Greening The Barrell
Fossil fuels are being phased out of the global energy mix in favour of renewables. Many governments are accelerating decarbonization efforts in the economy, setting carbon-reduction targets and passing green legislation, as broad swaths of the public demand action on climate change. However, with the oil and gas industry accounting for 42% of global emissions, the notorious fossil-fuel giants face a difficult task in meeting rising energy demand while lowering overall emissions.
And the challenge is on. At present, the oil and gas industry burns an estimated 150 billion cubic meters of natural gas, equivalent to 350 million tons of carbon dioxide released into the atmosphere. For the sector to play its part in mitigating climate change and reaching net-zero by 2050, it must reduce its emissions by at least 3.4 gigatons of carbon dioxide equivalent (GtCO2e) a year by 2050, which equates to a 90% reduction in current emissions.
Decarbonizing an entire industry is no mean feat. It necessitates a paradigm shift in how an industry operates, including how it sources, uses, consumes, and thinks about energy and feedstocks, as well as how it interacts with different stakeholders. It also requires a large financial investment from both investors and governments. Despite the impending uphill struggle, the oil and gas industry is up to the task, with 89% of E&R (Energy & Resources) executives having a plan in place or creating one to reduce reliance on fossil fuels.
As leaders of decarbonization recruitment, we understand the urgency required of oil and gas companies to take action and transform a fossil-fuel reliant industry to a clean and sustainable one. With action already taking place from some of the biggest offenders, our experts have put together some of the plans in place to lend the industry a helping hand.
The Four Strategies Enabling The Oil And Gas Industry To Achieve Decarbonization
Changing Power Sources And Electrifying Operations
Introducing renewables into operations is one obvious step for oil and gas companies to start their journey to net-zero. The sector can cut emissions by using on-site renewable-power generation as a cost-effective alternative to diesel fuel. One oil and gas business broke even on its investment five years after replacing generators with solar PV and batteries.
Others have electrified their operations, substituting electric steam-production equipment for gas boilers, as well as high-pressure storage for night-time steam supply. In many cases, there is already a compelling commercial rationale for combining solar and gas to replace traditional boilers on strictly financial grounds. Some initiatives, for example, are said to pay for themselves in less than ten years.
Increasing Carbon Capture, Use, And Storage (CCUS)
Despite the fact that this technology is expected to play a limited role in the sector’s total decarbonization, oil and gas companies can nonetheless have a substantial impact on its adoption and development. A number of countries are working to speed up CCUS development; for example, the US Congress introduced a provision (45Q) in 2018 that increased the tax credit available to power plants and industry for storing or utilising captured carbon.
One project to watch is the Clean Gas Project in northern England, where the first commercial natural-gas plant with full CCUS capacity is being built by a consortium of six oil and gas companies.
Electrolysis has grown both more technically advanced and less expensive as a method of producing hydrogen. According to Bloomberg New Energy Finance, the cost of hydrogen is estimated to reduce by up to two-thirds by 2050. Using renewable energy to fuel the electrolysis rather than steam methane reforming (SMR) could help refineries minimise emissions, resulting in “green hydrogen.” SMR and CCUS are used in a “blue hydrogen” alternative.
With the help of the European Union, Shell and ITM Power, a UK-based energy storage and clean-fuel company, are constructing the world’s largest hydrogen electrolysis facility at a German refinery.
Diversifying Into Other Forms Of Energy And Enabling Technologies
Some oil and gas corporations have decided to strengthen their renewables capabilities, focusing on biofuels like wind and solar power, smart technologies to assist in balancing the electrical grid as more intermittent renewables come online and energy-efficient methods for manufacturing green hydrogen rise. Others are buying businesses in secondary industries, such as solar installers or EV charging stations, to diversify their portfolio of low- to zero-emissions products.
Many oil and gas businesses are changing their business models so that downstream consumers, rather than upstream assets, generate more profit. For example, an oil and gas corporation could buy a retail power provider and package biofuels with renewable energy.
Some well-known companies have already made their intentions and targets public. For example, BP recently proclaimed its goal of becoming carbon neutral by 2050, if not sooner. It plans to generate about 50 gigawatts (GW) of net renewable generating capacity, partner with 10-15 cities and three main industries in decarbonization activities, and increase its customer interactions to 20 million per day by 2030 as part of this transformation. Shell, on the other hand, has set a net carbon footprint goal that encompasses diversity and ecosystem participation. It recently stated a short-term goal of lowering its net carbon footprint by 3% to 4% by the end of 2022, as well as its desire to set annual goals, with each year’s goal being higher than the previous.
The Decarbonization Obstacles To Overcome
Despite ambitions like these, obstacles exist. Differences in financial models might be a stumbling block for some. On the one hand, upstream firms have historically had larger profit margins than renewables, however recent oil price decreases have helped to shrink the gap. Developing a portfolio of renewable power assets, on the other hand, is often less risky than drilling offshore or in other difficult regions.
Traditional oil and gas investors will likely need to adjust to having a portfolio of different operations within the same firm, thus there are numerous issues about how these shifting risks and financial considerations will affect them.
The oil and gas industry will play a critical part in the global energy transition; how it responds to that future is a strategic decision. Customers, employees, and investors are beginning to see the difference between the leaders and the laggards. Oil and gas firms that get ahead of the curve and champion decarbonization may find themselves in a better position to adapt to change and contribute to a faster transition to a carbon-free future.