Why Oil Companies Think We Need MORE Carbon Dioxide

It seems that today's headlines are chock-full of two kinds of articles: those that proclaim that greenhouse gas emissions are the greatest threat to mankind and those that celebrate how America's shale oil and gas boom is smashing records. 

In fact, according to Bank of America and the International Energy Agency, as of June the US is the largest producer of oil and natural gas liquids in the world. 

That impressive feat was accomplished thanks to an explosion in shale oil and gas production from states such as Texas and North Dakota. For example from 2010 through 2013 these states increased their oil production by 117% and 177% respectively and now make up almost half of all US production. 

Source: EIA

However, not all is sunshine and rainbows when it comes to shale oil and gas production. The sad truth is that, though prolific, shale wells often face catastrophically high depletion rates. For example Devon Energy, a major producer in Texas's Eagle Ford shale, has reported first-year production decline rates as high as 90%. These high depletion rates result in recovery rates for shale oil of just 5%-10%. CO2 injection can increase that as much as three-fold, to 15.1%.

Then there is the fact that even traditional oil wells are inefficient at extracting the oil they have in place. For example, typically just 20% of oil is extracted in the primary recovery phase. However, enhanced oil recovery (EOR) techniques such as water flooding and CO2 injection, can increase that to 55%.

Source: Denbury Resources, July 2014 presentation

Immense challenges equal immense opportunity
Since primary oil recovery leaves nearly 80% of oil in place, this means that the world's older fields are potentially black gold mines just waiting for EOR technology to revive their production. For example, if the world's oil companies could raise the percentage of oil they can extract by just 1%, it would increase the world's oil reserves by 88 billion barrels. To put that in perspective, that's enough oil to supply the earth's needs for nearly three years.

The oil industry can help the environment
CO2 injection, so called tertiary oil recovery, isn't just a boon for the oil industry. It can also help the environment in three ways.

First, if we can revive older wells, then there is less pressing need to drill for new wells in harder to reach and potentially more environmentally fragile areas such as the Arctic National Wildlife Refuge (ANWR), a longtime political hot potato. 

Second, according to Judi Greenwald, deputy director of the Department of Energy's climate, environment, and energy efficiency office: "By using captured man-made carbon dioxide, we can increase domestic oil production, promote economic development, create jobs, reduce carbon emissions, and drive innovation."

What Mrs. Greenwald is referring to is trapping CO2 deep within the earth, where it can be permanently kept out of the atmosphere.

Source: EPA

This diagram illustrates the third way that EOR can help the environment, by pairing pollution sources such as coal-fired power plants with CO2 injection into oil wells.

According to the EPA, the average 500 MW coal fired power plant produces 3 million tons of CO2 annually. Being able to sequester that carbon would be the equivalent to planting 62 million trees or turning off the power for 300,000 homes.

In the US there are 120 facilities already using carbon capture and sequestration (CCS) technology. Soon to be added to that tally is utility NRG Energy, which is investing $1 billion in a CCS project for one of its coal fired power plants in Texas. The company is hoping that it will be able to offset the cost of the project by selling the CO2 to nearby EOR projects. 

If NRG's experiment proves successful then it could generate a paradigm shift in which coal-fired power plants are converted en masse to CCS and the CO2 captured could be used for EOR and sequestration. 

Given that the US Department of Energy estimates the US has 1,800 billion to 20,000 billion metric tons of CO2 sequestration capacity (in the form of salt domes, unmineable coal deposits, and oil and gas reservoirs), we might be able to sequester thousands of years' worth of US CO2 emissions. 

Keeping that much CO2 out of the atmosphere would be a boon for preventing global warming. The fact that it can be accomplished in ways that also grow the economy and create lots of high-paying jobs in the process should be celebrated by everyone -- no matter what side of the political fence you stand on. 

Foolish takeaway
Enhanced oil recovery, specifically in the form of CO2 injection, represents a major environmental and economic opportunity for the world. It's a way to sequester carbon, which helps mitigate the largest downside of oil production while fueling economic growth and potentially lowering gas prices. In other words, CO2 injection represents a win-win situation for both environmentalists and the oil industry -- a rare thing indeed in today's politically charged climate.


Read/Post Comments (9) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 07, 2014, at 10:27 PM, cmoreride wrote:

    In Theory

    Large scale CO2 capture good luck with that.

