Alternative Business Model of CCS Projects Unlocks High-CO2 Fields

Abstract

_ This article, written by JPT Technology Editor Chris Carpenter, contains highlights of paper SPE 214359, “Business Model of Carbon Capture and Storage (CCS) Projects for High-CO2 Fields,” by Hasnor Lot, SPE, Andrew Yeow, SPE, and Anuar Buang Mahmood, SPE, Petronas, et al. The paper has not been peer reviewed. _ High-CO2 gas fields present a problem to host governments wanting to both ensure security of supply and achieve net-zero aspirations. While carbon capture and storage (CCS) technology holds the promise of technical feasibility to unlock these fields, its commercial success ultimately hinges on the choice of an appropriate business model. This study compares the economics of the traditional business model [i.e., CCS as part of the upstream petroleum operation dedicated to a production sharing contract (PSC)] vs. the alternative business model [i.e., a regional CCS hub separately managed by a special-purpose vehicle (SPV)]. For simplicity, this paper uses the term CCS throughout, although the discussions apply equally well to carbon capture, usage, and storage projects. Background Gas Value Chain and the Cost of Gas (COG). With its higher development, transportation, and processing costs; longer and flatter production profile; and needs for network infrastructure, the economics of gas development is often less robust than that of oil. Therefore, gas development requires not only the establishment of long-term contracts and a complex value chain but also active government support in the form of friendly fiscal and tax regimes and a fair gas-pricing policy. In addition to its role as the upstream regulator, a national oil company (NOC) may also participate in the gas market as an aggregator. Effectively, the NOC signs an upstream gas-sales agreement (UGSA) with upstream contractors committing to buy gas at a volume and price palatable to them. The aggregator then sells the gas it now owns to downstream users. The margin between the buying and selling prices makes up the aggregator’s profit. In return, the aggregator takes on the intermediary roles of matching supply to demand, coordinating fair nomination and curtailment mechanisms, and ensuring that the gas chain as a whole is flexibly robust against operational disruptions. An NOC enjoys the dual roles of operating as a national corporation and acting as the upstream regulator. In its regulatory role, the NOC is cognizant of the need to allocate the risks and rewards of a CCS investment in a fair and efficient manner between participating parties. The business model must improve the overall economic return for both the upstream contractor and the SPV while enhancing the NOC’s integrated value. The business model so designed must also achieve the NOC’s longer-term goal of unlocking resource opportunities and monetizing stranded gas fields.