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Co-optimization of enhanced oil recovery and carbon sequestration

Author

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  • Leach, Andrew
  • Mason, Charles F.
  • Veld, Klaas van ‘t

Abstract

In this paper, we present an economic analysis of CO2-enhanced oil recovery (EOR). This technique entails injection of CO2 into mature oil fields in a manner that reduces the oil's viscosity, thereby enhancing the rate of extraction. As part of this process, significant quantities of CO2 remain sequestered in the reservoir. If CO2 emissions are regulated, oil producers using EOR should therefore be able to earn revenues from sequestration as well as from oil production. We develop a theoretical framework that analyzes the dynamic co-optimization of oil extraction and CO2 sequestration, through the producer's choice of the fraction of CO2 in the injection stream at each moment. We find that the optimal fraction of CO2 is likely to decline monotonically over time, and reach zero before the optimal termination time. Numerical simulations, based on an ongoing EOR project in Wyoming, confirm this result. We also find that cumulative sequestration is less responsive to the carbon tax than to the oil price. Only at very high taxes does a tradeoff between revenues from oil output and sequestration arise.

Suggested Citation

  • Leach, Andrew & Mason, Charles F. & Veld, Klaas van ‘t, 2011. "Co-optimization of enhanced oil recovery and carbon sequestration," Resource and Energy Economics, Elsevier, vol. 33(4), pages 893-912.
  • Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:893-912
    DOI: 10.1016/j.reseneeco.2010.11.002
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    References listed on IDEAS

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    Cited by:

    1. Niko Jaakkola, 2013. "Monopolistic Sequestration of European Carbon Emissions," OxCarre Working Papers 098, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    2. Tapia, John Frederick D. & Lee, Jui-Yuan & Ooi, Raymond E.H. & Foo, Dominic C.Y. & Tan, Raymond R., 2016. "Optimal CO2 allocation and scheduling in enhanced oil recovery (EOR) operations," Applied Energy, Elsevier, vol. 184(C), pages 337-345.
    3. Okullo, Samuel J. & Reynès, Frédéric & Hofkes, Marjan W., 2015. "Modeling peak oil and the geological constraints on oil production," Resource and Energy Economics, Elsevier, vol. 40(C), pages 36-56.
    4. 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.
    5. repec:eee:appene:v:195:y:2017:i:c:p:80-92 is not listed on IDEAS

    More about this item

    Keywords

    Enhanced oil recovery; Carbon sequestration; Climate change;

    JEL classification:

    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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