CCS

to CCUS - U.S. CO2 EOR Developments

Michael E. Moore Vice President External Aairs and Business Development Blue Strategies LLC Execu@ve Director NACCSA

July 28th 2011 ASFE Chuck McConnell Announces CCUS

July 28th Senate DOE ASFE Chuck McConnells Senate conrma4on hearing: Senator Je Bingaman (D/NM) opened the hearing of the Senate Energy and Natural Resources CommiFee at 10AM this morning (July 28th). The hearing was on the nomina4on of Charles McConnell to be the Assistant Secretary for Fossil Energy. The hearing ran for two hours with about 7 Senators in aFendance. Charles McConnell was well received and complemented by the Chairman who then asked suppor4ve ques4ons about Futuregen, CCPI and the Regional Partnerships. Mr. McConnell responded posi4vely and was very suppor4ve of these projects/programs. There was considerable discussion of CCS, CO2-EOR, and how one might move forward with CCS in the absence of legislaBon/regulaBon (in the absence of a carbon signal). Mr. McConnell discussed CO2- EOR as a possible iniBal or early direcBon for increasing domesBc oil producBon while sequestering CO2 in an economically viable manner (with DOE/NETL R&D reducing the cost of CO2 capture). Senators Murkowski (R/AK), Wyden (D/OR), Portman (R/OH) and Manchin (D/WV) engaged in some aspects of this discussion as well. Senator Manchin also stressed the importance of CCS and the AEP project in West Virginia. Senator Portman (R/OH) also expressed concern about new EPA regula4ons causing a large frac4on of exis4ng coal plants being shut down crea4ng hardships in Ohio and na4onally. He asked Mr. McConnell to be the voice of reason and serve as an energy advocate in interagency delibera4ons to nd a balanced approach. There was also a discussion about SPRO and concern was expressed about using SPRO draw downs as a vehicle for oil price control. All of the Senators present expressed strong support for Mr. McConnells nomina4on. Of special note: During this hearing Chuck recast CCS as CCUS or Carbon Capture UBlizaBon and Storage, an approach reecBng the growing integraBon of CO2-EOR into the CCS process . Here is the link the webcast of that hearing: hFp://energy.senate.gov/public/index.cfm? FuseAc4on=Hearings.Hearing&Hearing_ID=4e72417e-949b-83a6-8d95-7dabf9f4c012

The Suppor@ng DOE/ARI CO2-EOR Study

hFp://www.netl.doe.gov/energy- analyses/pubs/storing %20co2%20w%20eor_nal.pdf

Exis@ng CO2 Transport Infrastructure

Poten@al Future CO2 Infrastructure

Source: Denbury presenta4on CO2 Workshop Houston 12-2011

Denburys Focus

Permian Basin CO2-EOR Stalls

Top 10 US CO2-EOR Operators 2010

Note: Currently ~350,000 b/d of oil by CO2-EOR are produced in the US.
Occidental Denbury Kinder Morgan Chevron Hess 31 (4) 85 (30)

43 (15)

24 (7)
20 (4)

Whiting Petroleum Merit Energy Anadarko

ExxonMobil ConocoPhillips 6 (2)

20 (5) 14 (7)
13 (6)

Texas
Wyoming Mississippi

Colorado
New Mexico Other states
Source: Oil & Gas Journal 2010, Bloomberg New Energy Finance.

12 (2)

Note: Denbury acquired Encore on 1 November 2009, doubling their poten4al CO2-EOR recoverable reserves with Encores assets in the mountain states, not shown in this gure

Scope of CO2-EOR Poten@al

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Distribu@on of Economic Value of Incremental Oil Produc@on from CO2-EOR

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Revenues Derived from CO2-EOR

An important revenue stream accrues to the capturers of CO2 emissions, helping lower the overall cost of conduc4ng CCS. In this report, we assume a price for CO2 of $40/metric ton, delivered to the oil eld at pressure. At 0.3 metric tons of purchased (net) CO2 per barrel of recovered oil, this results in a transfer of $12 of the $85 per barrel oil to en44es selling the CO2 to the oil industry. Power and other industries involved with CO2 capture would need to provide nearly 90% of the future CO2 demand, gaining $730 billion dollars of revenues.

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Revenues Derived from CO2-EOR

A second revenue stream accrues to local and state governments and the Federal Treasury from royal4es, severance and ad valorem taxes and income taxes. Our analysis shows that, at an oil price of $85 per barrel, $21.20 of this oil price is transferred directly to state and local governments and the Federal Treasury. With 67.2 billion barrels of economically recoverable oil from applying Next Genera4on CO2-EOR, this equals $1,420 billion of revenues transferred to domes4c public treasuries rather than to foreign treasuries. These revenues, in states such as Texas, Wyoming and others, are a primary source of funds for school systems and other valuable public services.

