THE ROLE OF CCUS IN NORTH AMERICA ENERGY SYSTEM DECARBONIZATION Energy Markets Analysis Team Systems Engineering and Analysis IAEE 2019 International Conference, Montreal

Disclaimer The analysis was performed by Nadejda Victor and Christopher Nichols, of NETL The analysis presented and conclusions drawn herein are preliminary and are intended for discussion purposes. They represent solely those views of the author(s), and do not represent the views of the United States Department of Energy.

Introduction We explore different scenarios of North America long-term energy system development in respect of CCUS technologies, specifically carbon dioxide enhanced oil recovery (CO2-EOR). Using the MARKAL energy modeling framework, we examined the electricity sector mix and oil production from CO2-EOR for the US, Canada and Mexico under four scenarios We found that making CO2-EOR available in the model had significant impacts on the mix of oil production in all countries as well changes to the CO2 emission pathways * https://www.sciencedirect.com/science/article/pii/S0306261918317252

What is MARKAL? What Does MARKAL Do? An energy-technology-environment model Uses a bottom-up representation of energy-producing, -transforming, and –consuming technologies Finds a least cost set of technologies to satisfy end-use energy service demands AND policies specified by the user Calculates resulting environmental emissions and water consumption/withdrawals What Does MARKAL Do? Identifies the most cost-effective pattern of resource use and technology deployment over time. Quantifies the sources of emissions from the associated energy system. Provides a framework for exploring and evaluating alternative futures, and the role of various technology and policy options. Quantifies the system-wide effects of energy and environmental policies

CO2-EOR Module Assumptions in MARKAL-ANSWER Natural sources of CO2 and industrial sources from gas processing plants, a host of nitrogen, hydrogen, fertilizer etc., were included into the module. CO2-EOR is presented at the regional levels (not at the projects or reservoirs levels) The volume of CO2 recycled for injection was not included. Instead “fresh” CO2 usage rates were applied (“fresh” CO2 and Oil Produced ratio). “Fresh” CO2 usage rates can be calculated as CO2 Purchased and Oil Produced ratio or CO2 Injected minus CO2 Recycled and Oil Produced ratio. The difference between the volume of CO2 Injected and CO2 Produced represents the volume of CO2 permanently stored in the reservoir was not estimated. Water related to CO2-EOR process was not included into the module.

SCENARIOS DEFINITIONS Reference scenario (AEO2018). REFERENCE Reference scenario with CO2-EOR option in Canada and Mexico, and 45Q tax credits option in 2020-2055 in the US (no “sunset”). REFERENCE-EOR Carbon policy scenario: carbon taxes at $US 35/tonne starting 2020 and increasing at 5% per year until 2055. This scenario includes CO2-EOR option in Canada and Mexico, and 45Q tax credit option in the US. CO2TaxEOR Low natural gas prices and with CO2-EOR in Canada and Mexico, and 45Q in the US. LOWGASEOR

Share of CO2-EOR in total Oil Production

Share of CO2-EOR in total Oil Production

Share of CO2-EOR in total Oil Production

Electricity Generation Mix: Canada

Electricity Generation Mix: Mexico

Electricity Generation Mix: US

Total and Power Generation CO2 Emissions

Total and Power Generation CO2 Emissions

Total and Power Generation CO2 Emissions

Conclusions CCUS deployment can be observed in all scenarios with CO2-EOR (for the most part via NGCC with CCS). However, under CO2 taxation, IGCC with CCS deployments are more important in Canada and the US. The study finds that successful CCUS development depends on regulatory frameworks, such as 45Q tax credits. However, project finance remains the most challenging piece in Canada and Mexico without incentives to encourage CCUS deployment. The analysis reveals that there clearly is momentum towards decarbonization in North America in the short-term future as a result of the switching of coal-based generation to natural gas. However, the emissions of a large natural as-based fleet create issues later in the forecast period without climate policies. Reaching the COP 21’s 2030 goals are challenging for the US and Canada. Reaching 2050 goals is problematic for all North America countries without climate policies that are stronger than CO2 taxation.

Additional Slides

CO2-EOR Project In CO2-EOR projects, all of the injected CO2 either remains sequestered underground or is produced and re-injected.

CO2-EOR: “Typical” Project The general model for the use of CO2 in a reservoir may be described as follows: Initially the reservoir is flushed with significant amounts of CO2 and rule-of-thumb is that it may take between 18 to 24 months from initial injection of CO2 until production starts. The more CO2 added to the reservoir, the more oil may be expected to be produced. The objective is to have as large an amount of CO2 injected as economically possible to achieve optimum production. After CO2 injection, the produced oil will contain CO2. The CO2 in this oil is separated and re-injected back into the oil field. The result is that the field’s need to purchase “fresh” CO2 is gradually reduced as more and more of the CO2 injected is actually produced with the oil itself, and then the CO2 is recycled and re-injected. A dilemma for an individual CO2-EOR project matching up with an individual source of CO2 emissions: the source of emissions tends to generate CO2 over the life of the facility at a relatively constant rate, while an individual CO2-EOR project would want to take decreasing amounts of CO2 over time. Typically, CO2-EOR operators don’t publicly report on the quantity of purchased CO2 for EOR. However, a significant portion of injected CO2 might be lost in the reservoir that could be accounted as incidental storage. For example, the North Coles Levee CO2 pilot, reported that only half of the injected CO2 was produced back.

