Legal Basics for CO2 Enhanced Oil Recovery

Written by Marie Bradshaw Durrant on . Posted in Volume 1 - Issue 2

Legal Basics for CO2 Enhanced Oil RecoveryIt is rare to find an energy issue that the Natural Resources Defense Council (NRDC) and the American Petroleum Institute (API) agree upon; however, both organizations endorse enhanced oil recovery through carbon dioxide flooding (CO2 EOR). This is because CO2 EOR has the potential both to facilitate the extraction of millions of barrels of additional oil from existing well sites and to address climate change by providing economic incentives to capture CO2, the most ubiquitous greenhouse gas. As explained by NRDC:

The country has a significant, untapped win-win-win opportunity to stimulate our economy and reduce our dependence on imported oil while actually helping to protect wild places and reduce global warming pollution: a process known as carbon dioxide enhanced oil recovery (CO2-EOR). According to industry research, CO2-EOR would give America access to large, domestic oil resources— potentially more than four times the proven U.S. reserves, or up to 10 full years of our total national consumption.

Companies undertaking CO2 EOR projects must deal with many of the same issues as traditional oil and gas operations, such as weighing the costs and benefits of available locations, adjusting technologies, managing pollution, and balancing costs and profits; however, the CO2 factor infuses the legal landscape with additional complexity and uncertainty. Access to and management of CO2 present the greatest challenges for financing, locating, operating, permitting, and managing CO2 EOR projects. While the CO2 factor introduces exciting potential for future production and global warming solutions, CO2 also expands potential regulatory burdens and introduces additional uncertainty and legal risks and requirements. This paper focuses on the special legal issues and regulations that arise for CO2 EOR operators in addition to the traditional concerns that standard oil and gas or secondary recovery operations must consider. While a growing number of operators in the United States and Canada are successfully and profitably producing previously inaccessible oil using CO2 flooding, the amount of oil recovered through CO2 EOR is far from its potential. Two related barriers stand in the way: First, there is not enough CO2 to meet the rapidly expanding demand; second, regulatory and cost barriers prevent exploitation of a practically limitless CO2 source—man-made CO2. While some technical and cost barriers are also involved, legal recognition of CO2 EOR as an accredited storage option without imposing the current heavy regulatory burdens would better incentivize CO2 capture for the largest anthropogenic sources and bring the huge energy security and climate change mitigation potentials of CO2 EOR closer to reality.

CO2 EOR currently accounts for 5–6% of U.S. oil production; however, CO2 EOR has the potential to expand to 20–30% of U.S. oil production by 2030, reducing foreign imports by up to 50%. On the supply side, a typical 500 MW power plant produces about 10,000 tons of CO2 per day, which could translate to 192 million standard cubic feet (MMscf) per day of CO2. CO2 EOR has the storage capacity for 45 billion metric tons of CO2 and it is estimated that 18 billion metric tons of anthropogenic CO2 are needed to extract known EOR-recoverable resources. Daily sales of CO2 in the U.S. now total over 3.1 billion cubic feet, or about 65 million tons per year. So all the pieces for greatly expanded EOR recovery are out there: the demand for more energy at prices that can support EOR (generally considered to be oil at $85/barrel or more); the demand for large supplies of CO2; a continuous supply of extremely high CO2 emissions; a growing body of regulations requiring reduction of CO2 emissions; and improving technologies for capture, transport, injection, and monitoring of CO2. But the successful, full-scale expansion of CO2 EOR is not a given. It will depend upon technically and business-savvy operators of both EOR and CO2-emitting industrial sources; flexible and informed government oversight that recognizes CO2 EOR as the only realistic option remaining to incentivize the capture and storage of anthropogenic CO2; favorable market conditions; and forward-looking collaboration between stakeholders and regulators to remove barriers and improve state and federal regulation of CO2 capture, transportation, use, and storage operations and technologies.

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