Can Small Carbon Sequestration Projects be Economic?

John L. Graves                   

William W. Vail, Jr.

April 20, 2023

There have been several announcements in recent weeks of significant carbon dioxide sequestration hub projects leasing huge swaths of land with the capacity to store billions of metric tons of CO₂. 

Bayou Bend CCS LLC, the Talos/Chevron joint venture, has expanded its capacity with the acquisition of nearly 100,000 acres onshore in Chambers and Jefferson counties, Texas, which served to increase its CO₂ storage capacity to over 1 billion metric tons.[1]  Occidental Petroleum’s subsidiary, 1PointFive, announced leasing over 55,000 acres in southeast Texas for a hub with planned capacity of 1.2 billion metric tons of CO_2.[2] 

Not every CO₂ emitter desiring to capture and sequester their carbon will be near huge storage hubs like those planned by Talos and Oxy, or economically within reach of CO₂ pipeline infrastructure.   

Can small carbon dioxide sequestration projects be economic? 

We believe the answer is yes, small carbon dioxide sequestration projects can be economic.  This will depend upon a variety of factors including location, scale, geography, geology, regulations, tax incentives, and the markets for CO₂ and carbon credits.

Here are a few ways in which small carbon sequestration projects can be economic:

1. Selecting an advantageous site:  Location is vital to the economics of any sequestration project.  Proximity to a suitable underground storage reservoir, a CO₂ pipeline, a third-party sequesterer with its own injection facility, or to depleted oil and gas fields are beneficial to an emitter desiring to sequester its carbon emissions economically.

    

   An ideal situation for a CO₂ emitter of is for its plant to be situated over a suitable saline aquifer, thus avoiding costly construction of a transportation network to connect its CO₂ to a third-party sequesterer.  The cost to transport CO₂ via pipeline is dependent upon the volume to be transported and the distance, and if a new line is to be built, permitting, right-of-way, construction and community relations costs.   Capital costs to transport 200,000 metric tons of CO₂ per year a distance of 100 miles was estimated in 2021 to be between $3.00 and $11.00 per ton (2019 dollars).[3]

2. Utilizing existing infrastructure, particularly in depleted oil and gas fields:  Small-scale carbon sequestration projects may be able to leverage existing infrastructure, such as wells or processing facilities to reduce costs where the storage reservoirs are in a depleted producing oil and gas field.  By repurposing existing assets, developers may be able to avoid the need for expensive new construction, which can improve a project’s economics.

    

   Converting natural gas lines for use in transporting carbon dioxide over short distances may be feasible, and such a line exists in Denbury’s system in Mississippi.  Unfortunately, converting natural gas pipelines for CO2 usage is not practical for transporting significant quantities of CO2 over long distances due to the greater pipe thickness required for the higher operating pressures needed to keep CO2 in a transportable supercritical state.

3. Selecting advantageous geologic formations:  The cost of carbon sequestration can vary depending on the geologic characteristics of the subsurface formations being used for storage.  Advantageous geological storage reservoirs will be of sufficient thickness and areal extent, have good sealing layers above, and have higher porosities and permeabilities, giving rise to higher potential injection rates and larger potential cumulative storage volumes serving to increase throughput and reduce costs.
4. Accessing funding and incentives:  Small carbon sequestration projects may be eligible for a variety of funding and incentives, such as grants, tax credits, or voluntary carbon credits.  These programs can help offset the costs of the project and improve its economics.  Currently, an emitter with a minimum of 12,500 metric tons of CO₂ captured and sequestered per annum may qualify for IRC Section 45Q tax credits of up to $85 per metric ton, though that volume may not be economic.  The direct payment provisions of the IRA furnish an ability for eligible entities to receive direct cash payments in lieu of income tax credits.  State incentives and grants may also be available.  The market for voluntary carbon credits is anticipated to grow exponentially in the coming years as the impetus to offset carbon production becomes more widespread globally.
5. Targeting niche markets:  Small-scale carbon sequestration projects may be able to target niche markets, such as small industrial facilities or agricultural operations, which are looking to offset their carbon emissions.  By focusing on these smaller markets, developers may be able to secure more favorable contracts or pricing arrangements.  Sequestration developers can focus on clusters of small to medium-sized industry in cement, steel and chemicals.
6. Partnering with stakeholders:  Small carbon sequestration projects may benefit from partnering with stakeholders, such as landowners or industry groups who have a vested interest in reducing emissions.  By collaborating with these partners, developers may be able to access resources or expertise that can help make the project more economic.

Overall, the key to making small carbon sequestration projects economic is to carefully consider the unique characteristics of the project and the local context, and to explore a range of strategies for reducing costs and accessing funding and incentives.

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[1] “Bayou Bend expands CCS project with onshore Texas acreage,” Oil & Gas Journal. March 6, 2023.

[2] “Oxy’s 1PointFive leases acreage for planned CCS Hub in southeast Texas,” Oil & Gas Journal. March 3, 2023.

[3] Smith, et al, “The cost of CO₂ transport and storage in global integrated assessment modeling,”International Journal of Greenhouse Gas Control, Vol. 109, July 2021.