Abby L. Harvey
GHG Monitor
4/10/2015
Because enhanced oil recovery operations differ from traditional oil production procedures in scope and timeline, they are potentially better situated to withstand falling oil prices, Patrick Falwall, Solutions Fellow with the Center for Climate and Energy Solutions and member of the National Enhanced Oil Recovery Initiate, said during a presentation to the Nation Coal Council this week. “The story that’s been explained to us by those working in the EOR industry is that CO2-EOR actually does pretty well during periods of volatile oil price changes,” Falwell said. “EOR production has steadily increased over time maintaining its existing production volume even when prices have swung wildly. It hasn’t increased either when prices have rapidly increased as well.”
While other forms of oil production are fairly quick moving, EOR projects can operate at a slower pace, which leads operators to factor potential longer-term variables, according to Falwell. ”EOR operators do not expect to have high and immediate returns often witnessed with other oil production opportunities,” Falwell said. “Given the long range production forecasts for their projects, they expect oil price volatility. They build it into the economic case for deciding whether to produce or not. Once they are up and running they have actually a pretty low marginal cost to produce, meaning that they can ride out the bad times and maintain their existing production and remain steady until oil prices increase again.”
This resilience to oil price volatility boils down to the long-range timeline of an EOR project, which can produce for decades potentially. “It takes anywhere between zero and five years to actually hit peak production,” Falwell said. “Other oil production opportunities, within a year you get a high and quick return for your investment but that production eventually subsides and you have to move onto the next place. EOR is much different because you will actually produce potentially for decades. The first year you do a cycle of continuous CO2 injection and may not produce oil but eventually within the first year or two you do get some oil out of the ground. Between the next three to four years you slowly build production that’s sustained for at least a 10-year period and then the expectation is that production volumes decline gradually over time but potentially lasting 30-40 years.”
