The Department of Energy issued a series of optimistic reports on Friday about the potential for carbon-dioxide-based enhanced oil recovery methods (CO2-EOR) to lead to huge increases in U.S. crude oil production.
From the DOE press release (hat tip: href="http://www.greencarcongress.com/2006/03/doe_new_co2_enh.html">Green Car Congress):
The Department of Energy (DOE) released today reports indicating that state-of-the-art enhanced oil recovery techniques could significantly increase recoverable oil resources of the United States in the future. According to the findings, 89 billion barrels or more could eventually be added to the current U.S. proven reserves of 21.4 billion barrels.
“These promising new technologies could further help us reduce our reliance on foreign sources of oil,” Energy Secretary Samuel W. Bodman said. “By using the proven technique of carbon sequestration, we get the double benefit of taking carbon dioxide out of air while getting more oil out of the earth.”
The 89 billion barrel jump in resources was one of a number of possible increases identified in a series of assessments done for DOE which also found that, in the longer term, multiple advances in technology and widespread sequestration of industrial carbon dioxide could eventually add as much as 430 billion new barrels to the technically recoverable resource.
Which is it, 89 billion or 430 billion, or something much smaller? When one gets into the details of the reports, there are quite a few alternative numbers that one could choose to highlight. The key document notes that about 200,000 barrels/day are currently being produced in the U.S. from CO2-EOR, and cautions that:
Even with application of “state-of-the-art” EOR technology, the economically recoverable oil from CO2-EOR remains modest, at about 7 billion barrels. This is because current investment decisions for CO2-EOR and competing projects are made under “price expectations” of about $25 per barrel.
Among the report’s recommendations:
Financial “risk mitigation” policies (such as royalty relief, reduced state production taxes and increased federal investment tax credits for EOR, that together have the effect of lowering the minimum required “oil price expectations” for economically feasible capital investment by $10 per barrel), when applied with improved CO2-EOR technology and affordable supplies of CO2, are a key step for capturing the full potential from CO2-EOR.
Here we go again. As I commented last week, these forecasts of $25 a barrel strike me as unlikely to materialize. I further don’t see why oil companies can’t insure themselves at least in part against these risks by selling oil futures. And if oil indeed does go down to $25 a barrel, it’s not clear that we need these investments anyway.
This is surely a case where the market can and should be counted on to sort this out. If there are indeed huge quantities of oil that can be brought profitably to market at $40 a barrel, and if the price of oil remains above $40 a barrel, then there is every reason to expect oil companies to figure out how to do this all by themselves.
I hope these reports are correct in their assessments of the huge potential for CO2-EOR. But I’m persuaded they are not correct in their conclusions about the policy recommendations that the analysis would support.