Decarbonisation Strategies for Oil, Gas, and Petrochemical Companies
By: Astrid Poupart-Lafarge, Oil, Gas & Petrochemical Segment President
The Paris Agreement general framework states that the world should pursue efforts to limit the global temperature increase to 1.5°C. To reach this goal, the world needs to achieve net zero emissions by 2060; to decarbonise by stopping the release of Green House Gases (GHG) into the atmosphere. Both public and investor concerns over climate change is putting ever increasing pressure on the oil and gas industry. Lately, oil and gas majors have responded to the scrutiny with a series of pledges, plans, and press releases about global warming. Led by European supermajors BP, Shell, Total, and Repsol (Equinor) have all announced net zero emissions targets by 2050. US majors are also engaging. Conoco Philips, and Occidental Petroleum have recently announced their net zero carbon emissions by 2050.
Reducing emissions to comply with regulations is crucial to improving the sustainability of the oil and gas industry and satisfy the investors while managing the transition to a lower-carbon world. The objectives go hand in hand because efforts to reduce emissions involve adjusting the mix of energy provided to include lower-carbon sources, which will ensure future viability.
While the energy mix is part of the equation, there are several actions that companies can take to improve their Scope 1 and Scope 2 emissions in their current portfolio. These include electrification, improving energy efficiency, and adding carbon capture, storage, and utilisation. The most challenging is being able to control, manage, and reduce indirect carbon emissions, which come from Scope 2 and Scope 3 emissions.
Digitalisation can play an important role in decarbonisation. Solutions that integrate power and process with predictive maintenance, process optimisation, and digital twin technology can help oil and gas companies reduce their Scope 1 carbon footprint, while supply chain applications can help reduce Scope 2 and Scope 3 emissions.
There are several options available today that process industries use, including:
Flaring and Fugitive Emissions
Gas flaring and fugitive emissions are some of the largest carbon footprint contributors in the oil and gas industry. Flaring, which contributes up to 23% in GHG emissions, can be reduced and/or eliminated by adding more gas processing facilities and storage and pipeline infrastructure. Fugitive emissions can be controlled by adopting good maintenance practices and with innovative leak detection and predictive maintenance technologies.
Many oil and gas companies have made commitments to reduce or eliminate flaring as part of their decarbonisation strategies. Fugitive emissions are a challenge. With increasing unconventional production, oil and gas companies must start implementing digital solutions that help monitor and prevent leaks.
Improved energy efficiency is typically measured by the Key Performance Indicator (KPI) of reduced energy use and emissions per production volume. Digital transformation solutions can accelerate the return of energy optimisation investments. There are several avenues for energy optimisation. In the case of rotating equipment, using variable frequency drives helps reduce energy consumption by up to 10%. Digital transformation solutions like digital twins help to accurately model plant process and assets to improve plant efficiency and asset performance management. By implementing digital energy optimisation strategies, an average-sized refinery (200,000 BPD) or petrochemical plant can improve profitability by USD $15-$30M per year and reduce CO2 emissions by 500,000-900,000 tonnes per year. That’s equivalent to taking 100K-200K gasoline cars out of service!
Some of the use cases identified in process electrification are ethylene steam cracking, refinery fire heater and exchanger, and ammonia methanol production where the objective is to replace fossil fuel for heating with renewable electricity. BASF, DOW, and Shell are currently developing electric cracker technology, projected to be completed post 2025. Electrical cracking would reduce CO2 emissions by 90% if sourced from zero carbon electricity. Another use case is an LNG liquefaction plant where electric drives are replacing the gas turbines powered by natural gas.
Carbon Capture Use and Storage (CCUS)
CO2 is emitted when a fossil fuel is burned. Carbon capture is the process to remove the carbon either pre-combustion or post combustion. One method of carbon capture involves directly removing CO2 from the air. The captured carbon is then either stored or used in some application, such as adding it to cement. Today, there are two primary carbon storage methods. One is injecting the CO2 emissions into the Earth’s substrate to store permanently, where such geology is available. The other is to reinject the carbon into the oil reservoir to increase reservoir pressure, aiding enhanced oil recovery.
