Oil and gas: why we need a new innovation ecosystem
At InnoEnergy’s ‘The Business Booster’, leaders from Repsol, Equinor, GA Drilling, Total Energy Ventures and PwC gathered to talk openly about the capability of the oil and gas industry to tackle the energy transition. Reflecting on the discussion, the comments from all speakers would frequently come back to two intrinsically related themes: collaboration and capability.
The IEA’s latest World Energy Outlook 2019 is bleak: “The momentum behind clean energy technologies is not enough to offset the effects of an expanding global economy and growing population. While global oil demand is expected to slow from 2025, this does not represent a definitive peak. Whichever pathway the energy system follows, the world still relies heavily on oil supply from the Middle East,” the IEA writes. Furthermore, even as oil demand slows, gas demand is set to increase. Though cleaner alternatives like biomethane and hydrogen may play a role, this is largely driven by global expansion of LNG capacity.
It’s true that oil and gas production can’t just stop. While there’s a societal pressure to tackle climate change, there is a similar pressure to maintain or improve living standards, particularly in the developing world. There is perhaps a misconception that international oil companies (IOCs) have all the capabilities they need to tackle climate change, and that inaction is simply a result of a poor stakeholder value. But as one panelist put it, “We don’t have the solution hidden in a room,” and suggested that in fact most do want to be part of the solution. It’s a question of capability; the stumbling block is working out how.
An invite for solutions from ‘outside’
In this period of change, more IOCs are driven to review their portfolio against the challenge ahead, and as they do, the consensus strengthens. To fully engage in the energy transition, the industry needs a step-change which will not simply be achieved by investing more in well-proven technologies. The sector needs different options beyond today’s solutions and the rate of innovation needs to grow, fast. We need to explore hydrogen, second generation biofuels and carbon capture as well as imagine solutions that don’t even exist yet. The industry needs solutions from ‘outside’.
But promisingly, there is an ongoing influx of investment and entrepreneurs into the energy industry and innumerable paths are beginning to unfold that can all lead us to a cleaner energy future. If capability is an issue, partnerships with these entrepreneurs and startups can play a critical role in empowering the sector to be bolder and help them unlock the next steps on the path.
Those IOCs that have assessed their own capabilities are beginning to look ‘outside’ to partner with startups that can either bridge their gaps or complement existing skills. The general consensus in the room was that there aren’t nearly enough startups in the market to go around. So, if the industry wants access to these agile hotspots of innovation, it must invest in them and create an ecosystem that accelerates their development.
Despite a rich heritage in innovation, exploring alternative energy value streams was thought to be somewhat of a novelty for the industry, which itself has for so long focused on delivering the same oil and gas projects over and over, only bigger and better. At the same time, this ‘new’ need for innovation seems somewhat at odds with IOCs’ more recent profit-driven and risk averse manner, where some panelists suggested that technology is often pushed rather than pulled. Bearing that in mind, while Shell’s journey may be a leading example of how to become an integrated power player, not all can or should follow in its path, a panelist emphasised.
Collaborate! Or fail?
Companies like Repsol and Shell started their low carbon journeys 20 years ago, while other industry players only went as far as to address corporate social responsibility issues pertaining to the environment. It is only now that most companies are looking to proactively address the climate challenge ahead.
In 2015, CEOs of the world’s largest IOCs came together to launch the Oil and Gas Climate Initiative – which was to signal a major change in thinking and a humbling experience for those involved. Humbling because, despite their might, these companies had come to realise that climate change is too big of a problem for any one of them to solve alone. These are companies that thrive in complex mega-projects, staggering investments and venturing where no one else can. So, for them to raise a hand and say, “We cannot do this alone, can we work together?” was quite unique.
In response, the initiative has established the space to put aside competition. Together, the IOCs can investigate and invest in any technology that will reduce methane or reduce or recycle carbon dioxide. But, for an IOC to become a part of it is not a step that is taken lightly. It is to put aside that competition and to closely collaborate with one’s fiercest rivals.
Championing bolder steps
As the IEA says, all can help in tackling emissions – the whole energy value chain, from IOCs, utilities and technology providers to investors and banks, must champion innovation. While it may be some time before enough governments can truly ‘shape our energy destiny’, in the meantime investors can help the industry to take bolder steps. Rather than allowing IOCs to follow each other down well-trodden paths, investors have the power to underwrite and de-risk innovation.
At this stage in the energy transition, we need to create an ecosystem where more potential solutions can come forward and be accessible to a greater extent. Innovation is no longer solely the remit of engineers and working groups; a concerted effort that unlocks talent and inspiration is needed if we are to tackle the “deep disparities that define today’s energy world”.
