Energy transition in Oil&Gas

Jul 28, 2022 / by GM International

Topics: Safety news

The oil and gas industry is facing crucial energy transitions for its operations, activities, and business models, as well as for reducing greenhouse gas emissions.

Growing social and environmental pressures on oil and gas players raise complex discussions about the role of fossil fuels in a changing energy economy and the position of the companies involved.

The matter recently addressed by the International Energy Agency (IEA) in its multi-year World Energy Outlook (WEO) analysis report, does not provide definitive answers, partly because of the big differences of companies and corporate strategies, arising considerations that are difficult to harmonize. First, the energy demand increasing due to the growth of the world's population that must be considered.

Second, oil and natural gas still play a key role in energy and economic systems, and reliable and affordable supplies of fossil fuels will also be needed in the near future.

Lastly, it is imperative to reduce emissions must be in line with international climate goals. The WEO's Sustainable Development Scenario (SDS) draws a consistent path with the Paris Agreement by promising to contain the rise in global temperatures to below 2°C. At the same time, goals related to universal access to energy and clean air must be met by reducing Greenhouse Gases (GHG) emissions.


Next steps

Transforming the energy system to meet growing energy demand while reducing global emissions will require a broad energy mix and unprecedented collaboration among stakeholders, institutions, countries, and industries. The greater part of the companies in the oil and gas sector has made improvements in reducing carbon intensity and are considering what investments and technologies would facilitate further progress. More than 50 percent of the International Petroleum Industry Environmental Conservation Association (Ipieca) member companies has made a public commitment to achieve zero emissions, and publishing plans on how to meet their goals.

A first lever is the elimination of almost all emissions in the footprint classes called Scope 1 (direct emissions) and Scope 2 (indirect emissions from energy consumption). Although many companies have already made progress in reducing waste emissions from gas flaring or methane leakage, bringing emissions to near zero would require widespread deployment of renewable energy and the massive inclusion of electric or biofuel vehicles in company fleets.

Second, many companies are investing in and implementing net zero carbon emissions technologies. However, from a practical perspective, the only way to achieve near-zero emissions in the coming decades may be to leverage technologies that remove carbon from the product lifecycle with carbon capture use and storage (CCUS) technologies.

Many companies are reducing emissions through increased use of natural gas, more efficient engine power systems, and the development of low-carbon mobility technologies (electric vehicles, biofuels, liquefied natural gas, ammonia, and fuel cells). Low-carbon hydrogen will be able to help sectors - such as heavy industry - to drastically reduce emissions, as well as offer large-scale, long-term support for renewable energy. With lower emissions than other fossil fuels and a dispatchable energy source, natural gas will also be an important part of the energy transition if methane emissions can be controlled throughout the value chain.



How can core activities in the hydrocarbon sector be made more resilient? Should we expand into low-carbon activities and, if so, how? How will companies operating model need to change to thrive in a low-carbon world? There are not easy answers to these questions.

The third decade of the 21st century sees the oil and gas industry facing opposition from a public opinion very concerned about the environmental impact of fossil fuels, with increasingly skeptical shareholders, and institutions trying to combine decarbonization goals with the ever-important demand for oil and gas.

In United States, India, and China – the three largest emitters of greenhouse gases – natural gas has the potential to remain an integral part of the energy transition for the future decades, depending on the policy mechanisms and technologies in place.

The challenge for oil and gas industry is that to adapt to a changing political and investment landscape, but also to evolve in a way that drives energy system decarbonization.

In the whole world we are seeing at least a gradual shift from policies that have supported oil and gas production to policies that are instead beginning to de-emphasize fossil fuels, including carbon pricing and the European Union's emissions trading scheme. Many governments are also encouraging the use of substitute technologies and fuels. Another method to reduce carbon use is the implementation of circular economic models, in which materials are reused or recycled instead of being disposed of at the end of their useful life.

Investors are also becoming a strategic driver of decarbonization, shifting their focus to the environmental impact of oil and gas production through investments focused on Environmental, Social and Sustainable Governance (ESG).

Oil and gas companies need to clarify the implications of energy transitions for their operations and business models, as well as put in place the necessary resources to accelerate the pace of change. This process has begun. Regardless of the path the world will follow, climate impacts will become increasingly visible and severe in the coming years, increasing the pressure on all society elements in searching for long-term solutions.


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