Putting CO2 to Good Use

The gas is the major contributor to global warning. Now major energy companies are looking for ways to capture and sell it

by Vaughan Scully From Standard & Poor's Equity Research

A steady drumbeat of news articles proclaiming the dangers of global warming have focused public attention on the issue of carbon dioxide emissions as never before. It now seems likely that the U.S. will join Europe, Japan, and Canada in imposing a cap on the release of carbon dioxide into the atmosphere. The issue is beginning to draw a response from major energy companies, who are pursuing a number of small but potentially important pilot projects that aim to uncover the costs and technical feasibility of capturing carbon dioxide and locking it away where it won't trap more heat.

Statoil (STO), the oil giant that's 70% owned by the Norwegian government, operates at least four different projects that involve capturing the carbon dioxide that would otherwise be released from its oil production and refining operations, and is still pursuing more.

Pioneers in the Field

At the company's Sleipner oil field in the North Sea, which Statoil claims is the world's first major carbon dioxide "sequestration" project, some 2,800 metric tons of carbon dioxide found together with natural gas are reinjected into a saltwater deposit under the seabed every day. By doing so, the company avoids having to pay Norway's carbon emissions tax, which would total about 1 million Norwegian kroner per day ($125,000), though the cost of capture is roughly the same.

"Statoil is a pioneer in the area of carbon capture," says Christine Tiscareno, a Standard & Poor's equity analyst in London. She has a strong buy recommendation on Statoil shares. The projects, she says, are positive for the company, because they intend to turn this by-product into a green, profitable commodity. "By 2010, Statoil expects to reduce the carbon dioxide emissions from its operations by about one-third, while reducing separation and capture costs by 50% to 75%."

While burying the carbon dioxide deep below the ocean floor appears to be a viable—if expensive—way of neutralizing it, the process would certainly be improved if the CO2 could be both locked away from the atmosphere and put to some constructive use.

Building on the oil industry's extensive experience using carbon dioxide to improve recovery rates from mature oil wells, EnCana (ECA) has contracted with the Great Plains Synfuel plant—an Energy Dept.-sponsored facility that is owned by the Basin Electric Power Cooperative—to buy carbon dioxide produced by the plant and ship it via pipeline to its Weyburn field in southern Saskatchewan. EnCana injects the gas into its oil field, where it reduces the viscosity of the oil, allowing the company to increase its recovery from the field. EnCana says the CO2 injections have raised output from the field by 60%.

Supply and Demand

Ironically, the biggest problem with using carbon dioxide to enhance oil recovery is the lack of available CO2 supply, something that could be cured quite quickly if a way is found to capture some of the 2.5 billion tons of carbon dioxide released by U.S. power generators alone each year. "If you are burning coal to generate power, you are producing a lot of carbon dioxide," Tiscareno says. "All that CO2 could be used to enhance oil recovery."

The Energy Dept. estimates that an improved and expanded carbon dioxide oil recovery program could add 89 billion barrels to the 22 billion barrels of recoverable oil reserves believed to exist in the U.S., and possibly much more. If 89 billion barrels were added, the U.S. would move up in the world's rank of oil reserves to fifth place from 10th.

While the EnCana project combines two government-sponsored pilot projects, a similar project that's privately funded and is expected to turn a profit is under way on the shore of the Gulf of Mexico near Natchez, Miss.