Modeling Change in CO2 Saline Storage Costs: Financial Responsibility, Financial Parameters and Monitoring Wells

The CO₂ Saline Storage Cost Model is a spreadsheet-based model developed under the Department of Energy’s Fossil Energy Carbon Storage Program, which is part of the Strategic Center for Coal (SCC) at the National Energy Technology Laboratory (NETL).  The purpose of the CO₂ Saline Storage Cost Model is to examine the effects of financial/cost, regulatory, and policy scenarios on costs for a CO₂ saline storage project.  It provides the ability to model storage project costs and related activities that occur in the various project stages of a storage operation from initial evaluation of regional geology through site characterization, permitting, injection operations, post-injection site care and site closure to transfer to long-term stewardship.  The geologic database has reservoir data for 63 formations which occur in 32 basins or inter-basin areas in 25 states. Cost data is provided for labor and technology and wells that may be utilized by a storage project.  Initial exercises of the model organized in the form of a test matrix, provided an evaluation of the model’s performance by examining the impacts from, or sensitivities to, a change in various financial or cost parameters.   Based on this analysis, further modeling of financial responsibility, financial parameters and the drilling of monitoring wells is underway.

The primary purpose of financial responsibility is to provide funding to pay a third party to fulfill the covered tasks in the event that the operator fails to do so.  Initial testing of financial responsibility instruments only modeled the use of self-insurance or a trust fund to provide financial responsibility for three of the four tasks requiring coverage: 1) corrective action, 2) injection well plugging, and 3) post-injection site care and site closure.  The fourth task, emergency and remedial response, was modeled with insurance coverage at a fixed rate per tonne of CO₂ injected for both the self-insurance and trust fund scenarios.  Initial modeling showed that the trust fund option more than doubled the cost of storage as compared to self-insurance.  Three other financial instruments are recognized by EPA for compliance with Class VI financial responsibility: escrow account, letter of credit, and surety bond.  A test matrix was drawn up to model the combination or single application of these financial instruments to financial responsibility.  In this test matrix, insurance will still be the only instrument used to cover emergency and remedial response since these situations have a probability of occurrence best suited for an insurance policy. Self-insurance, trust fund, and escrow account will be modeled for coverage of post-injection site care and site closure because of the long time duration of this particular project stage.  Both the trust fund and escrow account will be modeled at different rates of growth, reflecting some level of active investment management.  The use of a letter of credit, surety bond, or insurance as well as self-insurance, trust fund, and escrow account will be modeled for coverage of injection well plugging and/or corrective action. 

In the initial test matrix, the debt/equity ratio represented the business structure of the storage project owner.  Modeling showed that about +/- 60% change in the fraction of debt financing impacted the cost of storage by 10 percent above or below the base case.  A test matrix for financial parameters will model additional details related to the business structure of the storage project as well as a further look at the debt/equity ratio.  Other parameters to be modeled include the cost of equity, which equals the internal rate of return (IRR) in calculating the break-even cost of storage, the cost of debt, the rate of escalation, and contingency factors.    

Monitoring wells are drilled into the storage reservoir or just above the storage reservoir seal.  A monitoring well drilled into the storage reservoir can completed in both the reservoir and the interval above the seal.  Monitoring well density was based on the number of wells drilled per square area of the CO₂ plume and initial modeling of monitoring well cost modeled two different combinations from the base case of well density and the use of dual completions. With an average of ten monitoring wells drilled in the base case, drilling as many as fifteen or as few as six resulted in a change in the cost of storage by about five percent or less.  The model was modified to allow for the drilling a fixed number of monitoring wells. It was also modified to provide for completing a well drilled during site characterization as either a monitoring well or as an injection well.   Planned modeling in the test matrix will look at drilling a set number of monitoring wells as well as drilling based on plume area and completing the site characterization well as a monitoring well under either scenario.