December 2016 /// Vol 237 No. 12
Industry leaders outlook 2017
Climate change: inconvenient truth or opportunity to lead?
After more than two years of nearly full-time travel as president of the Society of Petroleum Engineers (SPE) and having given hundreds of speeches, I have come to expect certain questions, including, “When will prices recover?” or, “Should I stay in the industry?”
After more than two years of nearly full-time travel as president of the Society of Petroleum Engineers (SPE) and having given hundreds of speeches, I have come to expect certain questions, including, “When will prices recover?” or, “Should I stay in the industry?” As I talk to students and young professionals, I notice a major difference in attitudes about climate change, compared to those of more senior engineers.
A significant number of the senior generation are very skeptical about whether or not human-caused greenhouse gases (GHGs) have a significant—or indeed, any—effect on climate change, whether warming is occurring as reported, and the credibility of climate models generally. Such skepticism is rare with younger professionals. At a recent meeting with graduate students at Heriot-Watt University in Edinburgh, I was impressed with the well-thought-out questions that showed how committed these students are to understanding our industry’s challenges. A few of these dealt with climate change.
Let me share just two of these questions. The first: “If oil and gas are going to remain relevant energy sources, what technologies hold the best hope for minimizing the carbon intensity of the entire E&P process? And, what resources are the best and worst with respect to carbon intensity?” This dual question doesn’t presume that anthropomorphic GHGs cause climate change. The question does assume that governments will take steps to penalize carbon-intensive energy sources through taxation or other mechanisms. I agree that this is likely to happen.
The answer to the question is complex, but I believe carbon intensity for oil extraction is reasonably correlated to development and extraction costs, particularly for heavier oils. Any form of carbon pricing will hurt high, marginal cost-per-barrel projects the most. Reducing demand for energy inputs in production—such as burning natural gas for steam injection, minimizing solvent use as diluents, and optimizing volumetric and microscopic displacement efficiency for EOR projects—would reduce carbon intensity.
Lowering capital costs for well and facilities construction, also would decrease carbon intensity because of decreased materials and energy required. Natural gas projects should have low carbon intensity and may be hurt less than oil projects by a carbon price. Better understanding of reservoirs and completions will minimize carbon intensity in projects requiring massive drilling. It will make these projects more sustainable and viable by reducing numbers of unsuccessful wells drilled, and eliminating uneconomic hydraulic fracture treatments. Pad drilling can decrease total energy costs, permit a critical mass of natural gas to be used, minimize flaring, decrease fugitive methane emissions, and allow more efficient transportation to rig sites.
The second insightful question that came from the graduate students at Heriot-Watt challenges almost everything that has been proposed to address GHG emissions in our industry: “Who pays the cost of reducing carbon emissions?” It is a good question. Every measure of quality of life on our planet is correlated to per-capita energy usage. Much of the world’s populations still have low living standards. As these people seek to increase their quality of life, they also increase energy use. Coal is the fastest-growing energy source in absolute terms, and is cheap and affordable in India and China, countries with rapidly growing GHG emissions. Additionally, the world has made a decision to export much of its energy-intensive manufacturing base to countries with dirtier energy sources and laxer environmental enforcement.
Meaningful taxing or other pricing models for carbon could, more likely, be initiated in economically successful nations, but doing so would disproportionately affect these countries’ low- and middle-income residents. No one seems to be proposing taxing carbon content of imported goods; however, without such taxation, the marginal impact of carbon pricing is to exacerbate the movement of manufacturing jobs out of first-world countries and into third-world countries with relatively higher dependency on coal.
I am not an expert on climatology and have a healthy skepticism for complex mathematical models. Some of my colleagues get up in arms whenever anyone even suggests that our industry might have any culpability at all in GHGs and climate change. At some level it barely matters what our personal opinions are. What matters is the actions that we must take, when faced with a potential existential threat to our industry.
I am convinced that oil and gas should, and will, remain a key part of a long-term sustainable energy future. However, we cannot bury our head in the frac sand and simply ignore climate change issues. Regardless of the “truth,” the important thing to address is the reality, including regulations and costs that will inevitably be borne by real people. As I told the students at Heriot-Watt, “We have to be engaged, so that we can be part of the solution and not just be perceived as the problem.”
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