he preferred engineering projects that profitably added production from old fields, rather than getting paid to create and manage a CO₂ waste disposal site.

The fact that he works for a Canadian company that operates a storage hub at Weyburn —which it says is the world’s largest—and is developing two more sites for CO₂ sequestration shows he is open to going with the current cash flow, which is mostly moving into CO₂ sequestration projects.

Talk about storage also loomed large at the recent CO₂ Conference in Midland, Texas, where the agenda was so dominated by the topic that the conference organizers dedicated a day to presentations highlighting the pros and cons of storage vs. EOR—where operators that recycle the CO₂ need to keep buying gas to make up for the CO₂ that remains in the ground.

For now, the spending is on the storage side. EOR has suffered because carbon emissions have been driving an energy policy that provides larger incentives for storage. Also in the Permian, EOR has been in a deep funk since the shale boom took over a decade ago.

“Nobody is initiating CO₂ EOR projects today because of the long-term nature of investment” compared to the quick payoff for drilling and fracturing horizontal wells, said Steve Melzer, a co-founder of the conference and owner of Melzer Consulting.

While EOR wells can steadily produce oil for many years after a shale well is played out, the ultimate payoff for EOR is subject to the vagaries of long-term oil prices.

In the US, the recent sharp increase in tax credits paid to those capturing CO₂ from industrial waste streams has reinforced that trend by offering more money if the captured CO₂ goes into storage—$85 per ton—than if it is used for EOR—$60 per ton. This has brought in new money.

“The incentives energized people who are really brand new to the game,” said Melzer, who is certain it is just not that simple.

“There is a huge void when it comes to laying out the advantages and disadvantages, and risks associated with deep saline storage,” he said.

Source: Michael Godec, Advanced Resources International.

Pros and Cons

Based on the tax incentive program, the choice looks obvious—the storage credit is $25 higher than the EOR credit. The downside of that is the income is all paid as the gas is injected, like a water disposal site. That revenue stops when the injection ends. But the risk of costly problems in the future lingers.

The credit paid for EOR is lower, based on both the amount paid per ton and the lower volume of gas stored in projects where the goal is to limit the gas used to the level offering a good return on the investment.

However, over time, an EOR project can generate income that narrows the initial credit gap. Doing so requires that those in charge pick the right reservoir and design and execute a profitable project. There is a limited supply of CO₂, good geology, and talented professionals—many of whom are reaching retirement age.

Either CO₂ injection option depends on careful reservoir evaluation to ensure the injected gas is contained at high pressure levels. Those doing CO₂ EOR have a significant advantage when evaluating, planning, and permitting a project because they know the reservoir based on years of production and they are working with regulators with long experience judging if a formation is suitable for EOR.

“EOR can go a little more quickly because you have been operating the field,” Godec said. In contrast, injection experience with long-term sequestration is extremely limited.

As a result, the average review for the Class 2 permit required for EOR takes about 1 to 3 months, compared to from 1 to 3 years for a Class 6 permit for long-term storage, according to a slide in Godec’s presentation.

The time required for review of storage applications is longer and less certain because the regulatory system for it is under development. The flood of permit applications for storage could swamp federal regulators who have been struggling to reduce review times and also work through proposals from states to determine if they could regulate storage as well.

Also, many proposed storage sites are in saline aquifers which have rarely been drilled because there is nothing in them worth producing.

Source: Michael Godec, Advanced Resources International.

Tax Law of Capture

A petroleum engineer looking at Godec’s comparison chart may well prefer trying to make some money with EOR.

Those with subsurface experience know it is not easy to prove a reservoir has the seals above and below to provide “secure geologic storage,” to identify all the old wells to ensure they will not provide leak paths, and to predict how the plume of stored gas will grow in the ground, among other concerns.

It is not as if EOR has gone away. There are companies doing under-the-radar EOR projects. Riley Exploration Permian, a small independent, reported at the CO₂ Conference on a project to develop a marginal conventional prospect using unconventional ideas, like horizontal wells drilled in a wine-rack formation and fracturing producing wells.

Those in the EOR business have long dreamed of the day when gas capture provides large supplies of cheap CO₂. But that will require deals with those capturing the gas.

The US law gives the company capturing the CO₂ the loudest voice in where it goes. Many of those are chemical makers with no desire to get into the oil business. They are likely to choose sequestration if it can cover the cost of installing a CO₂ capture system and also pay third parties to transport and dispose of the CO₂.

Those plans offer the added benefit of potentially increasing a company’s environmental ratings, which are increasingly important when dealing with lenders and the public. Disposal also opens the door to using hydrocarbons to create low-carbon products. Big oil companies may also favor storage for the same reasons.

All of which makes CO₂ EOR a tough sell but in Melzer’s mind not an impossible one.

EOR project planners will need to emphasize the CO₂ storage potential in these fields and put together creative deals where the rewards are shared by all the parties, including the suppliers, and risks are tightly managed.

The big reason: There are huge EOR targets out there. Melzer has long been an advocate for the residual oil zone in the Permian.

Significant oil production is possible with CO₂ injection from the low concentrations of crude in these flooded carbonate formations that are as much as 300 ft thick and can hold a huge amount of CO₂.