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Carbon Capture Moves Ahead

Blue Source demonstrates a remediation system that could capture carbon dioxide at advanced coal plants.
November 16, 2007

If the U.S. coal-fired power industry is ever to switch to advanced, cleaner technologies, it will need an effective way to capture and store its emissions of carbon dioxide, a leading greenhouse gas. Blue Source, a company based in Salt Lake City, recently took a positive step in demonstrating a viable strategy when it started up its first carbon-capture and -storage project. Blue Source is piping industrial carbon dioxide from a natural-gas processing plant in southeastern Colorado to an undisclosed oil producer that will, in turn, pump it into an aging oil field. The result should be increased crude production and a carbon-dioxide emissions reduction equivalent to taking 70,000 cars off the road.

Pollution pays: Blue Source is building the business case for carbon-capture and storage systems by storing CO2 in oil wells. Blue Source profits twice, selling the CO2 to the oil producers who use it to stimulate oil production, and simultaneously earning carbon offsets that could soon be worth 20 euros ($29) per ton.

Blue Source’s project is innovative not technically–the company employs off-the-shelf technology–but financially: it is among the first whose business plan hinges on the sale of both the captured carbon dioxide and carbon offsets, a financial derivative generated from the emissions reduction. Analysts say that this business model could help commercialize advanced coal-fired power plants and carbon-capture technology that is languishing under weak pollution-control policies in the United States. “Its success will lay the groundwork to enable power-plant projects to go down the same route, should a more extensive carbon policy emerge,” says Alex Klein, a senior analyst tracking developments in power generation for consultancy Emerging Energy Research, based in Cambridge, MA.

Blue Source’s model is viable thanks to a combination of pricey oil and cheaper carbon dioxide. The carbon dioxide that Blue Source is shipping out of the Apple Tree gas processing plant in Colorado’s Huerfano County is cheap because it is already concentrated (unlike the effluent from a conventional power plant, which is diluted with nitrogen gas). The carbon dioxide is stripped off of the gas from the county’s natural-gas wells, which are just 22 percent methane. Most carbon dioxide of this sort is simply vented. Blue Source installed the compressors and pipes needed to pump it to an existing carbon-dioxide pipeline 16 miles away.

Pricey oil helps because oil producers use carbon dioxide to loosen up crude trapped underground and facilitate its flow to the surface. (Carbon dioxide that comes back up with the oil is stripped off and pumped back down.) When a barrel of crude fetches more, oil producers will pay more for carbon dioxide.

Blue Source and its backers are clearly betting that the market for carbon-dioxide remediation will continue to grow as states introduce caps on carbon-dioxide emissions. What’s more, Congress is considering regulating greenhouse gases. (This has already happened in Europe, where a mandated carbon cap-and-trade program has driven the price of carbon-dioxide offsets to more than €20 [$29] per ton. Such offsets sell for just $2 a ton on the Chicago Climate Exchange.) Investment banks agree: last year, Blue Source raised $1 billion in financing through First Reserve, based in Greenwich, CT, the largest private equity firm focused on energy.

Blue Source CEO Bill Townsend says that developing the 16 carbon-storage projects the company is now pursuing would require more than $1 billion. Some projects, such as a fertilizer plant in Coffeyville, KS, that Blue Source will link to oil fields in Kansas or Oklahoma, provide concentrated and thus cheap carbon dioxide. But Townsend says that several are coal-fueled power projects and synthetic-fuel plants equipped with sophisticated carbon-capture equipment that is likely to double the cost of preparing the carbon dioxide for pipeline transport.

Such projects will face competition. Independent oil and gas firm Denbury Resources has signed two deals in the past six months to buy all the carbon dioxide produced by three planned gasification plants in Louisiana and Mississippi that will convert coal and petroleum coke (a low-grade product of oil refineries) into synthetic fuels and chemicals. And power producer NRG Energy, based in Princeton, NJ, announced plans earlier this month to capture and sell one million tons of carbon dioxide per year from a Texas coal plant using a novel carbon-capture system developed by pollution-controls firm Powerspan. (For comparison, Blue Source is sequestering 400,000 tons of carbon dioxide per year from the Colorado gas plant.)

Klein says that there is room for all of these projects because the oil industry is eager to do more carbon-dioxide-enhanced oil recovery and is short on carbon dioxide. “Over the last 20 years, most of the CO2 used in [enhanced oil recovery] has come from natural sources, [and] those are pretty much tapped out,” he says. “If the industry is to grow and expand and meet their growth objectives, anthropogenic CO2 will have to play a role.”

That could be very good news for the coal-dependent utilities that dominate the U.S. power industry–and for their customers. As Klein puts it, “The future for coal doesn’t look bright unless they can address this carbon issue.”

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