Off-shore enhanced oil recovery in the North Sea

The impact of price uncertainty on the investment decisions

T. Compernolle, Welkenhuysen, K, Kuno Huisman, Piessens, K, Peter Kort

Research output: Contribution to journalArticleScientificpeer-review

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 and stimulates oil production.
Original languageEnglish
Pages (from-to)123-137
JournalEnergy Policy
Volume101
DOIs
Publication statusPublished - 1 Feb 2017

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enhanced oil recovery
Recovery
oil
emissions trading
economic analysis
oil production
mitigation
Economic analysis
Taxation
market
sea
price
decision
Oils
Uncertainty
carbon
Sales
Carbon
Industry

Keywords

  • CO2 enhanced oil recovery
  • uncertainty
  • real options analysis
  • investment decision

Cite this

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title = "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 and stimulates oil production.",
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Off-shore enhanced oil recovery in the North Sea : The impact of price uncertainty on the investment decisions. / Compernolle, T.; K, Welkenhuysen,; Huisman, Kuno; K, Piessens,; Kort, Peter.

In: Energy Policy, Vol. 101, 01.02.2017, p. 123-137.

Research output: Contribution to journalArticleScientificpeer-review

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T2 - The impact of price uncertainty on the investment decisions

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AU - Kort, Peter

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AB - 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 and stimulates oil production.

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