Wide-spread, quick adoption predicted for carbon capture and sequestration.
The ethanol world has shifted to revolve around low-carbon fuels where carbon capture and sequestration (CCS) will likely become a prerequisite, says Walt Wendland, CEO of Ringneck Energy, Onida, South Dakota.
“You’ll either sequester or your company has to find alternatives so you can compete with companies that can sequester.”
Located on the edge of suitable geologic formations, Ringneck Energy explored developing its own sequestering project, but soon learned its underlying geology wouldn’t qualify and the closest suitable site would be 114 miles away. Instead, they signed up with Summit Carbon Solutions, which will lay 100 miles of pipe from Ringneck to the main line.
Having considered both routes to CCS, Wendland sees the value of participating in Summit’s project. “There’s a lot of work that goes into securing pore space, drilling a well and putting in a pipeline—water disposal, electricity, compression stations, booster stations. And probably the biggest thing of all, permitting and land right of ways.”
Wendland views CCS as essential for participation in the upcoming clean fuels tax credit in section 45Z of the Inflation Reduction Act. To qualify, fuels have to meet the threshold of a carbon intensity of 50 kg CO2 e/MMBtu (48 gCO2e/MJ). The base credit is 20 cents per gallon with bonus credits based on GHG reductions for a maximum of $1 per gallon. That amounts to about 2 cents per gallon for each point of CI reduction, Wendland says.
No other technology comes close to the 30-point carbon intensity (CI) reduction delivered by carbon capture and sequestration, Wendland points out. “The carbon pipeline gets us below 50, so everything better than that is an economic benefit,” he says—a benefit Ringneck hopes to share with corn growers. “We’re in conversations with farmers to get a CI score for their practices so they can benefit from low-carbon ethanol as well.”
Ringneck will also be evaluating the 45Q tax credits for CCS worth $85 per ton to see which will make more sense, since facilities can’t do both. The details in the final rules will determine which route is better. Either way, Ringneck and Summit will share the benefits, Wendland says. “We wouldn’t get the 30-point CI reduction without [Summit’s] participation and they wouldn’t get the 45Q incentive without our participation.”
Incentives in the Inflation Reduction Act passed last fall lit a fire under investor interest, but CCS development was already accelerating with 45Q enhancements passed in the previous administration. The $50 per ton 45Q incentive passed in 2018 was enough to get pipeline projects like Summit and Navigator launched, explains Vault 40.41 CEO Scott Rennie.
“The IRA makes some projects more profitable and makes others that weren’t profitable at $50 start to be profitable. And it brings other industries potentially into the profit column.”
Ethanol CO2 is the low-hanging fruit of CCS with its 99 percent purity and well-known, widely used technologies. Every ethanol plant already captures its fermentation CO2, though the vast majority of plants simply pipe it over to the thermal oxidizer. Close to a quarter of the industry, 45 plants, pipe a portion of their CO2 to colocated gas companies who dry, purify and liquefy the gas for the merchant and industrial markets.
Sequestering is not new either, having been done in the form of enhanced oil recovery for over a decade by Conestoga Energy’s two Kansas plants. Archer Daniels Midland has a decade’s experience working with the U.S. DOE and Illinois Geological Survey to develop CCS at its Decatur, Illinois, facility. In North Dakota, Red Trail Energy worked with the N.D. Energy and Environmental Research Center to develop its project that began operations last summer. Both Illinois and North Dakota have suitable underground geology.
Geology Impact
Geology will determine how the new round of CCS development proceeds for the bulk of the ethanol industry. Four pipeline projects have been announced connecting over 65 plants in Minnesota, Iowa, eastern South Dakota and eastern Nebraska where the underground geology won’t work for sequestration. Summit Carbon Solutions has signed with 33 plants in five states to pipe CO2 for sequestration in North Dakota. Navigator CO2’s Heartland Greenway has signed with at least 30 facilities to inject their CO2 in Illinois. Wolf Carbon Solutions has a project to connect ADM’s Clinton and Cedar Rapids, Iowa, facilities to ADM’s sequestration site serving the Decatur, Illinois, facility. Additionally, ADM is partnering with Tallgrass Energy Solutions to sequester CO2 from its Columbus, Nebraska, corn processing facility in eastern Wyoming.
