Diverse Strategies For Oil And Gas Energy Transition

Diverse Strategies For Oil And Gas Energy Transition
Even under the most aggressive energy transition scenario, the world will need oil and gas until 2050, Wood Mackenzie said.

Even under the most aggressive energy transition scenario, the world will need oil and gas until 2050, Wood Mackenzie said.

Woodmac claims that oil and gas companies have an opportunity and responsibility to facilitate the energy transition. It’s becoming increasingly clear that they must rise to the challenge if they are to maintain their social license to operate. Companies that capitalize on their competitive advantages while maintaining sufficient flexibility to change as the energy transition progresses will be the most successful.

For starters, oil and gas companies must be able to manage and minimize their emissions. A good emissions reduction strategy will always start with measuring and setting emission targets.

Rachel Schelble, Head of Corporate Carbon Management, Infrastructure, Corporate Service at Woodmac, said that around 65 percent of the companies covered under Wood Mackenzie’s Corporate Service have net-zero targets for Scope 1 (direct) and Scope 2 (indirect from energy supply to operations) emissions.

Scope 1 and Scope 2 net-zero in 2050 is now the industry standard. The challenge for most companies will be to accelerate the decarbonization drive.

The largest source of oil industry emissions are Scope 3 – indirect emissions in the supply or services chains that include the combustion of oil and gas products. Such emissions are often outside the oil and gas companies’ control. Only 10 companies globally have net-zero targets that encompass Scope 3 – these include the European majors and a small group of independent oil and gas companies.

“Initial decarbonization steps have focused on those Scope 1 emission reductions that the oil and gas industry can control, such as reducing flaring and incorporating operational efficiencies. For example, in the US Lower 48, most Scope 1 emissions come from fugitive methane. Companies have made significant progress replacing high-bleed pneumatic devices, the largest source of methane emissions, and are on track to reduce such emissions to negligible levels by mid-decade. Eliminating Scope 1 emissions is a must for the sector to maintain its credibility and social license to operate,” Schelble said.

According to her, electrification from green power sources will play a big role in driving down Scope 2 emissions. Norway is leading the world in electrification from green power, with offshore wind gaining traction as an alternative to onshore power.

On the other hand, Scope 3 emissions make up 80% to 95% of total emissions for oil and gas companies and the ‘elephant in the room’ of emissions. The simplest Scope 3 abatement strategy is to cut demand for oil and gas, which is not within the control of the oil and gas sector.

Reducing Scope 3 emissions will require large structural changes for the industry, because there are few levers that oil and gas companies can pull. They can reduce their production, refining or product sales, use carbon offsets, which are likely to have a cap under evolving standards, or pursue low-carbon projects.

And the industry is under increasing pressure. Both stakeholders and regulators are pushing for the disclosure of Scope 3 emissions. Banks and investors are trying to understand the risk that Scope 3 emissions will have on their lending and investments.

CCS is still a very small industry globally; WoodMac estimates that capacity needs to increase more than 100-fold by 2050. Projects in North America have accounted for over two-thirds of global capacity in 2022 and the passage of the US Inflation Reduction Act is a boost to both CCS and direct air capture. 

In the US, operators with legacy projects focused on enhanced oil recovery (EOR) have a strategic advantage in CCS. Oxy and Denbury, for example, have extensive EOR footprints in the US, providing them with a competitive advantage and a quick pivot to a new business model. Oxy is also an emerging leader in DAC. Along with partners, it’s building a facility in the Permian Basin that will capture 500,000 tons of CO2 per year.

Compared with oil, gas has a lower carbon footprint and will act as a bridge to a lower-carbon future. We’re already seeing oil and gas companies pivot to gas projects, with some linking their gas strategies with emerging hydrogen opportunities.


View Full Article


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.