CHAPTER 9 LEGAL AND COMMERICAL MODELS FOR PORE-SPACE ACCESS AND USE FOR GEOLOGIC CO2 SEQUESTRATION

• Jurisdiction: United States

Enhanced Oil Recovery-Legal Framework for Sustainable Management of Mature Oil Fields
(May 2015)
CHAPTER 9
LEGAL AND COMMERICAL MODELS FOR PORE-SPACE ACCESS AND USE FOR GEOLOGIC CO2 SEQUESTRATION


Owen L. Anderson ^*
Academic Director
John B. Turner LL.M. Program in Energy, Natural Resources, & Indigenous Peoples
Eugene Kuntz Chair of Oil, Gas & Natural Resources
George Lynn Cross Research Professor
University of Oklahoma College of Law
Norman, Oklahoma
Senior Lecturer
Kay Bailey Hutchison Center for Energy, Law, and Business
University of Texas at Austin
Austin, Texas
R. Lee Gresham ^**
Associate
The Brattle Group
Cambridge, Massachusetts

[Page 9-1]

OWEN L. ANDERSON is the Eugene Kuntz Chair in Law in Oil, Gas & Natural Resources, the George Lynn Cross Research Professor, and Academic Director of the John B. Turner LL.M. Program in Energy, Natural Resources & Indigenous Peoples Law at The University of Oklahoma College of Law. He is a Senior Lecturer for the Kay Bailey Hutchison Center for Energy, Law, and Business at The University of Texas at Austin. He currently teaches oil and gas law, oil and gas contracts and tax, and international petroleum transactions. He also regularly teaches international petroleum transactions at the University of Dundee, the University of Melbourne, and the University of Sydney. He has lectured at numerous other universities and venues in Angola, Australia, Brazil, Canada, China, France, Italy, Jordan, Korea, Mexico, Namibia, The Netherlands, Norway, Qatar, Peru, Portugal, Russia, Tanzania, Thailand, and the United Kingdom. Professor Anderson is a retained expert in petroleum law and transactions for the Commercial Law Development Program for the United States Department of Commerce and Fulbright Specialist Scholar. In 2011, he received the Clyde O. Martz Award for Excellence in Teaching from the Rocky Mountain Mineral Law Foundation. He has authored over 100 articles and is a co-author of International Petroleum Transactions; Hemingway's Oil and Gas Law and Taxation; Cases and Materials on Oil & Gas Law; and A Student's Guide to Estates in Land and Future Interests. He co-authors the annual supplements to Kuntz on Oil and Gas Law, a multi-volume treatise, and is co-author of several chapters on the multi-volume treatise, Waters and Water Rights. He is a contributing author to International Petroleum Exploration and Exploitation Agreements, an editor of the Oil and Gas Reporter, Editor in Chief of the Texas Title Standards, a member of the Executive Committee of the Journal of World Energy Law & Business, and is a member of the Council of the Oil, Gas & Energy Law Section of the State Bar of Texas. He is a member of the Association of International Petroleum Negotiators, where he serves on the AIPN's Educational Advisory Board and as the AIPN's form and style editor for its extensive series of model petroleum agreements. He is a Trustee of the Rocky Mountain Mineral Law Foundation and of the Energy and Mineral Law Foundation. He is a member of the Advisory Board for the Institute for Energy Law for the Center for American and International Law. Professor Anderson is also a life member of the National Conference of Commissioners on Uniform State Laws and a member of the American Law Institute, the American Association of Professional Landmen, American Society of International Law, the Energy Bar Association, the International Bar Association, the American Bar Association, the Interstate Oil & Gas Compact Commission, the Oklahoma City Mineral Lawyers Society, and the North Dakota, Oklahoma, and Texas bars. He is an arbitrator and a consultant on international and domestic petroleum law and policy.

The interest in developing commercial-scale geologic carbon dioxide (CO2) sequestration (GCS) has sparked an intense debate about the ownership and commercial use of pore space. To geologically sequester CO2 in deep saline formations, the gas is compressed to a supercritical fluid and injected approximately a kilometer or deeper into the microscopic pore space in deep subsurface rock matrixes. Injected CO2 flows through and fills the pore spaces in permeable layers of the rock matrix, while its upward migration is prevented by less permeable rock layers. Depending on the formation geology and the depth, porosity, and permeability of the injection zone, sequestered CO2 from a single project could potentially spread over hundreds to thousands of square kilometers,¹ and subsurface pressure effects could be felt over an even greater area, potentially raising concerns earthquakes. Carbonaceous shales, such as the Marcellus, are also a possible target for geologic CO2 sequestration. Because carbon adsorbs carbon dioxide at a greater rate than methane, CO2 injected into the formation for GCS could theoretically be used to recover additional natural gas in a process analogous to enhanced coal bed methane recovery, though the practical value of this technique is not yet known.² Scientists believe that adsorption would allow sequestration at shallower depths than absorption in deep saline formations, which must be at least 800 meters (2,600 feet) below the surface to maintain liquid CO2 in a supercritical state.

