Carbon storage race is underway in E. 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 climate-changefueled incentives.

Chevron started drilling test wells last month for its 142,000acre 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.

Test wells and land deals mark 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 captured climatewarming CO2 from a smokestack rather than emitting it, a significant increase from earlier levels.

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.

“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

Courtesy of Chevron An offshore test well for Chevron’s Bayou Bend project, a joint venture with Talos and Equinor, is thought to be the first such well drilled for a carbon capture project in the U.S.