DENBURY’S HOPE FOR MIDWEST CO2 PIPELINE LIKELY DASHED

Rockport Vote Means Pipeline Plans Are ‘In Cold Storage For Now’

Tamar Hallerman
GHG Monitor
5/10/13

Denbury Resources’ plans to establish its third major CO2 pipeline network have been shelved after Indiana lawmakers passed a measure late last month that blocked a gasification plant there that would have acted as the transport project’s only source of CO2. Company officials said this week that plans for what it called its ‘Midwest pipeline prospect’ are now indefinitely on hold. “I wouldn’t say that the decision has officially been made, but certainly the Indiana Gasification project was the lifeline for the Midwest pipeline to actually get built,” Dan Cole, Denbury’s vice president of Marketing and Business Development, told GHG Monitor this week. “It’s in cold storage for now.”

Both chambers of the Indiana legislature passed a bill April 27 that calls on a new round of regulatory review for Leucadia National Corp.’s $2.8 billion Indiana Gasification project. Project officials argued that the measure imposed too many regulatory burdens on the project—which would have captured 5.5 million tonnes of CO2 annually—and that its passage was akin to a death certificate for the IGCC plant. Denbury had signed a CO2 purchase contract with Leucadia subsidiary Indiana Gasification for all of the future carbon produced at the plant.

Denbury Completed Feasibility Work in ’09, ‘11

The new-build IGCC facility, planned for a site in southwestern Indiana near Rockport, was the only remaining CO2 source for Denbury’s Midwestern CO2 pipeline. Denbury completed a feasibility study for a potential transportation network in the Midwest back in 2009. That study accounted for three potential CO2 sources and incorporated carbon from two additional planned gasification plants under development at the time in Illinois in Kentucky. That study proposed 600 to 700 miles of pipeline capable of transporting CO2 volumes of up to 800 MMcf per day running south to the Gulf Coast, eventually linking with Denbury’s already existing Green Pipeline.

When the Kentucky and Illinois projects stalled, though, Denbury completed an updated study in 2011 with Rockport as the sole CO2 source, according to company spokesman Ernesto Alegria. “It was just a study—there were never any definitive plans to build the pipeline,” Alegria said. “It’s not like we were obtaining right-of-way for anything.”

Two Pipelines Up-and-Running

The Midwestern venture would have been the third major pipeline network for the Plano, Texas-based Denbury. The company’s flagship 325 mile-long Green Pipeline has been up-and-running in the Gulf Coast for several years, transporting natural and anthropogenic CO2 from southeast Louisiana to its Hastings oilfield south of Houston. Construction on the first phase of Denbury’s second major pipeline network, the 232 mile, $285 million Greencore, wrapped late last year in the Rockies. That pipeline recently began carrying roughly 50 million cubic feet a day CO2 from ConocoPhillips’ Lost Cabin natural gas processing facility in central Wyoming to its Bell Creek oilfield in Montana. The company has plans to further expand that pipeline in 2015 and 2016.

Denbury has banked heavily on EOR in recent years. The company inked a major deal with an Exxon Mobil subsidiary XTO Energy last fall, where it exchanged its assets in the Bakken oil play in exchange for more than one billion dollars in cash—which it later spent on oilfields in the Rockies ripe for EOR operations—and an interest in a naturally-occurring CO2 source in Wyoming, as well as additional depleted oil fields in the region.

Project Could be Reinvigorated

Cole said that given the Midwest’s status as an industrial hub, Denbury’s interest in building a pipeline in the region could get reignited if other substantial point sources of anthropogenic CO2 emerge. “If some other things happen in Illinois or Kentucky that would justify the investment required to lay that 400-500 mile system, then we could certainly get interested once again,” he said. “But we would probably need at least 500 million cubic feet a day of CO2 to make the numbers work.”