California Resources Expanding CCS Efforts with Offtake Agreement

California Resources Corp. (CRC) began 2023 with an agreement to sequester carbon dioxide (CO2) from Grannus LLC’s blue ammonia and hydrogen project.

The Carbon Dioxide Management Agreement (CDMA) from CRC’s subsidiary Carbon Terravault Holdings LLC (CTV) stipulates that it would provide field transportation for the uptake of CO2 produced by the Grannus project. The project is expected to produce approximately 150,000 metric tons per year (mty) of blue ammonia and 10,000 mty of blue hydrogen using natural gas.

CRC CEO Mac McFarland noted that the partnership marks an “expansion of our decarbonization efforts in Northern California,” where CRC sees “a tremendous amount of carbon capture and storage (CCS) opportunity. Our partnership with Grannus begins a new chapter of carbon storage in Northern California…”

[Shale Daily: Including impactful news and transparent pricing for shale and unconventional plays across the U.S. and Canada, Shale Daily offers a clear snapshot of natural gas supplies for analysts, investors and global LNG buyers. Learn more.]

Tucson, AZ-based Grannus Technology focuses on near-zero emission solutions to produce chemical products for agriculture and marine operations. The company recently announced plans for a blue ammonia production plant in Alaska, as well as a deal to supply an unnamed Pacific Rim-based merchant marine company looking to switch its fleet from oil to ammonia.

Grannus’ partial oxidation (POx) method creates synthesis gas using natural gas in combination “with a weak oxygen supply, which prevents complete combustion,” according to the company, replacing traditional steam methane reformer methods for generated ammonia.

In May, Grannus entered into a prospective long-term offtake agreement with Calamco to supply all of its ammonia needs for use as a nitrogen-based fertilizer. The California-based agricultural cooperative of more than 900 growers represents the majority of California’s agricultural demand for ammonia.

The patented POx method, once combined with CCS, would make the Grannus project a “virtually emission-free facility,” the company noted. The potentially zero-emissions facility would be a first for the Golden State, which grows more than 30% of the nation’s vegetables and 75% of its fruits and nuts, according to the CRC.

Moving forward with the CRC “positions Grannus as one of the leading cleantech companies in the state by introducing a blue ammonia facility to San Joaquin County…” McFarland added.

CRC in May applied for two Class VI permits for CTV sites that would provide 94 million mt (mmt) of permanent CCS in the Sacramento Basin, known as CTV II and III.

CTV III is scheduled to come online in 2027, with approximately 71 mmt of storage capacity. If CTV III receives regulatory approval, the site could see an initial 370,000 mty of CO2 from Grannus operations.

Grannus CEO Matthew Cox noted “CTV Vault’s unique positioning in the heart of Northern California’s industrial sectors, strong underground expertise and their leadership in California’s new energy economy and carbon management.”

The project will not require any long CO2 transport or midstream requirements with the proximity of CTV III, CRC said.

“California’s first blue ammonia fertilizer plant is expected to further reduce the carbon intensity of California’s agricultural sector by bringing environmentally conscious food to the doorstep of every American,” added Cox.

While CDMA frames the contractual terms between CTV and Grannus, a final investment decision for CTV III and commercial operation dates have not been set. That said, the CRC noted that its 2027 operational target is the most recent launch estimate for CTV III. The independent company and its subsidiary are targeting CO2 sequestration of 5 mmty by the end of 2027.

In addition, CDMA gives Grannus initial access to 50 hectares of acreage, with an additional 50 hectares if the company expands its production operations. As part of the agreement for CTV to provide transportation and storage, CTV would receive an injection fee on a per-tonne basis, CRC said, which “fits within the economic type curve previously disclosed for projects requiring a storage-only solution. “

CTV would also have the option to purchase equity in Grannus, as well as the right of first refusal on future California-based projects.

Working with the Tides of Change

CRC, California’s largest independent, has signaled a shift in focus to CCS and clean energy technologies amid a regulatory crackdown on oil and gas drilling activities in the Golden State.

Last August the state Senate voted to approve Senate Bill 905 (SB 905) to ban CCS projects used in conjunction with enhanced oil recovery (EOR).

During the third quarter earnings update in November, McFarland noted that SB 905 “strengthened” CTV’s operations, although it changed the company’s CalCapture Project. Originally, the project was designed to use CCS for EOR near CRC’s Elk Hills operations, though in light of the legislation, CRC moved “the CalCapture project into permanent storage…” McFarland said.

CRC closed 2022 with its first CDMA through CTV Joint Venture (JV), a JV between CTV and Brookfield Renewable Partners LP and Lone Cypress Energy Services LLC.

The Los Angeles City Council in December passed a ban on all new oil and natural gas drilling in all areas of the city. The ban also mandated a 20-year timeline to phase out existing oil and gas wells. As of Q3 2022, CRC had two platforms operating in the Los Angeles Basin producing an average of 19,000 b/d of oil and 1 MMcf/d of natural gas.