Denbury, a small energy resources firm focused on oil and natural gas, sees a bright future in enhanced oil recovery (EOR), a process that pumps CO2 into oil wells to release hard-to-reach oil. EOR has been promoted as a way to simultaneously address climate change and improve recoverable oil reserves. The company surprised many recently after it traded its Bakken Shale assets – some of the most productive in the country – to Exxon Mobil in exchange for $1.6 billion in cash and parts of Exxon Mobil’s Texas and Wyoming stakes. Denbury will instead focus on utilizing EOR in its oil fields in the Gulf of Mexico, but the company and others pursuing EOR will have to solve a series of economic and policy challenges.
In a study of future CO2 pipeline development, the Interstate Natural Gas Association of America Foundation found that while technical barriers to building a CO2 pipeline are minimal, public policy and regulatory challenges are myriad. Most of those challenges center around making the capture of CO2 economically viable. For example, the Section 45Q Tax Credit for Carbon Dioxide Sequestration provides a $10 per-ton tax credit for CO2 stored through EOR, but the National Enhanced Oil Recovery Initiative warns that the program needs to be restructured in order for companies to access those credits.
Although Denbury currently sources all of its CO2 from a naturally occurring reservoir in a volcano in Mississippi, the company sees CO2 eventually being captured from coal plants and other industries in the Midwest and being transported to oil fields in the Gulf of Mexico. For example, new coal “gasification” plants that burn coal and capture CO2 could provide a consistent anthropogenic source of CO2 in the Midwest. However, none have been built due to their higher cost when compared to natural gas and existing coal plants. Currently, without climate regulation in place to incentivize gasification at coal plants, economics do not favor gasification and other carbon capture technologies.
What does the future of EOR look like? What policies would you recommend to speed the development of EOR? Is EOR a realistic option to combat climate change?