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Revenues Derived from CO2-EOR

A third revenue stream accrues to the general domes4c economy from successful applica4on of CO2-EOR technology. With $25.80 of the $85 barrel oil price being spent on domes4c wages and purchases, this provides $1.7 trillion dollars of gross revenues to the domes4c economy.

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Revenues Derived from CO2-EOR

A fourth revenue stream accrues to a variety of en44es holding private mineral rights from royalty payments ($7.70 per barrel) and to the U.S. oil industry ($19.50 per barrel) for return of and return on capital investment. The Texas economic model shows that every dollar of direct investment in oil development has a mul4plier of 4 in terms of suppor4ng economic ac4vity.

Impact of Increased Value from CO2-EOR

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Finally, the domes4c trade balance (foreign debt) from producing 67.2 billion barrels of domes4c oil rather than impor4ng this oil would be reduced by $5.7 trillion.

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Accelera@ng the Applica@on of CO2 Storage

Oil elds provide CO2 storage op4ons that can be permiFed under exis4ng (or slightly modied) regulatory guidelines, thereby avoiding the large delays inherent when wai4ng on new regula4ons and perminng for large-scale storage of CO2 in saline forma4ons. The pore space, mineral rights and long-term liability issues of oil elds are already well established and thus would not be impediments to an integrated CO2 storage and CO2-EOR project. Oil elds generally have exis4ng subsurface data and ooen possess usable infrastructure such as injec4on wells and gathering systems, enabling more accurate assessment of CO2 storage capacity and substan4al cost savings.

Source: hFp://www.netl.doe.gov/energy-analyses/pubs/storing%20co2%20w%20eor_nal.pdf

Accelera@ng the Applica@on of CO2 Storage

Also a number of other condi4ons favor the use of oil elds for injec4ng and storing CO2. First, oil elds are located in areas with an accepted history of subsurface eld ac4vi4es contribu4ng to public acceptance for storing CO2. Second, oil elds provide an exis4ng brown eld storage site versus having to establish a new green eld site when preparing a saline forma4on for CO2 storage. Third, the footprint of the CO2 plume within an oil eld would be several 4mes smaller than within a saline forma4on. Finally, the early reliance on EOR for storing CO2 would help build the regional pipeline infrastructure for future CO2 storage projects in saline forma4ons.

Source: M. Ming & S. Melzer RPSEA study MIT-BEG 7-2010

Residual Oil Zone (ROZ)

Source: M. Ming & S. Melzer RPSEA study MIT-BEG 7-2010

Residual Oil Zone (ROZ)

Current Developments/Drivers
CCUS Methodology Released January 2012 by C2ES NEORI February 2012, Phase I work done on incen4ves for CCUS/CO2- EOR NRAP Developing subsurface technical playbook 45(Q) modica4ons eorts underway has prompted numerous studies on size and scope of EOR opportunity from industrial sources MWGA with the Clinton Ini4a4ve developing ac4on plan for CO2 infrastructure and opportunity in the mid-central states Californias AB 32 Cap & Trade program ins4gated current interests and developments for CCUS and CO2-EOR Storage u4liza4on in that state EPAs GHG Rule Implementa4on has ins4gated a closer look at CO2-EOR- Storage as rst storage pathway for CCS implementa4on DOEs shio from CCS to CCUS, making CO2-EOR-Storage a preferred pathway Crude oil (WTI) pricing now in the $80-$110/bbl range ROZ is crea4ng strong interest in large volume/long term CO2 sources GS/CO2-EOR-Storage protocols for Registry use underway Forma4on of the Gulf Coast CO2-EOR Ini4a4ve-June 4th, 2012

Proposed Wyoming CO2 Pipeline Corridor

Governor Ma^ Mead Looks to Support CO2 Pipeline Network May 2012 CHEYENNE, Wyo. As part of his energy strategy, Governor MaF Mead is opening a discussion about a proposed statewide network of carbon dioxide (CO2) pipeline corridors within federal land boundaries. Establishing pre-approved corridors would protect open spaces and minimize environmental impacts. Such corridors are intended to signicantly shorten perminng 4me for future pipeline projects, which in turn would allow for enhanced oil recovery. There is currently no consistent, statewide plan for CO2 pipelines, Governor Mead said. Presently, pipeline corridors on federal land are separately determined by the nine individual Bureau of Land Management oces in Wyoming. This is a piecemeal approach and we can benet the diverse interests across the state by providing instead a cohesive approach. A well thought out and laid out statewide network could serve as a model for other projects and as an economic tool for Wyoming. Capture and storage of CO2 have the poten4al to advance energy technology and improve air quality. CO2 ooding is also a proven method of enhanced oil recovery. Governor Mead plans to work on proposed corridors with the Bureau of Land Management. Any proposal would be reviewed and open to public comment, possibly becoming a Record of Decision to update each Resource Management Plan of the various BLM oces across Wyoming. The state would like the BLM oces to coordinate to iden4fy a cohesive, statewide corridor, and the Wyoming Legislature recently granted its approval of the plan. The state began formal discussions on the topic May 15th. The state is especially interested in developing EOR in the Bighorn and Powder River basins, said Brian Jeries, execu4ve director of the Wyoming Pipeline Authority. A preapproved corridor would make perminng easy, he said, rather than having operators get permits on a project-by-project basis. Much of the perminng would fall to the Bureau of Land Management because the federal government owns about 70 percent of the land in Wyoming. Ten BLM eld oces oversee the state, and each generates a 20-year resource management plan for its jurisdic4on. Two eld oces began working on new plans in the past year, and neither included enhanced oil recovery as a possible land use, Rob Hurless said, energy strategy adviser to Gov. Mead

