US Carbon Pipeline Company Pledges No Oil Recovery, but Bakken Drillers Want It

March 11, 2024

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by Leah Douglas (Reuters) Summit Carbon Solutions, which is trying to build the biggest carbon dioxide capture pipeline in the United States to transport and bury greenhouse gases, has repeatedly pledged its project will not be used by drillers to boost output from oil fields.

But Summit has a different message for prospective clients, including North Dakota’s oil sector, according to a Reuters review of state regulatory filings and recordings of public appearances by company executives: if you want to use our project for enhanced oil recovery (EOR), where gas is pumped into oil fields to increase production, just write a check.

The dual messages illustrate Summit's efforts to court broad support for its $5.5 billion project, which could capture as much as 18 million metric tons of CO2 annually from 57 Midwest ethanol plants and store it underground at a site in North Dakota.

Whether Summit succeeds at its goal to break ground in 2025 and begin operations in 2026 is a major test for carbon capture and storage, a key tool in the fight against climate change but which faces obstacles like unproven scalability and public apprehension.

The ethanol industry wants Summit to sequester its carbon to drive down its carbon intensity and draw lucrative tax credits from state and federal clean fuel programs.

But the oil industry wants to use the pipeline for EOR, reflecting a belief among drillers in North Dakota’s Bakken that oil recovery is necessary to reverse the once-booming region’s flagging output. North Dakota oil players launched the group Friends of Ag and Energy in December to promote carbon pipelines like Summit's, including through thousands of dollars of radio ads.

But more recently, Summit officials have indicated that using the pipeline to ship carbon for boosting oil production is a future likelihood.

"Today, we don’t have any shippers who want to ship CO2 for EOR. When that changes, we will likely move it for that purpose," said Wade Boeshans, Summit's executive vice president, at a December 20 event held by Friends of Ag and Energy in Bismarck, North Dakota.

Summit attorney Bret Dublinske told the IUB in a January 19 filing that the company "does not ultimately control" whether future customers would use the pipeline for EOR.

And Bruce Rastetter, chairman of Summit's parent company Summit Agricultural Group, also said on a North Dakota radio show on February 7 that the company is open to EOR.

Summit CEO Lee Blank said the company’s messaging on EOR is consistent.

"The front-end goal of this company is the ethanol industry and the sequestration of carbon, and it will be that until the market tells us to do anything different," he said.

The company is also contractually obligated to sequester all carbon it captures at ethanol plants who have signed on with the company, Blank said.

OIL INDUSTRY ALLIES

North Dakota's oil production peaked in late 2019, after a nearly decade-long drilling boom that made it one of the country’s top crude suppliers, and it has yet to recover, according to data from the Energy Information Administration.

The state will need as much as ten times more CO2 than it can capture from stationary sources to free billions of barrels of oil trapped in Bakken fields, said John Harju, vice president for strategic partnerships at the University of North Dakota's Energy and Environmental Research Center.

"Importing CO2 via pipeline is something that I think at the end of the day is going to be necessary," Harju said.

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Summit's current focus on sequestration is in part due to the 45Q tax credit program, expanded by the Inflation Reduction Act, which offers $85 per ton of sequestered carbon and just $50 per ton for EOR.

A shift in that policy could alter the company's priorities around EOR, executives and oil industry players said. READ MORE

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PSC sets Monday meeting on Summit hearing schedule, Burleigh petition (North Dakota Monitor)
Using CO2 to extract oil is ultimately worse for the environment, report says (Iowa Capital Dispatch)
How oil companies could tap the climate law to pump more crude: A tax credit for enhanced oil recovery aims to boost permanent storage of planet-warming CO2. Will it? (E&E News Energywire)

Excerpt from Iowa Capital Dispatch: A new report warns that using captured carbon dioxide to help extract oil and gas won’t reduce greenhouse gas emissions and could create new public health concerns.

The process, known as carbon dioxide enhanced oil recovery, or EOR, has been advertised by the oil industry as a climate mitigation tool despite evidence to the contrary, activists say.

The 48-page report, authored by the Bold Alliance and Science and Environmental Health Network, outlines the environmental, public and economic consequences of EOR.

Bold and SEHN officials criticized current government pro-carbon capture policies in a press conference following the report’s release.

“Enhanced oil recovery is not a public benefit. It is not in the public interest,” SEHN Executive Director Carolyn Raffensperger said.

Sandra Steingraber, a senior scientist with SEHN, pushed back against claims that EOR is environmentally friendly and called EOR the “new fracking.”

