Tuesday, July 10, 2007

Going Underground with CO2

The latest brainstorm to reduce carbon dioxide emissions into the air is to inject the CO2 into the ground. It is called carbon sequestration. It could be a neat trick, if it works. Scientists say there are deep saline reservoirs under thirty-five of the continental states. Theoretically these reservoirs can hold all the CO2 emitted by coal burning power plants in the U.S. for the next one hundred years.

The thing is no one really knows if it will work or not. Several years ago test injections were made into the Frio formation, an old brine-filled oil reservoir along the Texas Gulf coast. The mixture of CO2 and saltwater in the reservoir have begun to dissolve minerals in the rocks. There is some concern this dissolving action could create tunnels that would allow the CO2 to escape again.

Clearly it is not a slam dunk. A few scientists are worried that the injection of CO2 underground will force the salty water in the reservoirs to the surface. They also expect to see an increase in briny water coming up in natural gas wells.

The Bush Administration likes the idea. Last year the Energy Department handed over $14 million to a coalition of Western states and business to study injection methods. They are pumping CO2 into two geologic formations near Rio Vista in California.

Private industry is also getting into the action.
Santos Ltd. (STO: ASX), the oil and gas exploration and production company based on Australia, recently submitted a proposal to the federal government for funding of its Moomba Carbon Storage demonstration project. Santos estimates the project will cost near US$600 million and offer capacity to store as much as 400 million tons of CO2.

Assuming the geological risks can be addressed or are unfounded, the economics appear appealing, at least at the storage end. Oil and gas producers, many of which have control over land where sequestration could be carried out, must be salivating over the opportunity just like Santos.

Unfortunately, the total cost is could be prohibitive after considering the cost of capturing the CO2 at the smokestack and transporting it to the injection site. I suggest waiting to see whether new CO2 capture technologies come along before making any investment plays on sequestration.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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