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

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  • Compernolle, T.
  • Welkenhuysen, K.
  • Huisman, K.
  • Piessens, K.
  • Kort, P.

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.

Suggested Citation

  • Compernolle, T. & Welkenhuysen, K. & Huisman, K. & Piessens, K. & Kort, P., 2017. "Off-shore enhanced oil recovery in the North Sea: The impact of price uncertainty on the investment decisions," Energy Policy, Elsevier, vol. 101(C), pages 123-137.
  • Handle: RePEc:eee:enepol:v:101:y:2017:i:c:p:123-137
    DOI: 10.1016/j.enpol.2016.11.034
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    References listed on IDEAS

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    Cited by:

    1. Adkins, Roger & Paxson, Dean, 2019. "Rescaling-contraction with a lower cost technology when revenue declines," European Journal of Operational Research, Elsevier, vol. 277(2), pages 574-586.
    2. Jia-Yue Huang & Yun-Fei Cao & Hui-Ling Zhou & Hong Cao & Bao-Jun Tang & Nan Wang, 2018. "Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach," Energies, MDPI, Open Access Journal, vol. 11(11), pages 1-22, October.
    3. Pengchun Li & Xueyan Liu & Jiemin Lu & Di Zhou & Susan D. Hovorka & Gang Hu & Xi Liang, 2018. "Potential evaluation of CO2 EOR and storage in oilfields of the Pearl River Mouth Basin, northern South China Sea," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 8(5), pages 954-977, October.
    4. Compernolle, T. & Huisman, Kuno & Kort, Peter & Lavrutich, Maria & Nunes, Claudia & Thijssen, J.J.J., 2018. "Investment Decisions with Two-Factor Uncertainty," Discussion Paper 2018-003, Tilburg University, Center for Economic Research.

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