The3rd meeting of the Special Subcommittee on Energy was held on Friday, August 17, 2007, at 10:00 AM, in Room 129 of the Capitol Annex. Senator Robert Stivers II, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Robert Stivers II, Co-Chair; Representative Rick G. Nelson, Co-Chair; Senators Charlie Borders, Tom Buford, Denise Harper Angel, Ernie Harris, Vernie McGaha, Jerry P. Rhoads, Katie Stine, and Johnny Ray Turner; Representatives Royce W. Adams, Rocky Adkins, Eddie Ballard, Carolyn Belcher, Dwight D. Butler, Jim Gooch Jr, J. R. Gray, Thomas Kerr, Lonnie Napier, Fred Nesler, Tanya Pullin, and Brandon Smith.
Guests: Sen. David Boswell and Rep. Leslie Combs; Dave Harris, Energy and Mineral; Kentucky Geological Survey; John Kiefer, Assistant State Geologist, Kentucky Geological; Don Challman, Associate Director, Center for Applied Energy Research; Tom Fitzgerald, Kentucky Resources Council; and Karen Wilson, Governor’s Office of Energy Policy.
LRC Staff: Taylor Moore; Tanya Monsanto, CSA; and Susan Spoonamore, Committee Assistant.
Minutes of the June 15, 2007 meeting were approved, without objection, by voice vote, upon motion made by Sen. Borders and seconded by Rep. Ballard.
Chairman Stivers introduced Dave Harris and John Kiefer of the Kentucky Geological Society.
Mr. Kiefer stated that global climate changes, global warming, global energy resources, and carbon management are rapidly changing the resource and research issues of the Kentucky Geological Survey. He said that Kentucky is in competition with other states and countries regarding energy resources and environmental and climate change issues. He said that if Kentucky makes the decision to compete, additional human and fiscal resources would be needed.
Mr. Harris explained that the Kentucky Geological Survey (KGS) is responsible for providing research and data on the Commonwealth’s mineral and energy resources. He said that the KGS employs 55 research staff who handle thousands of requests for information each year regarding research on coal, oil, natural gas, water resources and industrial minerals. He also stated that the KGS is required to maintain a repository of well samples and cores for use and reference by the public.
In presenting KGS’s 2008 Biennium budget request, Mr. Harris stated that the KGS is hampered in its research by insufficient research staff and up-to-date equipment. He stated that even with the funds received from the U.S. Department of Energy and matching grants from the Governor’s Office of Energy Policy (GOEP), there were still not enough funds to hire permanent staff to handle the increased levels of sequestration research, CO2 - enhanced oil recovery research, and gas recovery data. Mr. Harris also stated that new research equipment was needed in order to provide additional capabilities in the analysis of core samples, seismic reflection profiling, and field work.
He also stated that the KGS Well Sample and Core Library, which is a key component of the geological research facilities, is currently overcapacity. He said that the KGS has been unable to catalog or curate geological samples as they are received, and materials were being stacked on pallets and stored in the aisles due to the lack of space.
Mr. Harris stated that the personnel budget is approximately $783,000 of recurring funds, which includes funding for at least seven geologist positions, and the budget for equipment is approximately $540,000 non-recurring. He said that the KGS needs analytical equipment for core analysis, sampling, and microscopy; seismic reflection profiling; vehicles and field equipment, and geophysical well logging equipment.
He said that their largest budget request is for capital construction. He explained that $4.85 million was needed for the expansion of the Well Sample and Core Library. He said the expansion would include a 36,000 sq. foot extension to be built on the current warehouse facility. In addition, funding was also needed for an equipment garage, and shelving and other required equipment.
Mr. Harris stated that the total budget request was approximately $6.2 million of which $5.4 million is non-recurring capital construction and equipment costs, and approximately $783,000 in recurring personnel costs.
In summary, Mr. Harris stated the success of new energy technologies in Kentucky will depend upon accurate identification and evaluation of Kentucky’s coal resources and the carbon sequestration options available in Kentucky’s subsurface geologic formations. He said that these requests would enable Kentucky to remain competitive in the new energy arena.
Rep. Belcher asked if there was a shelf life for the samples stored in the warehouse, and if samples were disposed of.
Mr. Harris responded that the core and cutting samples do not break down. The only samples that change are those pulled from out of the ground and are saturated with oil or salt water. The fluid content of those core samples will change over time. Mr. Harris stated that samples were never disposed of, thus creating the lack of space issue.
Sen. Borders asked if the request for an additional 36,000 square feet would be sufficient.
Mr. Kiefer and Mr. Harris stated that any additional expansion is limited by the current site size, but the requested 36,000 square feet would be sufficient for the next couple of decades.
Sen. Borders asked for a brief explanation on what benefits the Commonwealth would receive for the additional budget funding request.
Mr. Harris stated that the additional funding would provide access to rocks and core samples that are currently boxed up and sitting on pallets in the warehouse. He said those samples will be important when the KGS starts looking at underground carbon dioxide sequestration options.
