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offshore rig

Crunch time for global oil and gas business.

Sean van der Post, LR’s Global Offshore Business Manager, addresses the urgent need for the oil and gas industry to adopt new sources of green energy.

COVID-19 has sown the seeds for fundamental change to many aspects of our lives. It has also cast a spotlight on energy consumption and the urgent need to adopt new sources of green energy. Decarbonising existing oil and gas production is a vital first step in ensuring enough time to develop the new energy technologies that are necessary in the global decarbonisation process.

International oil companies are at a watershed. “Big Oil has to reinvent itself if it wants to survive in a low-carbon world”, the Financial Times proclaimed in a recent editorial. Chief Executive at BP, Bernard Looney, wants to produce 40% less oil over the next decade as the company believes that global demand may peak within the next few years.

One might not necessarily agree with BP’s analysis, but the world’s energy markets are certainly undergoing dramatic change, and consumption has been severely affected by the pandemic. But there are certain realities: oil and gas will remain key components of the global energy mix for many years to come, even as the much-vaunted “energy transition” gathers pace, because there are no other energy sources available today in sufficient quantities. This is due to a number of reasons including: economic imbalance, low adoption rates, current production capacity and infrastructure requirements.

This is where we need to clarify the terminology. Energy transition is a process that will take place over several decades. In the short and medium term, the term “energy integration” may be better because it more accurately reflects the likely course of events. Hydrocarbon demand will slow down as consumers favour various forms of green energy, which will become steadily more integrated into existing power supply systems.

Decarbonisation – essential step

Decarbonising the production of offshore oil and gas offers a fantastic opportunity to put energy integration into action. It is an essential step that energy companies must take because they no longer have a choice. Producing oil and gas is a very carbon-intensive business.

Just to give an idea of scale – about 6% of energy produced in the UK is consumed during the process of oil and gas production, with huge implications for carbon emissions. The energy industry must find a means of producing hydrocarbons in a cleaner way. Its future will depend on this.

The International Energy Agency estimates that 15% of global energy-related greenhouse gas emissions come from producing and distributing oil and gas to consumers. It is clear that many billions of tonnes of carbon emissions could be prevented each year if a robust drive to decarbonise were put in place. And there are relatively simple steps that could be taken immediately to cut carbon emissions in oil and gas production – minimising flaring, for example, and tackling methane leaks.

In a recent report on energy integration on the UK continental shelf, the country’s Oil and Gas Authority revealed that a combination of offshore renewables – wind, waves and tides – and carbon capture and storage (CCS) in the UK’s offshore sector could provide a 60% contribution towards Britain’s net-zero carbon target by 2050.

However, there are a few examples of using sustainable energy to decarbonise oil and gas production that are in the early stages of adoption, although there are many concepts on the table.There are exceptions. Norway, for example, has achieved significant carbon reductions by using its abundant renewable hydroelectric “power from shore” at offshore facilities. And the Abu Dhabi National Oil Company recently revealed plans to use shore-based renewable electricity at offshore production facilities, thereby lowering its carbon footprint by an estimated 30%.

New revenue streams

LR’s involvement spans various areas. For example, we are engaged in providing independent assurance on the likely success of a particular technology under development, and we undertake safety and risk analysis relating to the environment, people and assets. We also make available our expertise in maritime environmental compliance to the oil and gas sector, supporting companies in meeting today’s safety and transparency requirements.

We already work on energy integration with various international oil companies and technology providers. What is clearly evident is that there are exciting opportunities to reduce greenhouse gas emissions – opportunities that could generate new revenue streams for the energy companies of tomorrow.

The most promising sustainable technologies that could be used in decarbonising oil and gas production include:

  • Blue hydrogen produced in the steam methane reforming process using natural gas and CCS;
  • Green hydrogen produced from water using renewable power from wind;
  • Electricity from wind.

There are also many offshore concepts relating to waves and tides. Offshore wind technology, however, is already here, developing fast and set to play a key role in the decarbonising process.

The sector is not without its own challenges, however. For example, the hydrogen and electricity that is generated from offshore wind in the future will have to come from floating wind farms “over the horizon”. But floating facilities are at an early stage of development.

CCS technology has been on and off the agenda several times because of its high cost and potential risk, but it is now firmly back on. It will provide a means by which carbon generated by heavy industry ashore can be captured and stored safely under the sea.

We are therefore working with our clients to assess the potential for repurposing existing end-of-life oil and gas facilities, turning them effectively from exporters of carbon to importers. Clearly there are significant safety and environmental considerations here because injection takes place at high pressure and robust containment is essential.

Access to capital

Both international oil majors and national oil companies will need access to huge volumes of capital, both to undertake energy integration and, in the longer term, to see themselves through the energy transition. They will also need to invest heavily merely to sustain current production levels and keep the lights on.

During the pandemic, sentiment appears to have swung against oil majors more than ever. Yet even before that, sovereign wealth funds were extracting themselves from conventional oil and gas investments; green finance initiatives such as climate bonds opted to exclude oil and gas related projects; even private investors were selling their oil and gas holdings. Without more urgency, oil and gas companies will not be able to to attract and retain investors. Energy integration, using new low or zero‑carbon technologies, will become a key strategy in this process.

LR’s future role will be to continue to provide first-class independent advice and to the regulatory framework, safety and the management of risk. And we must be confident that the new technologies, as they are adopted, are fit-for-purpose in delivering the intended benefits that were promised.

 

Horizons October 2020

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Horizons brings together insight into current trends and hot topics in the maritime and offshore sectors, alongside expert views from our people on regulation, safety and innovation.

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