Speakers in Midland cited a number of recent events that demonstrate the convergence of the market for commodity CO₂ for use in enhanced oil recovery and sequestered CO₂ and resulting tradable offsets:

With Russia's ratification of the Kyoto Accord, it became legally binding, requiring a 5.2% reduction in GHG emissions from the industrialized world

• Early trading of CO₂ emission credits between Kyoto and non-Kyoto countries begins in $25/ton range
• New Jersey declares CO₂ a pollutant
• U.S. commodity market for manufactured CO₂ reaches $30/ton
• Canada begins developing cap and trade program
• AEP and other large Northeast Utilities set emission reduction targets—4% in 2006 over 1998

Peter Fusaro of Global Change Associates and Michael Moore of CO₂ Global commented on the growing market for the trading of GHG credits, similar to the U.S. markets for NO_x and SO_x. This activity is taking place within the Kyoto countries and does not yet include credits for CO₂ EOR. However, trading between Kyoto and non-Kyoto countries is emerging but it is very thin and illiquid. The market farthest along is the European Union Emissions Trading Scheme (EU ETS) which commenced on January 1, 2005. The scheme will work on a "Cap and Trade" basis, with EU member state governments setting the cap for all installations. Early trades for current periods have been in the €30/ton range ($35.90 US at today's conversion). Forecasts for EU ETS range from $20 to $50/ton and are expected to settle around $30/ton. This would suggest that if an operator can capture and sequester an emitted MCF of CO₂, they could receive a credit of just under $2 when the protocols are finalized and the markets mature.

Figure 1:  Anthropogenic CO2 Sources, Courtesy Melzer Consulting

Where Does CO₂ Come From?
By a large margin, (700 billion tons worldwide, or 97%), CO₂ emissions come from natural sources: animals, volcanoes and other uncontrollable sources. For the last several hundred years—until the 20th century—the earth, primarily through plants and the oceans, has absorbed those emissions, keeping the amount in the air relatively constant. Loss of vegetation and increasing use of carbon fuels, however, is tipping the balance. In the U.S., anthropogenic (man-made) CO₂ emissions from stationary sources are estimated at 2,000 million tons/year (the volumetric conversion is approximately 17 MCF/ton). Transportation would add half that again. The largest source is from electrical generation, nearly half of the stationary total. A single 750 MW coal plant can generate as much as 5 million tons/year. Overall, a relatively small fraction of the sources are of a concentration, size and location to be economically available for enhanced oil recovery (EOR). In their Midland presentation, Excel Energy, a large electric utility, estimated the cost to capture the CO₂ from today's coal plants at $50 to $75/ton, plus transportation costs.

In 2003, seven industrial plants were supplying 5.6 million tons/yr of CO₂ to EOR projects in Texas, Wyoming, Oklahoma, and Saskatchewan (from the Great Plains coal gasification plant in North Dakota). Recent expansions in Wyoming will increase that total to 8 million tons/year, still less than 4% of the stationary emissions. And as Steve Melzer of Melzer Consulting pointed out in the conference, these types of industrial sources constitute the "low hanging fruit" inasmuch as they represent significant volumes, require little separation processing and are in the general area of oil production. (Figure 1) The next tier (and slightly more expensive) branches would include ethanol plants, refineries and cement plants. More expensive yet, would be pulverized coal plant electrical generation flue stream capture and lastly, vehicle exhaust.

Because of the cost of capture and transportation of CO₂ from anthropogenic sources, most of the CO₂ for the 70 current and planned CO₂ floods comes from several large domes of naturally-occurring CO₂ in Colorado, New

Mexico and Mississippi. An extensive pipeline system supplies the major projects in the Permian Basin. Unlike the gas available from anthropogenic sources, gas from the Southwest domes is delivered in the $0.75 to $1.50/MCF range. According to the supply panel discussions at the conference, these three domes supplying projects in the Permian basin have reserves of 18.5 TCF and are delivering gas at their capacity, 1.4 BCF/day, which equates to a 50 year supply at the current rate. Any future capacity expansions will be relatively large and expensive projects and would need to have a committed market, creating a bit of a chicken and egg dilemma.

Where is the CO₂ Going?
More to the point where is it not going? Or where could it go? As discussed above, 80% of the incremental oil produced by CO₂ flooding comes from the four natural CO₂ domes due to cost and proximity to suitable fields in the Permian basin and Mississippi, which does not help the imbalance of emissions. It effectively takes the CO₂ out of one geological formation and puts it into another. The most recent Oil and Gas Journal survey of enhanced oil recovery projects (April 12, 2004 - to be updated in April 2006 in conjunction with the SPE IOR Symposium in Tulsa) shows 68 CO₂ projects. Collectively, they produce nearly 240 thousand barrels/day and are estimated to sequester around 2 BCF of CO₂ daily (8 MCF per barrel produced). (Figure 2) Fifty-three of those projects are located in the Permian basin and produce over 80% of the CO₂ EOR barrels. A remarkable statistic was recently reported by Melzer Consulting: the cumulative Permian Basin CO₂ EOR production has reached the billion barrel mark in the fall of 2005, since the onset of production in 1974. And this growth has been steady through times of $20 oil and $40 oil, with around two new projects added each year, as shown in Figure 3.