Another set of plants located across central Illinois through central Ohio and in some areas of central Nebraska have a high probability of good storage underneath them for single-plant CCS. Two one-off projects have been announced: Marquis Inc. has begun work on its sequestration project at Hennepin, Illinois, and Cardinal Ethanol LLC announced a joint venture with Vault 40.41 to sequester its CO2 underground near Union City, Indiana. Carbon America is developing projects with three plants: Sterling Ethanol and Yuma Ethanol in northeast Colorado and Bridgeport Ethanol in Western Nebraska. Bridgeport is an individual project and the other two involve a short pipeline. Rennie reports his company and others working on CCS have other unannounced projects in development.
With roughly a third of the ethanol industry already committed to projects in development, projections that two-thirds to three-quarters of the industry will soon be sequestering are reasonable, Rennie says, adding that the lower number could be reached as soon as 2026.
The build out of an individual sequestering project isn’t particularly difficult or time consuming, Rennie says. Drilling the wells and building the compression units will take six to nine months, he estimates, utilizing well-known, widely used technologies. The time-consuming and difficult work comes before that in developing relationships, evaluating the reservoir, acquiring land access and pinning down the details of the new program to develop a feasible revenue model.
The lengthiest process is for permitting. Vault has submitted four permits to EPA to date, with Cardinal Ethanol’s deemed complete and ready to advance to EPA’s review process. As a new program, how long it will take to get the permit is unknown, although Rennie is anticipating at least 18 months.
The cost of an individual project will range between $50 million and $100 million, Rennie continues. The wide variability is partly due to pipeline costs. Not wanting to inject CO2 beneath a town, some projects will require a few miles of pipeline to an injection site, while others will be closer. Drilling an injection well a mile or more into the storage reservoir costs around $5 million, with some projects needing more than one injection well, depending on size and geology. Then, an observation well is dug at least a half mile away to the same depth for monitoring purposes. EPA requires a third well to monitor what’s happening above the cap rock — an impermeable rock layer, generally shale, that prevents the CO2 from migrating upwards.
Processing the fermentation CO2 is slightly different for sequestration than systems capturing for the merchant market, Rennie explains. Both remove water, but sequestration doesn’t require the purity of food and beverage applications. The liquefaction process for the merchant market takes the gas up to 300 psi and cools it to become a liquid. The compression process for sequestration takes the gas up to a higher pressure between 1,100 and 1,500 psi, turning it into a supercritical liquid-like phase for efficient injection into saline aquifers.
Pipeline Complexities
While individual CCS projects share multiple similarities, developing a large pipeline project adds layers of complexity. Lee Blank, CEO of Summit Carbon Solutions, likens the CCS pipeline to large infrastructure projects of the past such as the transcontinental railroad. “It’s not uncommon to see that public private partnership around big infrastructure projects, to allow them to get finished and give them a bit of runway as the markets develop.
The carbon markets are very new, but they are developing quickly. Ultimately, those markets will support the industry in the years to come.”
Summit Carbon Solutions estimates its capital investment at $5.5 billion. Summit’s project is two-thirds of the way through the process of acquiring right of way — over 4,000 individual agreements — for the roughly 2,000 miles of pipeline it will be digging to connect its 33 partner plants in five states to the injection sites in North Dakota. That’s on target to where they want to be as they head into the permit hearing season, Blank says. The project completed three of five hearings in North Dakota in April, Minnesota hearings are scheduled for May and hearings are set for September in South Dakota and October in Iowa.
The pipeline projects have stirred up opposition that’s not unfamiliar to many ethanol proponents who faced controversies when their plants were first proposed. Opposition to the pipeline includes a lot of misinformation, Blank says. “Most of the groups opposed to what we’re trying to accomplish have no vested interest, they don’t sit on a route. They have a conceptual idea that the combustion engine is bad and ultimately that farming today is bad and poorly done.”
