Decarbonization of oil and gas is as much about perception as performance
In an industry that faces continuous scrutiny of its environmental policies, the need to be seen as a proactive leader in carbon reduction is as important, if not more so, than achieving climate-change targets.
“Total estimated that only 15% of greenhouse gas emissions from oil and gas is generated during production, the other 85% is created when it is in use,” said Bob McNally, President of Rapidan Energy. “Production is a sideshow, compared to the burning of these fuels.”
However, the industry sees the writing on the wall, and is working to get ahead of the decarbonization narrative. “Industry initiatives, or individual company targets or pledges, such as Repsol’s plan to be carbon-neutral by 2050, are leading this,” McNally said.
But, where to convert those initiatives into action in the field is not always obvious.
“Oil and gas companies already have a great incentive to be efficient, and are one of the most efficient sectors in the world,” McNally said. “There’s not a lot of fat that can be wrung out.”
“There is a reason some of these companies put their targets out to 2050, they’re buying themselves some time with these long targets. It’s just not obvious that there’s low-hanging fruit.”
Methane flaring at drilling sites is both the most obvious, and most politically contentious, opportunity to improve.
“If you’re interested in showing big emissions reductions, if you aren’t looking at reducing flaring, your only other option is a shutdown in operations. There aren’t technologies available that can quickly, in quarters not years, reduce the emissions profile from the operations prospective from what it is,” McNally said.
Activism at the state level, especially in Texas and North Dakota, looks to be the greatest source of movement on flaring regulations. But, tucked into every prescriptive rule is an opportunity to innovate.
There are all kinds of things that operators and service companies can do to leverage these regulations. “It’s the service companies that generate the innovations and the new technologies. Once that policy signal is very clearly shown, and it’s clear that this is our course of travel, then the IOCs will start turning to service companies” to improve environmental performance, McNally said. “Set the bogey, and the service companies will hit it.”
The attention does raise uncertainty. The industry can rise to the challenge of decarbonization. But when the sector is seen as an existential threat to the planet, the signal gets mixed. Gas was just recently seen as a bridge fuel, but now it’s treated as badly as coal, McNally said.
“The problem is that the industry has been a victim of its own success. It has been so successful at providing consumers cheap, abundant energy for many decades, we’ve forgotten how miraculous that really is. We’re so used to it, we’re taking it for granted.”
In McNally’s view, the oil and gas industry has a much bigger political and messaging challenge than it has ever faced in the past. “Above all, it needs to find innovative and effective ways to communicate how critical it is to not abruptly interfere with 85% of our energy. Until recently, there were productive discussions about energy. Now, the industry’s existence is in jeopardy, and the risk of erratic and harmful policies is real. The industry has to adjust,” McNally said.
“Engaging with officials and being responsive is important, but peaking oil in ten years is not realistic. We need to reinject realism, and I think that need is stronger than is understood. We are in a contentious battle for the future.”
