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The Questionable Economic Feasibility of Carbon Capture Technology

With the Paris Climate agreement out of the picture, the U.S. energy industry can now reevaluate some of its technologies for their economic sustainability. The absence of an impending carbon tax will continue to keep energy prices low, thus rendering Carbon Capture and Storage (CCS) technologies ineffective due to high operating costs. One such CCS project, Petra Nova, operated by energy company NRG, has been hailed as the future of CCS for its sustainable economic model. The project, however, is still leaps and bounds away from economic sustainability without a carbon tax or high oil prices.

NRG’s previous CEO David Crane had ambitious plans to combat carbon emissions through an intensive renewables program and an aggressive investment in its CCS project. The political climate during Crane’s tenure very much supported initiatives like carbon capture, and in 2010 NRG obtained a $190 million cost-sharing grant from the Department of Energy as well as an additional $250 million loan from the Japanese government to go ahead with the project. NRG and its Japanese partner coughed up an additional $300 million.

Petra Nova’s proximity to a mature oil field called West Ranch in South Texas opened a potential market for the scrubbed CO2. The CO2 that Petra Nova produced could be used to extend the life of the West Ranch oil field through enhanced oil recovery (EOR), a method of tertiary extraction that has proven to be highly effective. Petra Nova’s facility is a considerable technological advancement because it has an independent natural gas peaker plant that runs the carbon capture system so that it doesn’t burden the main coal power generators. The gas peaker runs more efficiently, providing an improvement to the previous capture systems. The new design only consumes 15% of the total generation power of the combined gas/coal unit whereas older CCS systems demanded 30% of the power production from the coal unit. Additionally, the capture system uses a derivative of ammonia as a solvent to pull CO2 out of the flue gas.

There is no debate that EOR is a commercially viable technique for dramatically increasing the amount of recoverable oil in a mature oil production basin, but the cost of producing and piping CO2 from coal power plants still remains prohibitively high. Most of the existing EOR facilities use naturally sourced CO2 from deep rock formations, and processing plants for chemicals, cement, and natural gas can produce CO2 at a lower cost than post-combustion CCS.

It is well-known that CCS increases the cost of electric generation. Less well-known is that a CO2  EOR process can add up to $30 per barrel in extraction cost. An extraction company must invest in the equipment to pump the CO2 into the ground as well as the equipment to extract the CO2 from the oil once it is mined.

Carbon dioxide remains the most effective of the gases to be used for EOR for two reasons: the supply is ample in natural formations in the U.S. and it is the most effective solvent providing the highest yield. However, nitrogen stands as a more cost effective alternative to CO2 for EOR processes because it is very easy to make and has similar yields to CO2. Instead of dedicating a whole power plant to scrubbing CO2, a utility company and extraction company could work together to install a peaker plant on site at the oil field to produce nitrogen gas to pump into the wells. This process would be more emissions friendly because it would avoid the carbon produced from making ammonia and turning that ammonia into amine to make the solvent for the carbon capture system. Also, nitrogen production can take place at times when the power grid has low demand, which would sustain the economic viability of the peaker as an electricity producer.

Carbon capture for enhanced oil recovery has a laundry list of problems that severely constrain its application:

  • The enhanced oil recovery market will exist (without a carbon tax) only if the price of oil passes about $75 per barrel, or if a cheap supply of compressed gas can be supplied to oil extraction facilities.
  • CCS for EOR produces more carbon in the form of oil than it sequesters.
  • CO2 used for extraction is recycled, so there is an initially high demand for CO2 to get the process started, then the demand plummets because about 80% of the CO2 can be recycled out of mined oil for use in further extraction.
  • Piping and transporting CO2 is very expensive and the value of CO2 is too low to justify a transport infrastructure. This limits CCS for EOR to fossil plants that are close to mature oil fields.  

Current oil and gas prices reduce the market for costly oil extraction techniques like EOR, and without cheap CO2 many fields will likely cap their mines until the market demands higher production. Free of a carbon tax, energy companies will continue to provide stable and affordable energy, and wasteful projects like CCS will slowly dwindle. It is important to note that all CCS programs would rely on a carbon tax for economic viability so there will be continued pressure in the future to push this tax to justify costly and ineffective strategies like CCS.

Note: For $190 million you could replace about 19 million incandescent bulbs with equivalent LED bulbs and your annual CO2 displacement would be 2.4 time as effective as the 1.6 million tons that are to be captured annually by the Petra Nova project.