CO2-EOR: Current State CO2-EOR has been in motion in the U.S. for decades, beginning in the Permian Basin of West Taxes and New Mexico since the mid-1980’s and expanding to other regions. There are more than 136 active commercial CO2-EOR projects in the US. Combined, they inject more than 3 billion cubic feet of CO2 and produce more than 300 thousand barrels of oil per day . Outside of the U.S., CO2-EOR development had been limited to a smaller number of projects in Brazil and Canada. One of the main reasons is the lack of affordable CO2 sources, however the potential of CCUS deployment increase could change CO2-EOR fortune. For the first decades of the CO2-EOR projects, the natural CO2 sources were sufficient to provide the CO2 needed for EOR. Today the situation has changed as depletion of the CO2 sources and limitations of the CO2 pipelines are now contracting CO2-EOR growth. The literature indicates that technical barriers are negligible compared to economic barriers. The reasons are (1) the investment cost of CCUS are very high; (2) lack of effective government incentive policies. Government investment in R&D to bring down the for sustainable supply of anthropogenic CO2 to close the supply-demand gap and could expand CO2-EOR storage opportunities. * https://netl.doe.gov/oil-gas/oil-recovery

CO2-EOR Production by country and share of CO2-EOR in total EOR production

CO2-EOR: Current Projects CO2-EOR has been in motion in the U.S. for decades, beginning in the Permian Basin of West Taxes and New Mexico since the mid-1980’s and expanding to other regions. There are more than 136 active commercial CO2-EOR projects in the US. Combined, they inject more than 3 billion cubic feet of CO2 and produce more than 300 thousand barrels of oil per day . Outside of the U.S., CO2-EOR development had been limited to a smaller number of projects in Brazil and Canada. One of the main reasons is the lack of affordable CO2 sources, however the potential of CCUS deployment increase could change CO2-EOR fate. For the first decades of the CO2-EOR projects, the natural CO2 sources were sufficient to provide the CO2 needed for EOR. Today the situation has changed as depletion of the CO2 sources and limitations of the CO2 pipelines are now contracting CO2-EOR growth. The literature indicates that technical barriers are negligible compared to economic barriers. The reasons are (1) the investment cost of CCUS are very high; (2) lack of effective government incentive policies. Government investment in R&D to bring down the cost of capture and infrastructure for sustainable supply of anthropogenic CO2 to close the supply-demand gap could expand CO2-EOR storage opportunities. * https://netl.doe.gov/oil-gas/oil-recovery

45Q: Bill S. 1535 (FUTURE Act) The applicable CO2 tax credit for CO2 sequestration for any taxable year beginning in a calendar year after 2016 and ending before 2027 is established by linear interpolation between $22.66/tCO2 in 2017 and $50/tCO2 in 2026. The CO2 tax credit for CO2-EOR is established by linear interpolation between $12.83/tCO2 in 2017 and $35/tCO2 in 2026. For CO2 sequestration projects for any taxable year beginning after 2026 an amount equal to $50/tCO2 with the inflation adjustment factor for each calendar year will be applied. For any taxable year beginning after 2026 an amount equal to $35/tCO2 with the inflation adjustment factor for each calendar year are applied for CO2-EOR projects. The term ‘qualified CO2’ means: any CO2 which is captured from an industrial source by CO2 capture equipment which is originally placed in service before the date of the enactment of the FUTURE Act; would otherwise be released into the atmosphere as industrial emission of GHG or lead to such release, and is measured at the source of capture and verified at the point of disposal, injection, or utilization. In the case of a direct air capture facility, any CO2 which is captured directly from the ambient air, and is measured at the source of capture and verified at the point of disposal, injection, or utilization. Qualified facility for CO2 recycling means any industrial facility or direct air capture facility the construction of which begins before January 1, 2024, and construction of carbon capture equipment begins before such date, or the original planning and design for such facility includes installation of carbon capture equipment. Which captures in the case of a facility which emits not more than 500,000 metric tons of CO2 into the atmosphere during the taxable year, not less than 25,000 metric tons of qualified CO2 during the taxable year or in the case of an electricity generating facility emits not less than 500,000 metric tons of CO2 during the taxable year, or in the case of a direct air capture facility or any facility not described in subparagraph above, emits not less than 100,000 metric tons of CO2 during the taxable year.

CO2-EOR Module

Location of Current CO2 EOR Projects in the US and Pipeline Infrastructure

Large-Scale CCUS Projects in the US DOE Portfolio