The dream of pollution-free coal plants is getting a boost from growing demand for carbon dioxide used to revive old oilfields.
In one of the first projects to harness the C02 waste of a coal plant for oil drilling, power generator NRG Energy Inc. (NRG:US) announced today that it’s beginning construction on a $1 billion retrofit of its East Texas coal plant. NRG will pump carbon dioxide pollution from the plant deep into a nearby oil field that it partially owns. The idea is to loosen trapped crude deposits, making old wells flow like new while burying the harmful greenhouse gas. Cash from the increased oil production will help pay for the project, NRG said in a statement today.
The East Texas plant will be the largest of its kind to supply CO2 for oil exploration from coal-powered utilities. Oil companies have long relied on natural sources of underground carbon to goose output with a technique called carbon flooding. As demand has risen, drillers have snatched up those supplies, causing a shortage of natural carbon and creating a market for recycled CO2 from coal plants.
“The way I look at this project, it is really like a bridge between the power and the oil industries,” said Arun Banskota, president of NRG’s carbon-capture business.
Construction on the project near Houston is scheduled to begin today. When finished in late 2016, the facility will remove carbon equivalent to the exhaust of 336,000 cars annually and spur a 30-fold increase in crude output from the West Ranch oilfield about 80 miles (129 kilometers) away. NRG’s partner in the project is JX Nippon Oil & Energy Corp., Japan’s largest oil refiner and a unit of JX Holdings Inc.. (5020) The two co-own the oilfield with closely-held Hilcorp Energy Co.
“This is taking a pollutant and turning it into a marketable commodity that’ll unlock billions of barrels of oil,” said Brad Crabtree, vice president of fossil energy at the Great Plains Institute for Sustainable Development, a Minneapolis-based non-profit that studies energy and climate change.
As horizontal drilling and hydraulic fracturing in shale rock catapults North American energy production to the top of the world, some oil prospectors including Texas billionaire Rich Kinder and Occidental Petroleum Corp. (OXY:US) are focusing on the tried-and-true method of carbon flooding to increase production in older oil fields.
After wells peter out, liquefied C02 is injected into the reservoir to mix with the remaining crude, allowing the oil to flow more easily into wells where it can be pumped out. About half the CO2 remains in the reservoir, and the remainder is reused.
Crude prices averaging more than $90 a barrel for half a decade are spurring investment in carbon flooding and raising demand for the gas needed to refresh the aging fields.
Although U.S. shale formations currently produce eight times more total crude, carbon flood output is forecast to grow 3.6 percent annually during the next 25 years, compared to 1.3-percent for shale. Carbon flooding is Occidental’s most profitable U.S. business, generating a 43 percent after-tax profit margin based on an oil price of $100 a barrel, said Vicki Hollub, the executive vice president who oversees all of the company’s U.S. operations.
There are 160 billion barrels of crude sitting under what were once considered depleted wells. Virtually all of that oil could be tapped with CO2, estimates Chirag Rathi, a principal at consulting firm Frost & Sullivan. That would be a $17 trillion haul at current prices.
“Everybody’s always talking about shale but carbon flooding is going to be a growth business for us for some time to come,” said Jeff Simmons, chief of Occidental’s Permian Basin unit in Texas and New Mexico.
One restraint on the growth of the CO2 business is the lack of raw material: oil producers in the Permian region of west Texas already are using every molecule of carbon-dioxide they can get, said Darrell Ricketson, the vice president in charge of Kinder Morgan Energy Partners LP (KMP:US)’s Permian Basin CO2 floods.
“There is so much need for CO2 in west Texas,” Ricketson said. “There are millions and millions of barrels of oil waiting to be unlocked. It’s not as widespread as it could be because of the limited availability of CO2.”
Although 80 percent of the carbon used in oilfields today comes from naturally-occurring deposits of the gas, man-made supplies are expected to expand as the technology is improved for capturing CO2 from power plant smokestacks and other industrial sources, according to the U.S. Energy Department.
At the oilfield receiving C02 from NRG, injecting carbon is expected to lift production to 15,000 barrels a day from about 500 now. At current prices, the annual output of the field would have a value of more than $550 million.
“There is a lot of trapped oil that potentially could be recovered with CO2 flooding,” Rathi said, making oilfields “one of the key applications of captured carbon.”
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