Hi Amara,
Strictly speaking, Pc is defined as the difference in phase pressures, i.e. Pn - Pw, which are considered functions of space and time. However, we usually introduce a constitutive model Pc(sw), where Pc is uniquely defined given the phase saturation. When
considering capillary pressure according to this constitutive model (which we usually do, but is not strictly assumed in 8.38), then you can in principle do the developments you describe. However, the equation 8.38 is trying to make a different point, namely
to present a formulation that takes the form of the pressure equation with a time derivative and a laplacian term on the left, and a "source term" on the right. In this case, the source term consists of the usual sources qn and qw, as well as a "quasi-source"
that consists of the four last terms and results from the current saturation distribution (typically considered "fixed" in a time splitting scheme).
You cannot fully separate pressure and saturation in different equations, there will be a level of coupling, which is here captured in the "quasi source" term. The reason to do this kind of splitting is to get a equation that "mostly" depend on pressure, and
an equation that "mostly" describes saturation evolution. In a time splitting scheme, you would typically consider one constant when solving for the other - but when equations are formulated this way, the error introduced in doing so would be tolerable for
sufficiently small timesteps.
There are various splitting shemes, but the general principle is to consider saturation constant (which also give you constant values for mobilities, capillary pressure and so on), to determine a pressure field using the pressure equation. Then you evolve
your saturation field for a certain time, considering a fixed pressure field that you just calculated, and then you iterate on this following some chosen strategy.
As for the 3D Johansen example, the pressure expressed in state refers to the brine pressure - you have to add the capillary pressure to get the CO2 pressure. On paper, the equations can be reformulated in terms of any choice of primary variables you want
(Pn, Pw, Sn, Sw), but you would have to reimplement/adjust the simulator code to account for that in your simulations, which would be a bit of work.