Can a Scottish CO2 EOR Cluster be Economically Viable?

- A Progress Report -

Professor Alex Kemp

and

Dr Sola Kasim

Background

• Earlier studies have indicated that under a variety of assumptions integrated, but individual, CCS projects may not be economically viable.

• See AG Kemp and AS Kasim, An Optimised Illustrative Investment Model of the Economics of Integrated Returns from CCS Deployment in the UK/UKCS, North Sea Study Occasional Paper No. 118 (December 2010), http://www.abdn.ac.uk/~pec144/acreef/

• The present research study sets out to examine whether a collection hub based at St Fergus plus clusters of fields in the Central North Sea and Outer Moray Firth could produce an economically viable industry over the longer term. The concept is hub with communal spokes and cluster EOR developments to produce economies of scale and risk sharing. Study period is 2020-2050.

Economic Benefits of Hub and Communal Spokes

1. Economies of scale at hub (St Fergus) with respect to compression and other activities necessary to prepare CO2 for transportation in supercritical form to oil fields.

2. Economies in transportation costs through use of existing pipelines where possible. Modifications and refurbishment (sometimes major) may be necessary. Spur pipelines to some individual fields will be necessary.

3. Pipelines which can be used to supply more than 1 field (with added spurs) include Miller, Goldeneye, and old Forties oil pipeline (with substantial refurbishment).

4. Various fields were considered for detailed EOR modelling with consideration being given to their eventual capacity, potential injectivity, as well as proximity to existing pipelines. In the present presentation the following were analysed:

(a) Forties, Alba and Nelson

(b) Buzzard

(c) Claymore, Tartan, Scott, Miller and Brae

5. The potential risk-sharing benefits to the fields chosen for detailed CO2 EOR analysis have been indicated by conducting Monte Carlo risk analysis (a) on each field separately and (b) on the combined cluster of fields. Over the long term companies specialising in CO2 EOR are quite likely to evolve with consequent changes in ownership. There are already investors in the UKCS specialising in mature field operations.

Assumptions in Economic Modelling

1. Preliminary modelling and inspection of the literature indicated that, to obtain economies of scale in the CO2 injection and EOR processes, substantial well injectivity rates are necessary. The literature indicates a desired minimum of 0.5 million tonnes of CO2 per well per year in the different fields. This was therefore used in the modelling.

2. The modelling took into account the relationship between the volumes of CO2

purchased, the resulting CO2 produced with the oil, and the CO2volumes recycled. The amounts of CO2 purchased in contracts are related to the volumes recycled and the total required for the anticipated EOR.

3. The capital costs incurred for injection purposes were derived from a BERR study in 2007 where for a new platform unit capital costs per million tonnes of CO2 injected per well per year were as follows:

£7 million @ water depth > 100m

£14 million @ water depth > 100m

These figures were modified for existing platforms. In the Monte Carlo modelling a normal distribution was assumed with SD=10% of the mean.

4. The oil price distribution was assumed to be triangular with a minimum value of $90, a maximum of $195 and Likeliest of $100. Mean reverting behaviour was assumed.

5. The EOR achieved is based on assumptions re (a) bbls per tonne of CO2 injected, (b) diminishing returns over time to the aggregate volumes injected, and (c) the number of injection wells employed per field. In modelling number of injection wells in each field related to existing number and prospective size of EOR potential.

The EOR yield per tonne of CO2 injected was assumed to form a triangular probability distribution with a minimum of 0.39 bbls, a maximum of 0.63 with the likeliest value being 0.55. Conservative values.

6. With respect to CO2 emissions from platforms it was assumed that the Treasury carbon floor price provisions would apply. This means £30 per tonne in 2020, £70 in 2030 and £110 in 2050. A triangular distribution with minimum of £30, maximum of £110 and most likely value of £50 was assumed.

7. With respect to the commodity CO2 price paid by the storer to the capturer, initial modelling indicated that the Treasury carbon floor price resulted in the CO2 EOR projects all being uneconomic. Lower commodity transfer prices were then assumed. In the Monte Carlo modelling a triangular probability distribution was assumed with minimum price of zero, maximum of £20 and most likely of £5.

8. The study period for the modelling was 2020-2050 with investment commencing in 2020.

RESULTS

Individual field basis

Alba (pre-tax)

Alba (81% tax)

Alba (62% tax)

Brae (pre-tax)

Brae (81% tax)

Brae (62% tax)

Buzzard (pre-tax)

Buzzard (62% tax)

Claymore (pre-tax)

Claymore (81% tax)

Claymore (62% tax)

Forties (pre-tax)

Forties (81% tax)

Forties (62% tax)

Miller (pre-tax)

Miller (62% tax)

Nelson (pre-tax)

Nelson (81% tax)

Nelson (62% tax)

Scott (pre-tax)

Scott (81% tax)

Scott (62% tax)

Tartan (pre-tax)

Tartan (81% tax)

Tartan (62% tax)

Conclusions of Work to Date

1. By making favourable assumptions regardingoil prices and CO2 commodity purchase costspositive NPVs can be obtained. But sizes ofpost-tax NPVs are often very small, especiallyin relation to risks. Also, are favourableassumptions justified?

2. Applying PRT and SC to CO2-EOR is likely todeter investments.