California Energy Markets
Abigail Sawyer Apr 10, 2020 Updated Apr 10, 2020
A $1.3-billion plan to convert the coal-fired San Juan Generating Station in northwestern New Mexico to a carbon capture, utilization and sequestration facility is moving ahead despite recent drops in the price of crude oil.
Enchant Energy, the project’s architect, has long planned to sell captured carbon dioxide gas for use in enhanced oil recovery in the Permian Basin. Oil prices, having traded in the $50-to-$65 range for most of the past year, have been hovering around $20 per barrel since the economic impact of the COVID-19 pandemic led to a decrease in demand just as a price war between Russia and Saudi Arabia began flooding the market with crude in March.
Peter Mandelstam, chief operating officer for Enchant, said in a phone interview that the main revenue driver for the project is 45Q tax credits that will provide $35/metric ton for gas used in enhanced oil recovery and $50/metric ton for permanently sequestered CO2 from 2023 to 2035. That pencils out to between $210 million and $300 million in credits annually over the 12-year period, provided the plant operates at an 85-percent capacity factor and captures 6 million metric tons of CO2, as estimated by the engineering firm Sargent & Lundy in a pre-feasibility design study for the project in 2019 (see CEM No. 1557). The same study also estimates the cost of capture at an 85-percent capacity factor to come in at $43.49/metric ton. That figure decreases to $39.15/metric ton at a 100-percent capacity factor.
Permanently sequestering some of the captured CO2 gas in wells in San Juan County, where the plant is located, would boost tax credit revenue without bringing in the additional $15 to $20 per metric ton Sargent & Lundy estimated the sale of compressed CO2 gas for use in EOR could bring. Mandelstam said Schlumberger, an international oil-field services provider, and Hilcorp, a U.S. oil and natural gas producer, both with operations in the area, want to see sequestration wells in the county. The San Juan Basin, a hot spot for oil and gas production, covers nearly the entire county, large parts of four other New Mexico counties and parts of three southern Colorado counties.
Selling captured CO2 gas for EOR has always been secondary to the tax credits as a revenue source, Mandelstam said. “Our interest in sequestration wells in New Mexico predates the coronavirus crisis,” he said in an email. “We applied some time ago to the [U.S.] Department of Energy for approximately $22 million to do this work. I always like optionality, and so now, given the crisis in the oil patch, it’s particularly appropriate.”
“DOE’s program has successfully deployed various large-scale CCUS pilot and demonstration projects,” the department said in a September announcement of $110 million in CCUS funding opportunities. “It is imperative to build upon these learnings to test, mature, and prove CCUS technologies at the commercial scale.”