The economics of CO2 sequestration in Australia

In this paper we discuss the use of a computerised economic model to predict the costs Of CO2 disposal in reservoirs offshore Australia. The costs of offshore sequestration are primarily dependent on the rate Of CO2 produced and injected, the distance between the source Of CO2 and the disposal site, the reservoir conditions at the injection site and the tax circumstances of the overall petroleum production and CO2 injection project. The main elements of the costs of offshore CO2 sequestration are the costs of compression, pipeline transport, drilling injection wells and installing platforms. There are potentially large uncertainties associated with estimating these costs. They relate to uncertainties in measuring the characteristics of the reservoir and predicting its behaviour during the injection process. They also have to do with potential variations in the costs of drilling wells and manufacturing plant and equipment. Given the uncertainties, the overall capital and operating costs Of CO2 sequestration can vary considerably - potentially up to US$25 per tonne Of CO2 avoided. However, for a petroleum producer, the effect of tax relief can be significant. Assuming that the CO2 sequestration project would fall within the ring fence of an offshore development for Australian Petroleum Rent Tax ("PRRT") purposes, the additional CO2 costs can delay and reduce both PRRT and income tax, and thereby decrease the after tax Costs Of CO2 injection by over 50 percent.