Investment Strategy of CO2-EOR in China: Analysis Based on Real Option Approach

Abstract

Abstract As the most potential Carbon Capture, Utilization, and Storage (CCUS) technology, CO2-enhanced oil recovery (CO2-EOR) can both improve oil recovery and relieve the pressure of reducing CO2 emission. However, CO2-EOR projects have not been substantially deployed in China due to the significant investment and high uncertainties of technology, market, and policy. Therefore, identifying potential bottlenecks, and developing effective investment strategies are of great necessity at present. In this work, a real option approach combined with reservoir simulation technologies is proposed, which can investigate the optimal deployment timing and the investment value of the CO2-EOR projects. Meanwhile, a sensitivity analysis is conducted to examine the effects of different uncertainties. The results show that real option approach is suitable for the evaluation of CO2-EOR projects because it can fully take the flexibility of investment time into account. And it is found that under the current investment environment, it is difficult for China to deploy CO2-EOR projects on a large scale before 2030. High oil prices, low CO2 purchase prices, and transportation of CO2 by pipeline can bring forward the investment time and increase the investment value. Besides, government subsidies and technological progress are also favorable for the deployment of the project. Compared with technological progress, the effect of subsidies is more obvious, while it should be noted that huge subsidies will bring a financial burden to the government. In a word to launch CO2-EOR projects earlier and make it play a more important role in China's carbon emission reduction, a compound strategy should be made based on consideration of all these influencing factors.