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Tax credit could up oil production

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Posted: Monday, March 5, 2012 12:00 am

A tax credit and incentives from the capture of carbon dioxide could be a win-win-win in the Permian Basin.

C02 producers, oil producers and the federal government stand to benefit from the arrangement, which could result in a significant rise in oil production during the next 40 years through the enhanced oil-recovery process.

Some say it could exponentially increase the barrels of oil being produced in the area.

During the past few months, a unique group of individuals have been working on the National Enhanced Oil Recovery Initiative to develop recommendations on C02 capture and to realize its full potential in the oil and gas industry. The NEORI was organized and staffed by the Center for Climate and Energy Solutions and the Great Plains Institute.

The NEORI brought together a 28-member coalition of executives from the electric power, coal, ethanol, chemical, oil and gas industries, state and national officials, legislators, regulators and labor representatives. The coalition met for eight months and developed incentives for C02 and enhanced oil recovery.

The incentives are in the form of tax credits for plants that opt to capture and transport the millions of tons of carbon dioxide currently released into the atmosphere.

“This is a revenue positive tax credit – making money for the private sector for sure, but making money for the federal government and the taxpayers,” said John Speelman, climate program manager at the Natural Resources Defense Counsel and one of the 28-members of the group. “It is going to take some time for this idea to sink in on Congress especially when everyone is so budget-conscious.”

Speelman said there are many plants across the U.S., particularly oil and gas processing plants and electric plants that emit C02 that could be captured. Those existing plants could be eligible for the tax incentive plan immediately if it were passed by lawmakers.

 “This is a very unique combination of applying environmental technology to capture carbon dioxide and the substantial revenue potential the federal government gets off of the oil production,” Speelman said.  “That should justify the cost of the carbon capture.”

According to the report, after the first 10 years, with more C02 available for EOR (enhanced oil recovery) the program would have a net value of $2 billion adding an estimated 400 million barrels of oil. But that would increase to 9 billion barrels of oil after 40 years, worth $105 billion. In 2010, the U.S. domestic production was about 5.5 million barrels of oil per day.

Ultimately, the report shows the tax credit could result in the production of an additional 9 billion barrels of American oil over the next 40 years and the credit would save the U.S. roughly $610 billion in expenditures on imported oil, while storing 4 billion tons of C02 and reducing U.S. emissions in the process, according to the NEORI report.

Companies like Summit Power Group, which is finalizing plans to build the Texas Clean Energy Project, a carbon capture facility in Penwell, could benefit from tax incentives when they are able to market and sell the C02 captured at their plant.

“This current 45Q tax credit that is available to all the projects out there like ours that capture CO2 and use it in depleted oil wells to bring up more oil is unusable because there is no application or certification process for it so we can’t count on it for financing purposes,” said Laura Miller, Director of Projects Texas for Summit Power Group, who was part of the coalition. “And if you expanded the credit so additional carbon capture projects of all sizes could be built all over the country, within 10 years the oil royalties going to the U.S. Treasury from the enhanced oil recovery would more than pay for itself — and would be a veritable gold rush for the federal government over time.”

The same is true for the Tenaska Trailblazer Project, a coal-fired, carbon-capture plant to be built in Sweetwater.

“We have always contemplated that CO2 from Trailblazer would be used in EOR,” said Greg Kunkel, vice president of environmental affairs for Tenaska Energy. “And yes, some form of federal participation, such as that contemplated by the NEORI effort, would be necessary for the project to move forward given today’s market conditions for CO2 and electricity.”

The next step will be to take the recommendations and develop a legislative proposal. And hearings on enhanced oil recovery are likely to follow in Washington, D.C.

This is the biggest energy win-win our group knows of — this could be the largest potential expansion of domestic oil production of any other option on the table while advancing an important environmental technology,” Miller said.

The effort has garnered bipartisan support in both the House and Senate, with Sen. John Cornyn and Congressman Mike Conaway supporting the effort Miller said.  

Conaway admitted the current budget concerns in Washington may slow the process.

 “I am certainly behind enhanced oil recovery,” said Conaway. “This will pay dividends if we can all collectively agree on something.”

@OAciti

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