Commercial Structures for Integrated CCS-EOR Projects

Abstract

In this paper, we evaluate alternate commercial structures for an integrated CCS-EOR project where the source of CO2 is a coal-fired power plant, and the CO2 is transported via a dedicated pipeline to an oil field where the CO2 is injected for EOR. We evaluate alternative contract types that link the involved entities in light of exogenous market risks, such as the fluctuating price of oil recovered. The choice of the contract type determines who would bear the risks along the value chain, and the incentives that the risk allocation produces fixes the total project value. We see that the fixed price contracts have weaknesses in terms of ex-post insolvencies and poor incentive structures that result in a sub-optimal decision-making by the involved entities. The risk-sharing offered by the indexed price contracts reduces the likelihood of ex-post insolvency and provides incentives to each entity to optimize the total project value.