“It’s a climate problem dressed up as a climate solution,” Steingraber said. “In the language of the day, if you might remember, fracking was called the bridge to the future, the bridge to renewables. And in fact, we now understand that North American fracking operations set in motion spiking global methane emissions.”

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Steingraber said EOR releases more carbon dioxide, or CO2, into the atmosphere than it puts underground because it continues the nation’s reliance on fossil fuels. Burning the oil recovered from EOR emits at least two times as much carbon dioxide that is pumped underground during the process, according to the report.

The report notes that carbon dioxide EOR EOR poses “considerable public health threats.” READ MORE

Excerpt from E&E News Energywire: The Treasury Department is expected to soon publish its final rules for the increased tax break, which could unleash a boom in EOR, a process in which oil producers force CO2 underground to bring up more crude. The method can increase a well’s oil production by as much as 50 percent.

The incentive is part of the Biden administration’s efforts to tackle climate change and reach a net-zero emissions economy by 2050. Oil companies will be able to claim between $60 and $130 per metric ton of CO2 sequestered using EOR by 2026, compared to a maximum of $26 per metric ton in 2023.

Oil executives have already signaled they plan to supercharge their EOR portfolios.

JX Nippon Oil & Gas Exploration restarted Petra Nova — the country’s first and only power plant to capture carbon — partly because the new tax credits made the project more economically sound. Exxon subsidiary XTO Energy got permission last month from North Dakota officials to begin an EOR pilot project.

Vicki Hollub, CEO of Occidental Petroleum, said she expects her company to produce 12,000 barrels a day with EOR in the Permian Basin by 2026.

“To leave 30 to 40 percent of oil in conventional reservoirs and 90 percent of oil in shale reservoirs is just not acceptable,” Hollub said in an earnings call this year, referring to how much oil typically remains in wells without the use of enhanced oil recovery. “For the U.S. to continue our energy independence, EOR is going to have to be part of the equation, ultimately.”

The IRS requires operators who claim the 45Q tax credit to self-report both how much CO2 they inject and how much leaks out. To verify that info, the agency turns to data those companies reported to EPA — data that EPA says was never created or accumulated to help determine taxes.

Critics say there is little collaboration between the agencies, thanks in part to the confidential nature of tax returns. They assert that the IRS — or really any federal agency — is ill-equipped to chart the web of CO2 shipments and uses that are soon to unfold nationwide.

“You have the IRS looking around saying, ‘How are we going to verify this, we don’t have technical people on the ground verifying this.’ The EPA has [monitoring, review and verification] plans, but those plans were never intended to be used for tax purposes,” said Paul Blackburn, an attorney and energy policy adviser with the oil industry watchdog nonprofit Bold Alliance. “There’s a regulatory gap and lack of oversight in what could be a multibillion-dollar source of revenue for the government.”

And then there are the environmental concerns.

EPA has raised questions in the past about the environmental consequences if incentives for EOR switched from pumping out crude to more permanently storing CO2.

“If the business model for [enhanced recovery] changes to focus on maximizing CO2 injection volumes and permanent storage, then the risk of endangerment to [underground sources of drinking water] is likely to increase,” the agency noted in a 2010 Federal Register filing about federal CO2 underground storage requirements.

Environmental groups have also criticized tax credits for EOR as a subsidy for the oil industry, and a way to continue to encourage the production and use of fossil fuels. Preet Bains, a research analyst for the Environmental Integrity Project, said using CO2 for oil production undermines the goal of carbon sequestration — to reduce the amount of planet-warming CO2 in the atmosphere.

She said under the current regulatory regime, it’s hard to know exactly how much CO2 is being stored and how much is ending up in the atmosphere.

“It’s important to know how much CO2 is being released by the oil that gets burned or extracted through EOR,” Bains said. “If the purpose of 45Q tax credits is to encourage carbon sequestration, it’s pretty important to know how much CO2 we’re talking about.”

Industry officials, however, say enhanced oil recovery has already produced oil with lower emissions profiles and has the potential to make more strides in reducing emissions associated with the entire life cycle of a barrel of oil.

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Operators began flooding oil fields with pressurized CO2 in the 1970s, starting in West Texas, said Hugh Daigle, an associate professor of petroleum engineering with the University of Texas at Austin.

Before that, oil producers were limited to using the natural pressure of oil reservoirs or pumps to extract oil. Those processes left a lot behind. READ MORE