Long-Term Risks and Short-Term Regulations: Modeling the Transition from Enhanced Oil Recovery to Geologic Carbon Sequestration

Abstract

Recent policy debates suggest that geologic carbon sequestration (GS) likely will play an important role in a carbon-constrained future. As GS evolves from the analogous technologies and practices of enhanced oil recovery (EOR) operations to a long-term, dedicated emissions mitigation option, regulations must evolve simultaneously to manage the risks associated with underground migration and surface tresspass of carbon dioxide (CO2). In this paper, we develop a basic engineering-economic model of four illustrative strategies available to a sophisticated site operator to better understand key deployment pathways in the transition from EOR to GS operations. All of these strategies focus on whether or not a sophisticated site operator would store CO2 in a geologic formation. We evaluate these strategies based on illustrative scenarios of (a) oil and CO2 prices; (b) leakage estimates; and (c) transportation, injection, and monitoring costs, as obtained from our understanding of the literature. Major results reveal that CO2 storage in depleted hydrocarbon reservoirs after oil recovery is associated with the greatest net revenues (i.e., the “most-preferred” strategy) under a range of scenarios. This finding ultimately suggests that GS regulatory design should anticipate the use of the potentially leakiest, or “worst,” sites first.

Keywords: carbon sequestration, enhanced oil recovery, leakage, regulatory design, risk management

JEL Classification: Q42, Q48