Sen. Boswell asked if there was the potential of injecting carbon into the saline aquifer.
Mr. Harris stated that carbon sequestration is an option at depths below 2,500 feet.
Sen. Boswell asked if KGS had evaluated samples from the old exploration wells that were drilled across the state several years ago for the possibility of injecting carbon.
Mr. Harris said that the KGS had looked at those samples extensively when preparing information for the FutureGen proposal. He said that some of the wells showed potential at depths of 7,000, 8,000 and 9,000 feet.
Sen. Rhoads asked if the KGS would have adequate personnel for processing the stacks of samples if their budget request for additional personnel, equipment and capital construction was granted.
Mr. Harris and Mr. Keifer stated that they would have adequate staff, but it would take a while to catch up.
Sen. Buford asked if the fault lines running through Kentucky would present a problem for injecting carbon.
Mr. Harris stated that the fault lines and fractures definitely presented a problem, but the KGS would identify those areas in order to avoid any leakage of CO2 coming to surface.
Sen. Buford asked if there was any federal regulations requiring states to seek permission from other states regarding carbon sequestration, and if so, were those issues being addressed.
Mr. Harris stated that there would be issues on ownership of the subsurface space mineral rights and receiving permission to inject CO2 into those areas. He said he was not aware of those issues being addressed between adjoining states.
Sen. Buford asked if all the deep wells in Kentucky had been identified, as well as the ones that were capped or not capped.
Mr. Harris stated that most wells drilled after 1960 have been identified as plugged or not plugged. There are probably some abandoned wells that the KGS is not aware of, he added.
Sen. Buford asked if there was enough money in the KGS budget to survey all the wells in Kentucky.
Mr. Harris stated that there would not be enough money in the proposed budget to do that currently.
Rep. Pullin asked if the KGS was researching the long term effects of naturally occurring carbon dioxide under the ground.
Mr. Harris stated that Kentucky does not have naturally occurring CO2 reservoirs. Colorado and New Mexico do have reservoirs that are being tapped and the CO2 is being piped to west Texas. Enhanced oil recovery using CO2 has been in effect in west Texas for 30 years, and is a well-known and very mature technology.
Rep. Adkins asked if it was accurate to say that Texas was able to produce approximately 1 million barrels of oil a day with 20% of the production directly related to the injection sequestration of CO2?
Mr. Harris stated that was correct.
Rep. Adkins asked if the same technology being used in west Texas could be used in Kentucky.
Mr. Harris stated that the formations in Kentucky are very similar, and the technology would be directly applicable to Kentucky.
Rep. Adkins asked if the language contained in HB 1 would help to put Kentucky at the forefront for finding answers on the CO2 issues.
Mr. Harris stated that it would definitely help.
Mr. Harris and Mr. Kiefer explained that 50% to 90% of oil is still being left in the ground using the present primary oil recovery methods. He said that injecting CO2 actually dissolves in the oil, making it more permeable and flow better. CO2 has benefits in both gas and oil reservoirs, they said.
Rep. Gooch asked if natural gas could be stored in existing wells where the gas had already been retrieved.
Mr. Harris stated that you would not want to inject CO2 into a conventional gas storage reservoir because it could mix natural gas with methane which would contaminate and decrease the value and btu content of the gas.
Sen. Stivers asked for more information regarding the 50% to 80% recovery rate of oil. He asked if that was the amount left in the ground after drilling.
Mr. Harris stated that was the percentage of oil left in the ground after the wells had been pumped out. He said that a flush out would recover another 10% to 15%, but using CO2 would dissolve in the oil, making it flow better.
Sen. Stivers asked if it would be reasonable to say that injecting CO2 into oil fields that have been shut down would recover an additional 10% to 15%.
Mr. Harris stated that was correct.
Sen. Stivers asked if there were areas in the state purchasing CO2 and using it for the purpose of injection for enhanced oil recovery.
Mr. Harris stated that there was an operator in the Big Sinking field using nitrogen. He said that the operator would rather use CO2 but it is cost prohibitive.
Sen. Stivers asked if it would be feasible and beneficial to have an interstate pipeline such as is used in western Texas.
Mr. Harris stated that it was definitely feasible.
Sen. Stivers asked if there was any way to know how much additional oil could be produced using enhanced recovery.
Mr. Harris stated that using enhanced recovery methods would significantly increase production, especially if other states were included through a interstate pipeline.
Rep. Smith asked if the enhanced recovery process reduced viscosity in the oil during extraction, and, would that have a permanent impact on the finished product.
Mr. Harris stated that the reduced viscosity was somewhat permanent.
Rep. Adkins asked how much CO2 cost, and could it be sold through a pipeline similar to how gas is sold.
Mr. Harris said that CO2 is sold by the ton and typically runs from $60 to $80 a ton. He said that CO2 would probably be sold by the thousand cubic feet.
