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EOR as a Carbon Management Tool

image credit: Source: NRG Energy via Journal of Petroleum Technology

An interesting article from SPE’s Journal of Petroleum Technology which outlines a lot of the econonomic and technical challenges pertaining to Carbon Capture, Utilization and Storage (CCUS). The economic discussion goes into depth regarding the sources of value pertaining to enhanced oil recovery (EOR) and the tax incentives for CCUS. However, it doesn’t really speak to the possibly biggest economic driver for CO2 utilization – an economy-wide price on carbon emissions. A properly crafted carbon tax or cap-and-trade system would change the economics from being demand-driven (through the value of EOR) to being supply driven (finding a less costly home for CO2.)

CO2 EOR Could Be Industry’s Key to a Sustainable Future or Its Biggest Missed Opportunity

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Matt Chester's picture
Matt Chester on Nov 12, 2020

Thanks for sharing, Gary-- are you seeing that oil producers are moving forward with EOR with the assumption that a carbon tax is coming at some point, in some form? Or would EOR be profitable and a prudent decision for them regardless of how that debate plays out? 

Mark Silverstone's picture
Mark Silverstone on Nov 13, 2020

I cannot see it happening.  The numbers just don´t work, especially with EOR.

Even when the economics are aligned, another problem facing CO2 EOR developments is that while they may be ­carbon-neutral upon startup, or even carbon-negative, such status is fleeting.

It is estimated that at least 99% of the CO2 used in EOR remains in the formation forever. Despite this, the carbon-intensity of the operation itself and the inevitable combustion of the produced oil will one day turn the field into a carbon-positive asset....

Lax accounting will always elongate the carbon-negative period. But if the strictest measurements are made, ones that take the full carbon life cycle of an EOR project into account, then a 20-year span of carbon-­negative production becomes more like 5 or 8 years.

However,  I am not sure I follow Gary´s argument here.  Once the asset turns carbon positive, much less than 99% will stay in the reservoir, especially with the "lax accounting".  Am I missing something here?

Of course, a national carbon tax or subsidy of sufficient size per tonne of CO2 sequestered could do it. But, I cannot imagine that it will be done.  Alternatively, just a $1 per gallon tax on the cost of gasoline, with an increase over time, would do more to reduce consumption and carbon emissions. But, that proposal would die long before it reached the Senate, as it has before, even with today´s availability of a good option, i.e. EV. Maybe if Elon Musk can keep his promise for far cheaper EVs, the market will take over and reduce gasoline and diesel consumption.

Gary Scoggin's picture
Gary Scoggin on Nov 13, 2020

Mark, Matt - thanks for your insightful comments...

Mark - the passage you quote is from the original article, they are not mine.  That said, claiming CCUS for EOR is eventually carbon positive due to the combustion of the additional produced oil is true but also misstates the beneift.  On this basis it will likely eventually be carbon-positive but, then again, I've never considered it to be carbon-negative solution, just a lower carbon one.  Suggestions to the contrary, such as occur in the article are, in my opinion, incorrect.  In general, if an additional source of value can be captured for a CCUS application, then great but the future of the approach doesn't rely on EOR.  The market will demand a certain production and if some of this production has a smaller net footprint than great.

My main point for sharing the article was the economics.  As Mark notes, "a $1 per gallon tax on the cost of gasoline, with an increase over time, would do more to reduce consumption and carbon emissions."  What Mark suggests is, in effect, a carbon tax.  If you use the rule of thumb I once heard that one cent per gallon of gasoline equates to about $1/tonne of CO2, then a dollar a gallon is about $100/tonne.  If a carbon market is set up right than this would provide a home for a lot of stored CO2 (not necessarily for EOR) and a reduced demand for gasoline.  A win-win.

With regard to Matt's comment, I personally can't see EOR being a viable CO2 storage option without a carbon price based on two factors.  First, forecasted low oil prices ($50-60 ish) for as far as the eye can see, and second, the unreliability of tax incentives to make long term investments profitable.  There has to be a long-term economic incentive and I believe that is best done through a carbon price.

Matt Chester's picture
Matt Chester on Nov 16, 2020

There has to be a long-term economic incentive and I believe that is best done through a carbon price.

Is this perhaps why we're starting to see momentum on things like Shell pushing for a carbon price as well, in what may sound counterintuitive from a business perspective? Are they hoping the markets will allow that EOR can become a viable part of their future plans while keeping oil assets valuable? 