Carbon dioxide removal revenues worth £2bn a year by 2030
Carbon dioxide removal revenues could reach £2bn a year by 2030 in the UK with costs per megatonne totalling up to £400 million, according to the National Infrastructure Commission.
Engineered greenhouse gas removals will become "a major new infrastructure sector" in the coming decades - although costs are uncertain given removal technologies are in their infancy - and revenues could match that of the UK’s water sector by 2050. The Commission’s analysis suggests engineered removals technologies need to have capacity to remove five to ten megatonnes of carbon dioxide no later than 2030, and between 40 and 100 megatonnes by 2050.
The Commission states technologies fit into two categories: extracting carbon dioxide directly out of the air; and bioenergy with carbon capture technology – processing biomass to recapture carbon dioxide absorbed as the fuel grew. In both cases, the captured CO2 is then stored permanently out of the atmosphere, typically under the seabed.
The report sets out how the engineered removal and storage of carbon dioxide offers the most realistic way to mitigate the final slice of emissions expected to remain by the 2040s from sources that don’t currently have a decarbonisation solution, like aviation and agriculture.
It stresses that the potential of these technologies is “not an excuse to delay necessary action elsewhere” and cannot replace efforts to reduce emissions from sectors like road transport or power, where removals would be a more expensive alternative.
The critical role these technologies will play in meeting climate targets means government must rapidly kick start the sector so that it becomes viable by the 2030s, according to the report, which was commissioned by government in November 2020.
Early movement by the UK to develop the expertise and capacity in greenhouse gas removal technologies could create a comparative advantage, with the prospect of other countries needing to procure the knowledge and skills the UK develops.
The Commission recommends that government should support the development of this new sector in the short term with policies that drive delivery of these technologies and create demand through obligations on polluting industries, which will over time enable a competitive market to develop. Robust independent regulation must also be put in place from the start to help build public and investor confidence.
While the burden of these costs could be shared by different parts of industries required to pay for removals or in part shared with government, the report acknowledges that, over the longer term, the aim should be to have polluting sectors pay for removals they need to reach carbon targets.
Polluting industries are likely to pass a proportion of the costs onto consumers. While those with bigger household expenditures will pay more than those on lower incomes, the report underlines that government will need to identify ways of protecting vulnerable consumers and to decide where in relevant industry supply chains the costs should fall.
Chair of the National Infrastructure Commission, Sir John Armitt, said taking steps to clean our air is something we’re going to have to get used to, just as we already manage our wastewater and household refuse.
"While engineered removals will not be everyone’s favourite device in the toolkit, they are there for the hardest jobs. And in the overall project of mitigating our impact on the planet for the sake of generations to come, we need every tool we can find," he said.
“But to get close to having the sector operating where and when we need it to, the government needs to get ahead of the game now. The adaptive approach to market building we recommend will create the best environment for emerging technologies to develop quickly and show their worth, avoiding the need for government to pick winners. We know from the dramatic fall in the cost of renewables that this approach works and we must apply the lessons learned to this novel, but necessary, technology.”
The Intergovernmental Panel on Climate Change and International Energy Agency estimate a global capacity for engineered removals of 2,000 to 16,000 megatonnes of carbon dioxide each year by 2050 will be needed in order to meet global reduction targets.
Yesterday Summit Carbon Solutions received "a strategic investment" from John Deere to advance a major CCUS project (click here). The project will accelerate decarbonisation efforts across the agriculture industry by enabling the production of low carbon ethanol, resulting in the production of more sustainable food, feed, and fuel. Summit Carbon Solutions has partnered with 31 biorefineries across the Midwest United States to capture and permanently sequester their CO2 emissions.
Cory Reed, President, Agriculture & Turf Division of John Deere, said: "Carbon neutral ethanol would have a positive impact on the environment and bolster the long-term sustainability of the agriculture industry. The work Summit Carbon Solutions is doing will be critical in delivering on these goals."
McKinsey highlights a number of CCUS methods which can drive CO2 to net zero:
- Today’s leader: Enhanced oil recovery Among CO2 uses by industry, enhanced oil recovery leads the field. It accounts for around 90 percent of all CO2 usage today
- Cementing in CO2 for the ages New processes could lock up CO2 permanently in concrete, “storing” CO2 in buildings, sidewalks, or anywhere else concrete is used
- Carbon neutral fuel for jets Technically, CO2 could be used to create virtually any type of fuel. Through a chemical reaction, CO2 captured from industry can be combined with hydrogen to create synthetic gasoline, jet fuel, and diesel
- Capturing CO2 from ambient air - anywhere Direct air capture (DAC) could push CO2 emissions into negative territory in a big way
- The biomass-energy cycle: CO2 neutral or even negative Bioenergy with carbon capture and storage relies on nature to remove CO2 from the atmosphere for use elsewhere