Three or Five Years by Land, but Much Less by Sea

The Impact of the Regulatory Approval Backlog for Onshore CO2 Storage v. Offshore CO2 Storage in Federal Waters

The EPA’s backlog of regulatory review and approval of onshore CO2 subsurface storage projects involving state lands and waters has expanded significantly over the last two years to a point that it is impairing the functional and financial capabilities of these projects. CO2 subsurface storage projects in federal waters of the Gulf of Mexico should not be subject to these same regulatory delays to the benefit of operational and financial participants.

In the United States, onshore subsurface carbon dioxide (CO2) injection/storage projects, as well as those located in state waters, are governed by the Environmental Protection Agency (EPA) which utilizes the Underground Injection Control (UIC) Class VI program guidelines to prevent endangerment of underground sources of drinking water (USDWs) and/or potable water aquifers. The EPA administers the Safe Drinking Water Act (SDWA); however, the EPA can also delegate primary enforcement authority (“primacy”) to various state agencies. To date, EPA has delegated primacy for UIC Class VI permitting to Louisiana, North Dakota and Wyoming. Texas is the next state being considered for primacy, which would utilize the Texas Railroad Commission as its statewide UIC Class VI regulator.

Each UIC Class VI permitting procedure address a large number of risk factors related to the volume of CO2 to be injected, the subsurface geological and pore structure impacting mobility of injected CO2, and the corrosive/health hazards aspects of the injected CO2. The Class VI permitting process involves five steps ranging from permit application completeness to technical review, public comment and final permitting. The technical review element has a general time estimate of 18 months, but can actually take many years, depending upon the facts and complexity of the permit application. See Congressional Research Service, Class VI Carbon Sequestration Wells: Permitting and State Program Primacy, April 16, 2024.

At the end of January 2024, 179 proposed CO2 injection well programs were currently under review by the EPA. See, Current Class VI Projects under Review at EPA )and Clearpath- Unlocking Carbon Storage Wells in 2024. Of all the Class VI permits received by EPA in the last eight years, as of March 2024, EPA has only issued a total of eight Class VI Permits for injection of CO2. See, April 2, 2024 letter from Members of the Bipartisan House Climate Solutions Caucus to Michael S. Regan, Administrator of the EPA.

This backlog of regulatory review, combined with the substantial number of CO2 injection well project submissions in the last year, are creating multiple year delays that are endangering projects and institutional investments for those projects. It is anticipated that large onshore CO2 injection programs in the US and projects may fail in the early FEED process due to this significant regulatory delay. This delay also impacts the institutional investors in CO2 injection/storage projects that are not able to realize a return on investment within a reasonable period of time.

The good news is that there large areas of geological formations below the federal waters of the Gulf of Mexico that provide substantial opportunities for CO2 injection and storage that should not be subject to UIC Class VI regulatory approval. Based upon the EPA’s proposed rule making and commentary in the Federal Register, there is no basis for application of UIC Class VI regulations to CO2 injection/storage in the federal waters of the GOM, because the US does not currently, and is not expected to in the future, draw from potable water aquifers below federal waters.

This lack of UIC Class VI regulatory delay is one of the reasons that the Repurposing of Offshore Infrastructure for Clean Energy (ROICE) Project, an industry/education joint venture at the University of Houston, has created a techno/economic analytical procedure for repurposing existing offshore structures for CO2 injection/storage. This educational/industry program has concluded techno/economic analyses of numerous offshore structures in the federal waters of the Gulf of Mexico concerning their suitability for CO2 injection and monitoring. The selected structures will be partially decommissioned (hydrocarbon processing equipment removed and oil/gas wells plugged) which should increase the structural life of the platforms.

The ROICE participants continue to consult with and advise the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) on the progress of the ROICE analyses. The ROICE Project receives funding from the U.S. Department of Energy’s Fossil Energy and Carbon Management that existing offshore structures can be repurposed to serve as CO2 injection and monitoring sites in a more cost and time effective manner than onshore CO2 projects, and those in state waters.

The delay in timely decommissioning of offshore oil and gas structures in the federal waters of the Gulf of Mexico has reached a critical level due, in part, to 37 offshore oil and gas operators filing for bankruptcy since 2009. These defaults have created financial exposures for decommissioning involving “tens of millions of dollars per lease in shallow water and upwards of hundreds of millions of dollars per lease in deep water.” See, January 2024, United States Government Accountability Office (GAO) report stating that the U.S. Department of the Interior (DOI), and BSEE needed to “… Improve Decommissioning Enforcement and Mitigate Related Risks” related to offshore oil and gas structures in the Gulf of Mexico.

BSEE’s proposed rule making in response to this looming decommissioning debt has emphasized that the Bureau will be pursuing operators and predecessors in interest (PII) to pay for decommissioning and abandonment of these offshore structures. More significantly, and subject to much industry criticism, the regulator’s intent is to pursue PIIs for these costs based upon the facts of each case, including the financial strength of the PII, and not in reverse chronological order.

Under the ROICE Program, an existing candidate offshore structure must pass the techno/economic suitability analysis. The structure would then undergo partial decommissioning involving the removal of non-essential equipment (hydrocarbon processing, etc..) and plugging wells. The current operator, and PII’s, of the selected structures/leases may be able to participate in the ROICE CO2 injection/storage projects, which would generate 45Q tax credits that can be subdivided and distributed to project participants. In addition, a ROICE CO2 injection/storage project would have a much lower insurance/risk profile than an offshore oil and gas production operation. Finally, operators and PII’s participating in an offshore CO2 injection/storage project may be able to delay asset retirement obligations (ARO’s) for final decommissioning of the structure for 20-25 years.

The studies provided to the Bureau of Ocean Energy Management by the University of Texas Bureau of Economic Geology have established the extensive injection/storage capability in various areas below the federal waters of the Gulf of Mexico. The trillions of cubic feet of CO2 storage capacity in saline reservoirs in particular offer a safe and game changing CO2 storage capability that can actually “move the needle” for atmospheric carbon reduction. ROICE has worked closely with both BSEE and BOEM with regard to our technical, regulatory, operational and commercial frameworks for ROICE projects utilizing existing offshore infrastructure. To date, the ROICE program has been funded, in part, by the US Department of Energy Office of Fossil Energy and Carbon Management.

Glenn Legge is a lawyer licensed in Texas, New York and California, who has spent 40 years representing and supporting offshore operators, contractors and service companies in the US GOM and abroad. His firm, Legge Farrow/HFW USA, represented/assisted target defendants in the Deepwater Horizon (DWH) multi-district litigation matter, supported the introduction of the first FPSO into the US GOM, helped create and operate the Marine Well Containment Company following the DWH catastrophe, provided legal and regulatory support for the first major hull remediation of a TLP on location in the US GOM and provided regulatory and risk analysis for the first deepwater prospect in the Mexican waters of the GOM. Glenn is currently serving as a senior consultant for Endeavor Management, where he is leading the Endeavor Energy Transition team on innovative commercial, operational and regulatory projects, including a lead industry role in the University of Houston ROICE Program.