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Co-optimization of Enhanced Oil Recovery and Carbon Sequestration

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  • Andrew Leach
  • Charles F. Mason
  • Klaas van't Veld

Abstract

In this paper, we present what is to our knowledge the first theoretical economic analysis of CO2- enhanced oil recovery (EOR). This technique, which has been used successfully in a number of oil plays (notably in West Texas, Wyoming, and Saskatchewan), 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 sequestration credits in addition to oil revenues. We develop a theoretical framework that analyzes the dynamic co-optimization of oil extraction and CO2 sequestration, through the producer's choice at each point in time of an optimal CO2 fraction in the injection stream (the control variable). We find that the optimal fraction 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. They show also that cumulative sequestration is positively related to the oil price, and is in fact much more responsive to oil-price increases than to increases in the carbon tax. Only at very high taxes does a tradeoff between oil output and sequestration arise.

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  • Andrew Leach & Charles F. Mason & Klaas van't Veld, 2009. "Co-optimization of Enhanced Oil Recovery and Carbon Sequestration," NBER Working Papers 15035, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15035
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    1. 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.
    2. Dana M. Abdulbaqi & Carol A. Dahl & Mohammed R. AlShaikh, 2018. "Enhanced oil recovery as a stepping stone to carbon capture and sequestration," Mineral Economics, Springer;Raw Materials Group (RMG);Luleå University of Technology, vol. 31(1), pages 239-251, May.
    3. You, Junyu & Ampomah, William & Sun, Qian, 2020. "Co-optimizing water-alternating-carbon dioxide injection projects using a machine learning assisted computational framework," Applied Energy, Elsevier, vol. 279(C).
    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. Vanessa Núñez-López & Ramón Gil-Egui & Seyyed A. Hosseini, 2019. "Environmental and Operational Performance of CO 2 -EOR as a CCUS Technology: A Cranfield Example with Dynamic LCA Considerations," Energies, MDPI, vol. 12(3), pages 1-15, January.
    6. 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.
    7. Gao, Shen & van ’t Veld, Klaas, 2021. "Pegging input prices to output prices—A special price adjustment clause in long-term CO2 sales contracts," Energy Economics, Elsevier, vol. 104(C).
    8. Waxman, Andrew R. & Corcoran, Sean & Robison, Andrew & Leibowicz, Benjamin D. & Olmstead, Sheila, 2021. "Leveraging scale economies and policy incentives: Carbon capture, utilization & storage in Gulf clusters," Energy Policy, Elsevier, vol. 156(C).
    9. Moreaux, Michel & Amigues, Jean-Pierre & van der Meijden, Gerard & Withagen, Cees, 2024. "Carbon capture: Storage vs. Utilization," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    10. Niko Jaakkola, 2012. "Monopolistic sequestration of European carbon emissions," OxCarre Working Papers 098, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    11. Siddharth Misra & Rui Liu & Aditya Chakravarty & Keyla Gonzalez, 2022. "Machine Learning Tools for Fossil and Geothermal Energy Production and Carbon Geo-sequestration—a Step Towards Energy Digitization and Geoscientific Digitalization," Circular Economy and Sustainability, Springer, vol. 2(3), pages 1225-1240, September.
    12. 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.
    13. Wang, Xiao & van ’t Veld, Klaas & Marcy, Peter & Huzurbazar, Snehalata & Alvarado, Vladimir, 2018. "Economic co-optimization of oil recovery and CO2 sequestration," Applied Energy, Elsevier, vol. 222(C), pages 132-147.
    14. Tayari, Farid & Blumsack, Seth, 2020. "A real options approach to production and injection timing under uncertainty for CO2 sequestration in depleted shale gas reservoirs," Applied Energy, Elsevier, vol. 263(C).
    15. Kevin McDonnell & Levente Molnár & Mary Harty & Fionnuala Murphy, 2020. "Feasibility Study of Carbon Dioxide Plume Geothermal Systems in Germany−Utilising Carbon Dioxide for Energy," Energies, MDPI, vol. 13(10), pages 1-24, May.
    16. William Ampomah & Robert S. Balch & Reid B. Grigg & Brian McPherson & Robert A. Will & Si‐Yong Lee & Zhenxue Dai & Feng Pan, 2017. "Co‐optimization of CO 2 ‐EOR and storage processes in mature oil reservoirs," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 7(1), pages 128-142, February.
    17. Özge .Ic{s}legen & Stefan Reichelstein, 2011. "Carbon Capture by Fossil Fuel Power Plants: An Economic Analysis," Management Science, INFORMS, vol. 57(1), pages 21-39, January.
    18. Calderón, Andrés J. & Pekney, Natalie J., 2020. "Optimization of enhanced oil recovery operations in unconventional reservoirs," Applied Energy, Elsevier, vol. 258(C).
    19. Ampomah, W. & Balch, R.S. & Cather, M. & Will, R. & Gunda, D. & Dai, Z. & Soltanian, M.R., 2017. "Optimum design of CO2 storage and oil recovery under geological uncertainty," Applied Energy, Elsevier, vol. 195(C), pages 80-92.

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    More about this item

    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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