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The CO2 reduction perception challenge

The need to be seen as a proactive leader in carbon reduction is as important, if not more so, than achieving climate-change targets

“Total estimates that only 15pc of greenhouse gas emissions from oil and gas is generated during production, the other 85pc is created when it is in use,” says Bob McNally, president of consultancy Rapidan Energy. “Production is a sideshow, compared to the burning of these fuels.”

However, given that the E&P industry now faces continuous scrutiny of its environmental policies, firms have no option but to be at least seen as tackling the issue—and are now working to get ahead of the decarbonisation narrative. “Industry initiatives, or individual company targets or pledges, such as [Spain’s] Repsol’s plan to be carbon-neutral by 2050, are leading this,” says McNally.

Where to convert initiatives into action in the field is not, though, always obvious. “Oil and gas companies already have a great incentive to be efficient and are one of the most efficient sectors in the world,” says McNally. “There is not a lot of fat that can be wrung out.

“There is a reason some of these companies put their targets out to 2050, they are buying themselves some time with these long targets. It is just not obvious that there is low-hanging fruit.”

Flaring challenge

Methane flaring at drilling sites is both the most obvious, and most politically contentious, opportunity to improve. But it may not come as easy as some think “If you are interested in showing big emissions reductions, if you are not looking at reducing flaring, your only other option is a shutdown in operations. There are not technologies available that can quickly, in quarters not years, reduce the emissions profile from the operations prospective from what it is,” says McNally.

On the other hand, particularly when faced with greater flaring prescriptions at state level, especially in Texas and North Dakota, there are incentives for operators and service companies to innovate to meet tougher regulations. “It is the service companies that generate the innovations and the new technologies. Once that policy signal is very clearly shown, and it is clear that this is our course of travel, then the IOCs will start turning to service companies,” says McNally. “Set the [benchmark], and the service companies will hit it.”

Methane flaring at drilling sites is both the most obvious, and most politically contentious, opportunity to improve

Greater attention from a variety of stakeholders can create additional uncertainty. While the industry can, in McNally’s view, rise to the challenge of decarbonization, changes in perception—e.g. the E&P sector being seen as an existential threat to the planet—can scramble signals. Gas was until recently seen as a  cleaner ‘bridge’ fuel, but now it is treated as badly as coal, warns McNally.

Existential threat

“The problem is that the industry has been a victim of its own success. It has been so successful at providing consumers cheap, abundant energy for many decades, we have forgotten how miraculous that really is. We are so used to it, we are taking it for granted.”

In McNally’s view, the oil and gas industry has a much bigger political and messaging challenge than it has ever faced in the past. “Above all, it needs to find innovative and effective ways to communicate how critical it is to not abruptly interfere with 85pc of our energy. Until recently, there were productive discussions about energy. Now, the industry’s existence is in jeopardy, and the risk of erratic and harmful policies is real. The industry has to adjust,” the consultant says.

“Engaging with officials and being responsive is important, but peak oil [demand] in ten years is not realistic. We need to reinject realism, and I think that need is stronger than is understood. We are in a contentious battle for the future.”

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