Why Arabian Gulf exporters are well-positioned to lead on carbon-negative oil

Middle Eastern deserts offer tremendous scope for direct air capture and enhanced oil recovery systems

Equipment used to process carbon dioxide, crude oil and water is seen at an Occidental Petroleum enhanced oil recovery project in New Mexico, US. Reuters
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How can extracting a barrel of oil be good for the environment? We have heard increasingly about net-zero carbon oil production. But building oil production into a system for reducing atmospheric carbon dioxide seems somewhere between a miracle, alchemy and fraud.

The gas CO2, the main villain for climate change, is a hero when it comes to enhancing oil recovery. When injected into underground reservoirs, under the right conditions, it mixes with the oil and liberates molecules that were stuck in minute pores in the rock.

This boosts the share of the oil in the ground that can be recovered from about 40 per cent to 60 per cent, which in a country such as the UAE could amount to tens of billions of extra barrels.

One tonne of injected carbon dioxide can release about three barrels of oil. When combusted, that oil will yield about 1.2 tonnes of carbon dioxide. That is already better than conventional oil but, if the process is optimised to store more CO2, it could become net-negative.

This process is widely employed in North America, and in operating projects in Abu Dhabi and Saudi Arabia. So far, most of these use natural CO2 from underground reservoirs, or, as in the case of Adnoc’s Al Reyadah plant, CO2 captured from industrial facilities.

In early October, the biggest American oil company, ExxonMobil, was reported to be in talks to buy Denbury Resources, a Texas-based specialist in using CO2 for enhanced oil recovery, whose current market value is about $4.9 billion.

Using CO2 that would otherwise be released into the atmosphere is a good start. But for net-negative oil production, we need to withdraw CO2 directly from the atmosphere and inject it underground.

The most ambitious plan of this type is that of Occidental Petroleum (Oxy), the US company that also operates in the UAE, Qatar and Oman, and its chief executive Vicki Hollub.

On November 29, Oxy will begin construction on the world’s largest direct air capture plant, in Texas’s Permian Basin, costing $1bn, and partly run on solar power.

This will use technology from Carbon Engineering to extract atmospheric CO2, and will inject it underground, partly to enhance oil recovery, partly for permanent storage.

The company ultimately intends to build 75 such facilities. Their economic attractiveness has greatly improved recently, partly because of higher oil prices, partly because of the emergence of buyers willing to pay a premium for carbon-neutral oil or storage to offset their emissions, and partly because of new financial incentives.

The US’s Inflation Reduction Act, passed in August, offers a tax credit of $60 a ton of CO2 trapped in oilfields and a more generous $130 a tonne for the use of CO2 captured from the atmosphere. California’s low-carbon fuel standard currently pays around $200 a tonne, which is additive to the other credits.

Today, costs for direct air capture are quoted at $250 to $600 a tonne, but there are reasonable medium-term aspirations to bring that down to $150 to $200 a tonne as technology and experience improve. The public figures released on Oxy’s project suggest that is achievable.

So, why do we need carbon-negative oil at all?

The petroleum industry will continue to be necessary and important for decades to come. In the International Energy Agency (IEA)’s just-released outlook, oil demand in 2050 ranges from 57 million barrels per day based on governments’ current commitments, to 22.8 million bpd in a “net-zero” scenario.

The Adipec conference, which opened in Abu Dhabi today, sees carbon capture and carbon removal as crucial components of a smooth energy and climate transition.

Still, oil companies struggle with their carbon footprint. So-called Scope 1 and Scope 2 emissions come from the process of extracting oil itself — such as the energy required to run pumps and drilling rigs and to refine crude petroleum into useful products. The industry has plans to eliminate its operational emissions, with several large companies having set a 2050 target.

But cutting the Scope 3 emissions — those released when the oil or gas is burnt — is much more challenging. Many oil corporations simply say that is not their responsibility, but that of their customers.

Yet some companies realise that marketing net-zero or even net-negative oil and gas can be a winning proposition.

Microsoft, CocaCola, Apple, BMW and a host of other leading corporations have carbon-neutral or even carbon-negative targets.

Early last month, the International Civil Aviation Organisation adopted a 2050 net-zero goal — but zero-carbon fuels or long-range electric airliners will probably not exist in sufficient volumes even by then.

Even in the IEA’s global net-zero scenario, production from existing fields without new investment will decline faster than demand. That will lead to a widening gap.

“The countries that will make up that difference should be Saudi Arabia, the UAE, and the US,” Ms Hollub says.

Indeed, the wide-open, sunny, windy and petroleum-rich Middle Eastern deserts offer tremendous scope to deploy such direct air capture and enhanced oil recovery systems on a giant scale. This enables them to make full and responsible use of their hydrocarbons, smooth the transition to a new energy system, and become a central pillar of climate action.

Oxy believes its carbon capture revenue will come to equal those from oil and gas — a plausible ambition for the Arabian Gulf oil exporters, too. With such advantages and benefits, the $1bn cost for something like the Texas plant looks like a cheap investment. It’s time for carbon-negative oil to flow from the Gulf.

Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis

Updated: October 31, 2022, 2:13 PM
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