Tax Incentives for CO2 Storage Alter Midstream Operations in the Permian Basin

_ This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 225480, “The Changing Face of Gas Processing in the Permian Basin, USA: How Tax Incentives for CO2 Storage Have Altered Midstream Operations,” by Robert S. Balch, SPE, New Mexico Institute of Mining and Technology; R. Matt Eales, Cool Sky Energy Solutions; and Jean-Lucien Fonquergne, SPE, New Mexico Institute of Mining and Technology. The paper has not been peer-reviewed. _ The objective of the complete paper is to highlight the effects of tax credits on business operations for midstream companies in the Permian Basin in the US. Incentives have created an environment where midstream companies are actively changing how they process treated gas to optimize CO2 storage. The Permian has a 20-year history of CO2 storage in conjunction with disposal of hydrogen sulfate (H2S) with entrained CO2 into acid-gas disposal (AGI) wells. These wells can qualify for 45Q tax credits for the portion of their treated acid gas comprised of CO2 because the CO2 is going into storage. Introduction The 45Q tax credit, established under the Energy Improvement and Extension Act of 2008, originally was designed to incentivize the capture and storage of CO2 from industrial sources and power plants. Initially, the credit offered $10 per metric ton of CO2 used for enhanced oil recovery (EOR) and $20 per ton for geologic storage, with a cap of 75 million metric tons. Then, the Bipartisan Budget Act of 2018 significantly revised 45Q by increasing the credit amounts over time, up to $50/ton for secure storage and $35/ton for EOR, and removing the volume cap, replacing it with a deadline for project launch. The credit saw another transformative update under the Inflation Reduction Act of 2022, which further raised the value to $85/ton for geologic storage and $60/ton for EOR or usage, provided that projects meet requirements. It also lowered the minimum annual CO2 capture thresholds to make smaller projects eligible. In addition, the 2022 version allows for refundable and transferable credits, making 45Q more accessible and bankable. The complete paper highlights how the Carbon Utilization and Storage Partnership of the Western US (CUSP), a US Department of Energy initiative, has supported midstream companies in the Permian in expanding their CO2 storage operations. Overview of the Permian Basin and Its Natural Gas System As of 2024, the Permian accounted for nearly half of total US crude oil output and a substantial share of marketed natural gas (Fig. 1). This sustained growth reflects intensified upstream activity, which, in turn, generates large volumes of associated gas that require processing and treatment. The Permian is a central hub of gas-processing facilities and associated pipelines, enabling the production, transportation, and treatment of high volumes of natural gas. However, the produced natural gas can contain significant proportions of impurities including CO2 and H2S. Effective natural gas processing is essential to separate and treat these components to ensure gas quality, meet pipeline specifications, and manage emissions. As a result, the need for acid-gas treatment and injection infrastructure in the region has grown significantly, fueling the expansion of amine-treatment units and AGI wells to manage CO2 and H2S content.