NEORI CO2-EOR Incen@ves Report

Source: hFp://neori.org/NEORI%20Methodology%20Brief.pdf
The Center for Climate and Energy Solu4ons (C2ES) and the Great Plains Ins4tute (GPI) conducted an analysis, with extensive input from the par4cipants of Na4onal Enhanced Oil Recovery Ini4a4ve (NEORI), to inform NEORIs recommenda4ons for a federal produc4on tax credit to support enhanced oil recovery with carbon dioxide (CO2- EOR). In par4cular, C2ES and GPI explored the implica4ons of the recommenda4ons for CO2 supply, oil produc4on and federal revenue. This document describes the research, assump4ons, and methodology used in the analysis. NEORIs recommenda@ons report, Carbon Dioxide Enhanced Oil Recovery: A Cri@cal Domes@c Energy, Economic, and Environmental Opportunity, can be found at: h^p://neori.org/publica@ons/neori-report/. C2ES and GPI compared the likely cost of a federal tax credit for greater CO2 capture and supply with the federal revenues expected from applying exis4ng tax rates to the resul4ng incremental oil produc4on. C2ES and GPI quan4ed two key rela4onships for CO2-EOR develop-ment and a related tax credit program: 1) Cost gap the dierence between CO2 suppliers cost to capture and transport CO2 and EOR operators willingness to pay for CO2. The goal of the tax credit is to bridge the cost gap. Thus, the cost gap determines the expected level of the tax credit in a proposed compe44ve-bidding process. 2) Revenue neutrality/revenue-posi4ve outcome the federal government will bear the cost of a CO2-EOR tax credit program, yet it will enjoy increased revenues from the expansion of CO2-EOR oil produc4on when exis4ng tax rates are applied to the addi4onal produc4on. C2ES and GPI analyzed when the net present value of expected revenues would equal or exceed the net present value of program costs. C2ES and GPI calculated the tax credit required to bridge the cost gap, and the cost and revenue implica-4ons. C2ES and GPI developed input assump4ons based on real-world physical and market condi4ons aoer consul4ng with NEORI par4cipants and other industry experts and reviewing available literature. C2ES and GPI developed a core scenario based on best guess inputs and conducted several sensi4vity analyses of key inputs. C2ES and GPI demonstrated that a program can be designed that will become revenue posi4ve (dened as when the federal revenues from ad-di4onal new oil produc4on exceed the cost of a carbon capture tax credit program aoer applying a discount rate to both costs and revenues) within ten years aoer tax credits are awarded. Sensi4vity analysis reveals that the program remains revenue posi4ve using a realis4c range of likely assump4ons

North American Carbon Storage Atlas

The development of the atlas involved Mexico, United States and Canada, iden4fying, gathering and sharing data on major carbon dioxide (CO2) sources. The completed atlas iden4es poten4al CO2 storage reservoirs and es4mates for storing CO2 in those reservoirs, using compa4ble methodologies. The atlas will be par4cularly useful for storing CO2 in cross-border reservoirs. There are at least 500 years and up to 5,000 years of CO2geological storage space available in reservoirs in North America, based on current emissions rates. This was released May 1, 2012 at the PiFsburgh CCUS and EOR Conference hFp://www.marketwatch.com/story/north-american- carbon-storage-atlas-unveiled-2012-05-01

Ques@ons & Thank You!

Michael E. Moore
VP External Aairs and Business Development CCS Blue Strategies LLC WWW.BLUESOURCE.COM Execu@ve Director and Founding Board of Directors Member North American Carbon Capture Storage Associa@on WWW.NACCSA.Org VP and Founding Board of Directors Member Texas Carbon Capture Storage Associa@on WWW.TXCCSA.Org mmoore@bluesource.com Tel: 281-668-8475

Source: hFp://www.pewclimate.org/sites/default/modules/usmap/pdf.php?le=5907

US RPS and AEPS

States with CCS Related Legisla@on

CCS legisla4on No CCS legisla4on

Source: CCSReg Project

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