Category: Energy Knect
Wesley Johnson, Energy Knect
Hydrocarbons have powered economic growth for 150 years, but now that the impact of fossil fuels on the planet is widely recognized, the oil and gas sector is under increasing pressure to decarbonize and reduce their environmental impact. Policymakers and society are pressing change, threatening the operator's license to operate. Investors are increasingly conscious of environmental issues and are now pushing companies to disclose consistent, comparable, and reliable data.
To meet growing energy demand, making the most out of the existing energy supply chain through decarbonization seems to be the most cost-effective solution for the mid-term. The specific initiatives a company chooses to reduce its emissions will depend on factors such as its geography, asset mix, and local policies and practices. Companies should embrace this change and try to adapt to a challenging policy and investment landscape, whilst working towards a carbon-neutral economy.
According to a report from Mckinsey on sustainability, 90% of known technological solutions to decarbonization are within the grasp of operators at a cost no more than $50 dollars/metric ton of carbon.
As the pressure mounts to work towards a net-zero economy, there are multiple options that operators could consider to optimize their operations. Digital technologies could be essential in tracking emissions by site and in the recording process- as BP and EOG, amongst others, have made it clear in their strategies. According to Bloomberg, five of the Oil and Gas Climate initiatives (OGCI) 12 investments have been in emissions monitoring from sensors, satellites, and reporting.
Below, I have highlighted a few options that could help oil and gas operators navigate towards a net-zero economy.
Optimizing Operations
Maximizing stability and integrity may require upgrades of process, controls, and parts. A less capital-intensive route is to leverage data and advanced analytics to help optimize and stabilize operations. Predictive maintenance and automated condition monitoring can help reduce planned interventions and extend runs, improving stability, and reducing emissions. Advanced analytics enables the next level of energy efficiency, isolating operating parameters that minimize power per unit throughput.
Sustainable Design
There are multiple design options to make the operation less emission-intensive. However, they have not become a priority as the upfront investment required typically outweighs other considerations, such as energy efficiency or cost- to operate. With total life-cycle value as the target function and the increasing social license to operate, operators may be more motivated to explore sustainable design. Doing so using proven technologies can not only reduce operating costs but also generate additional revenue streams.
Monetising wasted gas
An estimated 140 bcm of natural gas is wasted globally in flares, vents, and leaks. If monetized this could generate more than $10 billion of revenue globally. For existing operations, the recovered liquids could be integrated into the existing liquids production and processing infrastructure and add potentially significant revenues and profits while measurably and variably reducing emissions of short-lived climate pollutants.
The IEA has highlighted the following technologies that could play an important role in monetizing stranded gas; Portable CNG or mini-LNG facilities to treat gas onsite, small-scale gas-to-methanol, or gas-to-liquids conversion plants, and onsite direct electrical power generation. The gas that would be otherwise flared could be captured and turned into electrical power that could be used onsite or sold back into an electrical grid. For new projects, it will be a case of regulations and careful project selection and design.
Zero-carbon energy supply
Sustainable sources of energy such as offshore-grid based electrification can help to lower the emission intensity of an asset or generate revenue, and several majors, including BP, are considering ways of powering their platforms from shore using renewables, a feature already achieved in Norway. The newly commissioned Johan Sverdrup is powered from shore even though it is 140km from Stavanger. However, this is depending on the fuel mix supplying the country’s electricity, and the distance of the offshore asset. In the case of Norway, hydro supplies nearly all the country’s electricity, which results in significant savings. Integrating renewables onto the production platform or near the platform might be a cheaper alternative to electrification from shore and benefit countries that don’t derive the majority of their electricity from renewable energy sources. In regions with higher energy costs, governments could encourage the use of energy hubs as common sources of energy as we are seeing in the UK with the UKCS Energy Integration Project. Energy hubs can support energy transition by integrating renewable electricity generation with carbon and hydrogen storage and transportation solutions to enable; more optimal offshore wind power locations, renewables supply intermittency, cost-efficient carbon capture, usage and storage, and potential interconnection with other countries.
