Energy evolution crucial for climate change

By Arve Johan Kalleklev, Regional Manager Norway & Eurasia, DNV GL – Oil & Gas

DNV GL’s ‘Energy Transition outlook’ is now in its fourth year (illustration: DNV GL)
DNV GL’s ‘Energy Transition outlook’ is now in its fourth year (illustration: DNV GL)

While ramping up the use of renewables and the electrification of oil and gas platforms are part of the solution to cut emissions from E&P activity, the energy sector itself has the potential to become a net-zero hydrocarbon “decarboniser”.

Without greater efforts to meet low or zero-carbon emissions by mid-century, DNV GL envisages a future in which the world misses the 2° C limit for global warming under the Paris Agreement. The technical adviser’s Energy Transition Outlook 2020 predicts that the 1.5° C carbon budget will be exhausted in 2028 and the 2° C budget in 2051. Extrapolating the emission trends, this points to a 2.3° C warming of the planet by 2100, compared with the pre-industrial level.

The study shows that fossil fuels will still be needed to supply half of the world’s energy in 2050. Where there is demand for oil and gas, there will be a future for the industry, but it needs to be more diverse, dynamic and open to evolving quickly.

An emissions emergency
According to recent analysis, emissions from oil and gas production in the UK totalled 13.1 MM metric tonnes of carbon dioxide (CO2). Extraction emissions account for 10.1 MM of CO2, the rest is due to flaring. In comparison, in 2019, Norway’s oil and gas production emissions were 4 MM of CO2 and Denmark’s 1.4 MM.1

Pressure to address the climate change crisis is coming from all sides: society, governments, investors, and within the industry. Though the report sees a sector putting the energy transition at the centre of its agenda, climate change and ambitions to reduce it are outpacing action.

This comes as DNV GL predicts CO2 emissions will remain stubbornly high until the mid-2030s, falling just 15% in the next 15 years, before then dropping 40% in the 15 years to 2050.

Emissions intensity (energy-related CO2 emissions/energy demand) is set to remain high in the regions and countries that will supply the world’s oil and gas – predominantly where the cost of production is lowest or can be easily scaled up and down. This is linked to domestic reliance on fossil-fuel jobs and revenues, as well as the ease and financial benefits (at least in the shorter term) of continuing to use fossil fuels in these regions.

Emissions intensity of final energy demand by region (illustration: DNV GL)
Emissions intensity of final energy demand by region (illustration: DNV GL)

Contributors to this decline will include the scaling of decarbonisation of natural gas, and enhanced use of green gas produced using renewable sources. Key solutions include electrification, reducing flaring and venting, increased efforts to detect and stem methane leaks, and efficiency gains through digitalisation of the oil and gas value chain.

Electrifying offshore platforms and oil and gas assets is already taking shape. Offshore Norway, eight oil and gas fields operate partly or fully electrified with a further eight fields covered under sanctioned electrification projects.

In the UK, various oil companies are conducting feasibility studies for platform electrification schemes in the central North Sea and west of Shetland, and low-emission designs will become central to new field development plans.

Multiple policy and market mechanisms are in play across Europe to support multiple transitions to cleaner energy and achieve net-zero carbon emissions targets by 2050. Some of these will affect demand for existing oil and gas products and drive companies to reduce their carbon footprint; others may completely transform the oil and gas industry.

Among them, agreement on a carbon price will allow carbon capture and storage (CCS) to scale. This will subsequently lower the cost of the technology in other regions. The EU is also considering a “CO2 border tax”, which would extend a price on carbon to imported products. The aim is to prevent stakeholders from exporting their carbon emissions, such as by moving production out of the region.

To convert the North Sea into an integrated net-zero emissions energy system, the OGTC estimates GBP 430 billion (USD 557 billion) of new investment will be needed “to close the gap on a number of crucial technologies and accelerate their deployment.” This is forecast to create more than 200,000 jobs and GBP 2.5 trillion (USD 3.2 trillion) in value to the UK economy.2

Time to scale will fail climate change targets
CCS has the potential to decarbonise natural gas and reduce emissions from the oil and gas industry however, it will not begin to scale until the 2030s, and not to a significant level until the 2040s, according to the report.

Around 40 million metric tonnes (Mt) of anthropogenic CO2 are currently captured and stored in geological formations each year. While the timeline envisaged below indicates that CCS will scale, in combination with further research, this will not be fast enough to meet Paris Agreement targets:

  • Around 175 Mt CO2/year will be injected and stored in 2030.
  • Some 450 Mt CO2/year in 2040.
  • And almost 2,200 Mt CO2/year in 2050.

On the positive side and, in comparison to last year’s forecast, policy and technology developments in 12 months resulted in an almost threefold increase in our 2020 forecast for CCS capacity by mid-century, which still falls short of climate change targets. By 2050, China and Europe combined are expected to account for 66% of the world’s CCS deployment.

World CCS capacity by region (illustration: DNV GL)
World CCS capacity by region (illustration: DNV GL)

In Europe alone there are around 10 larger projects planned and have a high chance of being operational by 2035. Most of them are located around the North Sea. Of significance was the announcement in September that the Norwegian Government proposes to launch a CCS project called “Langskip” (“Longship”).3 Total investment in this project is estimated at NOK 17.1 billion. Others include the UK, Denmark and Netherlands, but there are also projects on the drawing board in Ireland and Italy.

After 2035, CCS and hydrogen will become catalysts for a lower carbon future by complementing renewable electricity, battery technology and alternative low-carbon fuels. This could transform the oil and gas industry into the “decarboniser” of hydrocarbons and the world’s largest supplier of CCS. Rather than lag behind in the challenge to alter the climate, it could become an essential contributor to realising net-zero ambitions.

The problem is that CCS won’t move down the cost learning curve unless the industry significantly increases its rollout of the technology, but we don’t foresee this happening until costs have come down or a carbon price exceeds the price of the technology. If a major country or region sets a carbon price high enough to make large-scale CCS a reality, others will follow. Hydrogen faces a similar conundrum. It relies on CCS for blue hydrogen, and on the falling cost of electrolysers to produce green hydrogen at scale. It will be at least 20 years until a hydrogen economy becomes reality.

Crucially, there will be several, interrelated energy transitions to 2050. These include the conversion from fossil fuels to renewables, from coal and oil to natural gas, and from fossil fuels to decarbonised gas. As pressure mounts to decarbonise, such a delay may challenge the oil and gas industry’s license to operate.



Arve Johan Kalleklev – DNV GLArve Johan Kalleklev has 19 years of experience of international management, engineering and technical advisory within the oil and gas industry. His technical background is risers, umbilicals, mooring, hydrodynamics and subsea systems. He has experience from several managerial roles, currently as regional manager for Norway & Eurasia. Kalleklev has a Master of Science, Marine Technology from Norwegian University of Science and Technology (2001) and a Bachelor of Science, Marine Technology Bergen University College (1999).