Value of Offshore Pore Space for Carbon Capture and Storage

Abstract Most of the current operating carbon capture and storage (CCS) projects by volume utilize enhanced oil recovery for carbon storage; however, most proposed projects target saline aquifers. Ownership of pore space and rights to inject and store CO2offshore is straightforward; governments are beginning to lease such rights to prospective operators. What is the fair value for such pore space? Lease agreements could include both upfront payments, annual rentals and unit royalties. Oil and gas leasing offshore is mature, and most attractive leases hold the potential to attract competitive bids. How should governments and operators value pore space offshore? This paper discusses major issues and calculates example values. Issues that may impact valuations are also addressed. How much is such pore space worth? The owners of such pore space can be expected to be compensated for the rights to inject CO2 into these subsurface reservoirs. In oil and gas production and other mineral extraction cases, the valuation process is straightforward. There are a wide variety of methodologies to value the expected worth of rights to explore for, develop and produce oil and gas. This paper uses Monte Carlo simulation coupled with net present value calculations to characterize potential reservoirs, along with numerical reservoir simulations of CO2 injection into a range of potential storage targets. These targets vary in thickness, permeability and heterogeneity. The economic value of CCS projects is assessed for each case along with themaximum value of pore space for each case. The distribution of such values provides the expected value of the pore value. Existing models for valuing competitive bidding in offshore reservoirs are extended to generate bidding strategies for such reservoirs resulting in likely bids. Methods of assessing economic value of certain measurements designed to reduce risk are evaluated using the value of uncertain information approach. Finally, the impact of simple upfront versus upfront plus rental/royalty payments is considered. Primary drivers for valuation include the value of injected carbon, injectivity and storage capacity. The largest risks are containment and seismicity of sufficient magnitude to restrict operations. Pore space for reservoirs with high permeability and storage capacity is quite valuable; however, many realized cases result in negative present values for example cases. In such cases, any money spent by the operator for pore space only exacerbates economic loss. The value of uncertain information analysis indicates that risk reduction during the geological and geotechnical characterization phase can be extremely valuable. New methods are developed to estimate the value of pore space for CCS applications. Methods are illustrated for using the value of uncertain information in CCS pore space valuation. Integration of Monte Carlo simulation, reservoir simulation and bidding strategy for CCS pore space valuation is used for the first time.