Has the EPA Tied Coal’s Future in America to Oil?

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According to EPA Administrator Gina McCarthy, Americans have a "moral obligation to the next generation" to protect our environment. That's really at the crux of the EPA's newest proposal to curb coal-fired emissions. It is a proposal that would require new plants to be built with cutting-edge antipollution technology that at this point is still unproven.

The only U.S. power plant currently being built with this carbon capture technology is Southern Company's (NYSE: SO  ) Kemper County facility in Mississippi. What's unique about that plant is that Southern is working with enhanced oil recovery, or EOR, specialist Denbury Resources (NYSE: DNR  ) to put the captured carbon dioxide to good use. It's this potential economic driver of the captured carbon that could make this technology more palatable for utilities. However,  that could also tie coal's future to oil, and specifically to the availability of EOR projects that could use and sequester the captured carbon dioxide.  

Using carbon dioxide to revive a declining oil field is nothing new. It's a technology that has been around since the 1970s in places such as the Permian Basin, where Occidental Petroleum (NYSE: OXY  )  uses it to produce 60% of its Permian oil. What's different is how the source of that carbon dioxide might change in the future if this new EPA proposal goes into effect.

Right now the main sources of carbon dioxide for Occidental and Denbury are naturally occurring underground reservoirs. That means these companies are basically pumping carbon dioxide out of one reservoir, piping it to a declining oil field, and injecting it into another reservoir to push out more oil. However, the future of this process could now lie in using captured carbon from industrial sites such as Southern's Kemper facility. It is among a half-dozen sites along the Gulf Coast that Denbury is looking to as future man-made sources of carbon dioxide.

Denbury expects to start receiving about 115 million cubic feet of carbon dioxide per day from the Kemper County plant starting next year. This capture process is expected to reduce emissions at the plant by 65%, putting it on par with a similarly sized natural gas power plant. Denbury will buy the carbon dioxide and inject it into a nearby oil field that will produce more oil while sequestering the carbon.

The overall potential for this process is dramatic. The Department of Energy has determined the United States could unlock an additional 67 billion barrels of oil through carbon capture and sequestration, more than double current proved reserves of 29 billion barrels. This is because only about 30% of the oil that has been discovered can actually be produced using conventional methods. Because of this, the department estimates that it could use 20 billion metric tons of carbon dioxide to extract that oil. Most of that the carbon would come from industrial sources, with estimates suggesting that 18 billion metric tons of carbon dioxide could be captured and stored. 

Producing the required carbon would demand what would amount to an additional 93 large coal-fired power plants. That would boost U.S. oil production by 4 million barrels per day for the next 50 years. It's truly game-changing, but it it won't be easy. For starters, these power plants would need to be located close to mature oil basins, which really limits them to the Gulf Coast, Rockies, and California.

If the EPA's new emissions proposal stands it will tie the future of coal in America to oil. Because no new power plants will be able to be constructed without carbon capture technology, utilities would not likely build a new coal plant unless the carbon dioxide could be sold to be used in an EOR project. Even then the economics will be tough to justify, but at least it can be a revenue generator to offset some costs.

The Real Fuel of Our Future

It would appear that coal's best days are behind it. While its emissions are partly to blame, natural gas is also helping to put coal out to pasture.It's not the only fuel that natural gas is disrupting. In fact, gasoline could be out as well thanks to this little-known stock that holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!

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5/25/2016 4:02 PM
DNR $4.21 Up +0.31 +7.95%
Denbury Resources CAPS Rating: ****
OXY $76.17 Up +0.05 +0.07%
Occidental Petrole… CAPS Rating: ***
SO $48.55 Up +0.09 +0.19%
Southern Company CAPS Rating: ****