Current resource estimates for sequestration in deep saline formations do not account for reduced capacity due to conflicting uses of pore space, such as enhanced oil recovery operations, shale gas production, and natural gas storage. Therefore, the commercial viability of CO2

[Page 9-2]

sequestration may, in large part, depend on how issues related to property rights and competing uses of the subsurface are resolved. Several commentators have weighed in on this issue.³ Prior to injecting CO2 into the subsurface for permanent geologic sequestration, the injector must either own the pore space, have permission from the owner, or have a statutory or common-law right to use the pore space that avoids potential liability or exposure to trespass and nuisance claims. If a GCS project development receives authorization from the state or federal government to use pore space and the authorization shields the developer from trespass to any degree, then takings law will certainly be implicated as well. This article considers the legal and commercial models for securing the rights to use geologic pore space in an effort to sequester billions of metric tons of CO2 deep underground to mitigate climate change.

This article does not discuss the climate change debate. That issue is best left to science and scientific journals. For purposes of this article, we assume that the climate change is real, that humans are partially responsible, and that humans can take steps to mitigate it.

To facilitate GCS as well as other useful subsurface enterprises, federal and state governments should codify a formal process for permitting the access and use of pore space for GCS on federal and privately-owned lands, whereby the holder of a valid permit is exposed to compensable trespass and nuisance liability only when actual and substantial damages are caused by the injection and migration of CO2. However, to assure the long-term integrity of carbon sequestration reservoirs, ideally, a more robust property interest, such as a sequestration easement, should be obtained throughout the entire reservoir. Therefore, the permitting framework should include a backstop such as eminent domain legislation similar to the laws that facilitate the underground storage of natural gas. Such a framework should facilitate the rapid development of commercial-scale GCS projects by both standardizing procedures for acquiring the authorization to use pore space as well as by constraining acquisition costs.

1. The Intersection Between Subsurface Property Rights, Geologic CO2 Sequestration, and Competing Uses of the Subsurface

[Page 9-3]

For GCS to enable the continued use of fossil fuels and simultaneous deep emission reductions, it must be widely deployed. To do this, the technology must be integrated into a larger commercial, legal, and regulatory scheme. Of key import are: (1) the amount of CO2 to be injected--a 1 GW coal-fired power plant typically produces roughly 6 to 8 million metric tons of CO2⁴ annually; (2) the areal footprint over which the injected CO2 will migrate; and (3) the need for injected CO2 to remain in the subsurface hundreds to thousands of years, effectively occupying the subsurface pore space in perpetuity.

Throughout the United States, subsurface activities vary extensively, as do the depths at which these industrial and commercial enterprises are carried out. Because of the potentially large size of geologic sequestration projects--the injected CO2 could migrate over hundreds, perhaps thousands, of square kilometers⁵ --other economic uses of the subsurface, such as hydrocarbon production, natural gas storage, fluid waste disposal, and groundwater recovery and storage, could coexist with subsurface CO2 injection.⁶ Many proposed and future CO2 sequestration projects will overlap, and some will be part of these other subsurface enterprises, especially enhanced hydrocarbon recovery⁷ projects that inject CO2 to repressurize production fields.⁸ State legislatures in several states, particularly in oil and gas producing states,⁹ have already attempted to create GCS-specific legislation that best avoids conflict with other economic uses of the subsurface.

Subsurface formations with hydrocarbon-bearing strata are typically well-characterized and are often stacked between non-hydrocarbon-bearing saline aquifers.¹⁰ GCS will likely occur

[Page 9-4]

at depths similar to hydrocarbon reservoirs.¹¹ The possibility of developing a CO2 sequestration site above or below oil or natural gas reservoirs or within depleted reservoirs may have the advantage of reducing characterization and capital costs compared to an uncharacterized site, but doing so could also create potential interference...