Off-shore enhanced oil recovery in the North Sea: The impact of price uncertainty on the investment decisions

Abstract

Although CO2 Capture and Storage (CCS) is considered a key solution for CO2 emission mitigation, it is currently not economically feasible. CO2 enhanced oil recovery can play a significant role in stimulating CCS deployment because CO2 is used to extract additional quantities of oil. This study analyzes the investment decision of both a carbon emitting source and an oil company separately by adopting a real options approach. It is shown that when uncertainty is integrated in the economic analysis, CO2 and oil price threshold levels at which investments in CO2 capture and enhanced oil recovery will take place, are higher than when a net present value approach is adopted. We also demonstrate that a tax on CO2 instead of an emission trading system results in a lower investment threshold level for the investment in the CO2 capture unit. Furthermore, we determine a minimum CO2 selling price between the two firms and show that CO2-EOR has the potential to pull CCS into the market by providing an additional revenue on the capture plant. However, when CO2 permit prices are above an identifiable level, the EU ETS does not necessarily result in the adoption of CCS but stimulates oil production.

Price dynamics in the European Union Emissions Trading System and evaluation of its ability to boost emission-related investment decisions

“…The majority of the papers on the ETS subject have used, for ease of modeling, GBM processes to describe the EUA price behavior (cfr. Szolgayova et al (2008), Yang et al (2008), Abadie et al (2011), Brauneis et al (2013), Lukas and Welling (2014), Compernolle et al (2017), among others). Instead, we provide empirical evidence that the carbon log-returns are not normally distributed, and propose a different specification for the allowances price, based on geometric Lévy processes more general than the GBM.…”

Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

“…From the perspective of social responsibility, the cost of green practice and contributions for fighting global warming should be considered more carefully [69]. In addition, it will be important to study the impact of enhanced oil recovery (EOR) and specific tax regimes in overseas oil projects [70]. These issues are interesting and attractive for us to address in our future work.…”

Potential evaluation of CO2 EOR and storage in oilfields of the Pearl River Mouth Basin, northern South China Sea

“…Due to certain legal advantages and vast resource capacities, the offshore storage of CO 2 in geological strata has significant potential and offers an attractive alternative to onshore storage . Offshore CO 2 storage has been successful in the Sleipner and Snøhvit offshore projects near Norway, and a number of other projects in the world are in the construction or planning phase . Offshore CO 2 storage is the principal or only opportunity for CO 2 storage for regions without suitable onshore sites – regions such as Western Europe, Australia, the US Gulf Coast, Japan, and southeastern Asia .…”

“…8 Offshore CO 2 storage has been successful in the Sleipner and Snøhvit offshore projects near Norway, and a number of other projects in the world are in the construction or planning phase. 9 Offshore CO 2 storage is the principal or only opportunity for CO 2 storage for regions without suitable onshore sites -regions such as Western Europe, Australia, the US Gulf Coast, Japan, and southeastern Asia. 10 In recent years, the application of CO 2 -enhanced oil recovery (CO 2 EOR) in offshore oilfields has received significant attention due to the potentially enormous amount of recoverable oil, 11 but CO 2 EOR application offshore is still in a very early stage due to more complex conditions that require higher costs than those of onshore projects, owing to the unique parameters present offshore.…”