Global CCS Institute - Day 2 - Keynote - CCUS in the United States
KEYNOTE PRESENTATIONSCCS PROGRESS IN CANADA: Dr Carmen Dybwad – IPAC-CO2CCUS IN THE UNITED STATES: Judi Greenwald – C2ESCCS IN AUSTRALIA: Dick Wells – National CCS Council
A Diverse Coalition Recommends Incentives toAccelerate Commercial Deployment of EOR Using Captured CO2 Judi Greenwald Vice President for Technology and Innovation, C2ES GCCSI International Members Meeting October 11, 2012
Overview of presentation• Why CO2-EOR is so important?• What is National EOR Initiative?• What we all need to do
Background on CO2-EOR Commercial CO2 use to enhance oil recovery is happening now, and it’s bigger than most people realize.• The CO2-EOR industry has 40 years of commercial operational experience (began at significant scale in West Texas in 1972).• Today, CO2-EOR produces nearly 300,000 barrels of oil per day (100 million barrels annually), or about 6 percent of U.S. domestic production.
Why is CO2-EOR so important?• Energy Security o Can at least double U.S. reserves (20 billion barrels) o 27 to 62 billion barrels with existing technology, 67 to 137 billion barrels with next generation techniques• Economic Opportunity o Job creation, increase tax revenues, reduce U.S. trade deficit (cumulatively) by $600 billion by 2030• Environmental Protection o Reduce U.S. GHG emissions by 10-20 billion tons o Drive innovation in carbon capture and storage technology o Produce oil with less environmental impact
Map of Current U.S. CO2-EOR Activity 6Source: NETL, 2010
So why aren’t we doing more of it?Problem: There’s Not Enough CO2We have some ideas about where CO2 might be found…
NEORI’s Three-Part Agenda1. Recommend and advocate for incentives and other policies to support commercial CO2-EOR deployment that are self-financing through revenues from additional incremental oil production.2. Prepare key analyses to inform and support incentive policies for anthropogenic CO2-EOR3. Increase policy-maker, media and public awareness of CO2-EOR, its benefits and the need for deployment incentives.
Project Participants & ObserversCoal and Coal-Based Generation Labor• Arch Coal • AFL-CIO• Basin Electric Power Cooperative • United Transportation Union• Summit Power Group• Tenaska Energy State Officials • Illinois, Indiana, Michigan, Mississippi, Montana, NewIndustrial Suppliers of CO2/Technology Vendors Mexico, Texas and West Virginia• Air Products• Alstom Academic Institutions• Archer Daniels Midland • Enhanced Oil Recovery Institute (University of WY)• C12• GE Energy Observers• Jupiter Oxygen • Oil and Gas• Linde – Chaparral Energy• Praxair – Core Energy • AssociationsEnvironmental NGOs – Interstate Oil and Gas Compact Commission• Clean Air Task Force – North American Carbon Capture and Storage• Natural Resources Defense Council Association• Ohio Environmental Council • Project Developers• Wyoming Outdoor Council – Leucadia Energy
Consensus recommendations released February 2012• Incentives to use captured CO2 in enhanced oil recovery o Federal • Reform of existing Section 45Q tax credit • New production tax credit o State • Model state incentives
Bipartisan Congressional SupportThe following Members of Congress provided statements ofsupport welcoming the NEORI recommendations• Senator Kent Conrad (D-ND) Participated in NEORI media event to release• Congressman Mike Conaway (R-TX) recommendations• Senator Max Baucus (D-MT)• Congressman Rick Berg (R-ND)• Senator John Hoeven (R-ND)• Senator Richard Lugar (R-IN)This bipartisan interest has translated into…
Conrad-Enzi-Rockefeller bill (S. 3581) just introduced on 45Q Reform– Introduced 9/20/2012– Incorporates NEORI 45Q recommendations– Improves functionality and transparency of existing program • Clarifies eligibility for this existing tax credit • Establishes a clear process for projects to “reserve” credits in advance – Incentive valuable in and of itself; certainty of incentive helpful for obtaining private financing • Establishes transferability of tax credit along CO2 value chain • Clarifies that future regulatory changes do not affect prior crediting– Little or no fiscal implications– 45Q would incentivize the capture of 75 million tons of CO2
NEORI also recommends a new production tax credit• Bridge the cost gap between what CO2-EOR operators are willing to pay and the cost of capture• Credit goes to those who capture, but only once the CO2 is used for EOR• More than pays for itself because captured CO2 ->incremental oil production->profit->tax revenue• No change in existing tax treatment for oil• Combine federal incentive with CO2 market price
