American Oil and Gas Reporter - June 2014 - 135

SpecialReport: Hot Spots: Permian Basin
Subpart RR further provides that operational changes-even drilling a new injection well that had not been identified
previously-can start the whole MRV approval process over. It is important to remember that an EOR operation is dynamic and involves drilling multiple wells, reconfiguring wells from injectors to producers or vice versa, and adapting original plans to respond to operational
changes. This means that there necessarily will be a host of changes to the original plan. Any one of these changes may
be sufficient to retrigger the MRV approval process.
These aspects of Subpart RR regulation
mean the developer of a generating project that is planning to transfer captured
CO2 for EOR operations will have no assurance that it will have an outlet for the
CO2 until after litigation of the EOR operator's MRV plan is complete. The power generator further faces the risk that subsequent operational changes by the EOR
operator may trigger revisions to the
MRV plan that prevent the EOR operator
from approved reporting, thereby jeopardizing compliance with the NSPS by the
electric generating unit. This could force
generating plants to shut down.
EPA's reliance on Subpart RR thus imposes severe regulatory barriers to using

EOR-based storage to meet the NSPS requirements. It is difficult to see how a project could be successfully developed, financed and constructed under these rules.
'No Thank You'
To avoid these conflicts, risks, and uncertainties, EOR operators are unlikely to
either purchase Subpart RR CO2 or even
to allow such gas to be commingled for
transportation with ordinary CO2.
While developers of power plants designed to meet the proposed NSPS will expect potential purchasers to commit to being subject to Subpart RR, EOR operators
will decline because the restrictions, costs,
risks and uncertainties associated with
Subpart RR will make those CO2 supplies
totally undesirable.
Moreover, CO2 pipeline operators may
be expected to prevent commingling of
Subpart RR CO2 with ordinary CO2 because of the fear that Subpart RR obligations will apply to the entire commingled
stream (exactly like federal courts held that
federal natural gas regulation applied to an
entire commingled stream, even where
nearly all the gas stream was intrastate in
nature and not otherwise subject to federal regulation).
As a result, the proposed NSPS rule
makes it extremely unlikely that develop-

ers of coal-fired power projects will be able
to enter into commercial off-take agreements with EOR operators for the CO2
they expect to capture. Indeed, the EOR
off-take agreements underlying the existing power generation projects on which
EPA relies to show that CCS has been adequately demonstrated would not have
been signed, if the proposed NSPS rule and
mandated Subpart RR compliance had
been in effect when those projects were finalized.
Nearly 1 billion metric tons of CO2
have been injected successfully during
EOR operations in the United States over
the last 40 years, representing a vast
amount of experience and expertise with
CO2 injection and incidental storage during EOR operations.
Of these 1 billion tons, roughly 120
million have been reported to the EPA under Subpart UU since the GHG reporting
rules took effect in 2011. None have
been subject to Subpart RR. There are no
approved MRV plans for injecting and reporting CO2 in EOR operations under Subpart RR.
Hence, rather than being "adequately
demonstrated," the Subpart RR rules and
procedures are unused, uncertain, and
unworkable for EOR operations.
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EPA Rules Carry 'Number Of Pitfalls'
WASHINGTON-The Environmental Protection Agency's proposed New
Source Performance Standards for new
electric generating units is based on a
faulty premise and likely would preclude using carbon dioxide emitted by
power generators in enhanced oil recovery, a pair of oil industry associations
contend.
In comments filed with EPA in May,
the Independent Petroleum Association
of America warns that the requirement
that generators report CO2 emissions under Subpart RR of its greenhouse gas reporting rules "carries a number of pitfalls,
such as conflicts (between) waste disposal and resource maximization."
Noting that EPA's NSPS "is premised
on the assumption that CO2 will be
marketable at any price," IPAA counters
that, "in fact, CO2 for EOR operations
will be limited by demand, available
pipeline infrastructure, and cost."

IPAA says it strongly encourages
EPA to adopt a holistic approach to ensuring carbon capture and sequestration,
and the use of CO2 in EOR operations,
continues to be a viable option. "If CO2
is to be a viable commercial product for
use in EOR, EPA must be mindful of the
consequences of other significant regulations," IPAA says. "EPA's underground
injection control Class VI rule will mandate a conversion from the Class II
wells currently used for CO2 injection,
which will create additional costs with a
number of regulatory and legal uncertainties and challenges."
In its comments, the American Fuel
& Petrochemical Manufacturers notes
that Congress requires performance standards in federal regulations be based on
technologies that are adequately demonstrated in practice. "In this proposed rule,"
AFPM's comments state, "EPA established the performance standards on

technologies that do not meet the requirements and are not feasible. Furthermore, they are not consistent with the
Clean Air Act."
AFPM accuses EPA of going beyond
environmental protection and attempting to dictate energy policy. "The EPA
is not only regulating emissions, it is now
involving itself in setting an energy
policy that does not support an all-of-theabove approach to our nation's energy
needs," declares AFPM President Charles
Drevna. "Our nation is on the verge of
a manufacturing renaissance, but this and
other all-cost, little-to-no-benefit rules
will threaten our tremendous opportunity (and) erode our competitive advantage."
IPAA adds that the proposed rules
"threaten to make electric generation
from natural gas an overly costly endeavor."
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JUNE 2014 135
American Oil and Gas Reporter - June 2014

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