Economic Modeling of Carbon Capture and Sequestration Projects Utilizing Re-Purposed Onshore California Wells and Infrastructure

Abstract

Abstract At present, approximately 37,000 out of 110,000 oil and gas wells in onshore California are classified as ‘idle’ - they have not been producing hydrocarbon or water, including EOR, for two consecutive years without abandonment. In this context, we examine whether operators retaining those current or potentially future idle wells could economically re-purpose their assets for a carbon storage operation. Such an approach would potentially defer the eventual decommissioning, abandonment, and remediation costs of these assets. This study models the economics of a fully integrated system from source CO2 capture through subsurface storage for a thermal steam operation. The model workflow developed in this paper is as follows: capture carbon dioxide from steam co-generation plants in heavy oil steam injection fields in the San Joaquin Valley, delivering it via pipeline to selected idle producing or injection wells, converting those wells into carbon dioxide injectors, and finally injecting and monitoring for sequestration. The well re-purposing process would isolate the formerly produced hydrocarbon interval and re-complete in the overlying saline aquifer interval to be used for CO2 sequestration. The fundamental difference of project economics between hydrocarbon production and carbon capture and sequestration is the regulatory and policy-defined financial incentives. In California, those consist of three major elements: Section 45Q tax credits by the federal government, low-carbon fuel standard (LCFS) credit by the State of California, and cap-and-trade emission allowances. The economic model shows that two factors, LCFS credit price and the cost of carbon capture systems, comprise the most significant proportion of impact on economic feasibility. To achieve the breakeven IRR of 10%, first, LCFS eligibility of the CCS project for a co-generation plant should be improved, and credit price needs to remain at least at the current level. On top of that, the expected increase in future LCFS credit prices and cap-and-trade allowance as potential revenue in an opportunity cost context would enhance economic performance. Secondly, the most plausible, the CAPEX of carbon capture systems at steam co-generation plants would need to be reduced to the lowest cost benchmarks currently seen in process plant implementations. This paper can be viewed as a starting point to stimulate examination of carbon capture and sequestration project options by both operators managing end-of-field life producing assets, as well as State of California regulatory agencies pursuing carbon reduction as part of the state's larger energy transition strategy.