Whatever happened to enhanced oil recovery?

Throughout the history of the oil industry, technological progress has found a way to bring new resources into play. The shale revolution and the expansion of deepwater output are prime examples.

But there’s another longstanding technological effort that rarely generates headlines, but plays an important role in oil supply: the effort to improve recovery from a wide variety of fields via enhanced oil recovery (EOR).

Even with modern production techniques, a large share of the oil in a reservoir is not produced during primary and secondary recovery (read a description of EOR on our new CCUS page or in the explainer below). Some of this oil can, however, be accessed through the use of more complex and energy intensive extraction techniques such as the injection of heat, chemicals, CO₂ or other gases. These techniques have been successfully and commercially deployed in multiple countries over many decades.

With this commentary, we are also releasing an up-to-date list of EOR projects around the world, filling in an important data gap. We also explore the outlook for EOR in different scenarios from the new World Energy Outlook.

Despite this range of projects, today EOR represents only around 2% of global oil supply and it remained in the background even during previous periods of high oil prices (such as between 2010 and 2014). If EOR did not take off during these periods, does this mean it will never do so? Or could EOR projects make a comeback? More broadly, could the use of CO₂ for EOR even make this technology part of a global response to climate change?

The Oil and Gas Journal (OGJ) traditionally published a bi-annual update on EOR projects, which helped to inform our previous estimates of EOR production globally. This was last updated in 2014 and, given the major changes in oil markets since then, we have conducted our own extensive review of the current status of EOR projects. This updates production from projects in the OGJ database, adds new projects launched since 2014, and reviews data for regions that were previously covered only sparsely, such as China and the Middle East.

We estimate that there are currently around 375 EOR projects operating globally, producing just over 2 million barrels per day (mb/d) of oil (Figure 1). While this is a 0.7 mb/d increase from the last assessment carried out by the OGJ, EOR’s share of global crude production seems to have remained broadly stable over time: around 2% of global oil production.

Historically EOR production has been concentrated in North America, but in recent years other countries have started deploying EOR technologies. Malaysia has started offshore EOR production, while the United Arab Emirates, Kuwait, Saudi Arabia, India, Colombia and Ecuador have all started pilot EOR projects. Oman has also registered a major increase in EOR production. As a result, while in 2013 three quarters of all EOR projects (providing 0.8 mb/d) were located in North America, today this proportion has fallen to 40%. There has also been a wave of efforts to apply EOR technologies in offshore fields; today there are around 15 offshore projects, which mostly inject natural gas.

While the lifecycle cost of EOR can be competitive with other production opportunities, it frequently entails high up-front capital requirements and long pay-back periods. As a result, EOR production has historically relied on some form of support or strategic choice. Today over 80% of global EOR production benefits from some sort of government incentive or is prioritised by national oil companies as part of their efforts to maximise the return from national resources.

The United States provides a good example of how policy incentives affect the growth of EOR projects. In the 1980s, faced with the prospect of declining domestic oil production, the Crude Oil Windfall Profit Tax 1980 kick-started the US EOR industry by significantly reducing its tax burden. More recently, the US section 45Q tax credit has been amended to provide a tax reduction of $35/tCO₂ for 12 years for CO₂ stored in EOR operations.

So why has EOR not grown to a greater extent in recent years? There is no one reason for this, but possible explanations include:

• The incentive to pursue EOR is often highest when and where there are concerns over resource scarcity. There are fewer such concerns today.
• There is a current preference in the upstream industry for projects that can generate fast returns. An EOR project requires time to plan, test and implement, and generates incremental production only in the latter stages of a field’s lifetime.
• EOR has become a niche business among oil and service companies, and the requisite skills, technologies and expertise are not widely available. Five midsize oil and gas companies currently operate the majority of CO₂-EOR projects in the United States.
• Costs for EOR have come down since 2014, but the costs of other projects – including shale and offshore developments – have come down more quickly. For the moment at least, EOR technologies struggle to compete with other investment opportunities.

When we last looked at the prospects for EOR (in the WEO-2013), we estimated that the systemic application of all available EOR technologies across the global conventional crude oil resource base could in theory unlock up to 300 billion barrels of oil. However, in our New Policies Scenario projections, only a fraction of this is exploited. Indeed growth in EOR production is modest to the mid-2020s. Over this period, the rise of US shale alongside contributions from Brazil and Canada leave little room for EOR to grow. But, by the mid-2020s, EOR starts coming through in larger volumes. By then, a greater number of regions and countries have also become mature production provinces, and so are more inclined to pursue efforts to maintain production or slow declines by supporting new EOR developments. Between 2025 and 2040, total EOR production grows from 2.7 mb/d to more than 4.5 mb/d, and it accounts for around 4% of global production in 2040.

For EOR to thrive in this way, a number of measures and initiatives would need to gain momentum soon. For example, through governments and industry undertaking a concerted effort to screen fields and determine EOR potential in resource-rich areas; the timely piloting of EOR-projects in countries where it has not previously been used; continued fiscal incentives, including CO₂ credits in the case of CO₂-EOR; technological advances such as decreasing the volume of chemicals that need to be injected; and taking full advantage of the potential for digitalisation to generate a better understanding of the sub-surface.

In the Sustainable Development Scenario, total EOR production grows to around 4 mb/d in 2040. This is smaller than the New Policies Scenario since oil demand and prices are lower. However, there is much larger production from CO₂-EOR given additional policy support for efforts to advance carbon capture utilisation and storage (CCUS). In this scenario, climate imperatives emerge as the main rationale for pushing forward EOR technologies.

Where the geology is suitable, CO₂-EOR is one of the ways in which companies can reduce the emissions intensity of the oil delivered to market and therefore reduce its environmental footprint. In theory, if the CO₂is captured from the air or from combustion of biomass, and injected in sufficient quantities, there could even be negative-emissions oil available to the market (a possibility that we’ll explore further in a future commentary). While shale has taken much of the limelight in recent years, it is much too soon to write EOR technologies out of the future of global energy.