Gareth Roberts didn’t need much to persuade a governor and a congressman to turn out for the coming-out party of his 320-mile “Green Pipeline” on Thursday — not after his company decided to invest $750 million in one of the more unusual pipelines to traverse south Louisiana.
In late 2010, Denbury Resources Inc. will begin pumping up to 800 million cubic feet of carbon dioxide a day along a pipeline from Donaldsonville to a rejuvenated oilfield west of Houston, to points between and — eventually — to the Midwest on future pipeline legs.
“I think today no longer can we be considered a conventional oil and gas company,” said Roberts, the Denbury chief executive who worked for Texaco Inc. and Marathon Oil Corp. before joining the now-publicly traded company in 1990.
“We’re at the forefront of enhanced oil recovery.”
It’s the latest frontier for a production technique pioneered in the Permian Basin of West Texas in the early 1970s and little-used through much of the 1980s and 1990s, when oil prices were depressed.
Beginning a decade ago, Denbury tapped a natural formation of subsurface carbon dioxide near Jackson, Miss., to become that state’s biggest oil and gas producer.
Construction began on the east end of the Green Pipeline early this year and about 100 miles have been completed.
Along the way, 800 construction workers will have a hand in building the 24-inch diameter pipeline.
“For too long, we as a country have become too dependent on foreign oil,” Gov. Bobby Jindal said at a Denbury-sponsored event Thursday at the Crowne Plaza Hotel in Baton Rouge. “The best place to recover oil is where we’ve already (found it).”
Dubbed a “green” pipeline because it captures carbon dioxide that might otherwise be released to the atmosphere and aggravate global warming, the project represents a model Denbury has pursued earnestly for a decade: taking old oilfields idled by major oil companies after they were depleted with conventional drilling and pushing carbon dioxide underground to flush out more oil.
About 15.7 billion barrels of oil lay stranded in Louisiana oilfields, and enhanced oil recovery can help production companies like Plano, Texas-based Denbury get 6 billion more barrels, Jindal said, citing Louisiana Department of Natural Resources research.
According to DNR, Louisiana producers mine about 80 million barrels of oil a year in the state, a shadow of the 566 million barrels extracted in the peak year of 1970.
Denbury has reached seven contract agreements with gasification plants in Texas, the Midwest and Louisiana, where the first contract is with a planned $1.6 billion Faustina Hydrogen Products LLC project downriver from Donaldsonville near the Sunshine Bridge.
Gasification plants, most of them in the blueprint and fundraising stage, take raw products like coal, burn them at extremely high temperatures to create a natural gas equivalent and move that gas into further chemical production. The process captures manmade carbon dioxide that Denbury will be buying along the pipeline and transporting to oil wells, along with underground sources of the gas.
Denbury is spending about 25 percent of its field operating costs on enhanced oil recovery assets that include the Green Pipeline and 420 miles of existing pipelines, said Tracy Evans, an engineering executive who’ll become Denbury’s president in July.
A lateral line off an existing 182-mile pipeline from Jackson, Miss., to White Castle is supplying Denbury oil production at the Lockhart Crossing field near Denham Springs, and Denbury will begin enhanced oil recovery this summer at the Delhi Field near Monroe.
“Louisiana will become more and more important for us,” said Evans, with the company completing enhanced oil recovery projects itself or as a partner in joint ventures.
Any heavy industrial plant that produces significant sources of carbon dioxide — something President Barack Obama and many members of Congress would like to cap — can be a potential supplier for Denbury, Evans said, with contracts typically drawn in 15-year terms. Capturing carbon dioxide from a potential Nucor Corp. pig iron mill in St. James Parish would be a possibility, he said, with Denbury paying for pipeline extensions in exchange for long-term contracts.
Tied to the price of oil, the contracts avert losses for both parties down to the mid-$30 range and can generate significant supplier profits when prices climb beyond current levels in the low $60s, Evans said.
Plans to launch carbon dioxide transmission remain largely in line with projections Denbury gave to The Advocate in a February profile of the pipeline. Enhanced oil recovery will begin in 2011 at the crown jewel of the project, the Hastings Field southwest of Houston, where another 100 million barrels of oil could be produced.
Initial injection of carbon dioxide will begin in Chambers County, east of Galveston Bay in late 2010, Evans said. Already, Denbury uses enhanced oil recovery in about half of its daily output equivalent of 51,000 barrels. About one-third of Permian Basin oil is recovered the same way.
“The question is can we increase U.S. production to that same 33 percent or 50 percent,” Evans said.
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