Can the Oil and Gas Industry Go Green?
Currencies Direct August 19th 2021 - 5 minute read
In May 2021, Royal Dutch Shell lost a landmark court case which ruled that the energy giant must bring its emissions in line with the Paris Agreement. Shell had already planned to become net-zero business by 2050, but the ruling means they must slash emissions faster and harder.
Meanwhile, a handful of other companies have made similar net-zero pledges, while others have set slightly less attention-grabbing targets. Whatever the level of ambition, one thing seems certain: the oil and gas industry is going green.
But is this realistic? Can oil and gas companies really eliminate their emissions? And if so, how?
Why go green?
Human-caused climate change has been in the public eye for decades, but people, governments and organisations have become increasingly engaged with the issue in recent years.
As such, pressure is mounting on states and businesses to limit or even eradicate their environmental impact. The fossil-fuel industry in particular has borne the brunt of this fairly rapid shift in sentiment, facing stricter regulation, tougher government policies and even legal action.
This increasingly hostile business climate could become costly for the fossil-fuel industry. If oil and gas companies want to thrive, they need to adapt. They need to go green.
How can oil and gas go green?
While the task of decarbonising may seem dauting, many oil and gas companies seem to be taking up the challenge. What’s more, some of the solutions below can also help companies cut costs and thrive in a shifting market.
‘Waste not, want not’ goes the old proverb, and it’s just as true for oil and gas giants as it is for the household budget. Greater efficiency can ultimately reduce costs, particularly as companies face punitive taxes over emissions.
Fugitive emissions (i.e. unintentional leaks) account for a huge portion of the greenhouse gases emitted by the oil and gas sector, with some estimates as high as 57%.
If that wasn’t enough, leakages also mean lost commodities. A 2015 report found that global gas leakages cost at least $30bn in lost revenues. Installing vapour-recovery units and investing more in leak detection and repair could clean up the supply chain and reduce product losses.
Another popular tactic is to offset emissions, typically by planting trees. The idea is that by creating and protecting natural carbon sinks, companies can recapture a volume of greenhouse gases equal to the amount they emit.
But is carbon offsetting an effective decarbonisation tool? Many environmentalists think it is merely a form of ‘greenwashing’ – a hollow gesture designed to placate consumers. Newly planted trees take decades to sequester the carbon they’re supposedly offsetting, during which they might be destroyed by drought, wildfires or deforestation, thus re-releasing carbon into the atmosphere. Meanwhile, companies continue to pump out emissions and fail to explore more effective and fast-acting solutions.
Despite these drawbacks, carbon offsetting shouldn’t be abandoned completely. Cutting and offsetting emissions in tandem could be a powerful two-pronged attack.
Carbon capture and storage (CCS)
CCS is carbon offsetting’s more successful older sibling. Rather than trying to cancel out emissions by investing in a slow-acting counterbalance, CCS involves capturing carbon before it enters the atmosphere and then storing it permanently, often in geological formations or as stable carbonates.
CCS still faces a similar criticism from environmentalists, however. Many say it is distracting attention from the real solution – ditching fossil fuels.
Fossil fuel divestment won’t happen overnight, though. And in the meantime, we still need to cut carbon emissions. CCS offers a way to minimise the damage while we make the transition.
Recently, Royal Dutch Shell and ExxonMobil signed provisional deals with the Acorn carbon capture project in north-east Scotland. The project will be one of the first large-scale CCS projects in the UK, and both Shell and Exxon hope it will help them hit their carbon-cuts targets.
The project will initially capture and store CO2 from the St Fergus terminals, but the plan is to scale it up to that, by the mid-2030s, it will store more than 20m tonnes per year of CO2 from the UK and possibly Europe.
Other forms of carbon capture
Other emerging carbon-capture solutions also show promise. Direct air capture, for example, removes CO2 from the atmosphere and sequesters it.
In addition, some companies and organisations are looking at ways to turn CO2 emissions into an asset. The Carbon XPRIZE competition that ran from 2015 to 2020 challenged people to convert CO2 into useable products, awarding a $20m prize to the winner. The competition resulted in a range of products, including concrete, vodka and fuel.
The final and arguably most powerful carbon-cutting tool is a transfer to low-carbon energy. And this isn’t just a good decarbonisation strategy – it also offers profitable opportunities.
A recent report from the International Renewable Energy Agency (IRENA) showed that last year renewable energy undercut fossil fuels on cost for the first time ever.
Meanwhile, many major car companies aim to switch exclusively to electric vehicles in the very near future. Jaguar and Volvo plan to only sell electric cars by 2025 and 2030, respectively, while General Motors will only make electric vehicles from 2035.
Fossil fuels won’t disappear, but the companies that don’t adapt won’t survive.
The oil and gas giants already know this. That’s why most major companies are investing in renewables or other low-carbon options, such as wind, solar and hydrogen. But is this enough?
The challenge ahead
Some critics argue that while oil and gas giants are publishing decarbonisation strategies or rebranding as ‘energy’ companies, the amount they’re investing into renewables is just a fraction of their budget.
In a report released earlier this year, the International Energy Agency (IEA) projected that global clean energy investment would need to more than triple to $4tn by 2030 if we hope to reach net zero by 2050.
The report also argued that from 2021 onwards there must be no new oil fields, gas fields, coal mines or mine extensions. None.
Meanwhile BP, Shell and TotalEnergies – the three major European oil companies – plan on investing more in hydrocarbons than renewables for the next few years at least, while American and Asian companies are notably less concerned about going green.
The issue, argues professor Brett Christophers of Uppsala University in Sweden, is that while renewables may cost less, fossil fuels remain more profitable. Christophers writes that ‘we’ll need a far bolder and more radical approach than relying on market forces’ if we want to achieve global climate targets.
This is something that Shell CEO Ben van Beurden touched upon in his response to the court ruling. In a LinkedIn post, van Beurden wrote:
‘We need to work together, with society, governments and our customers to achieve real, meaningful change in the worldwide energy system. And this change must address the demand for carbon-based energy, not just its supply…
‘For companies to invest successfully, they also need bold, clear, and consistent government policies and regulations.’
While fossil fuels remain in demand and more profitable than alternatives, energy companies will of course continue to invest in them. The only way the oil and gas industry can go green enough to satisfy the IEA’s net-zero roadmap is if there is a fundamental shift in the global energy system.
However, with rising oil prices, declining costs of renewables, increased policy pressures and climate-conscious consumers, maybe we can hope that this shift is already underway.