The Snøhvit Liquefied Natural Gas (LNG) project developed by StatoilHydro and partners in Norway is used as an example to describe how the carbon capture and storage (CCS) component of an oil and gas project can be isolated, modeled, and analyzed from an economic point of view. The Snøhvit development, which started production in late 2007, involved a CCS component from day one. Approximately 700,000 tons of CO2 captured from the liquefaction plant will be reinjected every year in an underground formation offshore. Furthermore, there are interesting alternatives for CO2 capture from the on-site power plant and for the use of CO2 for enhanced oil recovery (EOR) in a nearby oilfield, leading to several future development scenarios for CCS at Snøhvit.

Different development scenarios for CCS are analyzed to select the best development option. The economic modeling framework will also be used to assess the impact of the uncertainties on the project economics.

The analysis identifies that a key driver for the profitability of the project is the legislative setting for CCS. The involvement of the government is very important for the viability of the project, which needs a strong incentive, such as the current CO2 tax scheme or an emission trading scheme with strict allocation of emission targets. Under such conditions, a CCS project such as Snøhvit becomes a win-win situation: economically profitable for the operator and environmentally friendly.

From a broader perspective, addressing the economic and legislative uncertainty currently surrounding CCS projects for the oil and gas industry is crucial because this represents the main limiting factor for the further development of such projects. It is therefore essential that economic modeling tools such as the framework described in the present work become industry standards to ensure that projects which could be profitable for both the operator and the environment are not abandoned by pure lack of analysis ability.

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