Impact of geological uncertainty on project valuations for offshore CO2-enhanced oil recovery
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Carbon capture and storage (CCS) can contribute substantially to the decarbonization of the energy system. However, the public resistance against onshore CO2 storage and the lack of a viable business case for CCS cause delay in private investments. CO2-enhanced oil recovery (CO2-EOR) is often proposed as a promising business case for CCS, because the revenues from incremental oil recovery can offset the costs for CCS. Offshore CO2-EOR is of particular interest because it is not hindered the public resistance as is the case with onshore storage of CO2. Traditional net present value based calculations in general indicate positive project economics but wide-scale deployment is hampered because there is no commercial application. These traditional investment decisions neglect the geological uncertainties of the reservoirs for offshore CO2-EOR. This thesis proposes an improved valuation method for projects by using a real option decision scheme for offshore CO2-EOR that includes uncertainties for multiple fields. Real options offers flexibility and the ability to respond to the performance of the projects. A techno- economic simulator is developed, starting from an existing simulator that is designed for carbon capture and storage. The new simulator is used to valuate seven generic CO2-EOR projects clustered in the North Sea where the investment decisions were simulated. The alpha version of the techno-economic simulator PSS IV provides a good starting point for realistic assessment of potential CO2-EOR projects in the North Sea. Well-founded investment decisions were made based on the real option values of the alternatives to either stop primary production or activate CO2-EOR. Realistic forecasts were made for potential CO2-EOR projects in which geological uncertainty of CO2-EOR field performance is taken into account. All simulated primary oil production projects were retrofitted to CO2-EOR, but when and where EOR is activated is strongly influenced by the stochastic oil market price, as well as the CO2-EOR field performance. The main benefits of the real option approach in comparison with traditional investment decisions is that it is possible to make realistic assessments of offshore CO2-EOR projects including the complete uncertainty range of the geological, techno-economic and scenario parameters. These new simulations will for the first time provide near-realistic insights into the cost-benefit balance of EOR projects in an offshore European context. This may help to provide realistic outlooks for EOR, as well as stimulate demonstration and full-scale projects.