Rep. Adkins commented that if companies could sequester CO2 and market the gas, it would add a valuable product to their bottom line.
Sen. Boswell pointed out that federal legislation, now under consideration, will play a huge role in how companies and states handle the issues of management and capture of CO2 .
Don Challman, Associate Director, University of Kentucky, Center for Applied Energy Research (CAER), said that the CAER is researching the extent and sources of CO2 emissions and the management and capture of CO2. Through technology and innovation, he said that carbon emission could be reduced by switching to natural gas, renewables, and efficiency within homes, industries and the transportation sector.
Mr. Challman stated that Center’s budget included a request for approximately $5 million to $7 million in order to address the issues of carbon sequestration and research needs. He said that the Center has been downgraded from deferred maintenance to complete capital renewal, and expanded space, new instruments and major equipment were needed.
Mr. Challman stated the CAER was in the process of trying to create the Kentucky Advanced Power Generation Consortium to look primarily at carbon management techniques in the power industry. The CAER would look at materials, controls and waste management solutions for the power industry.
Mr. Challman stated that the Center was written into the 2005 Energy Policy Act to receive $85 million to be shared between the University of Kentucky, Southern Illinois University and Purdue. The authorization is still waiting for approval from the U.S. Congress’ House Appropriations and Revenue Committee.
In closing, Mr. Challman invited committee members to the Kentucky Energy Security Summit in Lexington on October 11, 2007.
Sen. Boswell encouraged the General Assembly’s House Appropriations and Revenue Committee to tour the CAER facilities to better understand the needs of the Center.
Rep. Pullin asked if the Center worked in collaboration with the Oak Ridge National Laboratory. She also asked Mr. Challman to talk about the good things regarding carbon.
Mr. Challman stated that the Department of Defense is very keen on carbon materials for structural purposes, thermal insulation, and electrical conduit activity. He said that the Center is looking at making a carbon foam which could be sprayed on an improvised explosive device (IED), thereby reducing the potential for an explosion.
Rep. Adkins stated that Kentucky was lucky to have the CAER and KGS. He noted that both were globally renowned, and are often called upon to undertake different research and development projects.
Tom Fitzgerald, Kentucky Resources Council, stated that coal-related initiatives should be targeted at addressing research and development in carbon capture sequestration and management. The Council encourages substantial investment in research and development, he added.
He said that the Council recommends a substantial investment in research and development for large-scale demonstration of carbon capture, and management and sequestration from existing utility coal plants, as well as for new plants.
He said the issue of most concern is to avoid the dramatic impact that Kentucky’s rate payers and citizens will face in the event of a national carbon emissions reduction mandate. Investment in the area of energy efficiency could help to hedge against the impacts of the coming mandatory carbon reduction program.
Mr. Fitzgerald suggested more funding for the advancement of technology that would enhance the management of carbon in the production of fuels and power. He also recommended more state funding for the Center of Applied Energy Research and the Kentucky Geological Society.
For a sound energy strategy he recommended the following:
1. Restrict incentives for alternative fuel facilities to the technologies that would result in a net reduction in atmospheric carbon over the life cycle of the fuel. As a condition of financial incentives, a comprehensive life-cycle analysis of the environmental impact and risks — a business plan with a feasibility study is essential along with providing a strategy for managing carbon. He also stated that incentives should include state assistance for projects for the actual engineering design.
2. Significant funding increases for comprehensive investigation in carbon capture and management.
3. Comparable investment at the existing universities in research and demonstration of renewable resources and on energy efficiency in all sectors of the economy including partnerships with business and industry to help position the manufacturing base of the economy to accommodate and to flourish in a carbon- constrained world.
4. Consider incentives to encourage the deployment of small and moderate-scale as well as large-scale renewables.
5. Impanel a multi-stakeholder advisory panel to explore and report on the legal and policy issues regarding carbon management.
6. Produce and regularly update a carbon dioxide inventory for the Commonwealth.
7. Revise state utility regulatory policies to incorporate full-cost accounting in decisions regarding new generating capacity and to also better align consumers’ interest with low-cost power with the producers’ interest presently, which is selling more electricity. New baseload plants should be at a minimum restricted to integrated gasification combined cycle (IGCC) or beyond in their capability to capture and control the by-products of coal conversion.
Sen. Boswell stated that it was important and also the General Assembly’s responsibility to see how this interacts from a global standpoint. China has tremendous issues with carbon management. He said that the management of CO2 can be dealt with here in Kentucky, but the state is a very small component of the overall global picture. The United States taxpayers have shouldered much of the financial responsibility for cleaning up the globe, he added.
Mr. Fitzgerald agreed.
Executive Order 2007-503 relating to the Reorganization of the Commerce Cabinet was received and approved, without objection, upon motion of Sen. Stine and seconded by Rep. Adkins.
Meeting adjourned at approximately 11:35 p.m.