Alaska is Seeking to Join the Carbon Storage Club

Over the past decade or so Alaska has become a battleground for politicians, oil and gas companies, and environmental activists. Political debates about upstream operations in the offshore Arctic areas and the opening of the Arctic National Wildlife Refuge (ANWR) to exploration and production were a key source of federal policy and regulatory volatility during the Trump administration and the first year of President Biden’s term. Now, headlines are likely to change as Alaska is targeting existing CO2 geologic sequestration potential to build its own carbon storage industry. In late January, Governor Mike Dunleavy introduced the Carbon Management and Monetization Bill Package in the Alaskan legislature, including a bill that would put in place a framework for the CCUS sector.

The recently announced legislation is paving the way for accelerated regulatory procedures to advance carbon storage projects on state lands. The Carbon Capture, Utilization and Storage Act would establish the Alaska Oil and Gas Conservation Commission’s (AOGCC) jurisdiction over storage facilities and authorize it to apply to the federal Environmental Protection Agency (EPA) for primacy over the control of underground injection in Class VI wells. This will significantly reduce the time to acquire a permit for CO2 injection. Currently, only North Dakota and Wyoming have such powers, and Louisiana and Texas are expected to receive Class VI permit primacy over the near-to-medium term. Alaska’s carbon storage potential is estimated at 270 Gt (9% of the US total) by the United States Geological Survey (USGS) in the North Slope basin alone, and the regulatory move is expected to bolster the attractiveness of the acreage.  

In addition, the draft legislation clarifies carbon storage licensing and leasing arrangements. The AOGCC would award an exploration license upon reviewing an application from a company, but it can also initiate a competitive sealed bid if there is more than one qualified applicant. A potential license holder would be subject to an annual fee of at least $20 per acre. If the license is converted into a carbon storage lease, the operator would pay an annual rent of at least $20 per acre and a minimum of $2.5 per ton of injected CO2. Furthermore, the lease holder would post a bond or other acceptable security as a financial guarantee for the state (to be released upon the issuance of a certificate of completion). The dollar amounts would be adjusted for inflation every five years. 

Infrastructure buildout made easier 

The Carbon Capture, Utilization and Storage Act would amend existing laws to enable the construction or repurposing of pipelines for carbon dioxide transportation, including the issuance of rights-of-way leases. The commissioner would also have a right to exempt by regulation the requirement for a rights-of-way lease for the construction and operation of a pipeline transporting CO2 within a field for the purpose of an enhanced oil recovery (EOR) project or field pressurization measures within the same field. In addition, the AOGCC could adopt regulations that would allow to convert enhanced oil or gas recovery and any related well activities into a storage facility. 

Proposed legislation would address liability issues 

Under the governor-sponsored bill, the storage operator would hold title to the carbon dioxide injected into and stored in a storage reservoir. When injection ends, the operator would be able to apply for a certificate of completion issued by the AOGCC after a consultation with the Department of Environmental Conservation, the Department of Natural Resources, and with all the persons with an ownership interest in the storage reservoir. However, the certificate may not be issued until at least 10 years after CO2 injections end. Once a certificate is issued, title to the storage facility and stored CO2 would be transferred to the state under the management of the Department of Natural Resources, while the storage operator and any persons who generated the injected CO2 would be released from liability to the state associated with the storage facility. These provisions are likely to ensure longer-term certainty for financial institutions and insurance companies that would support potential CCUS developments in Alaska. 

Are there any risks for the industry? Sure. 

Climate change, which the CCUS industry is tasked to handle, could pose a major threat to such projects in Alaska. Rising temperatures in the Arctic fuel the thawing of permafrost, causing damage to the existing infrastructure and creating challenges for the construction of new facilities, as several academic studies have indicated over the past two years. In 2021, Alyeska Pipeline Service Co., the operator of the Trans-Alaskan Pipeline System (TAPS), had to replace some supports of the pipeline and install passive cooling systems to draw heat away from the ground due to permafrost degradation. While the pipeline is designed to sustain changing permafrost conditions, the original calculations did not factor in such rapid temperature rises. As Alaska is located far from industrial centers, new pipelines will be necessary to connect capture facilities with the North Slope storage site and unstable permafrost could become a significant roadblock to infrastructure development (unless CO2 is shipped from the West Coast by specialized vessels). The situation is likely to result in additional costs for CO2 pipeline operators (new or repurposed) and could require further financial support from state and/or federal authorities. 

Another risk could come from the proposed legislation itself. The bill is based on the premise that geological carbon storage is in the public interest, but the term is yet to be defined by regulatory authorities. The definition would need to be as clear as possible to avoid different interpretations as activist groups could use the concept and associated inconsistencies to challenge CCUS policies and projects in courts. Any such precautions would be particularly important in cases where the construction of new CO2 pipelines is involved, given the potential impact of construction works on thawing permafrost. 

#unitedstates #alaska #carbonstorage #ccs #ccus #legislation #regulation #lowcarbon #climatechange #pipelines #oilandgasindustry