    Transport of Captured CO2 sure.

    And the cost of capture, transport.

    Does it even look good on paper?

  • Report this Comment On August 07, 2014, at 11:36 PM, Beenthere wrote:

    Question. If injection of CO2 into oil wells is good for production, then why does it have to be CO2? Why can't it be plain air? CO2 is only 0.04%, so it takes energy to extract that 0.04% and throws away 99.96%. Why not just use air? Seems like a much better way to do it.

  • Report this Comment On August 08, 2014, at 7:09 AM, AdamGalas wrote:

    EOR looks good in the sense that 10% of US production is currently using it and its a proven method to increase oil production.

    CCS is more experimental though EOR is a form of CCS. Whether it ever takes off to the sense that all coal fired power plants are converted to it, well that's why NRG Energy and the DOE are working together to find out if they can build CCS cheaper than "clean coal" tech.

    Clean coal gasifies coal to remove pollutants from exhaust but so far results in a 6x increase in cost, meaning coal that costs as much as nuclear.

  • Report this Comment On August 08, 2014, at 7:51 AM, AdamGalas wrote:

    to me

    35 minutes agoDetails

    CO2 is used instead of air for 3 reasons.

    First, it raises the pressure in the well, which helps to increase oil production. This is the same reason that water flooding is used as an EOR technique.

    Second, CO2 helps to decrease the viscosity of the oil itself, which helps it to flow easier.

    Third, the CO2 that remains trapped underground is viewed as a benefit, because it can no longer act as a green house gas.

  • Report this Comment On August 08, 2014, at 1:06 PM, jon1964 wrote:

    First of all if power plants can afford spend billions on a project, they are charging customers too much to begin with.

    Second, if they are injecting CO2, sooner or later this will cause a reaction in the earth and eventually find a way to leak back to the surface. Example: ( earth quake that cracks the ground ) that these MORONS have ignored just so they can make a huge profit in a very short time that will cost us ( the tax payers ) trillions of dollars later just so these companies can keep the money they stole in the first place,.. and they use the excuse of helping people and the environment to get away with this scheme.

  • Report this Comment On August 08, 2014, at 5:23 PM, AdamGalas wrote:

    A few points: first, the $1 billion NRG experiment is just that an experiment. The actual cost of converting a coal plant to CCS can't be that high or it just wouldn't make economic sense.

    Second, CO2 injection into the earth is not likely to have negative chemical reactions, at least according to the EPA, which is strongly pushing for CCS.

  • Report this Comment On August 08, 2014, at 9:25 PM, acapoz wrote:

    I don't get this, We allow global corps to come in gather up our natural resources and let them control supply and demand by their production schedules, this will maximize profits from domestic and foreign sales of our resources. With those profits they keep overseas as not to pay taxes while we give them subsidies to do this.......

    But somebody who abuses an EBT card is a parasite? and in the meantime our drinking water is getting depleted

  • Report this Comment On August 08, 2014, at 11:54 PM, AdamGalas wrote:

    We let major oil companies extract our natural resources because the cost of doing so is too high to do ourselves.

    For example the value of all oil and gas infrastructure is $100 trillion. If oil companies didn't do it then who would? The government? Co-ops?

    Last year the oil industry spent $650 billion producing and exploring for oil. It may be the most profitable industry in absolute terms but the oil industry as a whole averages a 5.2% profit margin.

    If you think the government is better at providing energy then take a look at the states of the Mexican, Venezuelan, and Iranian oil industries, or Brazils for that matter. All of these countries are dominated by state run companies that are woefully inefficient and wasteful.

    That's not to say private oil companies are a paragon of virtue and selflessness but there's a reason the shale frack boom is only occurring in North America, where land owners also own the mineral rights and private companies predominate over government monopolies.

    The fact is the free market is better at most things than the government and supplying reasonably priced energy is one of those things.

  • Report this Comment On August 09, 2014, at 7:00 PM, AdamGalas wrote:

    Its actually quiet interesting the misconceptions (and animosity) many people have about the oil industry. I think a couple of articles clarifying these issues might be in order.

    Big oil isn't nearly as evil as some seem to believe.

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Adam Galas

Adam Galas is an energy writer for The Motley Fool and a retired Army Medical Services Officer. After serving his country in the global war on terror, he has come home to serve investors by teaching them how to invest better in order to achieve their financial dreams.

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