TY  - JOUR
AU  - Leach,Andrew
AU  - Mason,Charles F.
AU  - Veld,Klaas van't
TI  - Co-optimization of Enhanced Oil Recovery and Carbon Sequestration
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15035
PY  - 2009
Y2  - June 2009
UR  - http://www.nber.org/papers/w15035
L1  - http://www.nber.org/papers/w15035.pdf
N1  - Author contact info:
Andrew Leach
University of Alberta
School of Business
3-40K Business Building
Edmonton, Alberta T6G 2R6
Canada 
E-Mail: andrew.leach@ualberta.ca

Charles Mason
Department of Economics and Finance
University of Wyoming
1000 E. University Avenue
Laramie, WY  82071-3985
E-Mail: bambuzlr@uwyo.edu

Klaas van 't Veld
Department of Economics and Finance
University of Wyoming
1000 E. University Avenue
Laramie, WY  82071-3985
Tel: (307) 766-3124
E-Mail: klaas@uwyo.edu
M3  - presented at "SI 2008 Environmental & Energy Economics Workshop", July 21-22, 2008
AB  - In this paper, we present what is to our knowledge the first theoretical economic analysis of CO2- enhanced oil recovery (EOR). This technique, which has been used successfully in a number of oil plays (notably in West Texas, Wyoming, and Saskatchewan), entails injection of CO2 into mature oil fields in a manner that reduces the oil's viscosity, thereby enhancing the rate of extraction. As part of this process, significant quantities of CO2 remain sequestered in the reservoir. If CO2 emissions are regulated, oil producers using EOR should therefore be able to earn sequestration credits in addition to oil revenues. We develop a theoretical framework that analyzes the dynamic co-optimization of oil extraction and CO2 sequestration, through the producer's choice at each point in time of an optimal CO2 fraction in the injection stream (the control variable). We find that the optimal fraction is likely to decline monotonically over time, and reach zero before the optimal termination time. Numerical simulations, based on an ongoing EOR project in Wyoming, confirm this result. They show also that cumulative sequestration is positively related to the oil price, and is in fact much more responsive to oil-price increases than to increases in the carbon tax. Only at very high taxes does a tradeoff between oil output and sequestration arise.
ER  -