Optimism for oil and gas sustainability despite cost reductions
By DNV GL
Cost efficiency may continue to top oil and gas industry boardroom agendas this year, but sustainability initiatives will not be a target for making cuts, a study by DNV GL has revealed. In such a cost-driven environment, it is encouraging to find that just three per cent of the 723 senior oil and gas professionals surveyed in DNV GL`s recent industry outlook report on the outlook for the sector in 2017 say that they are scaling down their sustainability initiatives.
“I have to admit I’m not seeing any compromises being made in response to the low oil price,” says IPIECA’s Brian Sullivan in an interview for DNV GL’s study. “Companies now view sustainability as part of their licence to operate – not as something that could be compromised.” Sullivan also points out that 2016 saw the fastest growth in IPIECA’s membership for five years.
The majority (57%) of respondents to DNV GL’s survey on the outlook for this year report that their organization has environmental performance targets in place – and 81% of those are meeting them. Midstream companies are leading the way in the application of environmental targets (71%), ahead of both upstream companies (53%) and those with operations across the whole supply chain (57%).
For many in the industry, the 2015 United Nations Climate Change Conference (COP21) agreement amplified existing long-term thinking about renewables and sustainability. It both solidified and accelerated plans for a global evolution towards cleaner forms of energy over the decades ahead.
“I think we can see a clear big-picture shift and, if anything, that shift has accelerated in the oil price downturn – moving us towards less CO2-rich technologies, and adding a tremendous push to the innovation agenda,” says the World Energy Council’s Christoph Frei in an interview for DNV GL’.
The agreement came into force in November 2016, so the post-COP21 era has only just begun. But already 21% of respondents report that their organizations have increased their sustainability efforts as a result of the 2015 agreement.
On the day COP21 came into force, several major operators – BP, Eni, Repsol, Saudi Aramco, Shell, Statoil and Total – announced a joint investment of USD1bn over the next 10 years to develop clean energy solutions, with carbon capture and storage (CCS) systems being the first area of focus.61
It is a significant step, but much more is needed to meet the 1.5°C limit in temperature increases favoured under COP21. Governments will need to employ “every known technological, societal and regulatory decarbonization option,” as the IEA puts it.62
One of the most striking findings in this DNV GL’s study is that half (49%) of senior industry professionals say their organization is likely to diversity into (or invest more in) opportunities outside oil and gas. Investing in renewable energy is an obvious choice for many companies. 26% of respondents say they expect their company to increase investment in this sector.
Ultimately, sustainability needs to make business sense. This is especially pertinent when prices are low. “When growth is a struggle, competitiveness becomes very sensitive,” explains Frei in an interview for DNV GL’s report. “You can’t afford to lose any advantage.”
CCS adoption is a case in point. It is one of the more expensive technologies for CO2 reduction, and if countries and companies are not moving to CCS at the same rate, then those that move first may feel they are undermining their competitiveness. “That is obviously a big barrier to introducing CCS at scale,” says Frei.
However, several technologies are available today that reduce carbon footprints without reducing profits.63 For example, several energy efficiency strategies have the dual impact of reducing both emissions and costs, making them ideal candidates for implementation in the year ahead.
A DNV GL study of operations on the Norwegian Continental Shelf (NCS) identifies a number of cost-effective CO2 abatement measures, such as process control and optimization, power management, performance monitoring, energy storage and flare management. The study demonstrates that these measures can support a 29% reduction in the current CO2 emissions from offshore production on the NCS, while securing significant cost savings.64
Profits drive decisions
This year’s survey has revealed a divergence in relation to environmental performance between profit-optimists (those expecting to hit their profit targets in 2017) and profit-pessimists (those not expecting to hit their profit targets).
Profit-optimists are more likely than profit-pessimists to view transparency around environmental performance as a competitive advantage in 2017 (58% compared with 48%). They are also twice as likely to be spending on environmental impact reduction (25% compared with 10%) and emission controls (22% compared with 11%).
Profit-optimists are more likely than profit-pessimists to have environmental performance targets (65% compared with 50%) and to be meeting these (87% compared with 77%). It seems that financially healthier companies are often greener companies.
Regulators and investors turn up the heat
GE’s Paul Doucette believes that, on balance, that many in the industry are willing to support sustainability targets – but regulations will be crucial. “If regulatory drivers are absent,” he says, “then the cost equations may not compelling enough, especially in the current environment,” he said in an interview for DNV GL’s study.
Investors are also increasing the pressure on the industry. In the US, the Securities and Exchange Commission and the New York Attorney General’s office are investigating ExxonMobil over how transparent the company has been about the impact of climate change mitigation policies on the company’s reserves.65 Shareholders want to know how oil companies will deliver future profits.
These developments have made investments in renewable energy more important, but more as a long-term strategy than an urgent priority. The industry is not showing signs of immediate concern about the competitive threat from renewables. “There’s been a mild push to diversify into renewables,” says Edward Morse of Citigroup. “I don’t think it in any way reflects a fear in any of the large companies that they’re in immediate jeopardy of the oil demand peaking any time soon.”
Along with the IEA and other forecasters, 57% of survey respondents expect prices of renewable energy generation (wind, solar, etc.) to continue to fall in 2017. Tellingly, however, only seven per cent of respondents select renewables as a top three barrier to growth in 2017.
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