Since Paris Agreement invited the world countries to formulate a long-term low greenhouse gas emission strategies to limit global warming to 1.5 to 2.0 degrees Celsius above pre-industrial levels, more countries and businesses began to formulate their carbon neutrality plans. This made zero-carbon solutions competitive across economic sectors that produce nearly 25% of emissions, while the United Nations Framework Convention on Climate Change (UNFCCC) expects such zero-carbon solutions to be more competitive in sectors representing over 70% of global emissions by 2030.

Floating with the stream, major oil and gas companies were in a race with time to make their core hydrocarbon business more resilient while working to expand their low-carbon businesses. Given this globally growing trend, it is interesting to speculate whether this accelerating energy transition represents a deadlock for oil companies or a new window for  oil industry to explore new horizons.

SAME GOAL, DIFFERENT WAYS

On the governmental level, the world today is witnessing serious energy transition initiatives and actions.

The Egyptian government for example has set targets for renewables to make up to 42% of the country’s electricity mix by 2035, based on rapid solar and wind deployment. France has set a target of zero net greenhouse gas emissions by 2050. Cyprus plans to increase the share of renewable energy sources from 13.9% to 22.9% in the period 2021-2030.

In Asia, South Korea has set ambitious goals for the roll-out of electric mobility and also for establishing itself as a leading exporter of hydrogen and fuel cell vehicles by 2040.

On the companies’ level, although it seems challenging, some leading international oil companies (IOCs) haven’t stopped with some actions taken to prove their adaptation, they instead took the lead on the way of low carbon energy. For example, BP PLC, Chevron Corp, Royal Dutch Shell PLC and Total SE are on the top of the list of the companies that target reducing the intensity of operated upstream greenhouse gas emissions while adopting lower-emission technologies.

Iman Hill, Executive Director, International Association of Oil and Gas Producers (IOGP), believes that there is no contradiction between producing oil and gas and taking concrete steps to advance the energy transition towards a low carbon future.

“Indeed, fighting climate change and achieving a low carbon future remains a top priority for both society and industry. However, transitioning to a lower carbon world is not an on/off switch, it is a decades-long journey that cannot be made without a partnership with the only source of reliable and affordable energy available to the world right now, oil and gas,” Hill told EOG.

“There are different paths to achieving a lower carbon future. Each region, each country, has a unique and diverse energy system as its starting point, with different energy resources, demand dynamics, technologies, capital investment capability, geographies, and cultures. We share the same goal, but the ways we contribute vary,” she added.

STATE- OF-THE-ART TECHNOLOGIES ADAPTATION; WAY AMONG OTHERS

Many oil companies advance technologies that allow the digital tracking of the integrated carbon footprint of their operations. Although the widespread adoption of renewable energy still at its outset, the changes and innovations in policies are likely to drive change inside the sector further.

Field electrification is one of the efficient ways that can significantly reduce upstream oil and gas emissions produced by the traditional gas and diesel turbines used for power generation. Norway tops the list of these technology integrators as it managed to reduce almost 2.8 Mt of CO2 emission yearly after electrifying eight local oil and gas fields.

“The industry has to demonstrate that it is producing hydrocarbons with as small environmental footprint as possible, that it continues to mitigate methane emissions from its own operations, that it drives development and scale up of low carbon technologies such as Carbon Capture Utilization and Storage (CCUS) and clean hydrogen, and that it can operate in a cost-efficient way,” Hill commented.

“According to the International Energy Agency, CCUS is key to reducing emissions from heavy industries, that account for almost 20% of global CO2 emissions. It is the most cost-effective approach in many regions to curb emissions in iron, steel and chemicals manufacturing,”  Said Hill.

UNEQUAL RIVALS TO OIL

The main competitors to oil and gas energy are nuclear power, solar power, ethanol, and wind power. These alternative forms of energy haven’t yet proven to be economically equal to fossil fuels, as some are less efficient and more expensive, while in the case of nuclear power, it is completely restricted in some destinations. Per the Institute for Energy Research (IER), solar and wind plants need constant backup power sources. Usually, electricity generated from a coal plant is still used to keep these oil alternatives running, in case it gets cloudy, or the winds are down. In addition, solar panels and wind farms also have massive up-front capital costs.

Dr. Mohammed Siddiqui, Professor at King Fahd University of Petroleum and Minerals, sees hydrocarbon fuels will always remain as major energy assets irrespective of transition to non-hydrocarbon based fuels, especially for developing countries.

“Even major energy countries like India and China have to use fossil fuels for an extended period to develop non-hydrocarbon fuels,” he told EOG.

THE KNOW-HOW CONVOKES OIL COMPANIES IN THE FOREFRONT

Major oil Players have taken initiatives to emerge amid the increasing green energy demand with trust in their long-rooted experience, capabilities, technologies, relationships, and other incumbent advantages. For example, plan of BP uncovered that it looks forward to profiting instead from wind and solar power. It announced in an unprecedented step a target of a 40% reduction in oil-and-gas production over the coming decade, with greater investment in low-carbon energy and a ramp-up in the wind and solar power.

Some medium-sized companies have recently made this shift, including Orsted and Neste. Orsted, a Danish energy company, has stated that its goal is to become the first offshore wind major, while Neste, a Finnish energy company, has shifted its historical asset base from oil refining and marketing toward biofuels processing.

“Our industry has everything needed to take a leading role in decarbonization, such as our extensive know-how, our data, our project management expertise, engineering capabilities and the practice of innovating which is part of the way we approach our work,” said Hill.

 STRIKING A RIGHT BALANCE

Highlighting how the substitutes to the Oil and gas are not yet equal isn’t by any means a call for ignoring the current global keenness to address  climate change. Quite the opposite, it is to throw the light on how the oil companies are still able to keep their places in the racecourse in different ways. Oil companies can contribute to the climate change while keeping their long-term deals, but with Avant-grade mechanisms.

Energy mixed portfolio is believed to be the best solution on the table. Many large oil and gas players hope to steer a middle path toward becoming integrated energy players. Companies in this category are attempting to evolve their business mix, capital allocation, and organizational capabilities.

For example, US Occidental Petroleum has decided to build a plant that will capture and bury 500,000 metric tons of CO₂ each year. ExxonMobil announced its ambition to reduce the intensity of operated upstream greenhouse gas emissions by 15 to 20 percent over the next five years.

“Energy demand grows in parallel with the growing population. We want to help meet the global energy demand while achieving the Paris Agreement goals,” Hill said, mirroring the opinion of Siddiqui who believed in the diversified business strategy.

“Diversifying business strategy is key to compete and remain relevant such as oil-to-chemical model. Saudi Aramco and Reliance (India) are aggressively pursuing this model. Chemicals also have a huge market and is a profitable business model with zero effect on climate.” Said Siddiqui.