Hydrogen
For good reasons, hydrogen is receiving plenty of attention in the upstream sector at the moment. According to the Oxford Institute for Energy Studies, Hydrocarbon feedstock for hydrogen production is the most economical due to its low technology and commercial risks. Hydrogen can be synthesized from fossil fuels and can be extracted with zero carbon emissions. The combustion of Hydrogen releases only water and therefore makes it a very attractive prospect for our journey towards a net-zero future. If Hydrogen produced is from low carbon sources, or the carbon emissions created are captured, it can eliminate the largest sources of carbon dioxide emissions. According to Baringa Partners, Hydrogen can play a key part in decarbonizing the energy sector, but the determining factor is whether it can be produced at scale, in a low carbon manner, and at a sufficiently low cost to be competitive.
CCUS (Carbon capture, usage, and storage)
CCUS technologies have the potential to generate low carbon power, support decarbonization, and enable the production of low carbon hydrogen at scale. Overmore it has advantages such as job creation and economic benefits. In this market, the oil industry is well placed to lead, because it already uses carbon capture for use in Enhanced Oil Recovery (EOR). CCUS has become an increasingly popular decarbonization option as seen amongst the majors. BP, ENI, Equinor, Shell and Total have all signed up to spearhead CCS developments such as the Northern Lights Project in the Norwegian Continental Shelf and the Net-Zero Teeside Project which aims to develop the UK’s first decarbonized industrial cluster through the use of CCUS.
CCUS technologies are seen as a key element working toward a net-zero economy, as these technologies can capture carbon dioxide before it enters the atmosphere and either reuse it or store it securely in the ground. The oil and gas industry is well-positioned to lead CCUS deployment, as they have developed many of the largest and most complex projects in the world-on time and on-budget.
According to an article by McKinsey, the business case for CCUS works only under specific economic conditions, such as tax relief or the imposition of a carbon price. Without some kind of regulatory framework, CCUS does not create value by itself.
Balanced Portfolios
The demands of policymakers and investors are fast evolving. Shareholders are beginning to reduce their exposure to high-emitting resources, freezing out operators with the highest-intensity assets.
Investments in solar and wind energy projects by the world's oil majors are expected to exceed $18 billion up until 2025, a Rystad analysis finds. With crude oil at $35 per barrel, renewable projects are starting to look just as attractive as oil and gas projects and could be the lifeblood that sustains oil and gas companies if oil prices are to persist.
We have seen a growing trend from the top integrated oil and gas majors to diversify their portfolios and move towards alternative and cleaner energy sources. Furthermore, many of the smaller oil and gas companies who have been reliant on Private Equity funding for survival are now having to refine themselves as energy companies. This is a result of Private Equity firms having to adhere to more stringent ESG regulations.
It’s recommended that producers should start to re-balance their portfolios across the spread of emission intensity, preparing for possible risks from future policy scenarios and investment choices.
The highest -emitting reservoirs are nearly three times more emissions-intensive than the lowest. They may, therefore, become increasingly unattractive to develop in the future.
The balancing of investments, production, and returns in today’s market environment can be a big challenge for E&P companies. Therefore, it will be key to find a portfolio of resources that can deliver the best results across a range of price scenarios.
Conclusion
It’s transparent that investment markets and regulatory pressures to achieve a net-zero economy will continue to rise. Energy demand is continuing to grow, and if the oil and gas industry isn’t part of the solution, there will be no energy transition. For the industry to succeed, they will need to embrace these changes, and be prepared to meet greater reporting requirements and financial measures.
The industry will undoubtedly need to be educated and equipped with the necessary tools to play a collaborative role in a low carbon future. Technology is evolving, and companies providing technology solutions have a big role to play in collaborating with the industry and helping operators navigate towards a low-carbon future.
Given the large variances between oil and gas companies and their operations, it is recommended that policymakers should take an overarching approach, and set industry-related targets. With this approach, the reduction of carbon targets can be distributed fairly amongst all the industry participants of which they can all be held accountable for achieving these targets. Mistakes and delays are inevitable, it’s how quickly the industry can learn and adapt to change which will help towards an efficient transformation to a lower-carbon economy. Over the decades, upstream operators have responded to market and technological disruptions with innovation and resilience. Therefore, there’s little doubt that the industry will prevail once again.