Production tax credit provisions• 10-year PTC• Two design objectives – Minimize costs – Drive innovation• Competitive bidding/reverse auction• Divided into tranches and subtranches for different CO2 sources
New Production tax credit• Tranches and sub-tranches – Pioneer (first mover) • Power • Industrial – Power – Industrial • Low cost industrial • High cost industrial
More anthropogenic CO2 can become available at higher prices . . . (Illustration with EIA 2011 data, prices differ from previous slide) Power plant CO2 supply potentially larger 16
Incentives are needed: For the largest CO2 supply sources, high oil prices will not be enough . . . CO2 Market Price Representative EOR Core Scenario + (*Starting 2013, Incentive (for Transp. Costs Willingness To Pay) illustration purpose) (A) (B) (A-B)Power Plant Tranche ($/tonne) ($/tonne) ($/tonne) Pioneer - First of a Kind Projects $70 $33 $37 Projects #2-#5 $60 $33 $27 Nth of a Kind (Projects #6-onward) $55 $33 $22Industrial - Low Cost Tranche ($/tonne) ($/tonne) ($/tonne) Pioneer- First of a Kind Projects $38 $33 $5 Projects #2-#5 $38 $33 $5 Nth of a Kind (Projects #6-onward) $38 $33 $5Industrial - High Cost Tranche ($/tonne) ($/tonne) ($/tonne) Pioneer- First of a Kind Projects $65 $33 $32 Projects #2-#5 $55 $33 $22 Nth of a Kind (Projects #6-onward) $45 $33 $12 17
Analytical Study• “Cost gap” analysis – Determine difference between willingness to pay by EOR operators and cost of carbon capture, storage and transportation• “Revenue neutrality” analysis – Compare cost of new CO2-EOR incentives with new federal revenues directly resulting from incremental new CO2-EOR production in the form of royalties on Federal lands plus severance and corporate income taxes. Analysis suggests “revenue neutrality” within 10-year window and significant net positive revenues over long term
Program revenuesgreatly exceed costs over time…
State-level RecommendationsModel complementary policies to federal incentives• Severance tax reduction and/or extension of existing severance tax reduction for oil produced with CO2 from anthropogenic sources.• Cost recovery approval for regulated entities.• Off-take agreements.• Tax credits, exemptions, or abatements for CO2 capture• State-level bonding of CO2 pipeline projects and/or capture and compression facilities.• Inclusion of CCS with EOR in electricity portfolio standards.See full report to see examples from specific states
PHASE II ActivitiesAnalysis:• Demonstrate benefits; evaluate the implications of alternative policies• Incorporate new dataEducation and Outreach:• Expand NEORI and coordinate participant efforts• Expand, tailor and disseminate materials• Briefings, conferences, webinars, workshops, one-on-one meetings, earned media, op-eds, website, blogs• Promote peer learning among state officials
Prognosis• 45Q reform possible this year; broader PTC probably will take longer• Many states can act• You can help
Benefits to Increasing CO2-EOR• Increase U.S. oil production by accessing domestic reserves with captured CO2; – U.S. CO2-EOR potential equals 27 to 62 billion barrels with existing technology, 67 to 137 billion barrels with next generation techniques; current U.S. proven reserves are around 20 billion barrels• Lower trade deficits/Strengthen America’s national security by reducing dangerous dependence on unstable and/or hostile regimes supplying the world oil market; – An increase in oil production from EOR has the potential to reduce net crude oil imports by half and provide up to $210 billion in increased state and federal revenues by 2030. – EOR could reduce the U.S. foreign trade deficit by $11-$15 billion dollars in 2020 and $120- $150 billion by 2030.• Create new, high-paying American jobs and retain and attract private sector investment in the U.S. economy for capturing CO2, transporting it, and boosting U.S. oil production; – Cumulatively by 2030, this reduction in oil imports would keep $600 billion here at home, generating additional economic activity, high-paying jobs and revenues, rather than flowing out of the U.S. economy to other countries.• Enable commercial deployment of CCS industry to the long-term benefit of coal, natural gas, ethanol and other domestic industrial sectors;• Facilitate compliance and participation in low-carbon fuels markets by oil, natural gas and ethanol producers; and• Achieve significant net carbon reductions through sequestration in depleted oil fields.
