Vol. 28, No.4 Week of January 22, 2023
Providing coverage of Alaska and northern Canada's oil and gas industry

New income for Alaska

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Dunleavy moves to monetize CO2, bringing in maybe billions of dollars

Kay Cashman

Petroleum News

On Jan. 12, in accordance with a mandate in Alaska’s Constitution that requires development of all state resources, Gov. Mike Dunleavy presented his Carbon Management Bill Package, which he says could bring in millions, if not billions, of dollars, to the state.

The legislation will create statutory and regulatory structures needed to capitalize on the emerging carbon markets, he said.

The Alaska Department of Natural Resources began overview work to facilitate a carbon capture, utilization and sequestration, or CCUS, in Alaska in January 2022 while Corri Feige was commissioner of DNR.

Feige: He’s ‘exactly right’

After Dunleavy released information about his carbon management legislative package, Petroleum News asked the former commissioner for her input on the proposed legislation.

“I am very pleased that the governor has rolled out this carbon management package!” Feige said in an email to PN.

“The geologic storage - carbon capture and storage - would build a whole new industry in Alaska, leveraging the very same pore space that has been producing oil and gas for decades, and now use it to store CO2.This will strengthen Alaska’s oil and gas industry - giving operators the carbon offset opportunities so essential for continued oil and gas production as the world transitions to a broader mix of energy sources while reducing the carbon load associated with energy production,” she said.

Feige said it will also open Alaska to the carbon capture and storage industry that is rapidly evolving around the world.

“Alaska could receive imported CO2 from places like Japan, for example, and have it stored in a ‘storage’ lease. The state would generate revenue through this activity, just like producing oil and gas,” she said.

“Alaska will always have to have a mix of energy sources and taking this step to enhance the state’s oil and gas industry by now being able to manage carbon storage also showcases one of Alaska’s very significant strategic advantages - Alaska owns the pores space! This is very unique and gives Alaska the opportunity to manage that activity and the use of the pore space for CO2 storage in the best interest of Alaskans,” Feige said.

“The rest of the world has recognized this unique Alaska advantage and have been actively seeking the opportunity to do projects in Alaska. Gov. Dunleavy is exactly right that carbon management is in line with the State’s mandate to manage its resources for the benefit of all Alaskans.”

On the biological storage side, Feige said, “the public should understand that this does NOT mean ‘locking up’ Alaska’s productive forests or shutting down the state’s timber industry. There has been a lot of confusion and misunderstanding around this. Lands dedicated to carbon credit programs are lands that remain open for public use like recreation and hunting, while at the same time managing the forest assets to maximize their ability to take carbon dioxide out of the atmosphere.”

This is done by both “leaving some trees standing, as well as planting new trees. In exchange, the state receives payment for the amount of carbon that can be captured by both the standing trees and new planted trees. The state would select the lands to be used in these programs so as to maximize the benefits for Alaskans and maintain and grow a commercial timber industry. Alaska is a big place - there is plenty of room for both,” Feige told PN.

Legislators asked to help

“I’m asking lawmakers to take this legislation seriously as the cornerstone of a long-term fiscal solution that complements revenue from oil and gas and the Permanent Fund,” Dunleavy said.

“Then, by working with like-minded legislators and stakeholders, we’ll turn that principle into policies and a new era of prosperity for the Alaskans we serve.”

Dunleavy said the ability to cash in on emerging carbon markets can generate carbon offsets and/or credits, which are sold, traded, and utilized by companies and entities in two kinds of markets - regulated or compliance markets found in jurisdictions around the world where activities are required to utilize credits, and voluntary markets, where companies use them to comply with corporate missions and commitments to limit net emissions associated with their activities.

These markets, he said, are growing rapidly. Alaska Native regional corporations such as Sealaska, Chugach Alaska Corp. and Ahtna Inc. have been participating in these markets for years. Since 2019, carbon offsets generated in Alaska have brought $370 million to Alaska Native corporations and were the most prominent forestry participants in the California Air Resources Board’s regulated offset/credit market.

The governor said he is proposing legislation for maximum flexibility to participate in this evolving industry.

Geological, biological sequestration

Under the legislation, DNR would be authorized to promote and provide two main categories of carbon management:

1. Geologic - – where concentrated carbon is compressed, injected and stored in deep underground geologic formations, typically referred to as CCUS.

2. Biologic sequestration - where the accumulation of carbon in trees, soils, kelps or other natural processes can be promoted or encouraged. These projects could occur both on state lands and potentially in state waters off Alaska’s coasts.

For geologic sequestration, the bill package would establish statutory authority, rules and processes for leasing state subsurface lands for CCUS activities. In addition, it would create operating rules, regulatory oversight authority, and liability provisions for CCUS projects in Alaska, whether located on state or other lands. For biological sequestration, the bill package would establish the authority for DNR to develop and market carbon offsets and would authorize DNR to lease state land for purposes that include carbon offset projects.

Boyle emphasizes flexibility

“We’re proposing a flexible framework broad enough to cover the growing possibilities and opportunities with carbon management,” said DNR Commissioner John Boyle. “This burnishes the state’s environmental, social and governance, or ESG, credentials - and shows the market that we’re open for business.”

“This bill package came together with the leadership of Gov. Dunleavy and through teamwork with the Department of Environmental Conservation, the Alaska Oil and Gas Conservation Commission and the University of Alaska,” Boyle said.

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Can incentivize more CI oil, gas production

In a Nov. 13 guest editorial for PN’s annual Producers magazine, then Acting DNR Commissioner Akis Gialopsos wrote that in the longer term “Cook Inlet’s substantial pore space represents an opportunity for the state to pursue carbon capture, utilization and storage, but unlike carbon taxes or offsets, a CCUS regime would literally monetize the storage of carbon molecules in now depleted reservoirs, and in some cases even utilize the carbon for indirect energy generation.”

“Combined with federal tax credits and substantial market interest, CCUS can incentivize further oil and gas development and create new vacant areas to store carbon from other parts of the world,” Gialopsos said.

“Alaska is joining a process that other energy producing states such as Wyoming and Louisiana have already embarked upon, with promise of prolonging the oil and gas market in the Cook Inlet through this and other innovations.”


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