Embracing the energy transition

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Amid calls for divestment and growing commitments to decarbonise energy, many are questioning the future of the oil and gas industry. The reality however, is that fossil fuels will play a key part in the quest to become more sustainable.

he latest report on global warming from the Intergovernmental Panel on Climate Change (IPCC), released in the autumn of 2018, warned that civilisation has “fewer than 12 years to drastically reduce [greenhouse gas] emissions to limit global warming to no more than 1.5°C.” Beyond this threshold, the IPCC suggests that the consequences of such climate change will have a negative impact on the livelihood of millions of people.

Major changes are needed across all industries, particularly in energy, in order to prevent warming beyond this 1.5°C scenario. The IPCC estimates that the global net human-caused carbon dioxide emissions need to fall by 45 per cent by 2030, compared with 2010 levels, with the aim of reaching net-zero emissions in 2050.

To achieve such reductions, an ‘energy transition’ is needed. This refers to a series of major long-term structural changes facing the energy industry, the goal being to move away from dependency on carbon intensive fuels.

Changes of this magnitude have happened before; for example, the replacement of coal by oil and gas as the largest suppliers of primary energy after WW2. Now, investment in alternative fuels and renewable energy are needed to limit climate change and pave the way to a net zero-carbon future—a situation wherein any greenhouse gas (GHG) emissions from the production of products that society needs are balanced by actions which remove the gas from our atmosphere.

Routes to a zero-carbon future

In the oil and gas industry, activists, shareholders and governments are increasingly putting pressure on energy companies to align their strategies with global climate change agreements. At the same time, firms across the sector — from the supply chain, to manufacturing, logistics and beyond — are exploring ways to improve their operations to produce fewer emissions and become more sustainable.

In the UK, efforts to decarbonise are largely directed by the 2008 Climate Change Act, a legally binding directive which requires the UK to set carbon budgets to reduce its greenhouse gas emissions by 80 per cent, compared with 1990 levels, by 2050.

There is no quick-fix for wide-scale decarbonisation. In the UK, as of 2018, oil and gas collectively make up 75 per cent of the country’s primary energy supply, while renewables and waste (biofuel) make up 12 per cent. The challenge for the industry is to meet the demand for energy while promoting the role of renewables and carbon-neutral fuels in the energy mix.

Even under progressive low-carbon scenarios, continued investment in oil and gas production will be required. The International Energy Agency’s Sustainable Development scenario estimates that around $600 billion of investment will still be needed for fossil fuels between 2017 and 2040, according to its 2017 World Energy Outlook.

Natural gas is the leading option in terms of a transition fuel towards a sustainable future, especially for generating electricity and providing heat. Of the three fossil fuels used in electricity generation, natural gas produces the lowest volume of GHGs per unit of energy produced; in many applications, it is also the cheapest and most efficient of the three.

Globally, demand for gas is also forecast to grow in support of both developing and developed economies, again particularly in heating and transport. In the UK, figures from the Department for Business, Energy and Industrial Strategy (BEIS) also show that approximately 80% of the country’s 27 million homes are heated by natural gas.

Current UK carbon emissions are over 40% lower than levels in 1990, as a result of a changing energy mix that has increased the contribution of renewables while phasing out coal-fired power by 2025. The substitution of gas for coal in UK power generation has been the largest contributor to reducing UK carbon emissions. These changes have aided our ability to meet the 2020 targets set under the Climate Change Act. The UK’s primary energy consumption has also fallen by approximately 18% since 2008 — achieved as a result of reduced energy demand.

The substitution of gas for coal in UK power generation has been the largest contributor to reducing UK carbon emissions.

Going forward, developments in renewable energy and energy storage technologies raise the possibility of an electricity system driven primarily by clean energy. However, the intermittency of renewables means that additional sources are needed and gas, currently responsible for about 40% of electricity generation, is the most suited for flexible generation.

Moreover, demand for electricity is likely to increase as we substitute other primary energy sources for electricity; for example, from the adoption of electric vehicles in place of petrol or diesel-powered models.

Although cars and light vehicles may increasingly be powered by electricity in future, other transport needs such as maritime transport and aviation will continue to depend on fossil fuels for the foreseeable future. Likewise, domestic heating remains a difficult area to decarbonise, requiring nationwide household infrastructure changes.

If the energy industry is successfully decarbonised, there will still be residual emissions from the production of oil products like certain petrochemicals, synthetic fabrics, lightweight composites and plastics. These will continue to be produced at an industrial level, and those emissions will need to be countered, possibly with largescale carbon capture, utilisation and storage (CCUS) technology.

Furthermore, the development of technologies for the utilisation of alternative fuels or generation of energy from renewable sources requires energy, most likely sourced from the biggest contributors to the energy mix: hydrocarbons.