But with the Permian CO₂ pipelines running at capacity, the most recent growth has occurred elsewhere, notably in the Denbury East Mississippi pipeline expansion from the Jackson dome to three new CO₂ floods and Anadarko's new projects from the Shute Creek gas plant in Wyoming. The Denbury Free State Pipeline began construction in August 2005 and is scheduled for completion in July 2006. It will run 86 miles at a cost of $50 million, plus another $40 million for the three facilities. It is designed to deliver 270 MMCF/day without compression, up to 450 MMCF/day with compression. The Mississippi CO₂ floods are somewhat different than those in the Permian Basin in that two of them are quite deep, around 12,000 feet, smaller and higher injection pressures, around 3,150 PSI. The other notable new project is Anadarko's expansion in the Powder River Basin. They have constructed a new 125 mile CO₂ line from the Baroil terminus in central Wyoming to the Sussex and Salt Creek fields located to the east and a 33 mile extension to the Monell field in Southern Wyoming at a cost of over $1.2 billion. These three fields are currently producing 20,000 Barrels/day and are expected to peak at 50,000 Barrels/day in 2010. They sequester 175,000 MCF/day of the current Shute Creek plant's 240,000 MCF/day capacity. Anadarko is evaluating a further expansion to the north of Salt Creek to other Powder River fields and ExxonMobil is evaluating an expansion of CO₂ capture and compression capability at the Shute Creek LaBarge gas plant.

Figure 2 - U.S. CO2 EOR Production, Courtesy Melzer Consulting

In spite of the steady growth of projects and production, today's floods barely scratch the surface of the potential.

A recent report prepared by Advanced Resources International (ARI) for the DOE screened the major U.S. oil producing basins and suggested that as much as 89 billion additional barrels could be recoverable with today's "state-of-the-art" technology, which presumes, among other things, sufficient volumes of CO₂ available at prices comparable to today's Permian Basin prices. To even begin to access those reserves a number of drivers need to work together: new technology to capture and separate the CO₂ cheaply, government tax credits for sequestration projects and emission credits for verifiable reductions. An earlier ARI report projected the potential from CO₂ EOR production growing from 250 MBarrels/day today to 2,000 MBarrels/day by 2050, sequestering over 400 million tons/year of CO₂.

Clearly, based on the numbers above, this convergence of oil producers and environmental interests must result in inexpensive anthropogenic CO₂ being available at the field to continue the growth of this source of domestic oil. A number of other (non-EOR) options for disposing of the CO₂ once it is captured are being researched, including geological formations, terrestrial and the deep ocean. In terms of technical feasibility and timeframe for development, disposal  into geological formations (depleted oil and gas, unmineable coal and saline) is closest to reality. Of those options, the technology for long term storage in oil reservoirs already has a 30± year history and will be the first option. The DOE estimates that oil reservoirs in the lower onshore 48could hold 40 - 50 billion tons, gas another 80 - 100, coal 15 - 20 and deep aquifers between 5 and 500 billion tons.

Going Forward—DOE and Energy Industry
Presentations at the Midland conference by ARI, U.S. Department of Energy and a number of others drive home the fact that the technically recoverable oil using the latest CO₂ flooding technologies is enormous. With reservoir characterization, monitoring, horizontal drilling and pattern modification and other state-of-the-art technologies, the 240,000 barrels/day currently being produced could increase ten-fold, given new inexpensive sources of CO₂. This can only happen if the need for reducing green house gases brings (1) research to provide the technology to reduce the cost to separate, capture, transport and store CO₂, (2) financial markets emerge to monetize the value of verifiable emission reductions and (3) federal and state governments reduction of the risk of these large projects with changes in the investment tax credits, federal royalties and state severance taxes.

David Hyman, Project Manager with the Department of Energy, presented the very ambitious DOE Carbon Sequestration Program, mostly carried out by the regional partnerships mentioned above. Spending for these projects was $46 million in FY 2005 with over 60% going to research on the capture and sequestration of CO₂. Spending in FY06 is expected to grow by 50%.  The timeline for this activity, beginning in 2003 to 2012 is in  phases beginning with geologic sink opportunities, permitting and regulatory, measurement and monitoring verification protocols and capture technologies, through deployment. Clearly, the study of sequestration in geologic formations builds on a strong industry experience base and the current activity is focused on active and depleted oil and gas reservoirs and, to a lesser degree, deep brine-bearing formations. Future research will expand that knowledge base to deep, unmineable coal seams and shales.

A cornerstone of the program is the FutureGen project. (www.fossil.energy.gov/ newsletter/techlines/2005/tl_futuregen_signing.html) This objective of this $1 billion project is to design, construct and operate a 275 Megawatt plant to produce electricity, hydrogen and over a million tons per year of CO₂ with near zero emissions. This Integrated Gasification Combined Cycle (IGCC) project will utilize a variety of fuels including coal and lignite. The CO₂ will be sequestered in a geologic formation, oil, gas or saline. On December 6, 2005 the DOE signed an agreement with the FutureGen Industrial Alliance to build the plant. The Alliance is made up of eight large coal utilities and developers and will contribute $250 million of the cost. They plan to issue a site selection solicitation in March, with proposals due by May 2006, to develop a short list. Final site selection is anticipated by Fall 2007. A number of regional consortiums, including FutureGen Texas, have solicited local proposals in anticipation of the solicitation.

Figure 3 - Worldwide and Permian Basin CO2 Projects and Oil Price, Courtesy Melzer Consulting