Net-zero energy heralds exciting transition period for oil and gas

By David Clark, Global Energy Director, Lloyd’s Register (LR)

Equior’s Hywind Tampen project – floating offshore wind is a great example of where there is significant potential for the oil and gas industry (illustration: Equinor)

In the past, the blame for manmade climate change was laid firmly at the feet of the oil and gas sector. As an industry, oil majors and the supply chain have never shied away from their responsibilities to operate safely and responsibly, but the focus today is firmly on operating in a more sustainable manner longer-term.

The UK’s 2050 commitment to net-zero carbon emissions heralds the dawning of a new carbon-free era, but contrary to the views of many, it doesn’t signal the end for oil and gas. Quite the opposite – it creates exciting new opportunities for the industry to support the transition to renewable and sustainable sources of energy and the decarbonisation agenda.

The UK is the first of the G7 group to legally commit to reaching net-zero carbon emissions by 2050. Net-zero means no greenhouse gas emissions, or those generated being balanced by offset schemes. By amending the Climate Change Act, and leading the Paris Agreement pact, which states the need to replace carboniferous fuels with alternative, low-carbon sources, the impetus moves to exploring all greener energy options.

The UK Committee on Climate Change’s latest recommendations to government are a positive step in our journey to a net-zero future, highlighting the industry’s drive to operate in a more sustainable manner. They do however shine a light on the areas that need critical attention if we are to succeed in achieving the net-zero targets.

The report rightly calls for an increased focus on enabling technologies if we are to be successful in reducing carbon emissions. In particular, renewable technologies have some way to go, especially when it comes to energy storage. When the wind stops blowing and the sun stops shining, a nation still demands power, and even with increasing levels of investment in renewable energy generation, there will still be a shortfall in supply.

Other options include nuclear, but it is expensive and unpopular, with several perceived barriers to further development.

While consumer demand for by-products of the petroleum industry, from fertilizer to flooring, insecticides to pharmaceuticals, set to continue indefinitely, the reality is that the UK will need its oil and gas resources today, tomorrow and beyond 2050.

Opportunities alongside the challenges
Whilst decarbonisation can seem complex, solutions for oil and gas are emerging and the industry recognises it has a clear and dynamic role to play in moving towards a low-carbon economy.

It is essential to consider not only moving to renewable and sustainable sources of energy, but also how to decarbonise. The industry has a significant target for reducing its emissions by at least 3.4 gigatonnes of carbon dioxide equivalent (GtCO2e) a year by 2050 and according to McKinsey, there are three approaches the industry could consider.

The first is optimising operations which require few process changes and results in a reduction of intermittent flaring, venting and fugitive emissions. The second involves implementing sustainable design choices which have a positive economic benefit. Thirdly, producers should start to re-balance their portfolios across the spread of emission-intensity therefore preparing for possible risks from future policy scenarios and investment choices.

Furthermore, these approaches will depend on a range of factors such as geography, asset mix (offshore versus onshore, gas versus oil, upstream versus downstream), and local policies and practices (regulations, carbon pricing, the availability of renewables, and the central grid’s reliability and proximity).

As a specialist technical consultancy, Lloyd’s Register (LR) is committed to supporting the energy industry to transition to a more sustainable energy mix. Recent projects include an in-depth, cross-disciplinary study on behalf of the Oil & Gas Authority, looking at some of the potential options for decarbonisation and how we can move to an integrated energy future.

The UKCS “Energy Integration” interim report explores upstream opportunities in UK waters to cut greenhouse gas emissions and support the UK’s 2050 pledge. Potential solutions include platform electrification, gas to wire and gas storage as well as marrying oil and gas infrastructure with evolving carbon capture and storage technology. Hydrogen has also emerged as an important alternative energy source which will support the transition from oil and gas, and in the future, we may see these technologies, combined with offshore wind, work together to create integrated energy hubs.

These recommendations shouldn’t be restricted to the UK Continental Shelf but explored globally. Speed is of the essence and many of these greener solutions must be embraced over the next decade and beyond to see a return on investment over a field’s remaining life. This sense of urgency is reinforced by the European Commission whose report, “A Hydrogen Strategy for a Climate-Neutral Europe” published in July 2020, states that “as investment cycles in the clean energy sector run for about 25 years, the time to act is now.”

However, for large-scale projects or where fresh collaborations are possible these new ideas need to be built into field development plans. Rapid change will be required along with investment if businesses are to be successful.

Transferable skills
Investment will foster sustainable growth and jobs, which will be critical in the context of recovery from the COVID-19 crisis. The Energy Transition Alliance, a collaboration between the Oil & Gas Technology Centre and the Offshore Renewable Energy Catapult, aims to create thousands of new green jobs by the end of the decade by channelling funding aimed at developing advanced technologies that will support the energy transition. A 2019 study, “Hy-Impact Hydrogen for Economic Growth”, prepared by Element Energy in collaboration with Equinor, states that fuel switching to hydrogen could create 43,000 jobs across five energy intensive sectors in the UK.

Regardless of sector focus, cross-sector collaboration is fundamental to future success. There are significant synergies between the oil and gas and renewable energy industries, as well as important lessons to be learned and knowledge to be shared. We must integrate this knowledge with domain expertise to ensure best practice remains at the centre of all we do.

Floating offshore wind is a great example of where there is significant potential for the oil and gas industry. With its extensive experience of operating in the marine environment, oil and gas can prove to be the enabler that ensures the UK not only delivers a complete energy transition, but a sustainable and diverse energy industry.

At LR, we have supported the development of new technology, new science and new thinking that has led to game changing outcomes for the North Sea. We can be sure that the dynamic, flexible, ultimately curious mindset of the skills base within the oil and gas sector will play an integral part in the energy transition. It’s a multidisciplined workforce that understands how to analyse and assess risk, how to gather and interpret data, and importantly, how to adapt and innovate. For decades, the oil and gas industry has been finding solutions to seemingly insurmountable challenges, and these insights will prove invaluable for tomorrow’s renewables projects.

It is clear, cross-collaboration with industry and government is fundamental to our future success. Becoming a climate-neutral and zero pollution economy by 2050 will require ambitious and well-coordinated policies at national and European levels, as well as engagement with the international community, and its support on energy and climate.

As investors and shareholders intensify their focus on sustainability, it is this focus that will drive the energy sector to collaborate and effectively support the creation of a cleaner, more sustainable future for generations to come.

At LR we hope these recommendations will motivate wider change and help to create new opportunities, not just for the oil and gas sector, but for the wider energy and business community.

David Clark, Global Energy Director, Lloyd’s Register (LR)In January 2019, David Clark joined Lloyd’s Register (LR) as Group Energy Director and is responsible for leveraging the company’s technical and engineering expertise across energy production and infrastructure segments.

Clark has been active in the UK energy industry with roles on a variety of advisory panels including the Energy Jobs Task Force, Oil & Gas Authority Supply Chain workgroup and was on the board of directors of Oil & Gas UK in 2018. He is a member of the Institute of Directors and the Society of Petroleum Engineers.