In some countries, a carbon tax provides incentive for companies to invest in carbon capture projects. In the US for example, under section 45Q of the IRS code, companies can reduce income tax liability for each metric ton of qualified CO2 captured, ranging from $10-50 per tonne.
Hydrogen as Fuel or Feedstock
Hydrogen has one of the most important roles in achieving carbon neutrality in applications that are hard to decarbonise. Hydrogen is a carbon neutral fuel and feedstock that has big potential. Shell has been exploring hydrogen as a fuel for almost a decade. In recent months, many of the big oil and gas companies have announced their plans to include hydrogen in their overall decarbonisation strategy.
Today, 95% of hydrogen is produced as “gray hydrogen,” which means that hydrogen is produced through steam methane reforming with CO2 as a byproduct, which is vented. Using carbon capture methods, with the same steam methane reforming process, blue hydrogen can be produced.
Green hydrogen produced through electrolysis of water using renewable energy coming from wind, solar, or hydropower is the only hydrogen production process with no CO2 as a byproduct.
Plant-based or Biomass Fuel or Feedstock
Replacing fossil fuel feedstock or fuel with sustainable produced biomass to reduce CO2 emissions is also an avenue for oil and gas companies. Corn-produced ethanol is widely used as biomass fuel in vehicles worldwide. Most countries in the world allow a mix of up to 20% ethanol in gasoline to reduce demand on petroleum fuel. Also, corn-based plastic is a replacement for regular plastics because of its biodegradable quality. Some companies like Valero, the second largest biodiesel producer in the world, produces low-carbon intensity renewable diesel fuel that uses recycled animal fats, used cooking oil, and inedible corn oil. ExxonMobil has been funding research programs that focus on advanced biofuels that do not compete with food or water supplies. Examples include algae, corn stover, switchgrass, and landfill methane.
China announced it would ban all single use plastic by 2022. Single use plastic is one of the most visible environmental pollutants and often branded as the “poster child of pollution.” The primary driver for this is to lower the demand for primary resources like fossil-based feedstocks. By recycling and reusing plastics, the demand for new plastics will be lowered. BASF launched the ChemCycling™ project in 2018 with the aim of manufacturing products from chemically recycled plastic waste on an industrial scale.
Repositioning as Energy Companies
A few oil and gas majors are repositioning themselves as integrated energy companies. BP announced its decarbonisation ambition in 2020, with a plan to increase its low carbon investment tenfold and reduce fossil fuel production by 40% by 2030 through active portfolio management. Shell announced it would diversify into the power business and renewal generation, aiming to become the largest power company by the 2030s. Total bought Direct Energie, the largest French retail electricity company, for €1.7B. This seems like a hedging strategy to anticipate the gradual decline of future oil and gas business and diversifying into a power generation business that is still energy business.
Digitally Enabled Sustainability
All the above strategies are strong options and most of the technologies are available today. There are challenges with some of the strategies not being cost competitive yet, and/or they are not feasible on the scale needed to slow global warming. Digital technologies at the top drivers of energy efficiency and decarbonisation. While some companies opt for diversifying from oil and gas as a strategy to lower their carbon footprint, most companies are pursuing a traditional approach by focusing on improving the oil and gas industry. Companies are likely to continue to progress along the decarbonisation channel in three key areas:
- Increased use of low-carbon power generation,
- Increased electrification, and
- Reduced fossil fuel demand.
As time progresses, innovation will drive the cost down and open other options. A good example is renewable energy like wind and solar. They were not cost competitive ten years ago at $100-150/MW, but now have become a feasible option at $50-$80/MW. So, stay tuned for new decarbonisation strategies for oil, gas, and petrochemical companies in the future.