CRC Goes Big on Carbon

CRC Goes Big on Carbon
Project: A California Resources Corp. technician checks equipment.

Oil companies have extracted carbon-based liquids and gases from the earth for well more than a century. But now, some oil companies are spending billions to inject carbon back into the earth.

In the past year, Long Beach-based oil and natural gas company California Resources Corp. has begun this push in a big way, first launching a carbon storage unit with financial help from Toronto, Canada-based Brookfield Renewable and now entering into the first tranche of what will likely be scores of deals over the next few years to inject and store carbon dioxide at or near its existing oil field operations.

Oil companies such as CRC may not make money by sequestering carbon. But regulators and lawmakers have been considering and even imposing oil and natural gas drilling bans, and oil companies are eager to prove they can reach carbon neutrality targets without having to shut down their operations.

California Resources this month announced two carbon storage agreements that would inject 140,000 metric tons of carbon dioxide into underground storage vaults – one at a new plant in Oroville and the other at a new plant next to its oil and natural gas production facilities in the Elk Hills Oil Field in Kern County.

The two agreements announced on May 1 bring the total amount of carbon dioxide that California Resources has agreed to store underground to more than 600,000 metric tons a year – with all of the agreements being reached within the last six months.

But these agreements are just the start. The company also announced it has submitted a permit to the Environmental Protection Agency for the right to store 34 million metric tons of carbon dioxide underground; if that permit is granted, California Resources’ total permitted underground carbon dioxide storage capacity would rise to 174 million metric tons. It would take hundreds of deals similar to the two just announced to fill that much storage capacity.

In all, the company said last year it intends to spend $2.5 billion over the next five years on setting up carbon dioxide storage projects. All this with no revenue from any of these projects expected to flow in before 2025.

“We are continuing to build out the leading carbon storage business in California,” Francisco Leon, the company’s new chief executive, said in a teleconference call with analysts after the release of first quarter earnings. Leon’s appointment as chief executive was announced in February; he officially took over at the company’s annual meeting last month. His predecessor, Mark McFarland, is now nonexecutive chair of the company’s carbon storage unit.

Power: A California Resources Corp. pipeline, part of its Elk Hills project.

California Resources’ decision to go all-in on carbon storage is part of the oil industry’s response to the broader push to get to carbon neutrality as fast as possible. In December, the state Air Resources Board laid out a path for the state to reach carbon neutrality by 2045, meaning that in a little more than two decades, the state should be removing as much carbon dioxide from the air as its residents and businesses are putting into the air.

‘Existential threat’

The strategic plan does include carbon sequestration projects like the ones California Resources has been lining up. But the plan also calls for a 94% reduction in the demand for oil and natural gas in the state by 2045. 

Several environmental groups and other activists have been pressuring state lawmakers to go even further and enact a complete statewide ban on oil and gas production – similar to the bans recently enacted in both the city and county of Los Angeles, as well as Culver City.

This of course does not sit well with the oil industry, which sees those bans and “phase downs” as an existential threat to their business.

“A phase-down of California oil and gas extraction is…problematic,” the industry’s main trade group, the Western States Petroleum Association, wrote in a letter to the air board in October, before the board’s December decision. “California has to import the majority of crude that is processed in the state; in 2020, only 31% of the 478 million barrels of crude supplied to California refineries was produced in the state.”

Instead, WSPA said its member oil and gas companies “strongly support the use of (carbon dioxide removal) and (carbon capture and sequestration) to achieve the state’s climate goals. Implementation of CDR/CCS at scale will be pivotal to the overall success of the (plan) to achieve carbon neutrality by 2045.”

Another advantage for California Resources to move as quickly as possible on carbon injection and storage deals is staying ahead of what is likely to be more intense state regulation of these projects. In September, Gov. Gavin Newsom signed SB 905, which will set state regulations on carbon capture and storage projects, including strict permitting procedures and ongoing monitoring requirements that would likely make these projects even more expensive to set up.

The bill sets a deadline of Jan. 1, 2025, for the regulations to be adopted; the regulations would likely be phased in over the months and years after that date. There’s a good chance that carbon injection and storage projects that are up and running before that time could be grandfathered in.

That’s the plan for the first carbon storage project that California Resources announced in December with Tulsa, Oklahoma-based Lone Cypress Energy Services to store 100,000 metric tons of carbon dioxide at the Elk Hills oil field as part of a plant that would produce at least 30 tons per day of hydrogen by 2025.

Pair of deals

The first of the two deals announced this month to store carbon underground was reached with Mariposa-based Yosemite Clean Energy, a bioenergy development company that specializes in transforming farm and forest-wood waste into hydrogen and renewable fuel. The deal calls for California Resources’ Carbon Terra Vault unit to sequester at least 40,000 metric tons per year of carbon dioxide in storage vaults from a new hydrogen plant to be constructed in Oroville in Northern California. The plant is expected to produce 24,000 kilograms of hydrogen per day.

The second deal is with Richland, Washington-based InEnTec Inc., which makes gasification systems that turn waste into green products, fuels and energy. Under the deal, InEnTec plans to build a renewable dimethyl ether production facility at California Resources Net Zero Industrial Park in Kern County, next to the oil company’s oil and gas extraction facilities at the Elk Hills Oil Field. Carbon Terra Vault will initially sequester a minimum of 100,000 metric tons per year of carbon dioxide from InEnTec’s facility. That facility, in turn, is expected to produce 80 to 100 tons per day of renewable dimethyl ether from biomass and other waste materials.

As for the permit filed with the EPA, McFarland, the chair of California Resources’ Carbon Terra Vault unit, said in the announcement of the carbon storage deals that the company expects a decision from the agency by the end of the year. CRC is taking a path to carbon sequestration that is well trodden, according to Pavel Molchanov, energy industry analyst with St. Petersburg, Florida-based Raymond James & Associates.

“California Resources is one of many companies, in the U.S. and around the world, that are working to sequester (carbon dioxide) in mature oilfields,” Molchanov said. Mature oil fields, he continued, “have plenty of available room in their underground reservoirs to store (carbon dioxide). This is a well-established concept, dating back in some cases to the 1980s.”

Molchanov said three quarters of global carbon dioxide sequestration involves the oil industry.

“In the case of California Resources, there is an excellent opportunity to do this at the Elk Hills oilfield, one of the largest mature oilfields in the country,” he said. “More broadly, the company’s mature asset base across the state offers other opportunities to do this, beyond solely Elk Hills.”

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