Changes within the industry

Many oil and gas companies are diversifying their outlook to become ‘energy’ suppliers. This has seen industry take steps towards exploring and investing into alternative energy, funding research and development while also reducing their respective carbon footprints. In many cases this is in response to the wishes of investors and consumers, but it is also a strategic opportunity. For example, Ørsted (previously DONG Energy) divested its oil and gas assets and rebranded to become a purely renewable energy company; Equinor, previously Statoil, changed its name to reflect a shift towards being a broader energy supplier beyond hydrocarbons alone.

An increasing number of supply chain companies are working in renewables. For example, Wood Group — a company which designs, modifies, constructs and operates industrial facilities primarily for the oil and gas sector — has supported onshore and offshore renewables projects around the world for the last 14 years.

“Using existing expertise, we can develop newer technologies like hydrogen and carbon capture to help take us to the next phase after 2035.”

Alternative fuels and carbon-capture technology

A successful transition to a low-carbon future will therefore require sustained investment in oil and gas. “By 2035, there will be an increased presence of renewables and potentially after that there could be an acceleration. But if we do not meet the energy needs with oil and gas in the meantime, it could derail the whole process of advancing in renewable and other low carbon energy,” explains Oil & Gas UK energy policy manager Will Webster.

It has been suggested that facilities in the North Sea could be used to enable further decarbonisation by being converted to carbon capture and storage facilities. This technology will play a part in fulfilling the objectives of climate change policies; globally, CCUS is expected to deliver about 14% of total emission reductions.

Traditional fossil fuels may also, in future, be decarbonised using carbon capture and storage technologies. “Using existing expertise and technologies, we can develop and incorporate newer technologies like hydrogen and carbon capture to help take us to the next phase after 2035. From a Member perspective, we need a continuous process of adjustment: ensuring we have enough energy, alongside investing in new technology,” he adds.

Demand for gas is also likely to grow to enable a hydrogen economy. Potentially an effective fuel for low-carbon heating and transport, hydrogen could play a key role in the global energy transition. At present, steam methane reformation — the reaction of natural gas with water to produce hydrogen and carbon dioxide — is the most common way to produce the gas at an industrial scale. This process does release carbon dioxide; however, the amounts released for each unit of energy produced is a lot lower than other fuels and their generation processes. Additionally, widespread adoption of hydrogen will require new supplies of gas feedstock if the fuel is to be affordable.

Hydrogen can be reacted with oxygen in a fuel cell to generate electricity or burnt to produce heat (the by-product from both these processes only being water), enabling decarbonisation in energy end use. Potentially, the carbon implications of steam methane reformation can be resolved by pairing the process with CCUS technology.

The environmental policies decided by the government will play a key part in ensuring emissions reduction and the success of a potential shift to hydrogen. “A shift is needed for policy that deals with the large-scale, innovative interventions such as technology, where the UK has an industrial advantage. For example, the development of CCUS,” Will adds.

In fact, carbon capture technology is key for the next phase of the energy transition, as an area where the UK can become a role model for the rest of the world. Sufficient investment could both boost regional industrial growth and support decarbonisation across the whole UK economy.

Woldcam Statoil Hywind Scotland mating wind turbine
Woldcam Statoil Hywind Scotland mating wind turbine

Vision 2035

The UK’s demand for oil and gas will exceed what can be produced domestically, even with nationwide efforts to decarbonise. In that regard, UK oil and gas production is not competing with renewables but with imported oil and gas supplies. To stay competitive with other sources, the challenge will be to develop and create opportunities within the UK renewables sector so that the majority of UK demand is met with indigenous sources and any excess can be sold. This is the context for Vision 2035 and the future of the UK oil and gas sector.

Vision 2035, an industry-wide initiative to raise awareness and secure understanding of the long-term future of the industry, will also equip the industry to play a more proactive and prominent role in the energy transition.

It is also about enabling companies that have developed expertise here in the UK, for example in subsea engineering, offshore operations or decommissioning, to export their know-how and technology to other parts of the world, building the UK’s share of the global energy services market.

During the period to 2035, the offshore sector continues to explore and enact ways to lower the carbon intensity of production; for example, via the decommissioning of older, less efficient installations and upgrading to modern, energy-efficient technology and equipment.

For Oil & Gas UK’s stakeholder and communications director Gareth Wynn, this is the key message that unites the goals of both the energy transition and Vision 2035: “In this way, today’s oil and gas industry will secure its long-term future in providing the UK’s energy, provide rewarding jobs and careers and will continue to contribute billions to the economy.”

Outlining the role of oil and gas will continue to have in the energy mix and the important role our industry plays economically and as an enabler of the future will be a key part of ensuring that we enable the Government to maintain the fiscal and regulatory environment that is needed to encourage continued investment in UK offshore oil and gas.”

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