A systemic approach to a lower carbon future
Oil and gas companies should embrace the inevitable transition away from fossils and look forward to the benefits of clean power
The oil, gas and petrochemicals industry has certainly been through some interesting years as it survived and adapted following the 2014 downturn. Some elements of the value chain, such as oil field service companies as well as engineering, procurement and construction (EPCs) ones have suffered more, with some struggling for survival.
Our industry is fragile and may never again generate the high returns expected by investors. A global economic downturn, geopolitical issues and more producing countries returning to full production could all seriously affect the return on investment, and this may be happening right now with the Covid-19 crisis.
In addition, growing global concerns about sustainability—especially related to climate change and the impact of carbon—are long-term challenges. The oil and gas industry is increasingly singled out as a reckless pollutant, profit-driven and disconnected from ‘one planet’ constraints, earning a significantly negative image for the industry.
Organisations from other sectors are quickly distancing themselves from the industry. Two recent examples in Britain are the Royal Shakespeare Company and National Theatre’s decisions to drop BP and Shell as their sponsors respectively.
The peak oil fear of previous decades has been replaced by growing certainty that oil consumption will plateau in the coming years. Whether this occurs in the mid-2020s, the 2030s or 2040s is an interesting discussion—but we all need to recognise that our industry is confronting a declining future.
An industry that offers uncertain returns, is challenged by growing sustainability concerns and is foreseeing a declining future does not sound like an enticing prospect for investors.
The easy option is to continue business as usual, do your best to deliver returns, pay high salaries and advertise your contribution to the global and local economy. One may pay lip service to sustainability concerns by implementing bare-minimum sustainability improvements and advertising these efforts in a fancy sustainability report. But all this sounds too much like burying your head in the sand.
The opposite approach is to push back on global warming concerns and play the business-first and employment cards against unreasonable ‘leftist environmentalists’.
In our opinion, neither of these is a good strategy. Whether or not you agree with that global warming is a reality, the growing societal concerns on the subject are real. Greta Thunberg, Extinction Rebellion, flight shaming and so on not only enjoy immense support among younger generations but also Climate Action 100+, which represents 373 global investors and manages $35tn assets. This is definitely a reality—so a company with common sense needs to take it into account.
Food and beverage majors may continue selling unhealthy and over-processed food, but they also understand the government’s demand and society’s need for better nutrition. They also see it as a market opportunity, to be happily embraced and developed. Oil companies should be just as smart.
So—and this may sound cynical—even companies that are not convinced of the need to act sustainability to save the planet should sit around the table and propose solutions. They should not be part of the problem or deny the problem even exists.
We see several complementary business interests in embracing sustainability:
- Self-preservation: Creating a more sustainable business model preserves the social license to operate
- New business opportunities: Developing new sources of revenue
- Public image: Brand perception has repercussions for talent acquisition/retention and potentially on share prices
- Value preservation: Oil and gas assets have high values but these might not prove as durable in the future
Once a sustainable target has been set, the issue remains of how to achieve it with a systemic approach. The main challenge for oil and gas companies is how to tackle their end-to-end carbon footprint. The path followed by most upstream players is to reduce methane and other greenhouse gas (GHG) emissions. This can be tackled by stopping methane venting, avoiding accidental leaks, limiting flaring, cogenerating power onsite, developing carbon capture & storage (CCS) solutions and electrifying processes among other measures.
On each of their major midstream and downstream plants, industry players need to develop an active energy management strategy, taking into account the system’s ecological design and permanent process optimisation over the plant’s lifetime. This could entail:
- Deploying holistic energy efficiency optimisation, starting with individual units and then expanding to the entire system
- Preventing accidental pollution through improved operator training and asset management as well as process and safety system optimisation
- Lowering energy consumption—and therefore CO₂ emissions—through the optimised use of energy management, automation and software
- Monitoring and reporting carbon impact
- Electrification of processes, integrating renewables and microgrids.
Retail spaces and offices are relatively low hanging fruit for energy efficiency optimisation. As are indirect infrastructures such as offices, datacenters and petrol stations. Significant reductions to costs and emissions on this perimeter could be achieved with well-known solutions such as Schneider Electric’s energy sourcing, energy management and energy efficiency services. Applying these delivers an altogether improve brand image. The bottom line, for the environment and the company’s image, is ‘win, win, win’.
Developing new business opportunities
We see several oil companies, mainly based in Western Europe, investing and developing businesses in renewable power generation—wind, solar, biofuels etc.—for electricity retail, energy as a service, electric vehicle charging infrastructure and battery storage. The businesses they have acquired or developed are not experimental startups—some of them are in the $1bn range in terms of revenue, such as Saft or Total Sunpower.
We see ever more oil companies investing in startups in innovative battery storage solutions, the hydrogen value chain, microgrid solutions and other technologies. Such moves enable them to test the evolution of the energy landscape, to position their communications, to start developing a future-proof portfolio and attract the young talents who are more willing to join a company working on a new form of planet-friendly energy than one devoted to fossil fuels.
Eric Koenig is responsible for Schneider Electric Oil & Gas segment strategy and marketing
This article is taken from the PE Energy Transition Review: Plotting the Course to Net-Zero Emissions. To download the full report, click here.