Federal Production Tax Credit for CO2 CaptureKey Elements• Provided to owners of CO2 capture equipment installed on a broad range of power plants and industrial processes, with the potential to supply significant volumes of CO2 to the EOR industry;• Limited to covering the additional incremental costs of new CO2 capture, compression, and transport;• Allocated through competitive bidding process, by source category• Awarded to qualifying projects over a ten-year period based on performance;• Designed with transparent registration, credit allocation, certification, and public disclosure;• Provided with no limits on project scale or on the aggregation of different CO2 sources into a single project to enable participation of smaller industrial facilities;• Designed to ensure that the program achieves ongoing technology innovation, CO2 emission reductions, and cost reductions for CO2 capture, compression, and transport; and• Designed with explicit safeguards to penalize non-compliant projects, limit taxpayer expenditure, and modify the program to ensure net positive federal revenues.
NEORI Analysis suggests significant oil production and revenues over time… Cumulative Cumulative Incremental CO2-EOR Cumulative NetTime Phase CO2 Storage Oil Production Present Value ($) (tonnes) (Barrels)2013-2022 400 million $2 billion2023-2032 2.5 billion $31 billion ~4 billion2033-2042 6 billion $73 billion2043-2052 9 billion $100 billion
Current CO2 Supply for EOR• Some CO2 for EOR already comes from industrial sources• Today, the U.S. EOR industry uses 72 million tonnes of CO2 per year — profitably and without serious reported injuries, accidents or environmental harm. CO2 Supply (Mt/year) Source Type (Location) Natural AnthropogenicColorado, New Mexico (Geologic) 33 -Texas (Gas Processing) - 6.4Wyoming (Gas Processing) - 6.6Mississippi (Geologic) 22 -Oklahoma (Fertilizer Plant) - 0.7Michigan (Gas Processing) - 0.3North Dakota (Coal Gasification) - 3 Total 55 17U.S. Department of Energy (2011), Improving Domestic Energy Security and Lowering CO2 Emissions with “NextGeneration” CO2-Enhanced Oil Recovery (CO2-EOR), DOE/NETL-2011/1504, citing Advanced Resources International(2011). 29
And the oil production potential is vast… Incremental Technically Recoverable Incremental Economically RecoverableProjected CO2- Oil OilEOR Resources: (Billion Barrels) (Billion Barrels) Best Practices Next Generation Best Practices Next Generation Lower 48 Onshore 55.7 104.4 24.3 60.3 Total 61.5 136.6 29.6 67.2Source: U.S. Department of Energy (2011), Improving Domestic Energy Security and Lowering CO2 Emissions with“Next Generation” CO2-Enhanced Oil Recovery (CO2-EOR), DOE/NETL-2011/1504.• An additional 26-61 billion barrels of oil could economically be recovered with today’s EOR technologies, potentially more than doubling current U.S. proven reserves.• Moreover, “next generation” EOR technology could yield substantially greater gains, potentially increasing recoverable domestic oil from EOR to 67-137 billion barrels, and storing 20-45 billion metric tons of CO2 that would otherwise be released into the atmosphere in the long term. 30
Enhancements to 45Q Tax CreditTo avoid stalling important commercial CO2 capture projects underdevelopment, there is an urgent need to improve the functionality andfinancial certainty of the 45Q federal incentive. Key Elements:• Designate the owner of the CO2 capture facility as the primary taxpayer;• Establish a registration, credit allocation, and certification process;• Change the recapture provision to ensure that any regulations issued after the disposal or use of CO2 shall not enable the federal government to recapture credits that were awarded based on regulations that existed at that time; and• Authorize limited transferability of the credit within the CO2 chain of custody, from the primary taxpayer to the entity responsible for disposing of the CO2
Education and OutreachMaterials for policy-makers, media and public:• Address lack of awareness of commercial CO2-EOR and its economic, energy security and environmental benefits: – Full NEORI report; – Two pagers on: overview of CO2-EOR, economic benefits, environmental benefits, agriculture, and safety; and – Forthcoming: two-pagers on importance and benefits of CO2-EOR to the coal industry, natural gas industry, and potentially other sectors.