He views agriculture as leading the movement towards a low-carbon future. CCS is a way to address the need to reduce carbon in the atmosphere, and do it today, he says. “At full capacity, we’ll capture 18 million tons of carbon annually that would be exhausted to the atmosphere, and you would think that would be a good thing.” The 33 ethanol plants will contribute about half that, with room for expansion. Blank expects the incentives in the Inflation Reduction Act are now sufficient to encourage other industries to participate, such as coal or fertilizer plants.
Ethanol is leading the CCS movement, Rennie agrees. “The unique feature with ethanol is we start with a pure stream of CO2. Most other industries start with a dilute stream of CO2 between 5 and 30 percent of flue gas, so there’s a lot of money spent in the separation process. That was really hard to make the economics work at $50, but for some industries in the right spot, they can start to look at investment at $85.”
Current Market Impact
The impact on the existing merchant and industrial markets could be significant. Currently, about 45 percent of the 9 million-ton-per year U.S. CO2 market comes from ethanol fermentation, says Sam Rushing, president of Advanced Cryogenics Ltd. If plants can share in an $85 per ton 45Q incentive plus earn credits in the voluntary or low carbon fuel markets, he says, “why would they sell to merchant gas companies for $20 or $30 a ton?” The CCS impact won’t be immediate, as most ethanol producers typically have 20-year supply contracts with their colocated gas plants.
Alternatives to ethanol CO2 exist, Rushing continues, but are generally more expensive. About 45 percent of CO2 sold is used for refrigeration, chilling, freezing and dry ice. “Some say nitrogen will take over, but it’s very expensive to produce with a 90 percent electricity cost. Mechanical refrigeration is another alternative, but it is very capital expensive, and you use a lot of electricity.”
Flue gas can be purified and used in food applications, as demonstrated by one East Coast power plant that’s done it for decades, Rushing continues. But recovery from flue gas is twice as costly as from ethanol. Recycling is another possibility. “Some companies have taken a very small look at recovering CO2 on site,” he adds, describing a Tyson plant that uses 700 tons per day. “They looked at re-liquefying the CO2, but that’s expensive, and it’s all about economics.”
Rushing does not expect the CO2 market to get any smaller, even with the looming changes. New, green applications are being developed and some emerging industrial applications even sequester, such as injecting CO2 into concrete.
The economics of CO2 are quickly changing. Pre-COVID prices around $97 a ton are history, with CO2 now selling at the $200 per ton in the Midwest up to more than $300 on the coasts due to shortages, according to Rushing. The cost of production has been rising as well and is now roughly $40 to $60 a ton, with electricity and amortization as the two largest components. Added to that is transportation, which is increasing from recent averages of $30 per ton. The feedstock cost — the value to the ethanol producer — is now in a $20 to $30 per ton range, which is double or triple the prices paid during the ethanol boom of the mid-2000s.
Even though the capacity to pay more for ethanol CO2 appears to be there, it isn’t going to compensate for the lack of carbon intensity reduction. Currently, captured CO2 used for food and beverage or industrial markets is not eligible for carbon credits because nearly all ultimately gets emitted to the atmosphere.
If low CI scores becomes a prerequisite for ethanol sales into low-carbon fuel markets, will ethanol producers gravitate to CCS for the 30-gram CI reduction and forego the merchant and industrial CO2 markets entirely?
Rushing says the merchant gas companies have lobbied to get carbon credits for the gas they capture, but with little success. The 45Q program does include utilization such as enhanced oil recovery, but only where emission reductions can be demonstrated.
Possibly, there’s room for co-existence. Both Summit and Vault have ethanol partners who presently sell a small percentage of their CO2 gas to the merchant and industrial markets and Blank and Rennie say the percentage captured isn’t enough to squelch the producers’ sequestration plans.
