energy transition – a besieged industry’s response

introduction

There are three truisms, or in io consulting’s terminology, givens that I will state upfront:

  1. climate change is real
  2. climate change is due to anthropogenic causes
  3. we can and must do something about it

Indirect greenhouse gas (GHG) emissions from oil and gas operations, including both carbon dioxide and methane emissions, today are around 5,200 million tonnes per annum (Mtpa) of carbon-dioxide equivalent.

These emissions – which do not include any emissions associated with the actual consumption of the fuel – amount to around 15% of the energy sector’s total GHG emissions [1].

With this in mind I ask myself, as a leader in the oil and gas industry what is the sector doing to decarbonise their production and more importantly to transition its significant skills and attention to the energy transition more broadly?

perspectives

My whistle stop summary of some of the sector responses is described from four different perspectives:

  • / the International Oil Companies (IOCs)
  • / the National Oil Companies (NOCs)
  • / the mid-caps and small independents
  • / the oil and gas supply chain

The IOCs are pivoting their business models to become Integrated Energy Companies (IECs) with entities such as bp, Shell, Equinor etc. making major investments in green energy and divesting mature oil and gas assets. For those IOCs retaining some up, mid or downstream assets there is a strong focus on energy efficiency and emissions reduction, but these still seem to be very much based on the old principles of Best Available Technology (BAT). All IOCs are addressing the methane intensity of their existing assets focusing in particular on reducing fugitive methane and rightly so given the GHG impact of methane compared to CO2. IOCs that plan to retain hydrocarbons production in some form are assessing what net zero facilities of the future might look like. Many of these IOCs have committed themselves to a net zero by 2050 target.

In addition these same IOCs are leading their home countries’ efforts in Carbon Capture Usage and Storage (CCUS) and Hydrogen; Equinor in Norway, Eni in Italy, Total in France, bp the UK and Shell the Netherlands for example are forming JVs to develop these large-scale infrastructure projects and to bring their mega project and process industries experience to bear. The US based IOCs are relying on the market to drive behavioural change and are doing a pretty good job given the dominance of deployed CCUS technology in North America and their rapid moves into Hydrogen. Several are participating in local partnerships such as bp in Houston and Aberdeen on their city climate change initiatives.

Turning to the NOCs it feels very much business as usual; hydrocarbon exploitation is still very much at the heart of what they do and what they are set up to do. Some have created specific entities to invest in renewable energy, e.g. ADNOC’s investment in Mubadala in the UAE, and others are looking at new value chains, e.g. Aramco’s move into green Hydrogen; few have committed to a net zero target.

The mid-caps and small independents are currently focusing on working out what net zero means to them and are using analysis and science-based rigour to determine what a realistic roadmap might be; most are still very much in the hydrocarbons exploitation business and are trying to understand the impacts on their operations of having to be net zero by 2050 (in order to attract investment, maintain a social licence to operate etc.). Some mid-caps are starting to follow the lead of the IOCs in a review of how they can pivot away from hydrocarbons towards integrated energy.

The supply chain is moving fast; recognising the impact of embodied carbon, the original equipment manufacturers (OEMs) are committing to net zero or significant emissions reduction targets to include Scope 1 through 3 by 2050 and many are shifting their focus and skills to support all elements of the energy transition. The large EPCICs and OEMs such as our parents McDermott and Baker Hughes are acutely aware of the opportunities the energy transition has for them and the plethora of transferrable skills and technologies they can bring to enable, support and deliver the complexity of energy transition projects.

the case for continued hydrocarbons exploitation

Despite the above and point number 3 in particular in my introduction there is a well stated and very strong case for continued hydrocarbon exploitation albeit in a much less climate impactful way; this is my simplistic version of that case.

The key to the energy transition is in the word transition, it cannot be a step change; there is still significant energy poverty in the world and to address this and to energy transition developed societies in a comparatively bumpless way we need to continue to develop secure-affordable-sustainable energy, the energy trilemma, and also hydrocarbons for conversion into useful, depended-upon products (such as fertilisers); as part of this transition we cannot simply focus on the word clean. This is the fundamental dichotomy the world faces; the burning, conversion and use of hydrocarbons are the major contributor to man-made (anthropogenic) climate change but we cannot simply go cold turkey; our dependence on hydrocarbons will remain for many years to come and so part of the energy transition challenge has to be recognition of this and a focus on decarbonising production, conversion and use – and of course to ultimately wean society off them completely.

what does this mean for io?

io’s mission is to work in the early front end of projects bringing our specific techno-economic expertise integrated with the access to technology and execution know-how of our parents and partner organisations to enable such projects with a higher degree of certainty that the outcomes identified can be delivered. Best considered as a systems engineer or project integrator, io has deep domain expertise in the very early stages of major projects, specialised in identifying the key project drivers and bringing transparency to Tier 1 development decisions; as such we believe we are a uniquely qualified entity to successfully deliver projects and assignments.

To support our vision to become a leading consultancy in energy transition, as we are in oil and gas we have made significant changes over the last 18 months. The techno-economic and strategy skills we apply to enable hydrocarbon projects are now being brought to bear on the energy transition as well. In the near term the core focus of our activities will continue to be on enabling upstream and midstream projects, with a greater emphasis on minimising environmental impacts; we have been increasingly applying our approaches to the challenges of enabling projects that support the energy transition. We have performed projects in carbon capture, energy storage, green hydrogen, energy efficiency/emissions reduction, demanning/electrification of platforms and associated gas utilisation studies.

Finally, I must mention one key initiative, along with McDermott, is the development of Net Zero Facilities concepts. We will announce more on this exciting development in the near future.

in summary

To conclude, the oil and gas sector despite the widespread downbeat commentary is fully aware of the challenges and opportunities the energy transition and climate change challenge brings and is pivoting rapidly towards addressing these challenges and opportunities.

[1] https://www.iea.org/reports/methane-tracker-2020/methane-from-oil-gas