SUSTAINABLE CARBON CAPTURE AND STORAGE INVESTMENTS IN OIL AND GAS: REAL OPTIONS ANALYSIS UNDER ENERGY TRANSITION AND GOVERNMENT INCENTIVES

• Main Author: Saraswani, Risa
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/87240
• Institution: Institut Teknologi Bandung

Achieving Indonesia’s Net Zero Emission (NZE) target by 2060 requires a comprehensive strategy encompassing renewable energy expansion, energy efficiency improvements, electrification of transportation, and the adoption of lowcarbon technologies. Beyond these measures, Carbon Capture and Storage (CCS) plays a critical role in addressing emissions from hard-to-abate sectors. However, CCS implementation in Indonesia is still in its early stages and faces significant challenges due to uncertainties in policies and carbon pricing. Given this context, this study aims to assess the financial viability of deploying CCS technologies in the oil and gas sector in Indonesia. It specifically examines how fluctuations in resource prices and variations in policy frameworks impact the economic feasibility of CCS projects. The outcome of this study is expected to inform policymakers and stakeholders about the necessary financial frameworks and policy adjustments required to accelerate CCS deployment and achieve broader environmental targets. In addition to employing the DCF method, the study utilizes Real Options Valuation to better account four uncertainties in resource prices and to incorporate with decision-making flexibility. A binomial tree approach is adopted within the ROV framework. Four scenarios are developed to simulate varying resource prices and incentive schemes: Base Scenario, Zero-Assistance Scenario, Incentive Dependent Scenario, and Optimal Scenario. By employing the DCF method, each scenario generates a positive Net Present Value (NPV), indicating potential profitability. However, the analysis takes a deeper dive when applied through the Real Options approach, which accommodates for strategic flexibility and the ability to delay projects based on evolving market conditions. However, when evaluated through the Real Options approach, only the Incentive Dependent and Optimal Scenarios are deemed viable for immediate investment. This project's Net Present Value (NPV) exhibits significant sensitivity to fluctuations in oil prices, establishing them as the most critical factor influencing financial performance. Conversely, the impact of carbon pricing on the project's viability is ranked as the second least impactful factor. This trend can be attributed to the fact that revenue from oil production constitutes the predominant share of total revenue. Additionally, the sensitivity of the project's profitability to incentives such as investment credits is contingent upon the specific percentages applied during the calculations. Variables like oil price, carbon price, DMO, and Investment Credit demonstrate a positive impact on the project's financial metrics as their respective values increase. In contrast, other variables exhibit an inverse relationship, impacting the project's financial performance negatively when their values rise. Consequently, it is imperative for management to vigilantly monitor market trends to adapt operations appropriately and effectively manage both capital and operational expenditures. Government incentives are shown to significantly reduce the financial burden and mitigate risks, enhancing the viability of CCS projects. Specifically, investment credit plays a pivotal role in lowering the critical carbon price. Without investment credit, the critical carbon price is 80 USD/tCO2e under low oil price conditions and 60 USD/tCO2e under high oil price conditions. With sufficient investment credit, the required carbon price drops to as low as 2 USD/tCO2e. In conclusion, a combination of enhanced government incentives and a robust carbon price floor is essential to drive CCS implementation effectively and ensure its contribution to achieving Indonesia’s NZE target.