Comments on DTI Report “Implementing a Demonstration of Enhanced Oil Recovery Using Carbon Dioxide”
Hugh Sharman (hms@inco2.com) of INCO2 Aps is part of a consortium that is proposing a CO2 infrastructure for the North Sea known as the CENS project. Here he comments on the findings from a recent study (April 2004) undertaken by the UK Government's advisory group on CO2 capture and storage looking as the possibilities for implementing a demonstration EOR project. Hugh is particular concerned about the low oil price used in the economic evaluations and the lack of an international element to the study (i.e. no involvement of other countries with an interest in the North Sea).
On the whole, I found the report balanced, well written and interesting, demonstrating a deep understanding of its subject. It seems to have travelled with reports appearing widely in the media. For example, its main conclusions are written up in a recent issue of Oil & Gas Magazine ( 17 May, 2004). It is therefore a pity that the models which the DTI employed to evaluate the viability of using CO2 for EOR in the North Sea seem to be based on $16 per barrel and that no "what if" scenarios were reported, with (floor) oil prices at, say $20, $25 and $30 per barrel. Consequently, the UK press has reported that its findings "prove" CO2 for EOR in the North Sea is uneconomic.
In the light of actual events, it seems likely that we will never see $16 per barrel again and that most upstream investment in new production will be rewarded with incremental oil at a price over $25/barrel. Had this scenario been included, there would have been a strong economic case for implementation. I have written to George Marsh about this but have not heard back, yet.
Furthermore, the article did not explore the financial consequences of earlier decommissioning whereby many £billions will be spent with no off-setting revenue.
Many of these criticisms are not the fault of the advisory group who undertook the study. The terms of reference, calling for a "demonstration project" were always flawed. As the group found out in their discussions with the upstream industry, there is no need to demonstrate in the North Sea what has already been demonstrated elsewhere in the world. The E&P industry knows perfectly well that if the right economic conditions exist, then the use of CO2 for EOR is already commercial and can be implemented without the need for prior demonstration.
The oil companies are not helping themselves by evaluating their investments against such a low, future oil price. One might speculate that this is one of the reasons why Shell finds itself in its current plight. But it is also incumbent on the UK Government to give some fiscal encouragement (not grant aid) to schemes that fulfil its wider ambitions. The CENS project would extend the lifetime of the North Sea oil fields and delay decommissioning, while burying up to 1.3 billion tons of CO2 and reducing the UK's dependence on imports.
It is also time to acknowledge that there is only one, North Sea, oil producing province. While production is split up into various, nationally delineated, producing zones and this caused little damage during its development and plateau phase, during its tertiary phase, all the nations around its rim should be united by the common aim of maximising recovery and delaying decommissioning. It is a pity that the report concentrated so much on the UK part of the province, allowing only an acknowledgement that some cooperation with Norway would be helpful. Maybe its writers were unaware that the EU CASTOR project is building a demo CO2 stripping plant at Esbjerg, in Denmark and that there is a lively discussion about CO2 for EOR and enhanced gas recovery going on in the Netherlands.
One hopes that the report will not be filed and gather dust but that the dialogue can now be extended to recognise the changes that are taking place in oil prices and that further delaying action (like the pursuit of "demo projects") will cost the UK consumer and tax payer dear. The production decline and re-deployment of the industry is taking place too quickly to risk further dithering.