Innovations in the ‘Energy Transition’

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May 19, 2022

The term ‘energy transition’ is a move toward sustainability through increased integration of renewable energy throughout our daily life. The transition to renewable energy is driven by a desire for global carbon emissions to be brought to zero. Fossil fuels are the largest single source of carbon emissions and are being curtailed pursuant to the COP21 Paris Agreement of 2015. Societal efforts to transition from nonrenewable energy sources like oil, natural gas, and coal to renewable energy have accelerated due to emerging technological advancements and a global push toward sustainability. Transitioning the global energy mix is a herculean effort that has inspired innovation. However, changes of this magnitude bring great challenges and opportunities, but it’s a journey and will not happen overnight.

Today, the energy transition is accelerating, bringing pressure to reduce energy-related greenhouse gas (GHG) emissions through various forms of decarbonization. Companies are feeling pressures from political, institutional, and capital markets that can impact funding if their interests are not aligned. In addition, the SEC announced new rules requiring publicly traded companies to provide detailed reports on their progress in meeting net-zero and ESG targets, forcing companies to find real solutions to combat climate change.

The reality is global energy demand continues to increase, and fossil fuels are needed to meet that demand for the foreseeable future. Oil and gas companies must walk a very narrow path, with fossil fuel production on one hand, and carbon management to meet net-zero targets on the other. Although the oil and gas industry has been isolated by the most unfavorable political and regulatory environment seen in decades, it remains fundamentally well-positioned to lead decarbonizing efforts. This unlikely industry has taken proactive measures to innovate in environmentally conscious ways as they move toward “eco-friendly” operations.

Many major oil companies have accelerated spending to diversify into renewable and low carbon energy as they transition to a low-carbon future. There has been a diverse mix of investment strategies companies have taken to balance their energy portfolio. These may include renewables like wind, solar, planting trees, and bioenergy to achieve their net-zero target. For instance, a company may operate multiple renewable businesses alongside its core oil and gas business to offset its carbon impact.

Another carbon off-setting strategy has been Carbon Capture and Storage (CCS), which is not a new concept for Exploration and Production (E&P) companies. The E&P sector has been using carbon dioxide (CO₂) for years in oil production as part of an Enhanced Oil Recovery (EOR) by pumping the gas into the oil reservoirs to force crude oil to the surface, and the CO₂ remains in the ground. As the concept of decarbonization and CCS grows, many E&P companies invested heavily in the process and have incorporated it as the preferred tool to offset their carbon footprint. CCS has proven to be one of the most effective methods of sequestering CO₂ in terms of volume captured but also requires storage capacity in underground reservoirs suitable to permanently store it.

However, CCS and Carbon Capture Utilization and Storage (CCUS) are not without their issues. There are high operational costs and production challenges for many of the methods and technologies being developed today, but most expect costs to come down and productivity to go up as these technologies are improved over time. In the interim, government support and policy changes can improve economics with incentives, and/or a carbon tax can help offset the capital needed for infrastructure and the costs involved in the storage of CO₂.

The difference between CCS and CCUS is how they handle the CO₂ once captured.
CCS permanently stores it in the ground and CCUS stores it for reuse in commercial applications. Continued advancements in technology on the capture, storage, and utilization front are needed to overcome cost and performance challenges. The oil and gas/carbon management industry is hoping to bring those costs down within the next decade. In addition, Congress will need to increase the value of their tax credits as companies are having to charge more than the value of the tax incentives provided under the current policy.

Many oil and gas companies are reinventing themselves and the way they do business. One such example is a Houston-based oil company planning to build the largest direct-air carbon capture facility in Texas over the next decade. Their facility in West Texas has access to old oil and gas fields capable of permanently storing the CO₂ extracted from the air. This company has transformed itself into a self-professed ‘carbon management company’ and believes this will be one of the world’s largest direct air-capture facilities of its kind.

As stand-alone CCS projects struggle with economics and affordability, a new business model has emerged and gained a great deal of interest from stakeholders. They are known as cluster projects, which are large-scale CCS hubs that serve a regional area, servicing a large industrial customer base in addition to servicing their own needs. The oil and gas company would operate pipelines to transport CO2 from multiple industrial emitters in the area to the storage HUB that they own and operate. There is a fee for transport and a $/ton CO2 charge for storage. This model has gained government support, translating into tax credits for infrastructure and the issuance of permits for CO₂ storage. This is a collaborative model that is leveraging government incentives along with other industry members it serves to help cover associated capital costs. The model is promoted as a low-cost, reliable, decarbonization solution as a service

As the advancement in decarbonization methods improve, challenges will remain going forward. The oil & gas industry is uniquely positioned with experience and knowledge from their core business of oil production that can be applied to CCUS and other emerging technologies for decarbonization. Fossil fuels will remain in the energy mix along with renewables, wind, solar, biofuels, and alternative fuels for the foreseeable future. If we can maintain a collaborative effort from industry leaders with support from our political leaders, we can meet or exceed our expectations in this pursuit.

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