During exploration and appraisal, oil and gas companies accept that there will be failures due to dry holes and non-commercial discoveries. For this reason, they plan to drill enough independent prospects to ensure that the value associated with the commercial discoveries exceeds the program cost (including dry holes). This outcome is referred to as the portfolio effect.
The figure below illustrates the portfolio effect. It shows that as the number of wells drilled increases, the chance of zero geological and zero commercial discoveries decreases. Conversely, the chance of achieving a Net Present Value (NPV) greater than zero increases but is not certain.
We contend that the portfolio effect will not be acceptable to companies, regulators, or the broader societal interests in SCS projects. Failure to inject the contracted CO2 volumes or contain CO2 in the target reservoir or storage zone could result in significant mitigation actions or even project shutdown. The potential cost related to being unable to inject the contracted amount of CO2 is illustrated by the Gorgon project, where the operator has had to acquire and surrender millions of dollars in carbon credits.
To mitigate against this, a complete assessment of subsurface uncertainties and risks combined with estimates of the chance of success and failure are needed. These are discussed in subsequent postings beginning with the definitions for these terms.
An unplanned event, such as injected CO2 ending up in the wrong place, can affect much more than one SCS project. Such events are publicized and remembered by a public that is skeptical about whether SCS is safe and necessary. This is further exacerbated by existing projects that have failed to deliver on their promises. Consider, for example, the Gorgon SCS project in Western Australia. J.P. Marshall (2022), in an article for Clean Technologies concluded that:
‘There is no indication that the Gorgon project, even if it is fully successful, will reduce the emissions from the fossil fuels it excavates and sells, and given the problems it faced, it seems unlikely that storing a significant amount of emissions produced by burning would be possible.’
Opinions such as this highlight the challenge facing the emerging SCS industry. We must be complete, objective and transparent in our evaluations, and include a rigorous assessment of risk. This is especially important for complex, long-term projects where Social License to Operate over many decades is a requirement. In hydrocarbon exploration, we accept that there will be a certain number of failures and so we drill enough wells to take advantage of the portfolio effect. As we’ll discuss in our next posting, we don’t believe this will be acceptable to companies, advantage of the portfolio effect. As we’ll discuss in our next posting, we don’t believe this will be acceptable to companies, regulators, or the broader societal interests in SCS projects.
Have you ever wondered whether the techniques we use for assessing hydrocarbons can be applied to subsurface carbon storage (SCS)? The methods we use to quantify the range of hydrocarbon volumes and chance of success (risk) have been established and refined over more than five decades. It is indeed possible to extend these to CO2 storage, but not without some modifications.
The objective of SCS projects is the permanent storage of CO2. This requires a framework to assess both uncertainties and risks over hundreds to thousands of years. The assessments must cover site identification and appraisal of the storage complex, injection of CO2, pressure monitoring, and post-injection monitoring to ensure long-term retainment. This very long-term risk assessment requires additional skills and methodologies that are not generally required for oil and gas projects.
Moreover, we’d argue that a paradigm shift is required so we focus on the chance of geological failure, rather than the chance of geologic success. A failed petroleum exploration well can simply be plugged and abandoned. Not so with a CO2 injector if it was shut-in due to the CO2 ending up in the wrong place. This could impact adjacent subsurface operations, contaminate shallow aquifers, and pose significant legal liabilities. Such unplanned events can taint the entire emerging SCS industry. We’ll discuss this in our next post.