Roger Arnold's picture
Roger Arnold on Nov 14, 2020

 

I take issue with the quote from the JPT article about the eventual carbon positive nature of oil produced from CO2-based EOR. It's predicated on an assumption that may seem intuitive, but is in fact wrong (IMO): that increasing the amount of oil ultimately recovered from a given field will increase the world total of oil that will be eventually be burned.

That's saying, in effect, that consumption of fossil fuels will be supply limited. I.e, that we won't stop burning them until we run out. If that were true, we all might as well hang it up, because the supply available is enough to fry the planet. We'd recreate the conditons of the PETM, when the tropics and lower temperate latitudes were too hot for mamalian life.

Fortunately, oil has become a demand-limited commodity. Battery technology has crossed a threshold, and EVs are now recognized as more economical than gasoline and diesel-powered transportation. The demand for oil in developed countries has peaked, while the rise that would otherwise be expected in developing countries is restrained by knowledge that BEVs will soon be cheaper to buy and operate. As a result, there is almost no short-term demand elasticity for oil, and only limited long-term elasticity. (I.e, demand for oil responds weakly and slowly to changes in oil prices.)

Under these conditions, oil production increases from one field inevitably translate to reductions from other fields. Or, more likely, to reduced exploration and development of new fields. Which is exactly what we want.

My conclusion: CO2-based EOR is unequivocally carbon-negative, and helpful in fighting climate change.

 

Bob Meinetz's picture
Bob Meinetz on Nov 17, 2020

Roger, just because oil prices suffer short-term oversupply conditions in no way implies the market for oil and gas is demand-limited.

Over time, every drop of oil that has already been extracted, or will be extracted, will eventually be burned. Because EOR makes extracting oil more competitive, it will displace less-competitive choices for at least the near-term - and with climate change, the near-term is all that matters.

Roger Arnold's picture
Roger Arnold on Nov 18, 2020

Naturally, I disagree. Economically speaking, oil has become a classic example of a demand-limited commodity.

For all practical purposes, oil's only use is to fuel transport and operate heavy equipment. Demand is fixed by the miles driven by ICE-equipped cars and trucks, by the extent of projects involving diesel-powerd heavy equipment, tonnage transported by ships, and miles flow by airlines. Of those segments, only airline travel exhibits much price elasticity. And airline travel accounts for a relatively minor part of oil demand. 

Electrification is just begining to eat into the market for oil, but it's a trend that will continue and accelerate. Oil producers are well aware of that. They view their reserves as assets that will be declining in value. Otherwise, they would not be engaging in price wars to squeeze out marginal producers and sell what they have while it still has value. They'd simply cut back production and let prices rise. Then they could sell at a high price what they had held off producing while prices were low.

One could argue that low oil prices undercut the cost of ownership advantages of EVs and thereby slow the shrinkage in oi demand. If that were so, then lower oil prices would indeed increase the amount of oil that will eventually be burned. However, the pace of electrification doesn't appear to be sensitive to the cost of oil.

Production of EVs is now supply-limited by the production of batteries. That's why the world is seeing an explosion of battery gigafactories and new mining ventures for lithium and nickel. EV manufacturers are able to sell all the vehicles they're able to produce, and their margins are good. So the price of oil is unlikely to affect the pace of electrification. Cheaper oil will just force EV makers to lower the price of their vehicles and accept thinner margins.

Which gets us back to oil as a demand-limited commodity facing a shrinking market.

 

Bob Meinetz's picture
Bob Meinetz on Nov 23, 2020

It's been over two decades since oil majors recognized gasoline's future was limited, and began to shift their focus to natual gas (in 2015, Royal Dutch Shell's revenue from gas surpassed that of oil).

Now, the company makes no secret of their quest to dominate global electricity production with gas, the market for which has been steadily growing. One can imagine the conversation in Shell's boardroom: "If electric cars catch on and threaten sales of gasoline, we'll sell the fuel that generates electricity. We'll make "clean" hydrogen from gas by emitting its carbon at the refinery, so customers only see water coming out of their tailpipes. Of course, we'll have to erect a few wind turbines for photographs, so customers will believe our motives are pure."

Though oil might be increasingly demand-limited, there's no indication gas shares that restriction. By any measure, there's more than enough of both demand and supply to make reaching climate tipping points inevitable. After that, nothing much of anything - batteries, lithium, hydrogen, gas, oil - will matter.

Gary Scoggin's picture

Thank Gary for the Post!

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