Carbon storage race underway in East Texas
Oil rigs are drilling a new type of well in East Texas, where carbon dioxide pipelines, top-tier geology and a slew of industrial emissions are kicking off a race to cash in on incentives fueled by climate change.
Chevron started drilling test wells last month for its 142,000-acre carbon storage project in Jefferson County and offshore Port Arthur, including what is believed to be the first offshore test well in the U.S. drilled as part of the emerging carbon capture and storage industry. It joins Exxon Mobil, Occidental Petroleum, BP and others that have recently drilled wells east of Houston to collect subsurface data needed to obtain federal permits for projects that would inject carbon dioxide deep underground.
Break-even costs for carbon capture projects in the Houston area are likely to be between $60 and $70 per ton, including transportation and storage, said Brad Johnston, a geologist and research analyst for Enverus. The increased federal incentives leave room for profit that wasn’t there before.
“That bump up from $50 to $85 was definitely a game changer,” Johnston said. For context, Chevron’s Bayou Bend project in East Texas, a joint venture with Talos and Equinor, could store more than 1 billion metric tons of carbon dioxide.
Texas oil companies such as Exxon believe the emerging industry’s worth could grow to trillions of dollars a year as demand for climate solutions grows. The International Energy Agency describes carbon mitigation as “an important technology for achieving global net-zero emissions.”
Many industrial emitters are still weighing the value proposition of installing equipment capable of capturing their carbon emissions, said Rohan Dighe, a Wood Mackenzie research analyst specializing in carbon capture, utilization and storage, known as CCUS.
Test wells and land deals are the first leg of the race to develop the new breed of projects. The opening gun was fired with the Biden administration’s Inflation Reduction Act, which promised $85 per ton to companies that capture climate-warming carbon dioxide from a smokestack rather than emitting it, a significant increase from earlier levels.
“The tough part is how do you convince an emitter to install the capture facility and then to pay a storage provider for their services?” Dighe said. “That’s the real question.”
Relatively low transportation and storage costs in East Texas and Louisiana, made possible by favorable geology that allows for more storage and existing pipelines that don’t need to be built, help the cost-benefit analysis, said Enverus’ Johnston. The existing pipelines also allow for fewer points of friction with landowners.
“There’s a pushback on pipelines,” said Paola Perez Pena, principal research analyst for clean energy technology at S&P Global Commodity Insights. “So if you can have a project that is close to an already built CO2 pipeline with capacity, then you have a much higher probability that your project is going to move ahead.”
Also, the geologic opportunity here is “world class,” Johnston said, as it allows for nearly unlimited storage capacity.
James Frank Howell said he knew he had something good below his 12,000acre cattle ranch in Liberty when Exxon and Oxy approached him almost simultaneously about leasing subsurface rights to the property. “This is the cream of the cream right here,” Howell said, smiling, as a breeze tugged at his cowboy hat.
Howell ultimately signed with a smaller firm, a Houston startup called Verde CO2. He said he grew excited about the new industry’s prospects and felt a smaller company dedicated solely to it might start stashing away carbon more quickly.
“I’m 60. I’m not going to live forever,” Howell said. “You kind of want to see things move on down the road, and not just go lease it and have it sit.”
Verde President Jon Grimmer said the company will probably install about 20 wells on Howell’s property — six for carbon dioxide injection and about 14 more to monitor the plume’s movement underground, as required by the federal permitting process.
Reaching deals like these with landowners, which give them a percentage of injection revenue, can be tricky because the industry is new and has its risks, Johnston said. For example: century-old oil wells that don’t appear on maps could surprise operators and allow carbon dioxide to leak.
“You don’t want a bunch of other wells in there that could potentially act as leakage pathways,” Johnston said. “That’s a big risk factor that you’ll have to get over.”