The Economics of CCUS Projects in Conjunction with Large Offshore Gas Projects

Abstract

Abstract Objective/Scope Many countries are now implementing more detailed regulations on carbon, capture, utilisation and storage (CCUS) projects. Historically CCUS projects have been considered uneconomic, but with introduction of incentives such as CO2 tax and compensation per ton of CO2 injected, many plans for CCUS projects are moving ahead and expected to go in production in the coming years to help achieve 2030 climate targets. This paper examines the economics of CCUS projects, either standalone or in conjunction with large offshore gas projects in Denmark, Indonesia and Australia. Firstly, an analysis of the legislation in these countries reveals to what degree the frameworks are defined to support CCUS projects. Secondly economic robustness analyses of the projects are performed to determine under which circumstances that CCUS strengthens or weakens the business cases for the operators. Method/Procedure/Process Appropriate gas production profiles and costs including DRILLEX, CAPEX and OPEX are determined for large offshore gas projects in Denmark, Indonesia and Australia, and with appropriate CCUS facilities. These countries offer very different settings since offshore projects in Denmark are in harsh environment but shallow water, while Indonesia and Australia offer deeper water and generally more benign weather conditions. The legal analysis is based on existing petroleum fiscal regimes in all three countries and new regulations relevant for CCUS that include depreciating and recovering investments and receiving economic incentives to inject CO2 that may or may not be used for enhanced oil and gas recovery. Economic analyses for typical oil and gas project decisions are performed with alternative development scenarios and robustness evaluations that identify after-tax key metrics and break-even values. These are performed for the offshore gas projects under realistic economic conditions with CCUS facilities. When CCUS facilities are applied this can impact production through enhanced gas recovery or production of alternative fuels. Results/Observations/Conclusions Denmark, Indonesia and Australia are compared from both legal and economic perspectives and conclusions made with respect to how well defined the legal frameworks are for CCUS developments, and the economic viability of CCUS projects when operated standalone or in conjunction with large offshore gas projects. This allows for learning across countries and identifying where improvements in fiscal regimes and incentives for CO2 storages could be made. Novelty/Additive Information CCUS builds on existing technologies but the development of frameworks for incentivizing operators to apply CCUS is still in its early stages and much learning needs to be done. The novelty in this paper is firstly the analysis of how the legal frameworks for CCUS projects compare across three very different locations. Secondly, the novelty is in the development of recommendations for the authorities in Denmark, Indonesia and Australia, for how to make it economically attractive for operators to invest in CCUS, both as standalone projects and in conjunction with large offshore gas projects.